Samsung hikes recall incentives to retain Note7 customers

Samsung is offering a better deal to Note7 owners if they exchange their recalled phones for another Samsung model than if they want a refund or to switch to another brand.

samsung note7 warning

A sign advises against use of Samsung's Note 7 in aircraft at Changi Airport in Singapore on Oct. 8, 2016.

Credit: Martyn Williams

In a bid to retain customers, Samsung Electronics is giving larger financial incentives to people who choose to exchange the ill-fated Galaxy Note7 for another smartphone from the company, rather than seek a refund.

In the U.S., the company is giving customers a US$25 bill credit through carriers and retailers to customers who return a Note7 for a refund or for any other branded smartphone. But if they choose to exchange the Note7 for any Samsung smartphone, they will get a whopping $100 bill credit from select retailers and carriers. The company did not immediately provide further details on the program.

The company had earlier announced a $25 incentive for customers exchanging their Note7 for another Samsung product.

On Thursday, the U.S. Consumer Product Safety Commission announced an expansion of its Sept.15 recall of Note7 phones that it had put in place with Samsung after it found that the lithium-ion batteries in the devices can overheat and catch fire.

Under that program, Samsung was to ship replacement phones or provide refunds for around 1 million phones sold before Sept.15. The replacement phones that Samsung shipped did not fare better, and the second recall announced by CPSC now includes 1.9 million phones, of which 900,000 are apparently the replacement phones. CPSC said the hazard in all the phones was the possible risk of the batteries overheating and catching fire.

Samsung has received 96 reports of batteries in the device overheating in the U.S., which include 23 new reports since the first recall announcement, according to CPSC. The company has also received 13 reports of burns and 47 accounts of property damage linked to the Note7 phones, the U.S. agency said.

The South Korean company said Thursday the recall program now covers phones sold by the company until Sept. 15 and replacement phones provided under the original recall. The company has announced similar programs in other countries, including its home turf in South Korea.

Besides bill credits of 30,000 won (US$27) that can go up to 70,000 won, users in Korea were allowed to keep gifts like the Gear Fit2, which they received when they bought the phone, according to Yonhap News Agency.

The company on Wednesday cut its revenue and profit forecasts for the third quarter, citing the Note7 debacle. It forecast revenue would drop by 4 percent to 47 trillion won, while operating profit would be down by about one-third from the earlier forecast of 7.8 trillion won. On Tuesday, it said it would discontinue production of the Note7.

In an analyst report soon after the guidance cut, Macquarie Research wrote that Samsung has been "resilient" in the mobile phone market, and weathered many crises, including the "flop" of the Omnia smartphone running the Microsoft mobile operating system and patent litigation from Apple.

Macquarie warned that some potential Note7 buyers, who it estimates could have accounted for sales of 14 million phones, may now move to Apple’s iPhone or phones from other vendors, which seems to explain the largesse Samsung is bestowing on Note7 users who stay with the company's smartphones.

The analyst firm warned that it is critical for Samsung to repair its brand equity with its forthcoming Galaxy S8. “Once it figures out what went wrong with the Note7, its new Galaxy S8, a more important flagship model than the Note series, can help repair the tarnished brand and recover sales/profit margin,” the analyst firm added.

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