Indictment adds to Samsung's reputation woes, or does it?

An unfolding corruption scandal that has engulfed the acting head of Samsung Group may make it that much harder for the company to rebuild trust following the Note7 debacle, but its formerly strong position and scandal fatigue among consumers will help, according to reputation and branding experts contacted by Campaign Asia-Pacific.  

South Korea’s special prosecutor yesterday indicted Lee Jae-yong, the acting head of Samsung Group, on bribery and embezzlement charges. He will likely stand trial, and published reports say he could face up to 20 years in prison given the charges. The accusations stem from alleged political favours from the impeached South Korean president, Park Geun-hye, and her embattled friend Choi Soon-sil, both of whom supported the merger of Cheil Industries and Samsung C&T Corp—a deal that helped Lee ascend to the conglomerate's leadership position.

Experts contacted this morning revealed a spectrum of opinions regarding the impact of the indictment on the company, and its road forward.

The Note7 disaster has already dealt a major blow to Samsung's reputation, sending the company tumbling from 17th to 70th position in a just-released global ranking of corporate reputation, noted Lars Voedisch, principal consultant and managing director with PRecious Communications. The corruption scandal is only likely to strengthen that negative association in consumer minds.

"Though the incidents of the Galaxy 7 disaster and the recent news on the charges brought against the group heir might be completely independent, it leaves a bad taste,” he said. "Building, growing and defending a brand is about trust by its various stakeholders and especially the customers. The recent incidents put Samsung in a light of not having the customers’ interest at heart first—and that’s the worst hit a brand can take."

By contrast, Charles Lankester, EVP for global reputation and risk management at Ruder Finn, said that from a global product marketing point of view, the charges will have "minimal, most likely zero", impact on sales.

"Despite a lot of online angst about corporate wrongs, consumers ultimately always vote with their wallets," he said. "If people decide the new Galaxy 8 is the phone for them, what did or did not happen at the highest levels of Samsung in Seoul will have no bearing whatsoever on their purchasing decision," Lankester added. "Given that VW is now the best-selling vehicle in Sweden, outpacing even Volvo, the message is pretty clear. If people like a product or service, a controversy that does not directly affect or shock them will have no real long-term influence on sales. People buy Samsung phones. They don’t care about Samsung management."

Paul Galesloot, Asia CEO at international brand design agency Cowan, echoed the idea that when it comes to the consumer's purchasing decision, Samsung will be all right. "I believe the impact on Samsung as a global brand is temporary," he said. "Brands build memory structures. Every time a human uses or otherwise interacts with a brand, it leaves a small footprint in the brain." The strongest connections are built by using the brand's products, and Samsung, prior to the Note7 problem, had built up a reservoir of countless positive experiences.

"People buy electronics once every few years, so the question is what memory structures the Samsung brand will have six, 12 or 18 months from now when you are buying a new phone, tablet, TV or other electronics product," he said. "For a lot of people, the current issues will be part of a distant, relatively unimportant memory that will not significantly impact their purchase decisions."

Like Lankester, Galesloot brought up scandal fatigue and how it may be immunising brands against damage from this type of situation. He rattled off FIFA, Volkswagen, the 'Panama papers', the impeachment of the Brazilian prime minister, Malaysia's 1MDB scandal, and the South African president facing 783 counts of corruption as examples. "In addition, Trump and Brexit are commanding so much attention that almost all other news is moved to 'page 2',” he added.

Lankester pointed to share-price performance as an indicator of confidence in Samsung. "If the market was really worried, Samsung shares would take a hit," he said. "They haven’t. In fact they are at close to an all-time high.”

Voedisch maintained, however, that Samsung faces "a long and steep road" to regain trust and needs to go "over and above" in convincing people not only that its products are up to snuff, but that the company overall is doing the right thing.

"People will question that these were isolated incidents and suspect a pattern of morally questionable behaviour," he said. "And as a consumer I will have to ask myself if I want to buy products from such a brand. First of all, will they be safe devices? And furthermore, do I want to be seen to support a company with possibly shady business practices?"