Samsung struggles to limit damage from smartphone recall

Eric Schiffer, brand strategy expert and chairman of Reputation Management Consultants based in Los Angeles, said Samsung needs to woo its customers.

"They need to be very transparent. Invite customers who have been affected to the plants...let go of whoever was in charge of this debacle, and accept responsibility and show goodwill by sending new phones, giving discounts - anything to show the importance of the customer relationship," he said.

Samsung has formed a dedicated team of public relations staff to speed up decision making and contain damage, the sources inside the company said.

"We share information instantly and far more widely than usual. We try to reply more promptly," said one of them, who noted how complex it was to deal with a recall across 10 nations spread across the globe.

Samsung employees say the recall has dominated internal meetings since the 2 September announcement, whether it be efforts to get the recalled phones off the streets or deal with a continued stream of claims and reports of damages or problems.

Long hours, weekends and cancelled tie off are commonplace. The long Korean thanksgiving holiday - the biggest holiday of the year - coincided with the US consumer protection agency's mid-September recall of 1 million Note 7 phones.

Sleepless nights

Koh, 55, is a Samsung veteran with previous roles in human resources and research and development. His elevation had been a shot in the arm for the mobile business, company insiders said, as he boosted morale by delegating more responsibility to subordinates and stressing a bottom-up approach.

At a Galaxy S7 launch event in March, he confessed to sleepless nights agonizing over how to rejuvenate a business battling falling profits and market share losses to Apple and others. With signs of a recovery - first-half mobile profits grew by nearly half - Koh had started to focus more on how to ensure steady long-term profit growth, according to a person familiar with his thinking.

That all changed with reports of battery fires weeks after the Note 7 launch.

Missed sales and recall expenses could cost Samsung nearly US$5 billion this year, analysts say. The risk to its brand is as yet unquantifiable.

Samsung's quarterly earnings forecast on Friday will provide an initial glimpse of the recall impact.

It has been particularly painful because many insiders thought the Note 7 could be a landmark product. Pre-orders for the 988,900 won (US$895) device were stronger than expected, and the recall cost Samsung a month-long sales window before Apple launched its new iPhone.

The latest twist created by activist fund Elliott may be unwelcome to Samsung's founding Lee family, which still controls the company through a complex web of cross shareholdings.

However, for investors generally it has been a shot in the arm as Samsung shares have recovered to be well above the pre-recall levels and hit all-time highs on Thursday.

(Additional reporting by Eric Auchard in Frankfurt, Deborah Todd and Jessica Toonkel in New York and Sijia Jiang in Hong Kong; Editing by Miyoung Kim, Tony Munroe and Martin Howell)