Xiaomi – Just A New Player or Next Leader in Smartphone Market

Published by MBA Skool Team, Published on March 27, 2015

This article is about recent revolution in smartphone market by Chinese smartphone manufacturer Xiaomi. It also shed some light on its strategies used in Chinese market and its entry in Indian market. Xiaomi. Let’s first start with pronouncing it. It is pronounced as “she-yow-me”. Then, let’s talk about this four year old company that created like a big bang disruption and is managing catastrophic success in smartphone market.

Xiaomi, known as the Apple of China, is one of the leading tech firm in China. It was founded in 2010 and currently valuated at over $ 10 billion. Recently, on 5 August, 2014, it has become world’s number 5th smartphone maker by market share and number 1 smartphone manufacturer in China tripling smartphone shipments from less than 5 million in Q2 2013 to around 15 million in Q2 2014.

Business Model: Xiaomi sells phones online, never in stores, avoids conventional advertising and spends about 1% of its revenue on advertising. So, thereby they save by cutting costs of retail, retail staff, distributer margin, retailer margin and etc. They use this saving to invest in top-notch components and keep the price of the phone low. Besides savings, they sell phones at nearly manufacturing cost and earn from accessories and software. The Company heavily relies on China’s social networks Weibo and WeChat and make announcements on these networks about sale.

To sell their phones, they announce the numbers of the units in a flash sale and when and where they would be available. Till now, within minutes and seconds their shelves are swept clean off. This shows scarcity of the Xiaomi smartphones in the market. This scarcity strategy boosts the desirability of the brand in the eyes of the customers. They also do this to keep the prices down due to no unsold inventory in warehouses and fund expansion into new smartphones categories and international markets.

Xiaomi’s entry in India:

Xiaomi made entry into India by launching its flagship product Mi 3 in July, 2014. It is selling its smartphones exclusively on Flipkart. The company knowing the not-so-good image of Chinese brands in the world, rebranded itself “Mi”. It looks at the magic price points to sell smartphones. Xiaomi has two kinds of the phones, one with the high-end uncompromised Mi family and another is Redmi family, high end but with some compromises. Redmi 1S is priced at Rs 6,999 and Mi 3 is priced at Rs. 13,999 only.

Xiaomi Mi4

Apple iPhone 5S

$320 in China

$868 in China

2.5 GHz quad-core Snapdragon 801 processor

1.3 GHz dual-core Apple A7 processor

3GB of RAM

1GB of RAM

13MP main camera and 8MP front camera

8MP main camera and 1.2MP front camera

5-inch screen

4-inch screen

Table: A functionality and price comparison between Xiaomi Mi4 and Apple iPhone 5S

The company is hitting headlines in Indian market and creating ire in customers due to its flash sale model. When its first sale began on 22 July, it received jaw-dropping 1, 00,000 registrations for just 10,000 phones. As soon as the Mi 3 went live, Flipkart site crashed and within 40 minutes, it claimed the product is out of stock. Second sale on 29 July, registration went up to around 2, 50,000 for the same quantity and sold within 5 seconds. Third sale for 15,000 units was sold within 2 seconds.

Xiaomi claims that they use Facebook page fan numbers to forecast the demand. Before sale, its Facebook page fan numbers in India only had 10,000 fans, which is why they couldn’t meet jaw-dropping demand. So, clearly word of mouth played a much bigger role here. Another reason is the company can’t pick up units from China and allocate to India due to different packaging, software, labels and government regulations. So, an underestimation of the manufacturing forecast created a scarcity of the product in the market.

When it comes to having some defects in the device, Xiaomi stores try to diagnose and solve the issue within two hours. The company has worked towards providing two hour turnaround services in the stores. If it is not able to solve the issue within two hours, then the phone will be swapped.

Challenges in the Indian Market:

The Company sells almost at the manufacturing cost and makes money on the sale of accessories, internet services and apps. Indians are stingy when it comes to paying for applications, so this model might not work in India.

While the company has always been in news due to huge waiting period of smartphones and running out of stock within 2-3 minutes after going for online sale, it shows the company is not meeting the demands. Now here, it has entered India. Shouldn’t Xiaomi worry about short supply of smartphones in the China? Would they be able to keep up with the demand here?

To buy a Xiaomi smartphone, one would have to pre-register on the sale window. Only 10,000-20,000 units are available for online sale and far more people are interested in buying it. So, one need a huge amount of luck to get it, which is not a good buying experience. It ultimately leaves buyers frustrated.

The phone offers only 13.2 GB of user available memory and it can’t be expanded with a micro SD card. If one wants to load it up with great games or full HD movies, that’s going to quickly fill up the memory. To overcome this memory problem, one need to have a cloud storage.

Accessories with Xiaomi Mi3 are a USB cable and a plug point. Indian consumer would want a good set of earphones and might want to safeguard it with a case and a screen protector. At the moment, Xiaomi has not released its own accessories. So, one would have to rely on third party Chinese manufacturer.

Well, Xiaomi’s online-only strategy is really working out in keeping the prices down for its high end product, it is clear that Xiaomi’s competitors will be Samsung and HTC at the high end and Motorola at the low-end. It also means continuous shrinking of Samsung’s market share and Xiaomi, a competent rival for Motorola. Xiaomi will succeed India if it can match the hype with a robust supply chain and providing quality services. This will also determine whether it is next Samsung in a hyper-competitive market or not.

This article has been authored by Kalpendra Manu from IIM Raipur

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