In 2014, Xiaomi, a Chinese smartphone manufacturer created a record of sorts when its first batch of Mi3 smartphones sold out merely in 38 minutes. Today, Xiaomi (roughly translates as “little rice”) is the world’s third largest smartphone producer nothing short of a tech giant; a remarkable achievement for a company which has been selling smartphones only for three years now. In this article, we explore the reason for the rapid rise and the ‘overnight’ success of this previously unheard of company, whose cutting edge products and brilliant innovations have earned it the title “The Apple of the East”
Xiaomi is a privately owned Chinese electronics major headquartered in the Haidian district of downtown Beijing. It was founded by Mr. Lei Jun in 2010 and is the world’s fourth largest smartphone producer, designing, developing, and selling smartphones, mobile apps, laptops, and related consumer electronics.
Xiaomi entered the Indian smartphone space in July 2014 and has since seen an exponential growth of 72% since the inception of its India operations in July 2014. The company also capitalizes on allied products and mobile phone accessories like tablets, power banks and Bluetooth speakers in India. Xiaomi India sold a staggering 1.75 million units of the Redmi Note 3 within five months of the handset’s launch in March. Redmi Note 3 could well turn out to be the single highest-shipped smartphone ever in the relatively young history of India’s online market in any given quarter, says data research firm IDC. As far as the online aspect of its business is concerned, Xiaomi accounts for 11-15% of all handsets purchased online.
For Xiaomi, globally as well as in India, the business mantra revolves around a strong belief that high-end technology should not necessarily imply “selling one’s kidney” and should be available to consumers of all income categories. According to business gurus, Xiaomi’s continuous focus in the mid-price segment of smartphones with feature-rich and advanced hardware has reaped rich dividends amongst the middle-class Indian populace, where ‘value for money’ is an integral part of the decision-making process while buying a smartphone rather than ‘brand power’. This, coupled with the emergence of a new middle class in the last 10-15 years has been the driving force behind Xiaomi’s exceptional performance in India. For example, something as naive as improved battery capacity in the new Xiaomi devices is drawing a large user pool towards the brand.
With a high-quality product, there are a few other things that make Xiaomi’s value-for-money mantra more appealing than other brands. For starters, it offers its own operating system (OS) MI – which reportedly has more features vis à vis others. Xiaomi started off as an OS developer and as the platform gained popularity it began manufacturing smartphones.
With its genesis in technology, innovation comes naturally to Xiaomi, claims Mr. Manu Jain, the India head of Xiaomi, an alumnus of IIT Delhi and IIM Calcutta, roped in personally by Lei Jun. In his TEDx talk at IIFT Delhi he attributes Xiaomi’s success to its unique approach to advertising and marketing, distribution and manufacturing that has resulted in some ground-breaking products like the Redmi Note 3. With respect to the advertising and marketing aspects of their Indian business, Xiaomi has adopted an unconventional advertising strategy, and has not spent much on advertisements. Rather, it leverages social media and uses word-of-mouth among its prospective consumers to build brand image. Xiaomi’s branding strategy, till date, stays extremely consumer oriented and hence their standards prohibit them from hiring celebs as brand ambassadors.
To spread the word about its launches, Xiaomi believes in multilevel crowd engagement. An evidence of this is the fact that prior to launching Redmi Note 3 in March this year, the company started an explorer programme, as a part of which it chose 100 Mi fans who were most active on the Mi community one month before the launch and were handed out Redmi Note 3 as a testing device. The content generated on social media due to this initiative helped the brand attract more than 300,000 engagements. Xiaomi also follows a direct-to-retail model which means a consumer directly buys a device either on its website or through a partner (e-commerce giants).
This business model helps Xiaomi cut costs by bypassing the traditional distribution model including various stakeholders and makes the low pricing of its products financially viable. Many brands end up compromising 5 to 20 percent margin as they follow the traditional retail model.
As India goes the digital way, more people are reading reviews, blogs and comparing brands. Xiaomi hopes that more people discover that it can easily beat any established brand on specifications and price points, resulting in the intelligent and well-read individual opting for Xiaomi. However, an effective pricing strategy must come with quality. And this is a tricky balance to achieve for a brand that relies the most on its pricing for its competitiveness. The direct inference being their wafer-thin profit margins. Xiaomi is treading on thin ice and their competitors are coming up with better, newer and cheaper products.
It’s going to be a game of innovation and constant value addition as the brand war heats up in the smartphone market.
Written by Siddharth Kapre