Xiaomi Thinks Other Brands Can’t Compete With Them, And They May Be Right

Xiaomi Thinks Other Brands Can’t Compete With Them, And They May Be Right

How exactly do you beat a brand that prices its devices close to cost?

Snapdragon 845 processor, 6GB of RAM and 128GB of storage, with an 18:9 full HD+ display and advanced dual cameras. If you asked us a fair price for a phone that had this kind of hardware, we’d probably quote you a price of around Php 35,000 or higher. But for Xiaomi, devices like the one that we described are regularly priced far cheaper, at just Php 25,000, undercutting its competition by almost half. That’s the exact reason why the company has managed to perform so well in the markets it enters as their competition struggle to find a counter to their marketing strategy.

But for Donovan Sung, Director of Product Management & Marketing of Xiaomi, it’s only a matter of time before Xiaomi becomes number 1 in all markets they operate in. “We don’t have a specific timeline for a specific level to get to, but we are very confident that time is our friend,” he said at the sidelines of its global launch of their new Android One devices.

“It’s going to be difficult to beat this model. It’s basically selling a higher quality product at half the price. Long-term we think it’s very difficult to go against that model,” he added.

Despite the company’s issues with the Philippine market (they entered the PH in 2014 and exited quietly in 2016, only to return in 2018) Xiaomi has done very well in other countries. It’s currently top 5 in 15 global markets and is currently the number 4 brand worldwide in Q1 2018 according to IDC. It has also posted phenomenal growth YoY compared to other companies – while Korean rival Samsung is still at the top with 23.3%, its total smartphone shipments went down 2.4% year on year from Q1 2017 to Q1 of 2018. Domestic rival OPPO shared the same fate, with an even steeper shipment drop of 7.5%. Only two other companies managed to post positive numbers during the time period: Apple and Huawei, with the former posting single-digit shipment growth, while the latter posting double-digit growth. But even the two companies combined couldn’t match Xiaomi’s phenomenal 87.8% growth over the time period.

It wasn’t always like this for the Chinese company. Xiaomi hit rocky waters back in 2016, which saw their smartphone sales decline to just 41 million. Coincidentally this is when the company decided to call it quits in the Philippines and in other territories to stymie losses and declining profits.

While problems in supply chain and logistics and overzealous expansion was blamed for the loss, the biggest culprit in Xiaomi’s dismal performance was their over-reliance in e-commerce channels. It was a mistake that competitors like OPPO and vivo capitalized on in domestic and international markets, where they heavily built retail channels, strengthening their grip on the smartphone market.

Their failure turned into an opportunity, as Lei Jun — sometimes called “the Steve Jobs of China” — fashioned a new business model for the company. Xiaomi previously relied on razor-thin margins for the sales of their hardware, made possible by sales of online services – shows and apps sold for a set amount of money. Jun found the third pillar for his business – driving foot traffic to retail stores via internet connected home products.

Where does Xiaomi find all the people to design these home products, which range from electric toothbrushes to motorized scooters to Bluetooth connected rice cookers? Well, the company relies on startups, which they fund and collaborate with. As of writing, Xiaomi has partnerships with around 90 to 100 ecosystem companies which produce anything from gaming phones to power banks to advanced mobility devices like electric scooters.

In the end, Xiaomi may be right. With a very public declaration of limiting profits to just 5% and returning the excess to users via cheaper products, competing with China’s rising Phoenix is a daunting task.

*The IDC report quoted in this article was accurate until press time. A newer IDC report covering Q2 2017-2018 has been released which you can read here.

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