Cutting costs, increasing volume, lowering profits? The secrets of Xiaomi’s aggressive pricing
India is the most lucrative smartphone market in the world. It has been growing manifold year after year and there are no signs of slowing down. The number of mobile phone users is expected to approach one billion in a couple of years. Among all these phones, Indian manufacturers are far and few in between. This market is dominated by Chinese brands, and leading them with almost a third of the pie, is Xiaomi.
As recently as a few years ago, Xiaomi was notorious for making Apple ripoffs. Years later, they have a tech ecosystem that rivals Apple and towers over its peers in the number of users. How did Mi become the ‘Apple of China’?
The Origin Story
Xiaomi Corporation, founded only nine years ago in Beijing, has quickly become a global tech juggernaut.
Currently the fourth-biggest smartphone player in the world, according to market researcher International Data Corporation, Xiaomi is only behind the industry’s David and Goliath, Samsung and Apple, and fellow Chinese heavyweight Huawei.
The company generates most of its revenue from smartphones, but it has also expanded into services like music and video streaming. In 2017, Xiaomi’s sales grew more than 67 percent from the year prior, and the brand regularly sells out millions in their trademark ‘flash sales’- a promotion offered by an e-commerce store for a short period of time selling a set quantity of product.
Xiaomi isn’t limited to smartphones, either. They have fully transitioned into a Tech and Lifestyle product brand, keeping phones and smartwatches on display, centered around products such as wallets, pillows, bikes and rice cookers.
Xiaomi has made a name for itself by selling high-quality hardware at prices that are a fraction of comparable handsets from a Samsung or an Apple.
Why are Xiaomi products so cheap?
Xiaomi has adopted a radical business model that priorities high volume over high margins.
End of brick and mortar – Direct Online Sale
Unlike other rivals, Xiaomi doesn’t spend much on traditional advertisements. It does not have a major network of its own physical stores it needs to staff and maintain. Instead, it has done away with those costs, and largely sells its phones directly to consumers through e-commerce, eliminating the middlemen.
While the company has tried its hand at conventional models in complex markets like Europe and India, that isn’t its bread and butter.
Scarcity Generates Demand
Releasing only a small quantity of phones each time has been a principle of Xiaomi’s game plan that has helped keep costs down. Sticking to its much-criticized Flash Sale model where only a select few get the product of choice by pure chance, Xiaomi banked on word-of-mouth of its prospective customers, whether they cash out or not. This also avoids the issues associated with storage and handling of excess stocks, shipping them straight out of production.
Quick & Large sized Production
The most significant advantage Xiaomi has today is its production alignment and product platform across different countries. Akin to established brands like Samsung, they offer almost all the same models in most of their operating countries. They can squeeze margins of their suppliers and in turn, give them bigger volumes with timely returns due to the online model.
Keeping Up with the Times
Xiaomi has proven to have great foresight. Tracking industry trends, gauging consumer sentiment and recently, even pouring resources into Research and Development, Mi has a finger on the pulse of the smartphone world. Xiaomi must also maintain great industry relations, being one of the first brands to get their hands on the latest processors and technology from suppliers like Qualcomm, earning them brownie points for industry hype from tech journalists and consumers alike.
Xiaomi also capitalizes on local advantages: they were the first to set up their factories in India, availing the benefits of the Make-In-India program.
Customer is King
Xiaomi has used social influence effectively. They hold conferences, parties and engagement programs for bloggers and fans. This helps create a buzz on social media, where Xiaomi is extremely active to maintain high visibility. Their top execs regularly interact with their customers and have a cult following of their own.
It hasn’t all been smooth sailing, however. Xiaomi has frequently run into roadblocks, facing bans in several markets and legal issues over cloud storage in Chinese servers. So far, the problems have been solved sooner than later, and by looks of it, the Chinese behemoth is well on its way to global domination.