Xiaomi, which literally means
"little rice" in Mandarin, just became the largest smartphone
manufacturer in China, edging out none other than Samsung.
Add to that on the world stage,
Xiaomi has also upped its market share from a little under 2% to just above 5%
and has leaped upward to become the 5th largest smartphone manufacturer in the
world, after Samsung, Apple, Huawei & Lenovo, based on handsets shipped
(source: Strategy Analytics).
So, what could be the reasons
behind this fairytale rise of the Chinese electronics company in the seemingly
saturated smartphone market dominated by international giants like Apple &
Samsung, the same marketplace that was fickle enough to dump once market
leaders Nokia and Blackberry?
IMO, we can break it down to two
major reasons, one is their basic philosophy and the other is their business
strategy.
The Xiaomi Philosophy
While trying to study the meteoric
upsurge of Xiaomi, it is important to understand their beginnings. Their
founder and CEO Lei Jun, a self-styled Steve Jobs version 2.0 right down to the
trademark blue jeans and black t-shirt, is said to follow a Buddhist concept
that "a single grain of rice is as great as a mountain". They founded
the company in 2010 on this basic philosophy with a view to creating little
grains of rice that will be perceived as gigantic as mountains. The philosophy
also keeps them grounded in terms of attitude and yet be aggressive in a humble
way, after all it is about a grain of rice!
The Xiaomi Strategy
Business Strategy is only as good
as its execution. But for a strategy to be executed there should be a plan. In
my mind, Lei Jun and his team have a well-planned and well thought out business
and market strategy that they are rolling out with great precision. Let’s look
at some of these:
Clear product road-map
Their overall and product road
map seems to follow the principle of “one-year goal”. They announced their arrival
in the month of August of 2010 with the launch of the Mi1 Android phone that is
notorious for resembling Samsung and Apple's products. I would call “grain of rice
1”. Exactly a year later they launched Mi2 and then a year down the line from
then, they announced the Mi3. Cut to the present, again one year from the
launch of Mi3, they are going international with their products. To this end,
they have already set up their offices in Singapore and, as I write, they have
also established local presence in Malaysia, Philippines and India. They also announced
the LTE-ready Mi4 in July 2014.
So, obviously they are looking at
a year on year product launch, giving each product the time to settle in and
the market enough time to understand and accept the product. They are not
rushing with too many variants which not only would spread themselves wide and
thin but also tends to confuse the market.
Direct sales
Their play is very simple in this
regard. They are not setting up a huge network of brick and mortar stores,
instead going with the contemporary model of virtual or online stores. This
saves them big on overheads and that makes them agile and price competitive. Even
in India, the product is sold through Flipkart. They also rely more on social
networking communication than spending on traditional advertising methods.
Differentiator
The price sensitive markets
including India have many smartphone brands that have similar hardware and they
rely mostly on their marketing efforts to differentiate. In the case of Xiaomi,
they present a key differentiator – MiUI, their killer feature. This is a
specialized UI based on the Android OS and designed by getting online feedback
from users, updated & released once a week based on the feedback from
users.
Tight Demand-Supply equation
They have an interesting approach
to the market. Veering from the traditional “availability” concept and flooding
the shelves (virtual or otherwise) with inventory, they seem to prefer to
capture the attention of the prospective consumer and create demand. They
address the demand with initial low supply and then ramp up shipments. This
makes for an interesting situation and play on the consumer behavior where the
prospects are left yearning for the product so, the consumers chase the product
instead of the other way around. In fact, according The Economic Times, their
Mi3 is selling like hot samosas in India creating what it calls a "supply
challenge".
Price
The products are priced practically
at Bill of Material costs with razor thin margins that they offset with the
decrease in price of components over a period of 18 months. They are able to
stay price competitive also because of their avoiding traditional expensive
advertising and sales methods. In addition, they also profit from selling apps,
games and special Android themes and Internet services by which they are able
to balance the P&L and maintain the attractive pricing. Result: they are
able to sell high quality products at very low prices.
Branding and Market Strategy
As mentioned earlier, they are
using the more contemporary social media to communicate to their target
audience rather than traditional modes. They have a fan club of users called Mi
fans that Xiaomi interacts with new MiUI releases / updates, product
announcements, etc. They also use native festivals as a platform for marketing
and communication.
Additionally they believe in
hunting in the right market segments with the right weapons or horses for
courses. For example, their first three models Mi1, Mi2 and Mi3 do not have LTE
capability because the markets targeted do not have LTE presence.
Their entry to the Indian market is
a long haul approach. They want to lead with the advantage of price and
features combo that can better Indian phone brands, but they seem to be willing
to play the patient game.
Having tamed the Dragon, it seems
very conceivable that they might win over the Tiger too!
