Will Xiaomi succeed in India?

Xiaomi has taken the Indian markets by surprise with its smartphones being sold in a matter of seconds on online stores. Few people know about the story of the smartphone maker which was formerly a software & app maker in China. The electronics company founded by 8 partners, 4 years ago has become a giant, with the largest market share in China as far as consumer electronics is concerned. The founder Lei Jun, who also handled popular software like UCWeb & Kingsoft, has imbibed the Buddhist principle of working through tiny details instead of striving to achieve perfection from the outset in the “Xiao” part. Xiaomi Inc. has revolutionized the way smartphones are marketed even if the product itself may appear to be a crossover between Samsung, Apple & Amazon.

The company, whose valuation has sky rocketed to $ 10 billion recently, displaced smartphone giant Samsung as China’s leading smartphone supplier. With 97% of shipments to China, Xiaomi was relatively unknown outside the country, where it is being called Apple of China. United States’ decision to charge China’s military officers for cyber spying didn’t go down well with China who responded by cracking down on public money expenditure on US software & technologies like Kaspersky, Microsoft & the latest being Apple products like MacBook & iPad. This not only helped Xiaomi’s cause indirectly but made it easy to focus on expanding into international markets.

Xiaomi launched its first smartphone Xiaomi Mi3 in India this year with a price of ₹13999 online exclusively on Flipkart. The response was phenomenal: Flipkart crashed temporarily and within 40 minutes Mi3 was out of stock. It was very elaborate; users had to register themselves a day earlier as only registered users were ‘eligible’ to buy the handset the next day. Flipkart claimed to have 1 lakh registrations on that day showing the enthusiasm of Indian buyers. A couple of flash sales took place in the next few weeks with the 2nd & 3rd batch sold in 5 & 2.4 seconds respectively. There was a lot of negative talk as both Flipkart & Xiaomi attracted flak on being unable to handle both customers & customer demands respectively.

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The Mi3 which was launched evidently had price as a differentiation with its counterparts but there was more to it than that. For tech buffs, it contained most of the specifications akin to any high end Samsung or Apple smartphone, but the most important feature was the User Interface (UI) developed by the maker itself: MIUI (and not TouchWiz or iOS). It is unique in the sense that it provides ease of use like iOS & a lot of variety in display department like themes which is lacking in Samsung’s TouchWiz UI. It is constantly updated by fans & followers via their feedbacks so there’s always something new to check out plus Xiaomi ensures complete customer involvement post purchase.

Now to the most important factor on which almost all products of Chinese origin bank upon to capture Indian markets:

The reason Xiaomi is able to offer its high end smartphone at a price 1/3rd that of Samsung or Apple is its unique marketing mix & its 4Ps.

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The first P, or the product, is made from SABIC (Saudi Basic Industries Corporation) resins which provide required stiffness, stability, strength & aesthetic look which lowers the weight & space occupied by the handset maintaining its sleek look. Also, with a fair size, its packaging & logistics cost is optimized.

Regarding the second P, or the price, Xiaomi has included only a marginal profit over the production cost thus having relatively lower offer price. There hasn’t been official statements as of yet, but analysts believe the margin of profit is 20%, which is not at all too bad. The company, essentially being a software development firm, focuses on after sales earnings via apps & software rather than earning hefty margins on the handset sale itself, a strategy akin to Samsung & Apple. A lot more factors contribute to the price component like place & promotion strategy.

The 3rd P (place), Xiaomi has exclusively chosen market space over market place, thereby reducing the expenses of traditional brick-and-mortar & embracing click-and-mortar approach to customers, as transportation costs are almost negligible in case of online retailing.

4th P, or Promotion: A very interesting approach towards the promotion strategy has attracted a bit of both: lauds & criticism. Xiaomi relies mainly on word-of-mouth publicity from its existing users as well as social media for its promotions, feedbacks & suggestions. Lei Jun, the founder of the company, didn’t believe in advertising so he started gathering steam for his brand on forums. These forums where people usually provided their views, opinions & other valuable inputs became a crucial source for marketing & information for Lei & Co. The company also inducted some of the senior users on the forums into their operations & design systems. This strategy not only saved exorbitant costs on advertisements but also gains a wider fan base which transform into loyal customers with time. Every time a flash sale, of say 20000 units, takes place on Flipkart it is only a matter of seconds before it is out of stock or the site crashes. These small bursts of sale means low cost of inventories but it also means a hell lot of disappointed customers who then turn to other brands if they don’t get their hands on a Xiaomi smartphone.

Lei Jun, founder of Xiaomi, has been criticized for having portrayed Steve Jobs in his attire (black shirt blue jeans) & “One more thing” slide in his presentation. In his defense, Chinese people still see Jobs (and Mr. Jun) as a symbol of consistency, quality, innovation & reliability so that might just work. Having said that, he has led his company well so far both in domestic & international markets. The future ahead for this $10 billion company is certainly bright & it has come thus far. In the long run, it remains to be seen whether this “Apple 2.0” is able to create a brand image of its own to sustain & grow its customers or lives the life of a Mayfly.

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Will Xiaomi succeed in India?

by Gaurav Andhansare time to read: 5 min
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