Konsult- The consulting club at NIBM brings you to a Case study on ‘Xiaomi and how it established its business in India.’
Xiaomi, originating from China, is among the world’s largest smartphone manufacturers.
Within a short span, it has made its mark in the Indian smartphone market and is one of the most popular choices in mid-range android phones for consumers. It offers good customer value by offering good quality featured phones at affordable prices.
Currently, Xiaomi is also expanding into production facilities and more physical stores in India.
Let’s dive into the Case Study to find out the business model and competitive advantages of Xiaomi that made it so popular in such a short time.
Credits– Amartya Srivastava, Vivian Periera, Priyanka Nathani
Points of Discussion
- Business model
- How XIAOMI penetrated Indian market ?
- Competitive advantages
- Business Growth
- SWOT Analysis
- Future Plans
History of Xiaomi
Xiaomi is a Chinese electronics company headquartered in Beijing. Xiaomi was founded in April 2010 by Lei Jun, and by 2014, it had grown to become China’s largest smartphone company.
Today, Xiaomi is one of the top five smartphone vendors in the world. Xiaomi’s product line includes the Mi Series, Mi Note Series, Mi Max Series, Mi Mix Series, Mi NoteBook Series, Redmi Series, Blackshark, and Pocophone in the smartphone segment.
Xiaomi in 2010, started as a software company and created the MIUI ROM based on Google’s Android. The idea behind developing MIUI was to offer more functionalities and a better UI than Android.
In 2011 Xiaomi entered the hardware segment by launching the Mi One phone. The Xiaomi team’s focus has been on creating quality hardware devices and selling them at comparatively lower costs than those available in the market while they intended to make revenue through their services and content.
The company today not only sells mobile phones but much more like mobile apps, wearables, home appliances, and smart home devices.
Xiaomi’s Business Model
Xiaomi’s strategy has always been different. Since its inception, the company used to keep a narrow margin of profit on its hardware products. The majority of its profit came from its online services.
Xiaomi offers feature-loaded affordable products. This increases the craze of its specific products into its target audience base. They offer the best products with the best customer service.
Xiaomi’s products are always of high quality. These innovative and low-cost products can be found on a separate platform known as Xiaomi’s Mi home. These creative and innovative products also demonstrate the uniqueness of Xiaomi’s business model.
Customers can get Bluetooth speakers, air fryers, rice cookers, and much more from their website.
Let us now take a closer look at the various channels of the Xiaomi Business Model
Smartphone Business of Xiaomi
- Xiaomi is making its revenue at a rapid pace in the smartphones segment.
- In the present day, the smartphones of Xiaomi are responsible for 65% of the total revenue.
- According to a survey, Xiaomi sold 119 million smartphones in 2018. It is the highest number for any brand to date.
- The majority of the phones were sold in China
Internet Service Business of Xiaomi
- The business model of Xiaomi also includes internet service business.
- These businesses include preloaded apps and apps in the Mi store. Around 9.1 percent of the total revenue comes from these services.
- Internet services include advertisements and other services as well. Xiaomi always focused on its internet services.
- Its efficient internet services are for startups as startups play a crucial role in Xiaomi’s success in terms of business.
IoT and Lifestyle Products of Xiaomi
- Xiaomi’s Gadgets are responsible for a considerable part of revenue generation.
- Xiaomi’s IoT and lifestyle products roughly made 25 percent of revenue generation.
- The products include: Internet cables, Bluetooth Speaker, Smart TV, Electric Scooters, Vacuum Cleaner, Cameras, and much more.
- Xiaomi TV and Bluetooth speakers were much more accessible to the masses while smart TV and laptops were responsible for maximum revenue generation.
How XIAOMI penetrated Indian market ?
1. Quality products at affordable prices
Xiaomi phones are highly regarded for their excellent value for money. They are loaded with features and hardware that give Indians the impression that they are getting more value for their money.
The way the company used penetration pricing helps explain their popularity in India-consumers were getting better features than before at rock bottom prices. In order to further cut costs, the company started to assemble its products locally in India to take advantage of the Make in India duty benefits.
Gadgets 360 had rated Xiaomi’s Redmi Note 10 an overall 9 out of 10 for value for money.
2.Primarily an e-commerce company
Xiaomi largely sells its phones online and does not invest a lot in building an offline presence in the form of a traditional brick-and-mortar retail store.
In the Indian context, although it operates its own website to sell its products, Xiaomi also partnered with the biggest e-commerce platforms-Flipkart and Amazon to tap into their strong distribution channels.
This way, the company did not have to incur unnecessary capital expenditure and at the same time, making sure that their products reached the maximum number of smartphone users. A simple, yet effective move!
3. And the most important Strategy of all – Creating Scarcity
Xiaomi’s flash sales help it reduce inventory costs and overproduction disasters. It is a clever marketing strategy where Xiaomi uses discounts, time limits, and limited stocks as tactics to fascinate the customers.
While that makes it harder to get your hands on a new Xiaomi device, the company has managed to spin that into a positive, creating periodic hype as flash sales of a limited number of devices open up every week.
Although the scarcity of a product results in disappointment, it nevertheless increases the value of the product by enticing the customers to buy it by invoking a feeling of FOMO (Fear Of Missing Out).
Once a flash sale is completed, Xiaomi makes use of the quick sell-out in further social media postings, to grab more eyeballs. This is known as Hunger Marketing. Competitors including OnePlus and Realme have also started using flash sales.
Hunger marketing is a marketing strategy especially focusing on the emotions of human beings. Hunger marketing is a psychological strategy that focuses on the desire of consumers, making them hungry thus having a strong desire to buy products that other people also want to buy.
Competitive Advantages Of Xiaomi
Customer Value- Xiaomi Provides a Quality product at a reasonable price, thus offering better customer value.
Online sales- Xiaomi leverages the online selling platforms, hence saving costs. Today almost 70% of its sales occur through online channels and the rest through sales partners and other modes.
Large User base- Within a short span in India, Xiaomi has gathered a great user base because of effective marketing and giving customers a good value for money.
Positioning As Hardware + software services company- Even though 65% of its revenue comes from selling smartphones, Xiaomi perceives its hardware sales as a means to deliver its software and services in a long-term perspective. Example- mobile games/apps by Xiaomi.
Innovation Strategy and Marketing- Xiaomi quickly Scans the market trend for new features and keeps upgrading their phones with those, and then effectively targets their customers through social media and advertisements. For example- they noticed the craze among youth for Selfies and hence launched their Selfie Camera and Marketed it properly.
Xiaomi – Business Growth
Xiaomi – with its ‘Mi’ brand – has seen significant growth in the mid and premium smartphone segment over the past few quarters, and captured 14-15 percent market share in the segment range of Rs 20,000-45,000.
In the last few months, the market share of MI has gone up by 7 times. It used to be 2-3 percent when it started, then rose to 6 percent, after that it went up to 12-13 percent, and now they are operating at around 14-15 percent, which could have been higher if the COVID-19 pandemic had not impacted its sales.
The smartphone industry has also grown over the years which has helped Xiaomi significantly to grow its business in India. When Xiaomi started its business in India, the ASP at that time used to be Rs. 6k – 7k. By 2017 it went up to Rs. 10k, in 2019 it was Rs. 12k, and now it is around Rs. 13k – 15k.
The overall smartphone shipment in India also grew a record 23 percent in the March 2021 quarter to reach over 38 million units.
Xiaomi only had a 4% market share in the first quarter of 2016, and Samsung lead the market with 29% of the market share. However, by the end of 2017, Xiaomi’s market share was 22%, only 1% behind Samsung.
Xiaomi is currently the leader in the smartphone market in India with a 26% share, followed by Samsung (20% share), and Vivo (16% percent share).
New Assembling Plant – Xiaomi recently enlisted an assembling plant in Andhra Pradesh and guaranteed that over 95% of its phones for the Indian market would now be produced locally.
Innovation and New Products – MI India launched many products other than Smartphones since its inception in India. MI will soon launch AI Glasses, in which you can do perform varied tasks.
Export Plans – Smart devices maker Xiaomi India is also planning to export their smartphones and other products from the country due to a boom in domestic demand post the COVID-19 lockdown. The company is also planning to expand production capacity in the country to cater to the growing demand and it will engage with partners to be part of the production-linked incentive (PLI) scheme of the government.
When and where was Xiaomi established?
Xiaomi was established in April 2010 by Lei Jun and is headquartered in Beijing, China.
What makes Xiaomi unique?
Its varied and unique ecosystem of products and the different way of marketing make Xiaomi unique from others.
What are the different smartphone brands of Xiaomi?
Xiaomi has three different smartphone brands that are, MI, Redmi, and Poco. Poco is now an independent company.
Why is Xiaomi successful in India?
Xiaomi was the first company to introduce an affordable, durable, and best in a quality range of smartphones in the country, which made it quite popular and successful in a short span of time.
SWOT Analysis of Xiaomi
- World’s Largest Smartphone Manufacturers
- Products of High Quality
- Affordable Pricing
- Manufacturing Edge
- Low Skimming Price
- Weak Brand Perception
- Customer service Infrastructure
- Performance issues
- Product Lineup
- Smartphone Adoption
- Brand Building
- Brick and mortar stores
- Green branding
- Close Competition with brands like Oppo, Vivo.
- Brand Distinction is Non-Existent
- Strict Environment regulations
- Currently Xiaomi owns a good chunk of mid-range smartphone market in India, mainly because of its good quality phones at penetrative pricing coupled with effective marketing.
- Although it has a close competition with other affordable brands like OPPO and VIVO, the growing smartphone market in India poses a huge opportunity of expansion for the company.
- To take advantage of this growing industry, there are multiple areas which the company is working on, like establishing production facilities in India, exporting the phones assembled to other countries, expanding product lines and services, and developing innovative applications and services.
- At the same time it should also work upon its weaknesses like solving performance issues, improving brand perception and customer service infrastructure.
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