What Other Companies Can Learn from XiaoMi

XiaoMi launched its first smartphone designed for the Indian market in April. The new model, Mi 4i, like all XiaoMi products, is equipped with high-end specifications at an attractive price. In the same month, Samsung reported a 30% decline in y-o-y operating profits for the first quarter of 2015.  Samsung’s mobile division operating profits nosedived 57% in 2015 compared to the same quarter in 2014.

Mi-4i

For India

The Mi 4i is essentially a cheaper Mi 4 with dual SIM card support that supports 4G on both slots. Dual SIM card support is a must have feature in many emerging markets and especially so in India, where consumers often carry multiple phones from different mobile network operators to take advantage of the vastly different savings and discounts offered. Xiaomi added support for six Indian languages and Mi 4i comes with a Visual IVR feature, which displays the list of options when a user calls public services such as IRCTC or banking services, rather than having to listen to the options. The Mi 4i is sold at IDR12,999 (US$200) as most consumers in emerging markets do not purchase their mobile phones with mobile contracts. In India, a whopping 97% of mobile phones sold are in its full retail price and not subsidised with mobile contract plans. To be successful in emerging markets like China and India, the retail price of mobile phones is a critical consideration, unlike developed markets where subscribers enjoy heavily subsidised phone prices.

For the youths

XiaoMi smartphones are not in direct competition with Apple and Samsung’s flagship models. Affluent consumers are still willing to pay a premium for the allure of branded products. XiaoMi’s target consumer group is the younger generation (which makes up a large population in many emerging markets) who cannot afford flagship models. More than half of Indian consumers are under the age of thirty; XiaoMi’s target audience here exceeds 700 million consumers. The younger generation is more adventurous and willing to try a new and unknown brand rather than sticking with established household brands like Samsung and Sony.

Population under the Age of 30: 2015

Youth-population

Source: Euromonitor International

Recipe for success

XiaoMi’s success showed other struggling manufacturers that a company can be profitable by selling phones at low margins and the low price does not mean low-tech and compromises. While XiaoMi product launches often use Apple’s iPhone as a punching bag and reference, XiaoMi does not really  compete directly with Apple and Samsung’s flagship models. The company has chosen to target the young generation who may not be able to afford to pay for flagship models from branded manufacturers.

XiaoMi does not spend heavily on branding and advertisements and yet its brand is well-known amongst tech-savvy consumers, assisted by MiFans acting as brand ambassadors. HTC spent heavily on above-the-line promotions and has paid for celebrity endorsement (Robert Downey Jr of Iron Man fame), but has failed to regain its lost market share. New entrants need to take note of XiaoMi and target a specific consumer group, and then adapt the company’s products, marketing message and campaigning, tailoring to the target segment.