Chinese smartphone vendor Xiaomi is known for selling cheap or yet good phones, which is almost third of the price of Apple products. Now the company is becoming the leading smartphone vendor but how does it manage to pull it off?
Xiaomi claims that it prices its phones just above their costs. But according to company officials the use of traditional marketing and distribution practices long with support from the Internet, helps the company to fuel the sale of its smartphones.
Xiaomi unveiled its first flagship smartphone back in August 2011 in the form of Mi 1. The consumers were given impressive specs at a cutting-edge price of 1,999 yuan. At that time the smartphone stood out as a major bargain to other high-end phones including the iPhone 4 which was available for 4,999 (Rs. 51,078) yuan.
The company further managed to keep the 1,999 yuan (Rs. 20,450) for the flagship and along with that the company released a list of smartphones in the Hogmi series at lower-specs and even lower prices, starting at 699 (Rs. 6,130) yuan only, which helped the company to become China’s third largest smartphone vendor.
Xiaomi’s flagship smartphones features impressive specifications and attract customers because of their low price, and result of which Xiaomi is able to extract some profit from the sale of its smartphones. When Xiaomi Mi 3 was released the cost of the device was itself $157.
But according to Minatake Kashio, Fomalhaut’s director, Xiaomi is making 100 dollars of profit with Mi 3 smartphone. The profit margin is however low for Hongmi devices, which according to Fomalhaut, estimates cost $86 for the build which was price around $113.
Unlike other smartphone vendors, Xiaomi doesn’t spend money on advertisements and solely depends on selling phones to its consumer through e-commerce websites. Due to which it saves all its money which would have been spent on physical stores and maintaining staffs.
Also Xiaomi runs its own website Tmall.com, which is one of the China’s biggest online retail sites. The site not only offers handsets, but also accessories such as headphones, T-shirts, company’s toy rabbit mascots and stuffs like that.
To boost the awareness about the company, Xiaomi depends on social networking sites and its own Mi fans to spread the world.
Yes, as we all know, Xiaomi manufactures phones in limited quantities which helps it keep the cost down. The Xiaomi phones are exposed to flash sales and thousands of handsets gets sold out in just matter of a few seconds.
Due to this, the company has to face less risk by managing a smaller inventory. It also lets Xiaomi gradually ramp up production as component costs decline over time. But because of this customers have to wait which may result in lost sales as seen with some Hongmi devices.
A Kindle-like business model
Xiaomi wants to attract buyers not only through hardware specs but also through software. Xiaomi offers plenty of themes which can be purchased to change the interface look of the device. Purchasing can be done by using Mi credits online. How much Xiaomi draws from software selling is currently unclear. But it uses its own custom version of Android Operating System on its smartphones and tablets.
According to a research firm Analyst, “A lot of people are trying to replicate the Xiaomi model.” She added, “Chinese vendors including Huawei, ZTE and others are also building similar high-end products for low prices and using online channels to drum up sales”.
Xiaomi doesn’t want to be limited to China. The company has already started the expansion with countries including some in Southeast Asia as Brazil, Mexico and Russia. And don’t forget India.