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Xiaomi Inc.: Positioning and Strategy for Entry into Indian Smartphone Market

Xiaomi Inc.: Positioning and Strategy for Entry into Indian Smartphone Market

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Xiaomi Inc.: Positioning and Strategy for Entry into Indian Smartphone Market

  1. 1. Xiaomi Inc. – 2015 India Positioning Strategy (Part 1) By Caio Porciuncula and Aldo Martinez Strategic Focus Mission Statement Xiaomi Inc. has had an exciting, and lucrative, start since its founding in 2010. In a little over four years, the company has become the third largest smartphone distributor in the world and has grown to be the world’s most valuable technology start-up; it is currently valued at around $46 Billion. Xiaomi is primarily known as a hardware company, but its leaders claim that the company is more of an internet and software company. The company’s mission statement is as follows: “At Xiaomi, we strive to create the highest quality products at the lowest possible prices in order to provide people access to the necessary tools and services that connect them to the world and, ultimately, their dreams.” The mission statement for Xiaomi reflects the three key values that the company emphasizes: 1. A premium product: Xiaomi ensures that its products not only meet market industry standards but also exceeds them. The products they make are second-to-none and can compete with any of the higher end brands that competitors offer. 2. Lowest prices: The focus on producing great products is matched only by the emphasis on providing products at incredibly low prices that normally wouldn’t be offered for such premium items. 3. More than just hardware: Xiaomi’s outlook on what type of company it is strays from what a conventional hardware company might have for itself; Xiaomi envisions itself as an internet and software company above all else. The company wants to bring the internet, and all its uses, to markets where smartphones are only just starting to flourish. The Chinese company has leveraged these values to its benefit, becoming the number one maker of smartphones in China during 2014. Xiaomi has been growing at an exponential rate in its home country (183% rise in sales in 2014 alone) and has plans to expand to several other countries in the coming years. Company Objectives Xiaomi’s tremendous growth in China has made them one of the most successful companies in
  2. 2. recent memory, but the company must look towards other markets in order to continue to grow. Apart from expansion, the company also has several other objectives that it wants to focus on in both the short-term and the long-term. Short-term:  Further develop the Indian Market: In July of 2014 Xiaomi entered the Indian market with massive demand. The company wants to be able to control the sale of its products online so it plans on building its own online platform for the Indian market.  Expand manufacturing capacity: In order to keep up with demand, Xiaomi plans to increase the supply of its product in order try and keep up with demand. The company did not expect such an explosive demand in India, thus it did not properly increase its production capacity prior to entering the Indian market.  Bring all of its core products to India: While Xiaomi has introduced its smartphone line to India, the company plans on bringing in the rest of its suite of products to the country as well. The company wants to bring in its tablet, TV, set-top boxes, and router products to India as the country is a great opportunity for the business to expand internationally.  Enter Brazilian and Russian markets: In 2015 Xiaomi plans to begin entering new markets that are more developed than the Indian market. Of the countries announced, Brazil and Russia are two of the countries that stand out for the potential size of the markets. Long-term:  Home Tech/Internet of Things: Xiaomi has begun investing in Midea, a Chinese appliance maker, in hopes to potentially break into the “Smart Home” market that continues to grow. The company plans to increase its product portfolio outside of just smartphones, TVs, and routers, which are its current main focus.  Enter developed western markets: The biggest future challenge Xiaomi faces will be breaking through to western consumers, but it plans on trying nonetheless. The company realizes that western markets will have to be handled far differently than they have with their current markets. Low prices will not be enough to entice shoppers that already buy highly subsidized phones.  Increase software portfolio: Xiaomi considers itself a software company more than a hardware company and is why it plans to continue to grow its software line. The company has bought stake in Chinese software company KingSoft Corp. and plans on investing future capital in similar software companies.  Patent acquisition: Patent lawsuits have been a problem for Xiaomi in the past and might continue to be so in the future. The company plans on continuing to grow its
  3. 3. patent portfolio in China and the rest of the world as much as it can. Xiaomi also wants to continue to strike licensing deals abroad in order to be able to further its expansion into new markets without dealing with intellectual property issues like it has in India. Core Competencies Being named the most valuable tech startup in world in just four years is a testament to the incredible business model and ingenuity that Xiaomi has brought to the table. The company could easily be touted for the quality of its premium products at such low prices, but that would only be scratching the surface of what makes this company so successful. Xiaomi is often called the “Apple of China”, but while the company might agree with that statement in terms of its high quality products, it sees itself more in line with Amazon than it does with Apple. The company’s ability to see itself as an e-commerce business instead of just a hardware company is crucial to its success. The company’s CEO Lei Jun has explained that the company’s products are merely a portal to their software ecosystem, and that is what makes them different from many other competitors. This mentality is what defines the company’s innovative methodology, and that is only where it begins. MiUI is Xiaomi’s customized version of Google’s Android OS that comes integrated into every one of its smartphones, and it has become one of the driving forces behind the company’s popularity with its users. The personalized software is very intuitive and beloved by its users, so much so that the users of the software are called “Mi Fans.” The company has been able to leverage the fan base around its products so well that they essentially spend nothing on marketing, as the users do all the marketing on social media for them. Xiaomi’s organic advertising model has created a sort of “cult” following that is reminiscent of when Steve Jobs was at Apple, and Lei Jun, Xiaomi’s CEO, is even seen as an equivalent to the late Mr. Jobs. This branding has only helped bolster Xiaomi’s popularity since its inception in 2010, and the company often throws fan events, such as concerts, that all Xiaomi owners can go to as a way of showing appreciation to its users. In the future, Xiaomi hopes that this sort of fan base come to exist in markets that the company plans to enter. Another key component to Xiaomi's success is its ability to tap into developing markets that are just starting to takeoff. China, the world's largest smartphone market, has only just recently exploded into the smartphone market that it currently is, and Xiaomi has been an instrumental factor in that process. Now, with the experience of already being extremely successful in their own developing market, the company has begun to set its eyes on the up-and-coming markets of the world. These markets are fresh and ripe with huge revenues to be made. Xiaomi's vision, methods, and experience provide the company a huge advantage over some of its major competitors.
  4. 4. Sustainable Advantages In reality, Xiaomi shines as an innovative tech company for two crucial reasons: 1.) its online sales business model and 2.) the method in which it improves its phones through user feedback. 1.) Online Sales Method/Flash Sales: Major smartphone companies like Apple, Samsung, and HTC sell the majority of their products through third-party retailers and physical stores, whereas Xiaomi sells almost all its products online. Xiaomi has created a business model around selling the majority of its products online through a method called “Flash Sales.” These flash sales are basically limited batches of products that go on sale at specific time and run till they are sold out. This direct to consumer method also allows Xiaomi to increase profits by avoiding the fees that come with having retailers sell its products in-store. This method is perfect for Xiaomi, as it prevents the company from overproducing phones that it might not sell. By limiting its manufacturing, Xiaomi has a smaller inventory that provides less risk and easier mobility. Since Xiaomi builds its phones in batches, the company saves money on the decreasing costs of materials as time goes on instead paying for large, expensive quantities up front. The online business model is made all the more successful by the methods in which the company upgrades and updates its hardware and software. 2.) Weekly Update System/High User Input: Possibly the most innovative part of the Xiaomi business model, and what sets it completely apart from any other major competitor, is its weekly system of phone updates that uses user feedback forums to determine what needs to be fixed and improved. Essentially, once Xiaomi has released a product into the market, the company allows and encourages any one of its users to give recommendations on how to improve the product’s hardware or software. The company then releases new software patches every week that reflect user requests. Incredibly, the company does take hardware recommendations seriously and, if enough people request a certain update, the company will incorporate the minor hardware updates to its future phone batches. This rapidly-executed updating system is completely against the yearly OS updates that other major smartphones provide and is a huge factor in Xiaomi’s success. The company prides itself on providing what its users want, and not what they think they want. This unique model is a big draw because it gives users a lot of power they normally would not have, and it also allows Xiaomi an opportunity to know exactly what its users want.
  5. 5. Another benefit of this model is that it allows Xiaomi devices to have longer life spans (usually around 18 months), compared to competitors that release new phones every six to twelve months, resulting in higher profits from a single model. Situation Analysis SWOT Analysis In order to truly understand Xiaomi and its business model’s success, we must understand its main core strengths, weaknesses, opportunities, and threats. Strengths Weaknesses Internal  Direct online sales to customers reduce overhead costs and eliminates retailer fees  Vertically integrated hardware and platform system that provides a unique user experience  Collection of excellent leaders who come from some of the best tech companies in the world  Very strong and innovative update system that relies on user feedback  Seen as more than just a "hardware" company (especially in developing markets  Quickly becoming Android's largest client  Doubled its profits from 2013 in 2014, selling 61 billion devices and has become the third-largest smartphone maker in the world  Lack of cash reserves to compete with bigger competitors  Reliance on Foxconn (single manufacturer) limits manufacturing capacity  Limited patent portfolio increases company's need to license and pay royalty for "borrowed" technologies  Strong dependence on other companies for devices' components (camera sensors, etc.)  Brand is less established in markets outside of East Asia  Less developed supply chain systems as big competitors increases potential risks and costs Opportunities Threats External  Plenty of developing countries that have untapped markets  Company has a high market valuation that provides it with many financial backing opportunities  Has the ability to enter up-and-coming markets, such as "Smart Home"  Increasing global demand for cheap smartphones  Competitors can quickly adapt to mimic Xiaomi's online business model  Increased risk of patent bullying from competitors in new markets  Risk of suffering law suits and legal action from American companies upon entering western markets  Competitive threat from both Indian and Chinese start-ups
  6. 6. Strengths:  Xiaomi's model of vertically integrating hardware and software is a core strength of the company, as it provides a common, high quality experience for all users across a range of Xiaomi devices. Through the development of the MiUI UX (User Experience), Xiaomi integrates its services, such as MiCloud and MiTalk, so that it becomes a natural extension of its existing ecosystem, persuading users to use their services rather than Google's. Competitors, such as Samsung and Huawei, have failed at this strategy, as users of their products often fall back to native Android services and apps instead of their respective proprietary products, as seen with the Samsung App Store(to compete with Android's Play Store) due to their inheritably low quality and lack of utility to users.  Xiaomi's direct sales of devices to customers through their online store reduces overhead costs as it cuts the number of "middle men" involved in their sales chain. Xiaomi is one of the few companies who have successfully adopted this model in a way that is both sustainable and lucrative, and as such it is one of the biggest internal strength of the business. While some of its competitors are able to partly do this, such as the sale of iPhones through the Apple Store and or of Lumia phones through Microsoft Stores, Xiaomi's business model is fundamentally based on this sales strategy, giving the company a great advantage over its competitors. Weaknesses:  Xiaomi has extremely limited capacity in manufacturing. The company outsources all manufacturing of its devices to Foxconn, a Chinese factory. This not only increases the potential risk that Xiaomi faces in basing their supply and manufacturing chain in a single partner, but also limits the manufacturing capacity of the company. Xiaomi is only able to produce a limited number of devices at any given time, and the company is actively seeking ways to expand its supply of products in order to successfully expand to overseas markets.  One of the key aspects of Xiaomi's supply chain is that it purchases different device components (such as camera imaging sensors and touch screen modules) from a number of other business. Xiaomi claims that this is an essential element of making their devices superior to those of its competitors'. Instead of spending an increasing amount of money on R&D, Xiaomi obtains its best-in-class components from specific companies. For example, it obtains its imaging sensors from Sony, touch screen modules and displays from LG, and a number of its batteries are supplied by Samsung. However, this
  7. 7. is a strong internal weakness as the company is not self-sufficient. If one of their partners decide to nullify their partnership, Xiaomi's supply chain will be disturbed and the quality of their devices could possibly go down. Opportunities:  Xiaomi's financial performance can be credited to the previously untapped potential of the emerging Chinese market. This success can be reproduced in other developing nations in which the demand for high quality, and yet cheap smartphones is increasing. Xiaomi has the potential to expand and replicate its success in other parts of Asia, in Latin and Central America, and in Europe.  Evaluated at $46 Billion, Xiaomi has many financial opportunities. The ease in which it can acquire further funding from investors, in addition to its skyrocketing financial performance bringing about $12 Billion dollars in annual revenue in 2014, allows Xiaomi to be a financially flexible company equipped with the necessary tools to scale with sustainability and speed. Threats:  Xiaomi's direct sale, although unique in success at the moment, can be easily replicated by bigger competitors with large cash reserves that can afford to lose money initially to perfect their online sales model. Both Lenovo and Huawei, for example, have created subsidiaries that focus on the direct sale of cheap, high quality phones to customers through the internet. This is an increasing threat to Xiaomi, as it will need to seek other ways to remain unique and relevant in the near future as bigger companies have more success in mimicking its sales model.  Large patent portfolios of Xiaomi's competitors, in combination of Xiaomi's own limited number of patents, impose an additional threat to the company. Xiaomi is susceptible to patent bullying (whether justified or not) from bigger companies, such as Sony Ericsson. In 2014, Sony Ericsson sued Xiaomi for patent infringement upon the Chinese company's entry in the Indian market, and effectively imposed a ban on Xiaomi's business activities in India. This threat can directly affect Xiaomi's sales, and it must actively seek ways to avoid these threats.
  8. 8. Industry Analysis The smartphone industry has grown exponentially since the introduction of the original iPhone in 2007. Since then, Google’s Android OS has become Apple’s main competitor. Android is provided to phone makers for free, and has become the main driving force of the smartphone’s industry growth (as seen on the graph to the right). As such, Android (including its many variants, such as the one developed by Xiaomi) dominates the industry with a 51.5% of market share. The android platform is dominated mostly by Samsung, which provides phones across a wide range of prices. Xiaomi emerged to compete with all Android and smartphone manufactures with an innovative principle: Cheap, high quality hardware. Xiaomi has then seen its market share skyrocket, and is now considered a strong threat by its bigger rivals, who still build expensive, well performing devices. Another minor player in the smartphone industry is Microsoft, who has acquired the mobile devices division of Nokia in 2014. Microsoft develops the Windows Phone OS (which will soon be renamed to just “Windows 10 for Phones” with the introduction of the new universal OS) and designs and sells the Lumia smartphone line. Although Microsoft has not acquired any significant market share with its products (Windows Phone currently has less than 5% of global market share, as seen above), the company have been significantly increasing their mobile presence by producing extremely cheap smartphones and selling them in developing nations, strategically focusing where demand is increasing. This increase in demand for smartphones is global. Developing nations, such as India, Russia, and Brazil have an ever increasing demand for both entry-level and mid-range smartphones. In these markets, Apple has lost ground to both Android and Windows Phone as they offer solid performance at much cheaper prices. Although Apple still has a market in these countries, it is selling devices at a much slower pace than its competitors. In developed markets, like the United States and Europe, Apple has a strong stand as their brand and products are much more established and are affordable by the population. In these markets, Apple has been quickly gaining market share, while Android has been a close second to Apple, and Microsoft struggles to have any meaningful share. Competitor Analysis In the competitive landscape, Xiaomi faces stiff competition from not only established
  9. 9. companies (like Apple, Microsoft, and Samsung), but also from both Chinese and Indian start- ups and small companies that imitate Xiaomi's business model.  Apple competes directly with Xiaomi in the high end smartphone offerings. To compete with the new iPhone 6 and iPhone 6 Plus, Xiaomi launched its Mi Note and Mi Note Pro, which rivaled Apple's phone in features at approximately half the price. Similarly, Xiaomi's MiPad competes with the Apple iPad. In the high end of Xiaomi's product line, it follows a more Apple-esque design model, offering high end devices with limited (if not non-existing) personalization choices in terms of features and price. Xiaomi faces a particularly tough competition from Apple, as the California based company has an extremely well established brand with the more affluent portion of India's population.  Samsung competes with Xiaomi in both the middle- to high end of their smartphone portfolios. Xiaomi's Mi and RedMi Note phones compete directly with Samsung's Galaxy S and S Note lines at a much lower price point while offering customers the same features and specifications. In order to remain competitive against the more globally known Galaxy S (Note) products, Xiaomi allows for further product segmentation in India with its RedMi phones. Users can chose the standard 3G enabled RedMi Note, or they may upgrade to the LTE variant for a fee.  Microsoft competes with Xiaomi in the lower end smartphones offerings. Microsoft (after its acquisition of the Nokia Mobile Devices division in 2014) designs and sells to the Indian market extremely cheap Lumia devices that have a high degree of quality and performance for the price. Although Xiaomi does not offer any products in the same price range as the Lumia phones, Microsoft may present a long-term threat to the company as it is shaping the consumer behavior of a an extremely large portion of the Indian population. As individual with lower incomes move to higher socioeconomic classes (due to both India's ever increasing middle class and to federal initiatives aiming to increase the population's standard of living), Microsoft may become a credible threat to Xiaomi's middle to high range offerings.  Small Indian and Chinese businesses are in increasing threat to Xiaomi's business model. Companies like Micromax (with its Yureka brand), Lava (with its Xolo subsidiary), and ZTE are having success in both mimicking Xiaomi's business model (cheap, decent devices sold directly to consumers online) and in acquiring market share in India. As these start-ups become more successful in India, Xiaomi loses its major competitive edge. In an attempt to avoid this, Xiaomi is investing in a number of Indian technology start-ups in order to have a greater degree of influence over their business. Xiaomi is attempting to turn these potential competitors into partners.
  10. 10. Customer Analysis In the past decade, the Indian government has taken an active role in improving the living standards of the population through economic incentives and social programs. As result, the Indian middle class is expanding extremely quickly, and with it so is the disposable income per capita of the nation. The overall spending power of the Indian population is rapidly increasing, and the new members of the middle class are creating an increasing demand for technological goods, especially cheap smartphones with good specifications. As such, smartphone penetration in India has more than doubled in less than two years, and are expected to reach 21.5% of the population by 2018 (as shown in the chart above). Xiaomi intends to take advantage of the current trend for two reasons. First, it wants to sell its devices to the sect of the population that has moved into the middle class and is seeking to acquire new smartphones. This is the portion of the Indian population that Xiaomi can be successful with. The second reason is that Xiaomi wants to shape the consumer habits of the segment of the population that it cannot reach (due to their low disposable income levels) in order to acquire these users in the future. These are the people who Xiaomi cannot be successful currently but may have future potential. Similarly, the smartphone market in India can be segmented in a similar way: individuals who cannot afford smartphones or that can only afford low-end smartphones, individuals who may afford mid-range smartphones such as the Mi (this is the segment with most opportunity to the company), and individuals who may afford high end smartphones such as the Mi Note Pro (Xiaomi may face limited success in this segment). Xiaomi must focus on the middle segment, the mid-range smartphone segment, as it is the one that presents the most opportunity for the company in the foreseeable future.
  11. 11. Xiaomi Inc. – 2015 India Positioning Strategy (Part 2) By Caio Porciuncula and Aldo Martinez BACKGROUND The future of Xiaomi is very bright. In 2014, only four years since its founding, Xiaomi was valued at $45 billion and will likely continue to grow as the company begins its expansion efforts. The first major move for Xiaomi is India, the world’s second most populated country. The Indian market is a treasure trove of potential growth for the tech company, but it will have to manage a variety of issues in order to effectively tap into the market. The company faces immense criticism from its major competitors outside the walls of its homeland, China, and the looming threat of lawsuits and patent infringement run the risk of tarnishing the company’s name before it even arrives on the Indian market. Data security is also in question at the Chinese company. Many fear that the Chinese government will have direct access to their data on Xiaomi servers, so the company will have to fight to prove its worthiness to potential new consumers. Moving forward, Xiaomi will have to be cautious in its handling of possible legal issues, so it can focus more on building its brand reputation and less on defending its integrity. Another of Xiaomi’s issues is that it will be a newcomer in an Indian market that, while still young, is rife with competition. While the technical and cheap cost of its products will be a good starting point for enticing consumers to switch to Xiaomi devices, this strategy alone may not be enough to completely uproot the market it is entering. The company will need to emphasize that the services it provides is superior to its already established competitors. Xiaomi’s brand recognition in India will not be as high as its competitors (Micromax, Samsung, Apple, etc.) so it will need to generate buzz in many different ways. The Indian market is too big for the company to tackle as a whole, so it will need to narrow its focus on a segment of the market that is looking for a great product but is also financially conscious of what that product will cost them. TARGETING STRATEGY There is great diversity within the Indian market for smartphones. In order to become successful in India, Xiaomi must create different marketing and product mixes to better target each individual segment of the larger market. Following industry standards, the segments within the larger Indian market should be segmented on the basis of four factors.  Economic Purchase Power: The proportion of the disposable income that an individual is willing to use to acquire a smartphone. This factor is directly related to the socioeconomic class that an individual currently is in, and is based on a customer's
  12. 12. demographics. A person's PEP can vary from a few hundred Indian Rupees to dozens of thousands Indian Rupees (Rs).  Technological Familiarity: The level of knowledge that an individual has over technological trends in the smartphone industry. This factor is based on usage rate. Usually, Technological Familiarity increases with socioeconomic class positioning and purchasing economic power.  Required Functionality: The minimum required functionality by the consumer. This factor is based on benefits sought by the customer. The array of functions within the Required Functionality increases with the PEP. For example, consumers with a low PEP may require a device with only a camera and web browsing capabilities, while a high PEP individual may require biometric security sensors and cutting edge processors.  Intended Use: The intended uses are the different reasons as to why an individual purchases a device. This factor is based on both psychographics and demographics. This may include both functional/physical needs and wants as well as psychological ones. For example, while a middle class consumer may use a phone to use web services and apps and to communicate with other people, a high net worth individual may use his phone to showcase his or her economic power and to be "at parity" with other individuals in the same economic class. Using these guidelines, we have identified three major segments in the market. 1. Entry-Level Consumers: Members of the Entry Level segment consist of individuals located in the lower socioeconomic classes of India. They possess low discretionary income to spend on technology, yet they are eager to become tech-users. They prioritize pricing above all else, and are willing to sacrifice technological capabilities of the device for cheaper prices. They are also unfamiliar to technology, and due to their lack of knowledge towards the latest trends in smartphones, they tend to be more responsive to advertising and other marketing strategies. Individuals in this segment may look to their new phones as an entryway to the internet, and may utilize smartphone devices mainly to begin consuming media and apps and to become connected on social media. They look to their new devices as a window of opportunity to commence their digital lives and to take advantage of all that technology has to offer. 2. Mid-Range Consumers: This segment consists of the existing members of India's middle class and individuals from lower classes who are moving to higher socioeconomic classes as a result of the recent upward mobility that is sweeping the poorer individuals in India. There are approximately 267 million individuals in this segment. These consumers want a reasonably priced device and expect a plethora of features, and in some instances, even high end specs. These individuals require consistent engagement as they have a multitude of options to choose from, and building brand loyalty may be especially difficult in this segment as users will prioritize function and price over brand and design. It is also important to note that this segment is extremely large, as it includes a large spectrum of
  13. 13. users from individuals who are just now joining the middle class to wealthy, intellectual families that verge on the higher classes. Therefore, this segment can be further segmented in the following manner: a. Newcomers: Members in the low-middle class who just now developed enough Economic Purchasing Power to buy a mid-range device. b. White Collar Professionals: The large majority of its parent-segment, the white collar professionals work in offices in large cities and may support families with their moderate salaries. c. Wealthy Ones: Individuals who are at the top of the middle class, dispose of generous salaries, and are close to leaving the middle class to join higher socioeconomic classes. 3. High-End Consumers: This segment consists of consumers in the high middle class and higher economic classes of India. Not only are these individuals extremely affluent, but they are also used to utilizing technology and are accustomed to high end devices. Members of this segment prioritize functionality and design over price, and may be more inclined to consume Apple products due to their prestige and iconic symbolism among high net worth individuals. Individuals in this segment may also use their devices to showcase their affluence or their ability to acquire such products, as is the case of customers of the Vertu brand. This marketing plan will focus on the mid-range device users, as Xiaomi does not have any product offerings that tailor to the entry level market, and as it will face too much competition in the high end segment. These middle range users require high end specifications, such as cutting- edge processors, latest features, and OS versions. As these users will most likely be a part of the upward socioeconomic movement in India, they will want to believe they are getting the most out of the price they pay for their devices. In addition, as they consume more luxury goods, they will require further functionality from their phones. As these users will have a pre-existing "internet life", they use their mobile devices to manage and make use of social media, apps, and media. They will also do most of their social interactions (whether through social media, phone calls, messaging platforms, SMS, VoIP, or other messaging venues such as Snapchat) through their mobile devices. These users expect a consistent, smooth experience tailored for their respective ecosystems (whether it may be Apple's, Google's, or Microsoft's) KEY PRODUCT/SERVICES ATTRIBUTES AND BENEFITS The products Xiaomi sells exemplify some of the highest quality products on the market for our mid-range users target market. Xiaomi devices will provide the market with distinct attributes defined by the following key factors: relative low price, technical features, and user experience.
  14. 14.  Price: In India, users buy their devices without any subsidies from their service providers, so cost the cost of devices can vary greatly and factor greatly into what consumers can purchase. Smartphones are usually classified into price ranges that span from under Rs. 5000 to more than Rs. 25000, with some of the higher end phones costing up to Rs. 70000. In terms of price, Xiaomi’s product mix falls primarily into mid-range priced devices. However, Xiaomi’s devices compete with higher-end devices even though they are moderately priced. For example, Xiaomi’s flagship phone, the Mi 4, will fall in the middle price range at a modest Rs. 19900 for the base level 16G model. This is in direct comparison to Apple’s iPhone 6 which starts at Rs. 46000 and Samsung’s Galaxy S6 which costs Rs. 49900. The very fact that Xiaomi’s offering in the high-end smartphone spectrum is less than half the price of its most powerful competitors highlights the bargain prices of its devices. This steep difference in price allows middle class users the option to purchase a phone that rivals high-end “luxury” phones that don’t fall in their price range. Xiaomi will also offer a lower cost phone that competes with some of the some of the lower mid-range smartphones on the market. The RedMi 2, Xiaomi’s more economic phone, will cost Rs. 6999 and will directly compete with popular competitors in the Rs. 5000 – Rs. 10000, such as: Microsoft’s Lumia 535, Asus’ Zenfone 5, Micromax’s Unite 2, and Motorola’s Moto E. This lower-end phone that Xiaomi provides allows for consumers at the bottom end of the middle class to purchase a cheaper priced phone without compromising the quality and features of the device.  Technical Features: Our consumer segment is price conscious about the products they buy but are still interested in the feature richness, functionality, and overall presentation of their devices, which are all things Xiaomi’s devices exemplify. The Mi 4’ features rival that of Samsung’s Galaxy S5 but at less than half the price. In regards to look and feel, the Mi 4 has a sleek design with a large screen that closely resembles the iPhone 6. One of the main draws of the Mi brand is the unique MiUI software platform that allows Xiaomi’s users to have exclusive access to a wealth of applications unique to its ecosystem. The pairing of high quality design and feature richness puts Xiaomi products in a class far above its price point. By being able to compare itself to the more luxurious brands, Xiaomi is able to provide its users with a sense of prestige that they would not normally be able to attain within the under Rs. 25000 price range. Ultimately, Xiaomi’s technical features are a point of parity because they can compete with the competition but they don’t necessarily provide the company with a true competitive advantage. While Xiaomi’s products are extremely well designed and built, they are not really distinct enough that they can stand out amongst the higher-end brands.  User Experience: The most important and differentiating aspect of Xiaomi products, the user experience is the factor that will give our target market a unique sense of satisfaction in the fact that they have a large amount of say in how their device evolves over time. The company’s implementation of user feedback will be crucial to building brand recognition and loyalty in the Indian market. Mid-range users are quickly becoming more tech-savvy and they will increasingly use their Xiaomi products as a part of their
  15. 15. everyday life so being able to provide input into product development will be something they will appreciate. The feedback system also benefits Xiaomi consumers by allowing errors to be recognized and corrected faster than usual. The effectiveness and short time frame of the company’s updating system will help the average user experience to be more streamlined and effortless. This more responsive and customized customer service gives Xiaomi users a sense greater sense of appreciation as a user. Another benefit that the Xiaomi brand can provide is a powerful sense of community amongst its users. The categorizing of users as “Mi Fans” allows users to feel as if they are a part of a team or club. This sense of community will provide Xiaomi device user a form of network effects that will allure consumers into inviting friends and family to join in on the fun. Additionally, Xiaomi occasionally provides free, exclusive events for its users to attend which further compounds the sense of pride and community that is accompanied by being a Xiaomi device owner. SUSTAINABLE ADVANTAGES The two sustainable advantages that Xiaomi will be able to leverage against its competitors are their low prices and unique user experience. Since Xiaomi’s business model revolves around selling their devices at extremely low profit margins they can maintain the sales price low as long as they can cover their costs. This is a key ability that competitors cannot easily copy because it would require that they completely restructure their business model. Additionally, the completely unique user feedback system that Xiaomi incorporates within its weekly update process is something entirely different from its competition. Because Xiaomi designs customized software that is packaged with all their phones, they allow their customers to have a lot of input into the updating process. Xiaomi’s update system allows users to feel empowered and gives them some say into how their devices are improved both digitally and physically. This system uproots the traditional relationship between business and consumer, where businesses usually have complete say into what changes are made and when. Xiaomi’s system is unlikely to be imitated by most smartphone manufacturers due to the limiting structure of traditional business-to-consumer communication channels. POSITIONING As Xiaomi has never previously operated in India, it is vital for their success that Indian
  16. 16. consumers have a positive opinion towards the company that is also aligned with the business' core objectives. To accomplish that, Xiaomi must target its consumers in such a way that they view the company as a business that competes head-to-head with major players in the smartphone industry, such as Samsung, Micromax, and Apple, but at bargain prices. Xiaomi wants its devices to be viewed as having the best value above all other competitors in India. When promoting value, Xiaomi must also avoid being classified as a "generic" brand that sacrifices functionality for price, as it is often the case with inexpensive Indian brands such as Forme or Intex. Xiaomi will need to push the mentality that its low pricing does not signify low quality. Potential consumers should be made to understand that expensiveness does not unequivocally equate to a better product and that inexpensiveness does not systematically mean absence of quality. Product excellence needs to be highlighted so that the consumer positively associates Xiaomi devices to both affordable prices and technical capabilities. Another perception that Xiaomi will want to shake off will be the negative connotation it has in terms of data privacy. Many Indian consumers have expressed concern in the fact that they believe that the Chinese government will be able to intercept data that navigate through Xiaomi's servers. Privacy concerns will need to be dealt with delicately and strategically when moving into India. Xiaomi will need to assure its consumers that their data and information will be safe from foreign governments monitoring. The company will have to proactively prove its trustworthiness and reliability to customers in order to be viewed in a positive light. It is in Xiaomi’s best interest to ensure that the company handle user privacy carefully to avoid any smearing of the brand name. It is critical that the company brand be built upon trust and customer satisfaction in the very early stages of market penetration to encourage quick user adoption and customer acquisition. Being classified as a major player in the Indian smartphone business is further reflected in the objectives outlined by company’s Indian market positioning statement: "For mid-range smartphone consumers, Xiaomi is the most cost-effective, high quality device manufacturer among all smartphone manufacturers in India because it does not sacrifice high quality materials, customized end-user experience, and overall design for higher profit margins." Consequently, Xiaomi's desired messages to the Indian market consist of three major points:  High Quality Products: Xiaomi produces high quality products because it develops each device component alongside the most experienced companies in the market. This results in phones with Sony camera modules, Sharp touch screen displays, Snapdragon processors, and so on. By avoiding designing and producing the majority of their own components (as Apple does, for example), they avoid having a device that's exceptionally good at one feature but average on all others, as is the case with HTC M9 phone, where the design is highly acclaimed but camera capabilities have received strong negative feedback over the years. This creates a consistent level of quality throughout its many product lines, and for Xiaomi to be able to leverage its high quality through its products, this theme must be first recognized by customers in their perceptions of the company.
  17. 17. Social media, some product advertising, and direct promotion will be the main forms of communicating our high quality message out to consumer. We will make use of internet websites and social media services to help promote the public’s view of our devices and spread awareness. Xiaomi might also consider opening up specific locations where consumers can do tryout and experience their products.  Bargain Priced Products: Xiaomi passes on great value to customers, as they are able to purchase devices with best-in-class features with best-in class prices. Xiaomi is able to reduce costs to price their devices at such low price points in three main ways. It cuts R&D expenses by combining other manufacturers' components into their devices, they cut selling expenses by selling directly to retailers for the most part, and they are willing to sacrifice their profit margin with sales of device in hope that customers will subscribe to their other MiUI services. As a result, they design and manufacture devices that compete head to head with the flagship phones from Apple and Samsung, but at a fraction of their competitors' prices. The philosophy of cost-effectiveness is a cornerstone of the Chinese company, and the Indian market must recognize that bargain priced products is one of the key benefits of purchasing a Xiaomi product. Mass communication will be the key channel in promoting the affordable prices to our target market. Displaying our prices online as well as having traditional media outlets talking about our products will help convey the value the products will provide their consumer.  Value of Investment: Xiaomi believes that the value of the investment you make when acquiring a new smartphone should expand well beyond the device itself. As such, the company has engineered the Mi ecosystem to be the connecting web among all its users. On the technological side, Mi services and apps not only encourage users to retain loyalty to the Xiaomi brand, but also provides an easy-to-use, familiar interface for users to download apps, listen to music, track biometric data, message with friends, and so on. This is similar to Apple's iCloud and iMessages, and help to create a close community around it devices. Xiaomi also extends the values of its products through Mi-members exclusive events throughout multiple locations. These events include exclusive music concerts, social gatherings with free refreshments and free gifts, and invitations to exclusive company events. It is in Xiaomi's best interest that potential customers are aware of this idea, and that they take these fringe benefits when making purchasing decisions. Xiaomi will communicate the value it provides by using heavy social media campaigns and direct promotion stores. Social media will be a powerful tool because it will leverage network effects amongst users and cause consumer demand to increase at a faster rate. Promotional stores will not only allow Xiaomi to provide current and future users to try out their products, it will also allow them to host events and provide unique services for its “Mi fan” user community. The importance of being classified as a major player by the Indian market is true in relation to all aforementioned segments but is especially important for the mid-range users segment and all of its sub-segments. Ultimately, Xiaomi plans its smartphone business activities in India around objectives outlined by its common, company-wide position statement.
  18. 18. MARKETING PROGRAM OBJECTIVES This plan will also outline six marketing objectives that should serve as guidelines to the specific marketing program. These objectives include goals in the areas of sales, market share acquisition, place, price, and promotion. The market objectives are as follow: 1. Acquire 2.5% of mid-range consumer segment of the Indian smartphone market share by April 2016: Xiaomi must aim at acquiring 2.5% of the 267 million potential customers in the mid-range consumer segment, or approximately 6,667,000 new customers within 12 months. This is a reasonable estimate as it takes into account the company’s past success in China, as well as the factors that helped Xiaomi become successful in China that will not help its expansion into India, such as nationalistic pride and cultural identification. This initial customer acquisition phase is critical to Xiaomi, as it needs to generate enough traction in the market to become considered one of the big players in the industry in India. 2. Acquire 3 Million new Indian users to Xiaomi services and apps to improve company's profit margins: In order to become a sustainable and viable business in the long term, Xiaomi must be able to improve its profit margins through its software ecosystem. Xiaomi is famous for using a “free now, pay later” software model, where they acquire software users at a cost, and then leverage their user base to generate revenue. With its Indian launch, Xiaomi must attempt to have 3 million users – about half of its market share acquisition goal –sign up for at least one of its many service offerings in 2015, whether it may be downloading apps from its proprietary app store, using its Mi messaging platform to communicate with other Xiaomi customers, among its many others offerings. 3. Generate US$800 Million in revenue from operations in fiscal year 2015: Xiaomi must aim at generating at least US$800 Million in fiscal year 2015 to cover the launch and one-time costs of its Indian expansion and to avoid generating large amounts of debt onto its new business. As the company will aim to acquire approximately 7 Million new customers, US$800 Million in revenue is a very feasible goal, even if they only sell their cheapest device which is prices at approximately Rs.7,000 or US$120. Realistically, little to no portion of this revenue will be retained as profits; most of the Indian earnings will be used to cover Xiaomi’s past and future expenses in its expansion endeavors and should be reinvested in the company’s Indian subsidiary. 4. In introductory phase of Indian launch, price Xiaomi devices at least 40% lower than their direct competing counterparts until January 2016: The flagship phones of Xiaomi’s main rivals are far too expensive for most mid-range consumers to purchase. One of the Mi 4’s greatest advantages is that its price will be less than half of Apple’s latest flagship phone, the IPhone 6. Even Samsung’s previous generation of its flagship phone line, the Galaxy S5, is almost Rs.10,000 more than Mi 4. These huge price difference are key to Xiaomi’s success in India and will be a main objective that we will try to keep throughout the next year.
  19. 19. 5. Increase production capabilities within India by 2016: Xiaomi must make sure that its production rate will be able to manage entry into the world’s second largest smartphone market. While it has an efficient and effective supply chain in China, Xiaomi is increasingly beginning to overextend its production capabilities back home. If the company’s entrance proves to be a huge success the demand for its products might be too much for the current supply chain. Investing in local production within India will not only increase the supply of products but will also reduce transportation costs that the company incurs from shipping its products all the way from China. 6. Build two new data centers in India by the end of 2015 to assure customers that their data will be kept in domestic territory: One of the key messages that Xiaomi must communicate to its market is that the company protects its users’ data from prying eyes. Xiaomi must build new data centers in India to back up its privacy claims as well as to create the infrastructure to provide high quality, well performing Mi services. Although these two new data centers may initially be built at cost using a portion of Xiaomi’s recently acquired investing funds, the buildings would serve as a long term investment in the Indian market, and would be a key differentiator in terms of performance and reliability in comparison to its competitors who rely on American or European data centers to serve India. 7. Spend $3 Million in advertising during Q2 and Q3 of 2015 in order to spread brand recognition and increase individual product awareness: Even though Xiaomi does not normally spend very much on advertising, it will be crucial to the initial branding of the company in India. Ads will make consumers aware of the product value and numerous fringe benefits that Xiaomi products will provide them. Entering the new market with effective advertising will provide Xiaomi with the chance to associate high production standards with its products right from the beginning and before any serious market perception has been molded. Ultimately, the overall goal of the promotional efforts will inform the consumer about how Xiaomi is providing the consumer with an experience, instead of just a product. Although these six marketing objectives do not detail all the specifics of Xiaomi’s larger marketing program, the objectives do establish the guidelines by which the marketing plan should be developed. These objectives leverage a variety of marketing mix components – including price, place, promotion, sales, product, and market share –and can be measured and achieved within the period of 12 months or before the end of fiscal year 2015. Xiaomi must be careful and strategic when planning its expansion into India for 2015. For a company that has achieved so much success and has become a major player in some of the biggest markets of the word in just shy of five years, a detailed and carefully crafted marketing plan is just the first few steps in the evolution of the Chinese smartphone manufacturer into a major global business.
  20. 20. Sources  Factiva – “Xiaomi Buys Stake In Video Site” https://global.factiva.com/redir/default.aspx?P=sa&an=J000000020141120eabk0002m&cat =a&ep=ASE  Factiva – “Xiaomi Suffers Backlash in India” https://global.factiva.com/redir/default.aspx?P=sa&an=J000000020141212eacc00035&cat= a&ep=ASE  Factiva – “Xiaomi Invests in Chinese Appliance Maker Midea; Smartphone Firm Aims to Boost Presence in Market for Internet-Connected Home Electronics” https://global.factiva.com/redir/default.aspx?P=sa&an=WSJO000020141215eacf00236&cat =a&ep=ASE  Factiva – “India Court Temporarily Allows Xiaomi Imports; India Halted Imports Last Week on a Complaint About Royalties by Ericsson” https://global.factiva.com/redir/default.aspx?P=sa&an=WSJO000020141216eacg007sl&cat =a&ep=ASE  Factiva – “Corporate News: Xiaomi Faces a Major Test” https://global.factiva.com/redir/default.aspx?P=sa&an=J000000020141230eacu0002b&cat =a&ep=ASE  MarketLine Advantage – “Xiaomi Inc.: The world’s fourth largest smartphone company the West has never heard of” http://advantage.marketline.com/Product?pid=ML00017-074  Factiva – “Want to bring all our core products to India, says Xiaomi president Bin Lin” https://global.factiva.com/redir/default.aspx?P=sa&an=ECTIM00020140716ea7h0006b&cat =a&ep=ASE  Factiva – “Xiaomi sells 15,000 Mi3 devices in two seconds; flash sale leaves buyers disappointed” https://global.factiva.com/redir/default.aspx?P=sa&an=ECTIM00020140807ea870002y&cat =a&ep=ASE  Statista – "Share of population in India that use a smartphone from 2012 to 2018 graph" http://www.statista.com/statistics/321487/smartphone-user-penetration-in-india/  XiaomiPhones – "Xiaomi Smartphone Portfolio" http://www.xiaomiphone.com/  Tech2/FirstPost – "Xiaomi unveils Mi Note, Mi Note Pro; has big plans to expand in India" http://tech.firstpost.com/news-analysis/xiaomi-unveils-mi-note-mi-note-pro-has-big-plans- to-expand-in-india-250101.html  The Verge – "What is Xiaomi? Here's the Chinese company that just stole one of Android's biggest stars"
  21. 21. http://www.theverge.com/2013/8/29/4672668/what-is-xiaomi-china-smartphone-hugo- barra-android  The Economic Times – "Indian companies like Micromax follow Xiaomi and Motorola success by launching smartphones for online markets" http://articles.economictimes.indiatimes.com/2015-01-24/news/58408398_1_new- smartphones-smartphones-sales-karan-thakkar  Trading Economics – “India's Total Personal Disposable Income” http://www.tradingeconomics.com/india/disposable-personal-income  CNET – “Android loses some of the US market share but remains top dog” http://www.cnet.com/news/android-loses-some-us-market-share-but-remains-top-dog/

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Xiaomi Inc.: Positioning and Strategy for Entry into Indian Smartphone Market


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