Xiaomi and China’s Smartphone Market

Can It Thrive in a Crowded Market?

Dec 12, 2019
Marketing

SMITH BRAIN TRUST  For the first time in more than a year, Xiaomi Corp. saw its shares jump as it launched this week in China a 5G smartphone “for the masses.” With its release of Redmi K30 5G, Xiaomi, the world’s fourth-largest smartphone maker, has fueled hopes to regain ground in the mainland-China market against such rivals as Huawei and Apple.

Prices for the Redmi K30 5G start at 1,999 yuan ($284).

But does the Beijing-based company have what it takes to ascend in China? In a recent interview, Maryland Smith’s P.K. Kannan shares some insights.

Interviewer: Its 5G smartphone release notwithstanding, how do you assess Xiaomi’s prospects for regaining its market share in China’s ‘one super (Huaweii) many strong’ smartphone market?

Kannan: This has been a strange year for the smartphone market, especially in China. The U.S. government action against Huawei had a negative impact on its smartphone sales globally, but in China it had a significant positive impact on the sales of smartphones. Consumers got caught up in the ‘Buy China’ movement, just to show that the U.S. action was ‘ridiculous.’ Many consumers switched to buying Huawei instead of Apple, or to other Chinese brands to show their support for Huawei. Also, given the negative impact on global markets, Huawei redoubled its marketing campaign in China and was able to capture a large market share.

There is nothing XIaomi could have done to anticipate this or react to this trend, and so it was caught up in the Huawei wave and lost share. Another factor that could have impacted Xiaomi’s market share is its de-emphasizing of the smartphone as a product that would be responsible for their future growth. Xiaomi was focusing on its installed base of phones for ad revenues, which did not materialize as predicted. In fact, growth was flat in the ad revenues. On the other hand, the premium phones of Xiaomi had a good showing, pulling in good margins.

This strange year for the China market may not continue, with Xiaomi looking to increase its market share with the new 5G phones. With more focused marketing of smartphones and ancillary products in their product line (see below), I see them reversing the market share trend. So, they will still be a strong contender in the one super many strong smartphone market.

Interviewer: Recent Xiaomi-consumer surveys indicate the products have good design and technical development, but are lacking in coherent product and product category development. What’s your view on the coherence criticism?

Kannan: Many firms competing in the smartphone market have had the ‘coherence problem’ at one time or the other, including Xiaomi. This relates to the balance in viewing the smartphone as a platform for selling services and advertisements versus viewing the smartphone and its ancillary products purely as hardware.

Samsung very much takes the hardware approach. Apple, although quite strong in its platform offerings, still views the smartphone market as a hardware market with clear goals in revenue and profitability. This is also the approach of many of the other contenders. Xiaomi, on the other hand, views the smartphone market as a means to building an installed base and creating a strong platform, and thus not emphasizing the margins in these.

Given the product quality and technical capability, it needs to market the smartphone using a hardware-first approach. Xiaomi is also strong in wearables, so having a coherent product line with complementary marketing can help in regaining market share.

Interviewer: The surveys also reflect a perception Xiaomi imitating Apple and Dyson, but with a clever design. Is Xiaomi an innovator or a copycat?

Kannan: Apple was an innovator in this market and Samsung innovated some features. But most firms are in the catching-up business these days – even Apple. The idea is to copy the features of all other phones in the market so that their products do not fall behind others. By this definition, all are copycats and so I would not limit this term to just Xiaomi. The question is whether a firm can do this competently so that their consumers benefit. From that viewpoint, Xiaomi is seen as a creator of quality products – as good as the best in the market. Some of their phones in the global markets such as Realme in India are big hits, showing its class as an innovator.

Interviewer: At the end of November, Xiaomi co-founder Li Wanqiang announced his departure from the company as it was making a sprint for 5G business. Was that good timing or bad? How might this change in Xiaomi’s core team affect the future of the company?

Kannan: The departure should be seen in the light of declining market share and the need for rethinking on what to emphasize – the hardware or the platform. Such changes are good for the company as new blood at the helm means new thinking and reboot of the strategy. The future of the company depends on whether the changes lead to competent and successful outcomes. Time will only tell this.

Interviewer: How would you assess Xiaomi’s strength, moving forward?

Kannan: Xiaomi's strength lies in its competent engineering, quality products and strong ancillary products. As long as they emphasize this, Xiaomi will remain one of the strong many.

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About the Expert(s)

P. K. Kannan

P. K. Kannan is the Dean's Chair in Marketing Science at the Robert H. Smith School of Business at the University of Maryland. His main research focus is on marketing modeling, applying statistical and econometric methods to marketing data. His current research stream focuses on attribution modeling, media mix modeling, new product/service development and customer relationship management (CRM).

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