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Top 5 Reasons How Xiaomi Can Sell SmartPhones for Cheap

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Xiaomi Bunny

Xiaomi, the Chinese Smartphone vendor, has reached the number one place in the Industry with their Flash Sales and Pricing but are they creating any impact on the industry and market share? Let’s look into that in more detail and have a check on how are their phones so cheap.

To start off, you need first to know on how this all started and how this small startup became a $10 billion company within four years. It was in 2010, when Lei Jun launched MIUI; a firmware based on Android operating system and later realized its importance to have an optimized hardware for this software. That is when the Internet startup launched their first smartphone, dubbed as Mi One in the month of August at a very affordable price.

Moreover, giving it a good head start over the established mobile vendors in the China. And within a few years the company sold 15 million Mi devices which are more than Samsung’s shipment of 13.2 million units in that interval.

The success of Xiaomi can be defined in just four measures/reasons, which the Chinese manufacturer took to stay ahead in the ever growing mobile industry and eventually disrupting its rules. Below, we share those measures that have been the part of Xiaomi’s success all along its path.

1. Limited Manufacturing:

In this aspect, Xiaomi has been on the right strategy all along from the manufacturing its first Mi phone. The company manufactures the products on demand, by following this policy; it has been very easy to not get into any losses, as there would be no dead stock lying around. With this strategy, company faces less risk managing a smaller inventory. In addition to that, it also lets Xiaomi ramp up the production as component cost decline over time.

Xiaomi - 60 Million Handset

Though, there is an obvious drawback here too, as the consumers have to wait a lot to get their products, since the window of sale is of limited stocks at a time, which may result in loss of potential sales. Last year, the company’s Hongmi phone received 7.4 million pre-orders after the device was announced, even though, the supply was limited as said.

2. Selling at Substantially Lower Profit Margins:

Since, Xiaomi’s products are priced aggressively, the consumers don’t look for any other alternatives and jump into their flash sales. According to the research firm Fomalhaut Techno Solutions, in the case of Mi3, the production cost of the device is $157. While company was selling this device during its launch for around $327, which was more than a good amount of profit margins for the Startup at that time. But since, the successor Mi 4 has already launched in China, therefore now company is selling Mi 3 in countries like India for INR 13,999, which translates to roughly $229. Making still a substantial amount of profit over the production cost.

In some countries, you would find that the Mi3 would cost as much as $300. Therefore, you have to understand that there are good profit margins for even Xiaomi phones and most probably without the compromisation of the quality standards.

3. No Traditional Advertisements:

With Xiaomi partnering up with every country’s popular e-commerce platform, they tackle the most costly input of marketing their products via offline store, advertisements like print media, TV, as well as web adverts. Those e-com sites not only offers their handsets, but you can also see set of accessories such as headphones, T-shirts and even company’s toy rabbit mascots. Company has stated that, they have sold over 180,000 units of the mascots in 2012 alone. While then, the company was not present in the Southeast Asia, which includes Malaysia, Philippines, Indonesia and India as well.

Xiaomi Bunny

With such high-quality products and specification on their smartphones, company has already managed to start a buzz in the countries that they have not yet started their operations. Like for instance, it was with India, at least few lakhs people would have known how interesting Xiaomi products are. Everything works with word of mouth leading to free marketing.

4. Flash Sales:

Whether or not you can get your hands on a Xiaomi phone is another matter. Instead of pushing their products to the consumers via constant adverts, Xiaomi is making people wait for their products. As people get ready to purchase their products via registrations, company gets to see how many consumers are interested in buying their products.

Within four years of its inception, Xiaomi has gone from being a startup to a $10 billion valued manufacturer as every smartphone maker is in its cross-hairs to understand the strategy of the company. Though, their strategies are not so secret at all, as most of the big analysts and firms have already posted a researched study about them. Putting it better, the Global VP of Xiaomi explains in this below quote on Yourstory.

Xiaomi - Hugo Barra

Image: Yourstory

“We are an e-commerce company. We live on the internet. We are selling exclusively through e-commerce. And the price there can be much lower because the price on e-commerce is essentially fulfillment and shipping cost.”

5. Kindle-like Business Model:

While Xiaomi is trying to be a straightforward with its aggressive pricing, the company might need much more profits in the future to increase the production of their products. As company expands to more foreign countries this year including the Brazil, Mexico and Russia in the coming months.

Since, its MIUI is one of the most powerful and popular Android based firmware, thereby taking advantage of the popularity. Xiaomi has already started a theme stores, which boasts hundreds of free, as well as paid themes, while free themes can be downloaded directly; the paid themes are purchased via the Mi credits.

As this strategy is somewhat similar to what Amazon is doing with their Kindle series of tablets, where they push customers into buying more ebooks and another digital content. Though, Xiaomi might not be pushing its services to the users; it sure has a good ecosystem to provide exclusive media contents. With Xiaomi Mi TV being sold in the country with dedicated content material, in the future we may see more contents like that in their smartphones as well.

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