Right call: for Xiaomi, it’s ‘Hindi-Chini, buy-buy’

At each of its product launch events, Chinese gadget-maker Xiaomi plays a neat little party trick. Hugo Barra, its rock-star Vice-President of International, holds up the new product – say, the latest smartphone – and asks the attendant crowd what price it thinks it should sell for.

“₹25,000?” asks Barra, teasingly. “20,000? Maybe 15,000?”

An impromptu ‘auction’ then unfolds. Some in the crowd yell: “15,000”. Others amp it up to “20,000”.

Barro lets these numbers sink in. He pauses dramatically to let the suspense build up.

And then, to the imagined sound of drumrolls, he announces with a flamboyant flourish: “Well, it’s yours for ₹11,000!”

Cue: thunderous applause and raucous cheers. It works every time.

It isn’t just Barra’s showmanship that has Xiaomi’s customers – and even sections of the tech media – gushing like giggly fanboys. In the two-plus years since it debuted in India, Xiaomi has established a reputation for its “Apple-class” products at perhaps half the price.

In fact, when Xiaomi first launched in India in July 2014, it sold about 15,000 smartphones online in just 4.2 seconds! When it launched its Redmi Note 3 in March this year, it sold six lakh units in 60 days – making it the highest-selling handset online. And in the 72 hours between October 1 and 3, it sold more than half a million devices through partner platforms – a feat no vendor has matched in India.

And all this without spending a paisa on marketing or advertising!

In a market crowded with big daddies like Samsung, Micromax and Lenovo, late-entrant Xiaomi has managed to make a mark, thanks largely to its differentiated business strategies.

“When we started, people thought we wouldn’t be successful as we were only present online. But two things worked really well for us: innovative products and quality word-of-mouth referrals,” says Xiaomi India head Manu Jain.

To amplify its merits, Xiaomi cultivates young consumers, who now make up a robust fan community. “We target young online people, who are social-media-savvy and technology-savvy. They then tell their friends about us,” says Jain. In June, Xiaomi launched the Mi fan community in the digital space. It hand-picked 100 fans and gave each of them a device a week ahead of the launch to build a buzz in the digital and social media spaces. And it worked like a charm.

According to research firm IDC India, Xiaomi is the No. 3 online smartphone company with 12.9 per cent market share in the April-June period.

Other brands, notably Motorola, may have pioneered the ‘online-only’ sales route, but no one has quite leveraged that disruptive idea quite like Xiaomi has. Jayanth Kolla, founder and partner at Convergence Catalyst, says: “Being online-only is effective: you need to partner with only a few marketplaces, and the channel margin is much lower, only 5 per cent in some cases. And you can manage the logistics from a central warehouse. All of these keep costs low.”

Besides, Jain says, Xiaomi’s pricing strategy is a winner. Its models pack the features of Apple smartphones at relatively affordable prices. “We sell our products close to cost. Of course, we have profit margins, but they are not exorbitant,” he says.

Typically, marketing and advertising account for about 10 per cent of revenues for most major brands; Xiaomi does it smart by creating a buzz online and letting customers fight it out in flash sales.

Selling directly to customers also cuts down on distribution costs. The retail chain — distributors, wholesalers, retailers and other middlemen — is long, and companies spend up to 25 per cent of the cost as commissions. Xiaomi has no such chain.

Xiaomi has also been actively expanding its product range and recently unveiled a ‘consumer durable’ product: the Mi air purifier, very competitively priced at ₹10,999 (against the ₹35,000 that other brands cost). And it’s quite a funky product, which connects to your phone through an app that lets you monitor a bunch of parameters – temperature, humidity, the PM2.5 level, how much of the filter remains, and so on.

Additionally, partnering with 55 companies, Xiaomi is working on dozens of Internet-of-Things gadgets – everything from connected rice cookers to smart bulbs. A whole new world awaits.

Anshul Gupta, research director at Gartner, says, however, that an online-only business modelfaces inherent challenges. Not everyone is comfortable buying online. “There is a certain segment that can be catered to online: these are buyers of smartphones in the ₹6,000-20,000 range. But beyond that range, customers prefer a physical store and a hands-on experience of the product before they commit,” he adds.

As Xiaomi users upgrade to higher-end models, they too may seek the comfort of the touch-and-feel factor.

Kolla reckons that Xiaomi’s online-only strategy gives it access to at most 20 per cent of the smartphone buyers’ market. In his estimation, an offline presence is needed: the distribution channel helps build visibility on the ground and brand recall, he says.

Strikingly, Xiaomi seems to have become sensitive to this need for an offline presence on the margins. In August 2015, it tied up with Chennai-based Redington India as the sole distributor of Xiaomi devices to retail outlets. In July this year, it expanded the partnership to Noida-based HCL Infosystems under a direct-to-retail (D2R) model.

However, unlike the traditional ‘push’ model, where everybody in the supply chain pushes the other to buy more and more stock, Redington supplies only as many units as a retailer is able to sell. “So the capital cost goes down significantly, resulting in higher returns because the investment required is much lower,” Jain adds.

More recently, as Xiaomi looks to expand its footprint into rural India, it is entering into new tie-ups. Just this week, the company formalised a partnership with rural retail vendor StoreKing to “serve rural consumers better regardless of their location.”

The smartphone market is extremely competitive, and Xiaomi has many offline competitors. Apart from international and domestic majors, it also has to keep an eye out for the next little-known Chinese brands that may do unto Xiaomi as Xiaomi did unto others.

For now, though, Xiaomi has a good thing going, and it’s got momentum on its side. Even so, the brand’s long-term success in India will depend on its ability to generate an offline buzz as smartly as it has done online.

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