Past, Present and Future of Xiaomi

According to many market research institutions such as IDC and Canalys, Xiaomi’s shipments in the third quarter of this year ranked third in the world. This is a good result that Xiaomi has once again returned to the third place in the world since the third quarter of 2014. The founder, Lei Jun, naturally couldn’t hide his excitement and raised the matter many times on platforms such as personal official accounts and Weibo.

Moreover, Xiaomi’s financial situation in the third quarter was not bad. In the third quarter of this year, Xiaomi’s total revenue and net profit hit a single-quarter high, with revenue of 72.2 billion yuan, an increase of 34.5% year-on-year; adjusted net profit was 4.1 billion yuan, an increase of 18.9% year-on-year. Global mobile phone shipments amounted to 46.6 million units, a year-on-year increase of 45.3%, and domestic smartphone shipments increased by 18.9% year-on-year, making it the only manufacturer among the five major manufacturers to achieve positive growth.

In addition, after Xiaomi’s listing on the Hong Kong stock market in 2018, although it has experienced many difficulties, Xiaomi’s share price has been recovering this year. As of December 10, 2020, the Hong Kong stock price of Xiaomi Group was 27.60 Hong Kong dollars per share, with a total market value of 686.932 billion Hong Kong dollars.

With high sales, good finances, and recognition in the secondary market, how can Xiaomi be outdated?

In the past

Xiaomi was founded in 2010 and this year marks the 10th anniversary of the establishment of Xiaomi. On August 11, 2020, Lei Jun, Chairman of Xiaomi Group, gave a public speech with the theme of “Unparalleled Progress”. In this speech, Lei Jun summarized the development of Xiaomi in the past 10 years and looked forward to the future. The speech lasted a long time. It contained a history of Xiaomi’s development that is known or unknown to the public, and it also contained some of Xiaomi’s successful experience, which attracted widespread attention from the public.

The ability to gain a lot of attention is not unrelated to the rise of Xiaomi. Xiaomi, which has only been established for 10 years, was selected as one of the world’s top 500 companies in 2019. The growth rate of Xiaomi can be seen directly from the revenue curve over the years. The rapid rise of Xiaomi has naturally attracted the attention of the public, and its successful experience can naturally benefit people.

First, it is Xiaomi’s business model – the Internet model.

In the early days of entrepreneurship, Lei Jun’s idea was to use the Internet, software, and hardware to form Xiaomi’s “triathlon”. “The best Internet is Google, the best software is Microsoft, and the best hardware is Motorola. Bringing together the three elites, let’s make smartphones together”, with this idea, Xiaomi entered the smartphone industry.

The core of the Internet model is not to rely on hardware profits, use software + hardware to improve user experience, acquire users at low prices, and then obtain profits through Internet services. This is similar to the traffic monetization model of the Internet industry, and it follows the path of obtaining traffic—distributing monetization.

Along with Xiaomi’s Internet model, two strategies have emerged, one is cost-effectiveness, and the other is hunger marketing.

The price-performance ratio is attracting some people who have requirements for smartphone configuration but don’t have much money to afford them premium brands.

Hunger marketing refers to limited purchases, creating a situation where “supply exceeds demand”. In the early days, Xiaomi made “limited time purchases” because of insufficient production capacity. However, in the later stage, this method became a stand-by for the sales of new Xiaomi phones. Hunger marketing has two advantages. On the one hand, it can create a scarce “illusion” that consumers will rush to. On the other hand, it can reduce costs. According to Moore’s Law, the cost of electronic components will decrease over time.

Second: Hunger marketing plays a key role in Xiaomi’s Internet marketing.

Xiaomi was an enterprise that paid attention to private domain traffic operations. The community operation of MIUI, the sale of Redmi phones, and other factors reflect Xiaomi’s emphasis on private domain traffic.

Xiaomi follows this rule: it makes explosive products, let users participate in the product design, do fan operation, content operation, new media operation, and use the network to narrow the distance between Xiaomi and users. These practices include, but are not limited to: senior management taking place on various media platforms, sending staff to the Xiaomi community, and soliciting user opinions when designing new products.

The reason for the rapid rise of Xiaomi is not only its Internet thinking and Internet marketing, but also many other reasons, such as market environment, executive efforts, online channels, IoT ecology, etc.

Xiaomi’s Internet thinking has indeed caused a dimensionality reduction blow to hardware companies. Xiaomi imitators rush to enter the smartphone industry, which has contributed to the prosperity of China’s smartphone industry. The price war between smartphone manufacturers has lowered the price of smartphones and lowered the barriers for people to enter the mobile Internet, indirectly contributing to the prosperity of the mobile Internet era.

Now

Now, Xiaomi knows users, marketing, and products. But cost-effective strategy derived from Xiaomi’s Internet business model is still Xiaomi’s “weapon”.

Xiaomi still wins customers with its low price and cost-effectiveness. In the third quarter of this year, Xiaomi occupies the third position in the European market. On the surface, the European market that Huawei had been sanctioned by the United States was taken over by Xiaomi. But in fact, the high volume of Xiaomi smartphones still comes from Redmi.

According to Canalys’ data, the three-month sales of Redmi Note 8 in the third quarter exceeded 10 million, and the cumulative sales reached 40 million. Among the 64 million units shipped by Xiaomi in the first half of the year, the Redmi Note 8 and Pro versions together accounted for almost one-third.

Redmi’s role is to maintain Xiaomi’s price-performance label. But when Xiaomi decided to enter the high-end niche, the “price-performance ratio” is also lingering. Last year’s Mi 9 went up to 3,000 yuan, and this year’s Mi 10 went up to 4,000 yuan. However, in the face of the pricing and configuration of competitors in the same period, due to the strong stockpiling of Mi 10, it was inevitably labeled as cost-effective.

Also Read: How Xiaomi Could Enter and Win High-end Smartphone Market?

In addition, before the listing, Xiaomi promised that its hardware gross profit margin will not exceed 5%, which is destined to be not easy to lose the label of Xiaomi’s “cost-effective”.

The hunger marketing strategy still exists

At the 10th anniversary celebration on August 11, Xiaomi released the Redmi K30 Ultra. On the basis of the K30 pro, the Qualcomm Snapdragon 865 processor was replaced with MediaTek’s Dimensity 1000+, which reduced the flash memory speed, increased the screen refresh rate, and re-tested the price to 1999 yuan.

The Redmi K30S Ultra launched during Double Eleven also adopts the pre-order model, and Xiaomi’s “hunger marketing” is vividly reflected in these two models.

In his speech on Double Eleven, Lei Jun explained that the problem of hunger marketing was insufficient production capacity in the early stage. But Xiaomi has now gone through 10 years and is still adopting hunger marketing. From this point, we can see that Xiaomi’s “hunger marketing” is not due to insufficient production capacity, but more like a tool to highlight the “cost-effective” label of Redmi.

In terms of Internet marketing, many of Xiaomi’s strategies have not changed. In order to increase user participation, Xiaomi executives often collect opinions on Weibo.

Future

The “hunger marketing” approach adopted for the most cost-effective models is nicknamed “monkey playing” by consumers, which is a disadvantage for Xiaomi’s branding. Moreover, although Xiaomi’s cost-effective models are “sweet”, there are also models that are compatible with them, which will cause the loss of consumers.

In terms of Internet marketing, there have been incidents of “vulgar marketing” by some executives. During the initial period of the Xiaomi brand, some low-level marketing methods may be adopted to attract some consumers and rapidly expand the brand’s popularity. But today’s Xiaomi, using vulgar marketing methods, can only shoot itself in the foot and damage its brand image.

Thus, it seems Xiaomi does not understand consumers anymore, and both hunger marketing and vulgar marketing are somewhat outdated.

Companies need to grasp the consumption needs of young people. This is true, but they must also understand consumers. There is no doubt that the high-end strategy of Xiaomi is a “new knife” that Xiaomi is forging. However, the outdated “old knife” is a stumbling block on the road to high-end Xiaomi phones.

Once the brand image of a product is cultivated to an outstanding position, the company that produces the product will obtain the largest market share with the highest profit. According to a report by Counterpoint Research, in the second quarter of 2020, Apple’s smartphone revenue ranked first, and it grabbed about 59% of the global smartphone industry profits.

Apple, which has an outstanding brand image and is located in the high-end market, accounts for most of the industry’s profits. If Xiaomi wants to hit the high-end, it naturally has to shape its brand image. The people who buy high-end brand phones are different. This is related to the brand image. Different brand images have different consumer recognition.

Xiaomi’s brand image has long been affected by “cost-effectiveness”, and its entry into the high-end smartphone market has also been labeled as “cost-effectiveness” because of its strong stockpiling. The “cost-effectiveness” and “high-end” are naturally conflicting. But Xiaomi seems to have come out of a special high-end price-performance ratio road of transformation.

Xiaomi’s Three Businesses

In addition to forging the “high-end” new knife, Xiaomi should also pay attention to some issues. Xiaomi currently has three major business revenues, namely smartphones, IoT and consumer goods, and Internet services.

In the smartphone business, in addition to the issues that have been analyzed in this article, there are also R&D and design issues. In the 10th anniversary speech, it was announced that Xiaomi’s R&D budget for this year was 10+ billion yuan. At present, the research and development costs in the first three quarters of this year total 6.2 billion yuan, accounting for less than 4% of revenue. Technology is the key to increasing brand equity, and Xiaomi may also increase investment in research and development.

Working hard on appearance is also a way to shape brand image. Xiaomi smartphones also have great designs, such as bright silver, transparent, etc., but some designs are not flattering. Perhaps Xiaomi can find its own design style, or launch different designs for different consumers. In our opinion, the design of the Xiaomi Mi CC9 Pro, which was previously cooperated with Meitu, is a pity. Perhaps the design style of the Meitu design can be retained, and there is no need to pursue a full screen too much.

In terms of IoT and consumer goods, it mainly relies on Xiaomi’s ecological chain enterprises to create Xiaomi’s smart life layout and form the second curve of Xiaomi’s growth. However, some eco-chain products just add a Bluetooth, which is not very smart. In addition, due to the variety of products, the quality problems of some products are also a loss to Xiaomi’s brand equity. For example, the posts of Xiaomi mouse are many posts that advise not to buy.

In terms of Internet services, it mainly consists of games, advertising, and financial services. Promoting your own advertising, games, and financial services is correct. But it must not affect the user experience. When using the bus card launched by Xiaomi, some Redmi K30U owners found that they could only use Xiaomi wallet to recharge, and there were no other payment methods such as Alipay and WeChat, which affected the user experience.

In addition, in terms of marketing, in addition to hunger marketing and vulgar marketing, false publicity is also a problem for Xiaomi. Most of Xiaomi’s historical administrative penalties are penalties for false propaganda.

Conclusion

Is Xiaomi out of date? Perhaps some ideas and strategies are outdated, but the “old knife” that Xiaomi created before can still help Xiaomi achieve a lot of achievements.

The “new knife” is forging.

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