Xiaomi, the Chinese smartphone maker, popularly called China’s Apple has raised eyebrows of many with their brilliant specs and too-less-to-believe price. With the phone’s good looks, features and aggressive price, Xiaomi has pushed the Korean phone company Samsung to the second place in the Asian market.
When its competitors Apple and Samsung price their phones around $1000, Xiaomi’s Mi phones with the same specs as Apple and Samsung prices around $300 to $500. The rock bottom prices of the Xiaomi phones had made many wonder how can it be priced so low for the specifications it provides. But now the cat is out of the bag.
Many theories were speculated on its pricing strategy. One such is that Xiaomi is selling its phone on no-profit margin and making money through its other services. But Hugo Barra, the company’s VP of International has spilled the beans at TechCrunch’s interview at Beijing last week.
He stated that low price recipe is the result of the combining two important ingredients. The two main ingredients are the small portfolio and the longer selling time per device. He says, “A product that stays on the shelf for 18-24 months — which is most of our products — goes through three or four price cuts.” He explained it saying Redmi 1 stayed on the sales for 16 months before the launch of the Redmi 2. Same with the Mi2 and Mi2s, more-or-less same models stayed on sale for almost 26 months.
It has to be noted that Xiaomi sells its older model at a discounted price even after the newer models are released. The longer runway for devices give the maker an advantage to get better components at a better price from its suppliers. Strong negotiating power with the suppliers for the components, adds on as an plus, helps them gain a better margin on the phones.
Barra also added that the major components in their devices are the same and they uses same supply contracts as Redmi so they get same amount of discounts on the components always. Also the same applies for their supply chain and component sourcing. Hence, until they have small portfolio, they could continue riding on the low cost curve.
It is not all about price cuts. Though the dynamics are very simple, the commitment to maintain software updates, spare parts and services to the devices on a longer term when compared with the other makes, help Xiaomi stand out from the rest. The other factors that contribute to the cost structure are online-only marketing strategy, its location close to the manufacturing units in China. Close proximity makes the supply chain partnership less complicated.
Off-late Xiaomi has started testing operator partnerships outside China and is running a limited trial with Airtel, India and other partners in Taiwan, Malaysia and Singapore.
Xiaomi sold millions of devices in India last year with their flash sales technique and aims to increase sales vastly in 2015. Reports also suggest they are working on to market their phones in Europe and American countries as well. It would not be surprising even if the ambitious Xiaomi becomes world’s largest smartphone maker in the coming years.