Xiaomi, founded in 2010, has quickly expanded to become one of the world’s leading smartphone brands, driven by success in its home market, China. However, slowing growth in recent years, also due to fierce competition in China from brands such as Huawei, OPPO, and VIVO, has led the company to change its strategy. After a lackluster performance in 2016, the new strategy appears to be bearing fruit, as evidenced by a recent revival in Xiaomi’s phone sales. According to its reports, the company shipped more than 23 million smartphones in the second quarter of 2017, up 70% from the previous quarter and marking a record high for its quarterly smartphone shipments.
Newzoo’s Global Smartphone and Tablet Tracker shows that Xiaomi accounted for 8.3% of all the Android smartphones used globally in August 2017. This makes it the #4 Android brand worldwide in terms of active smartphones and the #5 brand overall. Having just secured a new $1 billion loan in July, the three main pillars of the Chinese smartphone maker’s new strategy are: expanding further outside of its home territory, launching new high-end models, and establishing brick-and-mortar retail stores. A closer look at the data shows just where Xiaomi has been growing and where further expansion opportunities may lie.
XIAOMI’S GLOBAL AMBITIONS TO GROW ITS 6% MARKET SHARE
Xiaomi accounted for 6.3% of all smartphones in use globally in August (Android and iOS), with its main competitor Huawei at 8.6%. In China, Xiaomi is currently the fifth-most popular brand and while its market share in China dropped slightly from 2016, it more than doubled from 5.2% to 11.8% in India, where it is now the number two smartphone brand. As a result, the share of Xiaomi’s smartphones used by Chinese consumers dropped to 60% in August 2017, versus 85% a year before. For India, the share rose to about 20% in August 2017, compared to only 7% a year before.
Xiaomi’s ambitions are not limited to India. Earlier this year, the company also began selling its phones in Thailand, Russia, Vietnam, and Mexico. In Indonesia, it already boasts a market share of 12.2% of active smartphones. On September 12th, it released the Mi A1, the most powerful phone to make use of Google’s new Android One program to date, in 40 countries worldwide, leaving no doubt that it has its sights firmly set on global expansion. Google’s Android One is specifically designed to help Android conquer emerging markets.
Yet Xiaomi lags considerably in a more developed country such as the U.S., due in part to the country’s greater interest in high-end devices (especially iPhones), as well as the more limited availability of Xiaomi models.
MOVING INTO THE HIGH-END MARKET
Countries not only differ in their share of Android versus iOS devices but also in their share of high-end smartphones. “High-end” in this context refers to phones that have at least 2GB of RAM, 2 CPU cores, NFC, biometric scanning, and 4G compatibility. In the U.S., for example, 34% of Android smartphones can be considered high-end, which is a marked contrast to India or China, where only about 5% of the Android smartphones meet those standards.
High-end phones generally offer higher profit margins, which is why Apple has the highest profit margins in the industry. Unsurprisingly, high-end phones also equate with higher-income customers. Newzoo’s 2017 consumer insights across 28 countries show that about 40% of Apple’s smartphone customers are high income. For Samsung, this figure is 31%, for Huawei 20%, and for Xiaomi only about 12%. These rankings are basically reversed when it comes to low-income customers. It is also reasonable to assume that high-income customers who own high-end devices are likely to also spend more on apps and accessories, making them even more valuable to a company like Xiaomi. To capture more of this profitable market, Xiaomi is increasing its focus on high-end devices. In August, the share of Xiaomi smartphones in use globally that were high end was 3.1%, already an impressive jump from the 0.1% share in August 2016.
On September 11th, Xiaomi revealed its new flagship device, the Mi Mix 2. The high-end smartphone boasts an edge-to-edge display and impressive specs, including 6GB/8GB of RAM, Qualcomm Snapdragon 835 chip, a 12-megapixel single-lens rear camera, and a fingerprint sensor on the back. It comes with a price tag of between $500-$600 for the standard model. The device was initially launched in China but supports 43 network bands, opening the possibility to expand to global markets.
In short, Xiaomi appears to be following the same product strategy that worked exceptionally well for Samsung, offering a complete range of smartphones from high-end to budget. While the new models certainly look good and offer clever innovation, longer-term success with this strategy will depend on the quality of the devices and the extent to which Xiaomi succeeds in building a loyal customer base.
MOVING OFFLINE TO MEET CUSTOMER DEMAND
In another strategic move, Xiaomi has also been shifting away from its initial “online-only” sales model, as consumers increasingly want to physically hold a new phone before buying it.
Xiaomi will therefore be using part of the loan to expand its physical presence in China. The company has started opening its own Mi Home stores, where it showcases and sells phones, smart home products, and mobile accessories, catering to this consumer demand. The Mi Home shops make an obvious a nod to the Apple stores, with gleaming showrooms replete with long wooden tables. But its work will be cut out for it, as upmarket stores of this kind are expensive, and nimble rivals such as Oppo and Vivo are already selling their own phones via hundreds of thousands of brick-and-mortar distributors. It will be very interesting to see if and how quickly the new stores and models have an impact on sales, particularly in China.