Jenny Chan 陳詠欣
Dec 2, 2015

Is Xiaomi's sales blip a cause for worry?

CHINA - Momentum has been meteoric for Xiaomi for the past few years in its climb against Apple and Samsung—until Huawei recently dethroned the Beijing-based firm from the top of the Chinese smartphone market.

Is Xiaomi's sales blip a cause for worry?

Overall domestic shipments in the world's largest smartphone market declined slightly for the first time this year, according to IDC and Canalys, though further data from Gartner was inconclusive with narrow differences between Xiaomi and Huawei.

Additional statistics from Kantar showed Xiaomi’s share of sales dropped to 22 percent in the three months ending September 2015, down from 30 percent in the same period in 2014.

In addition, while Xiaomi ranks second highest for customer loyalty and repeat purchase (after Apple), 68 percent of people who were Xiaomi customers a year ago have switched to another brand. And 13 percent of that 68 percent churn has gone to rival Huawei, whose Mate 8’s fingerprint-sensor feature has widened the gap with Xiaomi. Xiaomi's chairman, Lei Jun, has publicly said Xiaomi is not using market share as an indicator of success, while lowering shipment targets to 80 from 100 million units for the year.

80 million units of sales for Xiaomi may just be its peak in the mainland market, while its overseas foray into the highly competitive Indian market has been made complicated because of patent issues despite its good score on brand image.

Although Xiaomi scores well on its image, the overriding reason for purchasing a Xiaomi device is to get a good deal, far more than with any other brand, said Tamsin Timpson, strategic insight director, Kantar Worldpanel ComTech APAC.

With its entry pricepoints, Xiaomi is more likely to be purchased by new smartphone owners than repeat buyers who are upgrading and generally spending more on their next handsets, she added.

Xiaomi has been extending its portfolio to cater to a wider audience and to attract customers wanting more premium products with models like the Mi Note and Mi Note Pro, but its top-selling models are still lower-end ones such as the RedMi Note and Mi4.

"Its share is, therefore, still dominant in the low price tier (under RMB¥1,000) and losing out in the mid tier (RMB¥1,000 to ¥2,999) where Huawei is growing on the back of its Mate 7 and P8 models. A reliance on sales at the low end is a problem for Xiaomi as there is much lower customer loyalty when choice is mainly about price," she said.

Part of the success of Huawei’s Mate 7 and P8 models has been due to a skew toward purchasing in physical stores and driven by recommendations from store assistants, she said.

Xiaomi shuns calling itself a smartphone maker, claiming instead to be an "internet company” supplying a range of hardware products and online services including TVs, air filters, battery packs, cameras, fitness trackers, scooters and cloud storage.

But to Twelve Tong, vice president of DDB Group North China, no matter what the number of "peripheral products” from Xiaomi, in the eyes of consumers it is still a smartphone brand. All these electronics products are mostly extensions of the mobile device, he said.

Saturation in the domestic smartphone market is believed to have created a tougher environment for Xiaomi, since the first tide of phone replacements and upgrades has passed, leading to estimates for annual shipments in the next few years to "stabilise", said Tong. 

As Xiaomi started out as a "local celebrity" in the smartphone market in China, its problems are now amplified by the industry, Tong said, explaining that any growth will gradually slow down.
"No doubt, from the online marketing aspect, Xiaomi has been very stimulating and surprising," Tong said. "In terms of being a brand representative of the way people live, unfortunately what is missing is the premium value of the brand."
Added Kantar's Timpson, "Xiaomi will need to continue to strengthen its brand to move away from being solely a low-end device manufacturer because, right now, it looks as though its customers who are ready to upgrade are using Xiaomi as a stepping stone to Apple. It needs to urgently find the hooks to retain its customer base as this will be key to future success."

Still, it is too early to conclude about Xiaomi versus Huawei, warned Tong. "In the internet era, every brand has nine lives".


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