The Xiaomi success story – A unique business model

Xiaomi has been the new buzzword in the mobile industry for quite some time now. Here is a look at the rise of a new brand in an industry which was being dominated primarily by Apple and Samsung among the long list of smartphone manufacturers.

xiaomi mi3

The company was founded in June, 2010. In August, it launched its first Android based firmware MIUI and the Xiaomi Mi1 was released in August 2011. It launched the Mi2 in August 2012, and sold over 10 million devices. The Mi3 which was launched in September, 2013 reportedly shipped more devices than Samsung in Q2 of 2014 with stock outs reported by its exclusive distributor, Flipkart in India in record time (40,000 units in 4 seconds).

Competitive Advantage – High Specs at a low price

Xiaomi Mi3 comes with a 13 megapixel autofocus camera with dual-led flash, face and smile detection, touch focus and geo-tagging. It comes with a Quad-core 2.3 GHz processor, Android OS 4.4.2 (KitKat) and upto 26 hours of battery talk time. It has 16 GB memory that is expandable to 64 GB.

Its price on Flipkart was Rs 13,999. The specs available on the Mi3 along with its sleek design and beautiful display are usually seen in phones priced higher than Rs 25,000.

Marketing

The Xiaomi Mi3 has been positioned as the ‘Iphone among android phones’ through word of mouth and social media with hardly any other form of advertising spend. Lack of advertising and retail stores have helped keep costs low. The customized MIUI and simulation testing for 2 years of usage have attributed positive brand associations such as reliability and ‘value for money’ to Xiaomi.

While it is unlikely that Xiaomi’s Mi3 would eat into the market share of Apple’s iphone, which is positioned as a luxury brand in the smartphone industry, it could take significant amount of market share from other competitors in the low and medium end segments.

Strategy

Xiaomi’s competitive advantage comes from its unique business model. It sells its smartphones over a period of 1.5 years instead of bringing out new models every year or every 6 months like Samsung. This allows Xiaomi to take advantage of the reduced material prices at a later stage even though it initially appears to sell at the cost price.

Furthermore, it also leverages other revenue sources through sale of software and accessories much like Kodak benefited from the sale of films for film based cameras.

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