October 31, 2014 by ...
In China Xiaomi is a low-end player. Its pricing is a good indicator of how Xiaomi and the market views the phones. Most Chinese are not willing to pay more than RMB 3000 for a cellphone made by any Chinese company let alone Xiaomi. As of last quarter these firms had essentially no market share there. As one can see from the chart below, the high end market is not only lucrative but big as well. In fact, this price point represents 32% of all handsets sold.
(The Y axis is percentage and goes from 0-30. The X axis from left to right is less than RMB1000, 1k-2k, 2k-3k,4k-5k, over 5k. Totals equal <1k RMB 2.12%, 1k-2k 26.9%, 2k-3k 22.1%, 3k-4k 9%, 4k-5k 6% and above 5k 17%.)
Beijing is backing Chinese companies
Beijing is aware of this fact and is doing whatever it can to change the cell phone landscape. As part of its anti-foreign brand, campaign, Beijing has mandated that all communist officials buy Huawei. This is good news for the local supplier as there are more than 80 million communist members in the PRC. In order to capitalize on this, Huawe has geared up with monstrous phablets which breach that 3000RMB range.
Xiaomi is sticking to the bottom
For its part, however, Xiaomi is sticking to its knitting. Rather than duke it out with the likes of Apple, HTC and Samsung who own the RMB 5000 plus segment, Xiaomi is going low brow. Their most expensive model is the fully loaded flagship MI4 with 64gigs and running 4G. At this time that model costs RMB 2500 or just over $400. This price is almost sure to fall, however, as companies such as Smartisan and OnePlus One become more aggressive in pricing.
Xiaomi’s decision to remain near the bottom is not a bad idea, however, when one considers Xiaomi’s target market. As one might expect, Xiaomi faces many challenges before taking on the likes of Apple and Samsung. Quality, for one thing is a problem and customer service as well. Xiaomi was ranked first in customer complaints this year by the Chinese authorities. Problems such as this do not allow Xiaomi to move upmarket as of yet.
Face and Knockoffs
Another big issue in a face-based culture like China is that Xiaomi is seen as little more than a fake Iphone. While the locals like to tout it as a national champ, its ‘similarities’ to Apple products are more than obvious. As Chinese consumers have become more globally aware, they realize this to be IP theft. Of course this may be more of an issue in first-tier cities such as Beijing and Shanghai where one wants to appear global than in smaller Chinese towns. Nonetheless, this knockoff effect will prevent Xiaomi from climbing too high up the food chain, after all, who wants to pay top dollar for an imitation?
Be that as it may, Xiaomi has a huge market in which to play. China has one billion cell phones and over 70% of them cost less than RMB 3000. This means that even if Lei Jun and company decide to raise prices 20%, they would still be looking at a market of 700 million buyers.