Xiaomi Ditching ‘Hunger Marketing’ Strategy? Goal 70/30 Offline Sales

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May 3, 2015 by ...

Hunger marketing is the essence of Xiaomi, or at least one ingredient in their recipe for success. In a country with 1,400,000,000 people, it is hard to stand out. Xiaomi leveraged the power of hunger marketing to change all of that. 

Flash sales and phone lottery

By limiting purchases via ‘flash sales’ they created buzz and desire for their gear. This works well in China where people seem to be more patient about purchases than in the USA, for example. Initially Chinese were forced to register and pay for the right to enter a Xiaomi phone ‘lottery’. For a few hundred bucks mainland consumers merely purchased the right to obtain a Xiaomi phone at a future date. The kicker was that nobody purchasing a Xiaomi lottery ticket knew when their phone would arrive. They could be one of the lucky few to get one in a week, or wait as long as months.

Yeah, read that again. In China, people initially paid a few hundred dollars to purchase the right to a Xiaomi phone at a later date. They had no idea when the phone would arrive.

Pent up demand drove spending

While this would probably not work back home, it was a hit in China. Recall that China’s got a lot of people who until the last decade had little cash and few places to park it. This lead to a tremendous amount of pent up demand. Chinese everywhere were looking to buy things, anything. Their desire was equal parts curiosity and face-saving. They were curious to see what all the fuss about foreign goods was but didn’t want to look like rubes. 

Face being what it is, Chinese sought what the rest of the world was buying. After all, people in ‘face-oriented’ derive a large part of self-worth from the outside world. What people thought of them and how they are perceived, motivates them to behave. In terms of consumerism, this means that mainland Chinese sought goods which made them look modern or ‘fashion’- a Chinese term connoting modernity and awareness. The desire to ‘be fashion’ shaped what they bought.

Fakes give face

The problem was that Chinese then, as now, had champagne tastes on a Saltines budget. They simply did not have the resources to ensconce themselves in the temporal goods as their counterparts out west. 

Shanzhai helped this defecit by allowing people to carry a reasonable facsimile of products outside their price range. With China producing up to 80% of all global knockoffs, Chinese consumers were in consumer heaven. The key was to buy products which looked good enough to past muster from afar. As long as nobody got too close to notice that the LV bag was ‘pleather’, Chinese women could ‘rock $2000 purses’. And they did. 

Aside from faux-bags, the Chinese scooped up hoards of anything similar to the real thing. It was consumerism ‘with Chinese characteristics’. 

Xiaomi not the first to peddle Knockoff phones 

Xiaomi wasn’t the first Chinese company to produce knockoff phones. That had started ten years prior. A Taiwanese firm sold integrated chipsets which enabled anyone with $250,000 to start a cellphone company. Soon enough, southern China was awash with them. 

Their specialty was in producing ‘very good likenesses’ or humorous devices. 

 
Xiaomi, a proud knockoff

Xiaomi was different in their shanzhai approach, they did it with pride. Xiaomi was one of the first knockoff sellers to openly embrace their piracy. As politically incorrect as this sounds, it’s true. Lei cribbed all he could from Apple and professed that one day Steve Jobs had to die. The implication was that he and his would fill the Jobsian gap. 

Lei Jun sold the Chinese on the fact that they would be getting an ‘iPhone’ but for a fraction of the cost. His marketing strategy was built on this. Lei would claim that his firm sourced from Apple suppliers and bought the same guts. He’d then proceed to hold aloft a phone which looked eerily similar to its Apple twin. He’d then go on to say that rather than price-gouge like Apple, Xiaomi was fair. They didn’t ‘waste’ money on things like marketing, he said, but sunk cash into making quality products people not only enjoyed but could afford as well. 

The spiel was a hit. For those Chinese seeking ‘face’ Xiaomi fit the bill. From afar their phones are hard to distinguish from those which inspired their design. It didn’t hurt that he was knocking off an American icon with boatloads of cash either. If consumers weren’t enamored with owning a clone, then they’d be happy in knowing that their hard earned money went to a Chinese firm.

‘Luxurizing’ a commodity

Of course Xiaomi was a clone, which was a blessing and a curse. By their nature, clones are a commodity. This was doubly bad for Xiaomi as they touted a commodity of a commodity. 

In order to overcome this hurdle, Lei Jun pulled another ‘Apple’ by restricting production and sales. Apple gear usually has greater demand than supply, it’s the nature of the Apple fan-boy culture. Lei Jin needed the same.

Hunger marketing is born

Rather than rely on indigenous desire to create excess demand, Xiaomi manufactured it. Like I said, they convinced people Xiaomi produced phones remarkably similar to Apple. This alone would not create the demand needed so Xiaomi came up with the lottery. 

As explained, customers paid to enter a lottery. The idea of getting an iPhone clone was the same innards was too much to pass up. Aside from this, those who ponied up coin for the lottery were locked into a discount price. In other words, they paid early, ran the risk of not getting a phone for up to three months, but still paid twenty percent or less than those who hadn’t entered the contest. For them the calculus was easy. ‘Pay $200 today and get the chance to win a Xiaomi this week, or wait three months or more like the rest of China and pay $250. In either case I might not get the phone soon, so why not take a chance? I need a cellphone anyway.’

The Xiaomi lottery was a hit and flash sales it was. Lei’s team lapped up the limelight. People were actually proud to own a Chinese cellphone. 

The end of flash

That may all be changing as Xiaomi expands. Domestic pressure has caused them to rejigger their business model at home and abroad. In China they announced that they want a 70/30 split of online/offline sales, a sales model they never would have dreamt of in the past. The same holds true for India, where retailers will also stock their kit.

This presents a real problem to the idea of luxurizing a commodity. Giving everyone who wants to buy a Xiaomi that privelege runs contrary to a Xiaomi staple-hunger marketing. Their phones become mainstream and easy to come by. In the aggressive world of electronics, the strategy may prove unwise.

At home they have a loyal fan base, but not do overseas. Do they have the chops to go mainstream with blah designs and mediocre quality?

Discarding one of their core competencies, ie creating mad buzz, may prove to be a nail in the coffin of Xiaomi the media darling and birth of just another electronics firm.

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