A skewed portfolio?
Based on the information on http://mobile.mi.com/in/ on February 17, Xiaomi had the following phones in the Indian market at these prices: In sum, Xiaomi has eleven different phone models in the market. If one includes the variants of each, there are twenty different Xiaomi phones you can buy. This is the break up as per different segments: Want to go with broader segments? And well, if you want flat Rs 10,000 intervals: Interestingly, 16 of the 20 phones from Xiaomi are in the price band of Rs 5,000 – 15,000. Or to be even broader, seventeen of its twenty phones are priced below Rs 15,000. The three that are above it are the 6 GB/ 64 GB edition of the Redmi Note 5 Pro, the 4 GB/ 64 GB avatar of the Mi Max 2 and the Mi Mix 2 (our review). This is a far cry from the early days of the brand in India where its portfolio seemed pretty much streamlined to having a couple of devices (a Redmi and the base Redmi Note) below Rs 10,000, a couple in the Rs 10,000-20,000 zone (the high end Note variant and later the Mi Max), and a single device in the vicinity of Rs 20,000 and above (the Mi 4 and Mi 5). Of course, it is not unusual for companies to have more devices at the lower price segments (“offers consumers more choice” is the rationale trotted out) – that is where the real numbers are – but what is surprising about Xiaomi is the almost total absence of devices at the higher end, that part of the market that is associated with premium performance.
Memories of another brand
And this brings back memories. We know many people will scream sacrilege at the very notion, but this division reminds us a lot of a company that had surged to close to the top of the Indian smartphone market not too long ago, depending mainly on devices that were priced in the sub-Rs 15,000 belt. It was called Micromax.
We do not have the exact statistical break up of the company’s portfolio during its high noon period from 2012-15, but suffice to say that it too hardly had any notable numbers in the Rs 20,000 and above price segment – to the best of our knowledge it ventured north of that border just once with the first Canvas Knight (our review). Most of the devices from the brand were below Rs 15,000, in fact, if our memories serve us right, most were below Rs 10,000. And well, the strategy did pay off, taking the brand to second spot (and briefly, even the number one spot, as per some reports) in the Indian smartphone market. Where it, however, dealt it a blow was in terms of perception – the company was seen to be a low price point player. And this, to an extent, restricted it to fighting mainly on the price front, to the extent that it found it could not step up the price chain. Even when the company released a device that it claimed was one of the thinnest phones in the world, complete with an ad campaign featuring Hugh Jackman, consumers felt that Rs 17,999 was too high a price. And when Micromax launched a sister brand, YU, aimed at “geeks”, it again found success mainly in the lower price segments – its attempt at the higher priced segment with the Yu Yutopia was a disaster, and many believe sent the brand into a free fall, which saw it seemingly disappear from contention for the numero uno slot in the Indian smartphone market.
Does one NEED to move up?
There will be those who will wonder if it is at all necessary for a brand to move beyond a segment it is strong in. After all, if someone is doing well in a particular segment (say Rs 15,000-20,000), does it need to move to another segment? Well, the answer depends on the extent of ambition the brand has. We have seen the likes of Apple and OnePlus largely stick to the higher end of the smartphone market and not make too many attempts to climb down the price ladder. But then, neither of those brands has ever really tried to be the number one in the Indian smartphone market across all segments. Now, if a player DOES want to attain that status, they have no other option but to offer devices across a wide spectrum of prices. Of course, in a country like India, where most users are still using feature phones that cost less than Rs 5,000, any brand wanting to be number one will need to have devices that are in the affordable price segment. And Xiaomi and other players that have been in the top slot have ridden there on their mass market offerings – the Galaxy S and Note series might have made headlines for Samsung, but it is the more modest Galaxy Y and Galaxy J that have got it the volumes. So if you get the volumes from the low to mid-segment, why would anyone need to move up at all? Well, mainly because while the volumes are large at lower prices, the profit margins are much lower. As a consequence, one has to keep selling very large volumes to sustain profits. And after a certain point, growth rates tend to middle out or even dip. This is where the upper middle, high-end and premium segments gain importance – yes, the cost of making devices are higher, but so are the profit margins. Some companies make more profits from selling a single premium priced device than selling a dozen base models. Also, while the volumes dip as you move up the price ladder in India, the volumes in the upper half are not small either. Finally, having a good premium offering has a drip down effect – people tend to judge you by your best product and not your least expensive one. 1100 might have been Nokia’s most successful phone, but it benefited from Nokia’s image as being the maker of some of the most high-tech phones in the world. A well-executed premium product can give your brand a premium perception, which also lets you charge a slightly higher price even in lower price segments – Motorola, for instance, many feel, is able to charge a slight premium even on its Moto G series, because of its reputation as the brand that gave us the RAZR and the Star Tac. So, if you are looking for long-term dominance of a market, you need to be present across pretty much most segments. Or have some sort of secret weapon. Micromax, a few years ago, had neither.
Where did the flagships go?
Of course, Xiaomi is a very different kettle of fish in terms of product offerings and most critically, in terms of communications. Unlike Micromax, which almost always stuck to offering mid to low segment devices at prices that were super affordable, Xiaomi actually made its mark in India with a flagship level device at a mid-segment price: the Mi 3 at Rs 13,999 is now part of Indian tech history, and is credited by many to have given birth to the “sold in ___ seconds” line in online sales. However, the period that followed saw the brand increasingly focus on the mid-segment. Many attribute this to the relatively lukewarm reception that the Mi 4 and the Mi 5 got in the Indian market, but whatever the reason, many observers feel that somewhere in mid-2016, the company seemed to shift focus to the Rs 7,500 – 15,000 price category. This might have been fuelled in part by the runaway success of the Redmi Note 3 (our review) and Redmi Note 4 (our review), but the company did not launch the Mi 6 or the original Mi Mix in India, and also kept its Mi Note Pro series out of the Indian market. Many had expected Xiaomi to be the biggest headache for OnePlus in India, but the brand seemed content to stay on the backfoot in the “budget flagship” category. Of course, launching devices is not as easy as deciding just to drop them into a market, as we have often been reminded, but then, considering that the brand was doing so well in India, you would have expected it to perhaps expand its portfolio.And when it DID expand its portfolio in the latter half of 2017, it did so by focusing on the Rs 4,999-15,000 segment with a vengeance. The company that was known for launching about four or five devices in a year launched that number in a few months – the Redmi Y1 and Y1 Lite, the Mi A1, the Redmi 5A, and the Mi Mix 2, all hit the market in quick succession. And barring the Mi Mix 2, which came with a Rs 37,999 price tag, all the others were below Rs 15,000 and in fact with the A1 excepted, even below Rs 10,000. This was also the period when Xiaomi also moved into the offline market. In sheer numbers, the move paid off spectacularly. So much so that when 2018 dawned, the company had beaten Samsung to the number one spot in the Indian smartphone market. If sales and statistics were what counted, Xiaomi had pulled off perhaps the most amazing coup in the history of the Indian smartphone market.
The low price trap
However, while there can be no arguing with the quantities of units sold, a number of people have been expressing concern over Xiaomi getting trapped in the “low price” zone. Many have been quick to point out that even the company’s more expensive devices in the latter half of 2017 got price cuts relatively early in their life cycle – the Mi Mix 2 was launched at Rs 37,999 but was reduced to Rs 32,999 and even the AndroidOne-laden Mi A1 (our review) was down from its launch price of Rs 14,999 in a matter of a few weeks. All of which has led to a number of people wondering if Xiaomi’s portfolio in India might literally be a little bottom heavy. And while the “giving consumers more choice” logic is a decent one, it starts sounding a little odd when your devices have to deal with not just the competition, but your own siblings. Of course, Xiaomi is not the only notable brand to be betting heavily on the mid to low segment market in India. Almost all players in the smartphone segment have a number of offerings in the sub-Rs 15,000/10,0000 segment. But in most cases, the tendency is to have devices present in every segment, rather than cluster them in a few. OnePlus, on the other hand, seems to have focused almost totally on the Rs 25,000 and above category but then that brand is not chasing the sort of numbers that Xiaomi has. Almost all other notable players, be it Oppo, Vivo, Motorola/Lenovo, Honor, Samsung, LG, Nokia and even Apple, seem to have a well-distributed portfolio. Xiaomi, by contrast, seems to exist mainly in the sub-Rs 15,000 category. And seems not only very comfortable there, but almost beyond being challenged at the time of writing. The question, of course, is whether this is sustainable in the long run. It would be a brave person who would bet against a company that has turned the Indian smartphone market on its head in about three years, but there is a nagging suspicion in some quarters that low price inevitably has a negative impact on the quality perception of a brand. And once brands get stuck in that zone, getting out can be quite a task – ask Google, which has been struggling to recapture the magic of the Nexus 4 and 5 with its more expensive Pixel range; or Motorola, which has largely not been able to replicate the success of the Moto E and G across more expensive propositions. As per some, it is a lesson even Samsung learned when it found that its bestselling Galaxy Y range tended to flag at higher price points. As one analyst pointed out: “It is easier to move down from a premium level to a more affordable level because you already have the perception of premium quality linked to the brand. However, when you move in the opposite direction, you need to prove that you have premium quality, and that can be a pain if you have been mainly fighting on a low price because for most people, a low price comes with some sort of qualitative compromise.”
The only way is up…the price ladder?
Of course, conventional wisdom is something that Xiaomi has made a habit of chucking out of the window in India. So it would be naive to assume that the brand is just chasing numbers at the moment or does not have some master plan to actually make its current growth strategy sustainable over a long period of time. That said, fighting mainly on price is a slippery slope – just ask Micromax and a number of other Indian brands. Yes, none of them had the sort of innovative communications strategy or sales models that Xiaomi had, but that does not eliminate the challenge the Chinese brand faces. We are going to leave you with an excerpt from Business for Punks, a book by James Watt, the co-founder of BrewDog, a beer brand which, like Xiaomi in India, turned a market on its head with its unconventional approach to the market: It has captured the Indian smartphone market already. But there remains a way up still higher for Xiaomi. And it leads to the area beyond the low and mid-price segments. Or so we think. After all, Mi has proved We wrong so many times.
