The biggest feature of China’s Xiaomi phone is the price. They sell the cheapest number of cheapest phones compared to other companies in the market. So, in just 8 years after the start of smart phone sales in 2011, China and India are now number one in India. That means the Xiaomi phones are the most sold in these two countries. Besides, Xiaomi phones are sold in many other Asian countries. But CEO of the company Lei Jan said that Xiaomi will increase their phone price slightly this year. As a result, Xiaomi’s phone is now as cheap as it is, there is no more cheaper in the future.
Why do Xiaomi get the price of their phones, before going to the texts, readers do not tell why, compared to other big companies in the market, the price of Xiaomi is so low.
Xiaomi’s Business Model stands on five key strategies. I am trying to explain them briefly below –
Phone companies spend a lot of money in advertisements on TV, newspapers and magazines. The money is paired with the phone’s price, so the price of the phone is high. So Xiaomi has taken special strategies for advertising. They usually do not advertise in other companies like TVs, newspapers, etc., spending a lot of money. For the promotion of phones, they basically rely on Facebook or similar social media and general buyers.
For example, Redmi Note 3, in 2016, used the general buyer or ‘Mi Fan’ for its advertising before its launch. Xiaomi has its own page, the members of the page are called Mi Fan. Anyone can be a member of this page. Redmi Note 3 was launched in March. Before that, Xiaomi saw the most active members on their page. The first active member of the page, 100 members or Mi Fan, was given the phone by Redmi Note 3 in Xiaomi, in February. The members were told that they had their views on Facebook, Xiaomi page and other social media platforms. It was later found that, in the social media, the views of the 100 members of the phone, attracted three lakh people. That means, without spending any money, Xiaomi was able to propagate their phones among three million people
Xiaomi does not sell phones with much profit compared to other companies. So their phone prices are lower than other companies. If Samsung sells a phone to 10 rupees from the buyer, but Xiaomi keeps it from 5 to 6. But there is no harm to the Xiaomi in the account. Because they get a long-term basis from buyers (i.e. the buyer uses the phone of Xiaomi as long as), that is more than Samsung’s 10 rupees.
How does Xiaomi get from the buyer on a long-term basis? This policy of business is called Affiliate Marketing. Xiaomi has deal with multiple online stores, including Amazon, Flipkart, Junk, and MyTan. According to the contract, when you make purchases from those online stores using Xiaomi Phone, Xiaomi receives special commissions on each shopping. Online stores give this commission to Xiaomi. In this way, Xiaomi has got the buyer for a long time after selling the phone to the customer.
Apple, Samsung, Pixel, Motla, Asus, LG etc phone companies have R & D division (Research and Development). Engineers of the company’s R & D department work on how to improve the technology used in the phone, as well as how software and hardware can be improved. The R & D department engineers have to pay a lot, as well as many other costs to run this department. When the company launches a new phone, its price is kept so that the amount of money that the company is spending behind the R & D department comes from selling the phone.
But there is no R & D department in that sense of Xiaomi company. The newest technology developed by the R & D division of Apple, Samsung, etc., Xiaomi uses it on their phones by imitating them. As the cost of research and development does not cost, so the price of Xiaomi Company’s phone is less than the other big brand phones in the market.
When the company launches a phone in the market, then the price of the phone is fixed by adding the cost of running R & D department, advertising and marketing expenses, and how much the company will keep in profit with the cost of creating the software and hardware of the phone.
As already mentioned, there is no cost related to Xiaomi R & D. In addition to marketing, Xiaomi has emphasized online rather than offline at first. Prior to Xiaomi, other phone companies were selling phones primarily through offline marketing. In other words, companies opened the showroom in the big cities of the country and sold phones through retailers in small towns. The opening of the showroom and the cost of phone sales by paying workers’ salaries is high. In addition to selling phones through retailers, they also have to pay a large percentage of the profits as a commission. So Xiaomi has emphasized online marketing rather than offline. They basically sell phones via Amazon, Flipkart, Alibaba or their own online store. This does not cost the opening of the showroom, retailers are not required to pay fat money. Because of the online stores, many phones can be sold together, so stores also get much less from retail businessmen. As a result, Xiaomi gets enough profit despite the low price of the phone. Xiaomi’s online marketing policy is now followed by other companies.
If there is a shortage of products in the market, then it often serves as an advertising campaign for that product. Xiaomi follows this policy in their business. They never make many handsets together. Before launching a phone in the online store, they ask customers to register. If Xiaomi observes that 100,000 potential customers have registered online for purchasing the phone, they may launch 50 or 60 thousand sets. In that case, all the sets of phones were sold within a few seconds of launching online. And when the news spread through the social media, many more people started to think about the phone or would buy the phone.
Since the prices of Xiaomi phones are low, their buyers are mainly middle-class and low-income customers. High-end consumers of society are still the first choice of Samsung’s Galaxy series high-end phones, or Google Pixel or Apple’s iPhone. Although the specification of Xiaomi phones is high, they are known as ‘cheap goods’ for high-end customers.
The problem is that, worldwide smartphones sales have decreased over the last few years. Because middle-class or under-shoppers usually purchase a phone at least 3-4 years or more. Only high-end customers buy new phones 1-2 years later. So Xiaomi is in trouble. Because most of their buyers are middle-class and low-income. So, by increasing the price, Xiaomi has taken the initiative to market high-end buyers. The CEO of the company Leigh Jan said that the Mi9 is probably the company’s last high-end handset which costs 3000 yuan or 31000 rupees. Shiomi plans to launch more than 3000 yuan in the future. Let’s see if Xiaomi can increase the sales of phones by attracting high-end customers.