I own a Xiaomi Note 4G, and given I had to only pay 250 S$ for it and it’s performing exceptionally well, I think it’s worth every penny spent.
But, sometimes it bewilders me that how Samsung phones (more or less) using the same specifications/features are asking for so much more than a poor Xiaomi, which is quoted at only 1/3rd of the price of an Apple iphone or a Samsung Galaxy.
It’s worth noting that the company is managing to sell millions of phones and is already kicking off a global expansion. It has been estimated that over 10 million devices were sold alone in year 2014 and the company is all set to leave Samsung behind in Sales and compete with Apple for the first position.
So how does it pull it off?
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[li]Very Less Margins:[/li][/ul]
For one thing, Xiaomi claims to price its phones just above their costs. But even though Xiaomi maintains low prices for its phones, it’s still able to extract some profit from their sale, according to analysts. In the case of the Mi 3, the device itself cost $157 to make, according to research firm Fomalhaut Techno Solutions.
“I think they are making at least 100 dollars of profit with the Mi 3,” estimated Minatake Kashio, Fomalhaut’s director, accounting for Xiaomi’s distribution costs.
Just imagine, they make it at 157$ and earn 100$ roughly on top of it and fuel the competition in the market by selling the device close to 280-300$.
That’s awesome, when you see it with respect to a strategy implied in order to enter the market, make a mark and later, think of capturing more and more share.
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[li]Old-school yet effective business model:[/li][/ul]
Company officials often point to its iconoclastic business model, which eschews the financial burden of using traditional marketing and distribution practices, and relies on the Internet to fuel sales. It’s made Xiaomi into a company that doesn’t operate like a typical smartphone vendor, but still successful enough to become one of China’s and South East Asian hottest tech firms.
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[li]Disrupting the well-established market:[/li][/ul]
When Xiaomi unveiled its first flagship Mi 1 phone in August 2011, attention was fixated on the device’s price. Consumers could buy what was then a cutting-edge smartphone for 1,999 yuan ($324). This was a major bargain compared to other high-end phones including the iPhone 4, which started at 4,999 yuan.
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[li]Releasing cheaper models: Introduction of Hongmi[/li][/ul]
Xiaomi maintained the initial 1,999 yuan price for the flagship phone. But the company also released its Hongmi line of products, which are lower-spec phones, at even lower prices, starting at 699 yuan. The Hongmi phones are doing so well, they’ve helped Xiaomi become China’s third largest smartphone vendor in this year’s first quarter, according to research firm Canalys.
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[li]Cost cutting:[/li][/ul]
Unlike other rivals, Xiaomi doesn’t spend money on traditional advertisements. It does not have a major network of its own physical stores it needs to staff and maintain. Instead, it has done away with those costs, and largely sells its phones directly to consumers through e-commerce.
People wait for updates on facebook to know about the next flash sale, and hence, get the device. They create excitement, and hence, demand !!
In China, Xiaomi runs its own online store, and also sells on 天猫tmall.com-尚天猫，就购了, one of China’s largest online retail sites.
To boost awareness, the company has relied on social networking sites, the press and its own customers, known as Mi fans, to help spread the word. The resulting exposure may not be on the level of what Samsung or Apple has, but the practice lets Xiaomi focus on young consumers already accustomed to using the Internet and buying products online.
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[li]Limited quantities: Produce Less, Less Inventory, Less Risks[/li][/ul]
Whether or not you can actually get your hands on a Xiaomi phone is another matter. When the Mi 3 initially went on sale last October, the first batch of 100,000 units sold out in less than two minutes. It would be another seven days before the company made available another 100,000 more units, which were then immediately sold out again.
Releasing only a limited quantity of phones each week has been a staple of Xiaomi’s business that’s helped keep costs down. The company faces less risk by managing a smaller inventory. I
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[li]A Kindle-like business model:[/li][/ul]
In the long term Xiaomi wants to generate revenue, not purely through hardware sales, but through software. The idea is similar to the way Amazon is releasing low-price Kindle tablets to motivate customers into buying more ebooks and other digital content.
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[li]International expansion:[/li][/ul]
Xiaomi products have at times been called Apple knockoffs. But the company’s business model is putting pressure on rival vendors. “A lot of people are trying to replicate the Xiaomi model,” said Nicole Peng, an analyst with research firm Canalys.
As for Xiaomi, the company plans on taking that same business model outside of China. This year, it’s targeting 10 foreign markets including countries in Southeast Asia as well as Brazil, Mexico and Russia.
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