Xiaomi is reviewing its India strategy after misjudging consumer tastes in mobile phones, a costly mistake that has allowed Samsung Electronics to lead the Chinese company to number one in the world’s second-largest market for the devices.
While Xiaomi continued to focus on selling mobile phones under Rs. 10,000 Indian consumers were willing to pay for nicer models with richer features. South Korean Samsung launched products to meet those ambitions and offered innovative financing programs that made them affordable for most.
Those moves have helped Samsung wrest leadership of the competitive mobile phone market in India from Xiaomi, with data from Hong Kong-based Counterpoint Research showing it held a 20 percent market share for the final quarter of 2022. compared to the Chinese company’s 18 percent.
“The Indian market is witnessing a ‘premiumization’ trend. (But) Xiaomi has been caught under-preparing for the shift with a portfolio of many budget phones,” said Tarun Pathak, a research director at Counterpoint.
The loosening of Xiaomi’s unsound grip on India’s 626 million smartphone users – the second largest after China – shows the penalization of companies that fail to respond to changing consumer preferences in a fast-growing economy with rising disposable incomes.
Best known in India, Tata Motors’ Rs. Heralded as the world’s cheapest car, the 100,000 Nano was shunned by consumers who associated its low price tag with inferior quality.
Indians’ push for more expensive mobile phones to consume videos and other content will also benefit social media app providers like Meta, and iPhone maker Apple, which so far has a small market share in the country due to its some focus on high-end phones, priced from $605 (approximately Rs. 50,000) to as high as $2,304 (approximately Rs. 1,90,500), according to the website.
According to Counterpoint, the market share of the phones under $120 (about Rs. 10,000) in India fell from 41 percent two years ago to 26 percent in 2022. And premium phones – priced above Rs. 30,000 – saw their share double to 11 percent over the same period.
Xiaomi and Samsung both view India as a major growth market, with smartphones being their top-selling electronic device. The Chinese company recorded a total revenue of $4.8 billion (approximately Rs. 39,700 crore) in 2021-22 in India, while Samsung registered $10.3 billion (approximately Rs. 85,230 crore) in sales, of which $6.7 billion (approximately Rs. 55,440 crore) came from smartphones.
However, Xiaomi is already facing heat in India due to the departure of at least five senior executives and increased government scrutiny amid frosty relations with neighboring China. The company has $674 million (approximately Rs. 5,580 crore) of its funds frozen by the country’s financial crime service over alleged illegal remittances to foreign entities, which Xiaomi denies.
A Reuters review of product listings on the Xiaomi website revealed the discrepancy between consumer needs and the products the company offers. Xiaomi showed off six smartphones priced at more than $360 (approximately Rs. 30,000), compared to Samsung’s 16. Under $120, Samsung had seven models, while Xiaomi listed 39 – most of which turned out to be out of stock.
And premium phones accounted for just 0-1 percent of Xiaomi’s total phone shipments in India over the past two years, as Samsung’s more expensive phones more than doubled their share to 13 percent, data from Counterpoint showed.
But Xiaomi, which has acknowledged that it has introduced “too many” models in the past, is revamping its product range to focus on premium smartphones. It launched the Redmi Note 12 in January whose top variant costs more than Rs. 30,000, and more recently the Xiaomi 13 Pro for Rs. 79,999 – the highest priced phone in India. The strategic shift seems to have paid off immediately, with the Redmi Note 12 selling for $61 million (approximately Rs. 500 crore) within two weeks of its launch.
“We have established a streamlined and cleaner portfolio with a focused approach to building expertise in the premium segment, and the launch of our latest flagship Xiaomi 13 Pro is a step in that direction,” said Indian President Muralikrishnan B.
“We understand that we still have a long way to go on this journey and are therefore bringing in much stronger products.”
Phone loans
A Samsung scheme, run with its financing partners that says it offers “easy and assured” loans, was instrumental in India’s recent success, helping to generate $1 billion (approximately Rs. 8,270 crore) in device sales last year.
A poster of Samsung’s offering that Reuters spotted on a dusty street used by fruit vendors in the state of Uttar Pradesh said that even those with no loan histories, low credit scores or no paychecks could get a phone.
Sanjeev Kumar Verma, owner of a nearby multi-brand phone shop, has benefited from the company’s loan scheme. Speaking to Reuters at his store, which has hundreds of phones on shelves, Verma said he sold five Samsung phones each month but has now quadrupled that to 20, 18 of which were through the loan scheme.
Verma, and another smartphone retailer in Mumbai, said that unlike rivals, Samsung does not require local proof of address, making it easier for migrant workers or those working outside their home countries to borrow phones. Samsung has not commented on the vendors’ comments.
The growth of phones in the premium segment was much higher in small towns than in large cities, Raju Pullan, head of Samsung’s mobile unit in India, told Reuters in February.
Samsung says its finance app installed on smartphones can lock the device and block outgoing calls for missing loan payments.
Xiaomi has also used partnerships to offer loans, citing them as a key growth engine for phone sales priced above Rs. 15,000 and by adding it, more such offers will be discovered.
Muralikrishnan said the company will also open more stores outside its current network of 20,000 retail partners, and boost local sourcing of mobile phone parts, which is likely to reduce costs.
Some industry analysts said the new strategy could help the Chinese company return to solid growth in India.
“Xiaomi has traditionally enjoyed strong brand equity, has a robust online and offline channel presence and can make a comeback with a potentially strong premium and value-for-money product mix,” said Prabhu Ram, head of industry intelligence at CyberMedia Research.
© Thomson Reuters 2023
