Xiaomi adopted a competitive pricing strategy for its latest smartphones, with models starting at around USD 290, a move that is believed strategically tailored for the emerging markets in the Middle East, Africa and Southeast Asia.
On May 28, Redmi, Xiaomi's sub-brand, debuted its new series of smartphones to much fanfare in Beijing.
Xiaomi adopted a competitive pricing strategy for its latest smartphones, with models starting at around USD 290, a move that observers believe is strategically tailored for the emerging markets in Middle East, Africa and South East Asia.
So far, Xiaomi owns four independent smartphone brands: Xiaomi, Redmi, POCO and Meitu. Except for Xiaomi, the rest are niche brands favored by a minority of consumers rather than mainstream upper-middle-income groups.
Xiaomi continues to position itself as a smartphone brand built for developing countries. Although the company markets itself as an ecosystem company, over 62% of its revenues still come from smartphones. Notably, the company even produces vacuum cleaners, but revenues show that the IoT market for the intelligent manufacture of home appliances has not yet matured in China.
Nevertheless, it might not be easy for Xiaomi to derive its growth chiefly from the Chinese market anymore. The market is well saturated, with competitors “poaching” young consumers from Xiaomi.
As challenges in the domestic market multiply, Xiaomi increasingly feels compelled to compete overseas.
In fact, the global smartphone market has stopped growing since 2016, according to IDC.
What's more, there has yet to be a technological jump significant enough to cause a paradigm shift in the smartphone business.
However, consumer demand structure has been mutating due to growing needs from several developing economies for affordable smartphones. Newcomers to the market struggle to tap this unmet demand as the technological barriers to producing smartphones have dramatically come down in the last two to three years.
Flexible and cost-efficient Chinese manufacturers such as Huawei, Xiaomi, Oppo and numerous other players have become the agent of change.
Xiaomi, for instance, is already the largest player in the Indian market, with a 28.9% market share. Besides, after years of political chaos and instability, the Middle East and North Africa markets are slowly recovering, creating an unprecedented wave of demand for low-priced smartphones; Xiaomi has successfully localized its business, with gigantic operational bases employing hundreds of Chinese nationals and locals in these regions.
China is not an emerging market for smartphones anymore. Efficient pricing might not be enough for Xiaomi to survive the cutthroat competition. Indeed, Xiaomi's smartphone business has come under threat from Huawei, Apple, Oppo, Vivo and others.
Xiaomi has been stuck at a penetration rate of around 13% since 2014, and there is little room for manoeuvre in China. Therefore, it is focusing on IoT products on the mainland, which are a much more promising sector for Xiaomi.
However, as the era of 5G approaches in China, IoT would be more and more attractive for other manufacturers, potentially heralding more competition.
In March 2019, LEI Jun (雷军), founder of Xiaomi, posted a question on Weibo, a Twitter-like service, that "If Redmi is well made, will CNY 2,999 be an acceptable price? " Redmi's launch of its latest USD 290 smartphone can be interpreted in this context.
Xiaomi is waging a price war in the smartphone market, and if everything goes as planned, it might be able to expect more consumers in developing regions to propel its growth in the long term.