xiaomi casestudy

8/9/2019 Xiaomi Casestudy

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Xiaomi - A Case Study

Why we made this case study at Teagle?

Teagle is all about interaction with customers – and for some time already we've been really

fascinated by Xiaomi's successful approach to focus on its customers. After this case study,

we feel even more confident that we chose the right path when we decided to focus on

Customer Interaction latform. Its a good opportunity to share our team's e!perience of

understanding customers' motivations.

Now, shall we take a closer look at Xiaomi

In "ust few years the Chinese smartphone manufacturer Xiaomi became the company with the

largest mar#et share in China, the world$s biggest smartphone mar#et – and it$s currently

e!panding its concept abroad. Appealing story, design and the whole customer e!perience

appear to match together. And it's all done in the Internet.

The key is to be close to customer• %emove barriers between you and your customers

• Create direct interaction channels between your managers and customers

• Turn your customers into fans and co&operators and invite them to participate

How Xiaomi did this?

...and what could we learn from its success

Xiaomi is not a device manufacturer by definition. It's a mobile internet and e&commerce

company that "ust happens to ma#e compatible devices in order to offer a complete customer

e!perience. An essential motor behind its growth is A (reat )tory. Xiaomi invites customers

to be part of a modern Cinderella )tory, where an underdog Chinese startup rises against its

mighty global rivals despite all negative pre"udices and historical load associated with

Chinese manufacturing industry. Xiaomi shows that it's possible to come up with something

super high *uality and innovative which is entirely created in China.


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Great story – Embodying the new Chinese culture

Xiaomi has been accused to shamelessly copy Apple. Xiaomi denies copying, and says it$s

only inspired by the company. +o they "ust ride with Apple$s design and the publicity this

conflict brings in That might be partially true – but there$s something deeper that e!plainsXiaomi$s success in China.

Xiaomi represents meaningful novel ideas to many Chinese young urban

consumers whose individualism and national pride are raising! "t#s a Cool

Chinese Startup Success Story with a charismatic Chinese founder$ The

timing is perfect$ There seems to be a need for the story that lets urban

young generation be proud of being Chinese$ Xiaomi#s attitude against

western "% rights strengthens their rebel image$ &'any Chinese see them

as unfair barriers dictated by rich western countries who try to maintaintheir power$( Their open and participative approach toward customers

allows everyone be part of their success and manifest it to others with a

Xiaomi device$

Xiaomi is gaining momentum internationally.

ith all that momentum and forward loo#ing new ideas Xiaomi has managed to hire well

#nown employees from big western tech companies. The fact that these guys chose Xiaomi of

all alternatives supports the aura of a globally innovative and interesting company. -f course

it also brings in valuable talent, e!perience #nowledge from established industry leaders.

Social marketing and market probing

Xiaomi doesn't spend on traditional advertising... instead, it is genuinely present where its

customers are – in online forums and social media sites. Xiaomi lives in the internet and so

does its mar#eting. The company has been active in social media from its very beginning.

/eibo, eChat, Xiaomi 0orum, 1aidu Tieba and Xiaomi 2all3. They wor# hard to maintain

direct communication with their fans and encourage their customers give feedbac# on

e!isting products – but also on their future ideas and concepts. /Xiaomi calls its enthusiastic

customers and community members 2i0ans.3 There's a true participative culture. 0ans are

challenged with game& li#e online interaction. They can attend and win tic#ets to live fan

gatherings where Xiaomi employees and managers are often present.

As 4ugo 1arra said in an interview with 0orbes

http://www.forbes.com/sites/parmyolson/2013/10/22/how-chinas-xiaomi-does-in-a-week-what-apple-does-in-a-year-update-devices/http://www.forbes.com/sites/parmyolson/2013/10/22/how-chinas-xiaomi-does-in-a-week-what-apple-does-in-a-year-update-devices/


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Xiaomi's obsessive and rapidly&e!ecuted focus on user feedbac# was 5not

something you see often in this landscape.5 4e revealed that product managers at

the company can spend half their time perusing the company's active user

forums.

56A7 suggestion gets pic#ed up by a product manager within hours. ithin a few

6more7 hours it can be at an engineer's des#.5

ast iteration cycle truly based on user !eedback

Xiaomi develops devices li#e software. They produce small batches and iterate the product

all the time. Xiaomi deploys the 8"ust in time' &production /first introduced by Toyota's 9ean

2anufacturing principles3. It #eeps the inventories small and wor#s hard to secure a fle!ible

supply of *uality components. redictions about the ne!t wee#'s demand are derived from

previous wee#'s sales and trends in social media activities.The production capacity of each

device is ad"usted accordingly.

A batch of around :; ;;; phones with incremental modifications is released and sold /often

within some seconds


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Complete )cosystem

)o, Xiaomi is a mobile internet and e&commerce company that "ust happens to ma#e

compatible devices in order to offer a complete customer e!perience.

Xiaomi Ecosystem

E"commerce site #and !ast deli$ery%

Xiaomi is an e&commerce company. Its devices are sold from their web store directly to

customers. Xiaomi has many showrooms where its devices can be played with, but these

don't have any devices in )T-C> to sell out. Centrally managed sales logistics system

allows Xiaomi control and monitor its sales and inventory – and cut off distributors' margins

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and the mess of scattered inventories /A model that has been proven successful also by Tesla

2otors3.

Xiaomi's biggest revenue doesn't come from devices, but from its proprietary app store and

huge variety of different accessories. Xiaomi reportedly ma#es only about ?;@ margin with

their devices. Xiaomi's emphasis on fast logistics ensure that customers don't need to wait

long for their new gadgets to be delivered.

&'(' app store #locali)ed !or each market%

Chinese smartphone 2A%>T is very different from western countries – not only because

(oogle's services and app store are not fully accessible there. 2IBI app store has an active

developer community and offers alternative services to Chinese mar#et. Customi=ation is a

very big deal. A great part of Xiaomi's revenue comes from s#ins, widgets, and other

customi=ation software that users download to change the appearance of the device often

many times per wee#. In anuary D;?E, according to a study by app analytics company

0lurry, Xiaomi users in average spend more time using the apps than users of its competitor

devices and they download more apps from the app store. Xiaomi ta#es a slice from every

transaction made in 2IBI app store.

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&'(' #customi)ed and customi)able *ndroid ('%

Xiaomi's 2IBI – modified Android BI – is a glue /and a honey trap3 that #eeps everything

together and helps Xiaomi stand out from its rivals. 2iui comes with many little twea#s and

handy features that resonate well with young Chinese – and apparently also Indian

consumers. Almost everything in the BI can be endlessly customi=ed and fine tuned with

s#ins, widgets and apps available in 2IBI app store. This seems to be a good match withindividualistic young generation in urban China.


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2IBI can also be installed on a variety of cheap Chinese 8white label' phones, which often

come with half ba#ed BI's. 9ong support for device updates help #eep these devices relevant

longer even if the phone manufacturer has stopped pushing out updates. This helps widen

2IBI's user base and eventually persuades many to switch into a fully compatible Xiaomi

device.

/ImageF httpFGGen.miui.com3

+uality de$ices #that work smoothly with &'('%

HXiaomi offers uncompromised performance, high *uality parts and premium loo# feel

for much smaller price than others can do – an e*uation not seen before. +evices are not

cheap but cost much less than competitors' flagship devices. Xiaomi employs design

language that boldly mimics Apple and other popular brand names. This can be a problem if

Xiaomi wants to scale its businesses to western 2A%>T) . 4owever, in China, India and

Indonesia the western I rights haven't been a real barrier. +evices can be customi=ed.

Xiaomi allows each device stand out and match the style and personality of its owner by

offering a great variety of accessories in its e& commerce site.

Social media hubs and !an communities #that !uel

marketing and guide product de$elopment%

1efore anything else, Xiaomi's founders spent a lot of time in many of China's social media

and made *ualitative 2A%>T research and probing for their fresh startup. These siteseventually transformed into active co&operation hubs between Xiaomi and its customers.

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)oon Xiaomi built its own community sites with reward programs and batches. )till they

have maintained a strong lin# between the new forum and popular Chinese social media

platforms li#e 1aidu and eibo.

Xiaomi ta#es it seriously to #eep fans engaged. There are continuously several active

discussions, game&li#e challenges and competitions online. They have e!perimented

organi=ing online party events with live streams from and between live fan events and

gatherings held simultaneously in several locations. 2ost importantly, these activities are

designed to #eep customers loyal and to provide Xiaomi valuable first hand feedbac# and

insights from its customers. Xiaomi continuously #eeps trac# on swings in participants'

interests, opinions and hot topics. After analysis these insights are used to guide product

development, predict sales and ad"ust production capacity.

What could we learn from Xiaomi? $$$Si* insights

-/. 0e genuinely local and know your customers

%espect the local culture and subcultures. It ta#es some effort to ad"ust your brand, products

and services, but it ma#es them feel familiar and more friendly to your new target audiences.

1eing humble pays off especially when dealing with old, traditional cultures li#e China and

India.

• +efine your target customer groups

• 0ind out what are their needs, dreams, values and challenges

• or# with the local natives to truly understand the cultural subtleties

• +efine and differentiate your sub brands and targeted 2A%>TI( messages

accordingly.

1/. Create a coherent story !or your brand

It should be original and honest to yourself – and it should answer these *uestionsF

• hy are you manufacturing your products

• hat does it mean to own and use your product

• hy does one want to spend 2-J on your product and brand

• hy is it different from owning G using another brand's device

2/. 3ro$ide interacti$e hubs !or your !ans to interact with you

and with each other

hen you have your most important fans and followers gathered in one place...

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• >eep them active and encourage them to participate in various activities – motivate

by giving product pri=es and samples, organi=e events, reveal new features...

• Collect and continuously analy=e user feedbac#, emerging trends and ideas.

• 2otivate further by crediting your fans and show how their effort has changed the

products for better.

4/. Show a short path !or interested ones to buy your products• Create a centrali=ed web store for individuals and dealers.

• rovide a clear and consistent access to your web store from every touch point you

have in the Internet. That helps you accurately monitor your sales and inventory – andad"ust the production capacity accordingly.

5/. Enable !un and easy customi)ation

mpower your customers with effortless ways to perfectly match their device with their

identity whenever they will.

• Act as customi=ation items /e.g. digital themes or physical accessories3 were music

– something your users want to change often based on situation or feeling.

• 2a#e it easy to sort and find suitable alternatives in your store.

• Bse separate brands /not number codes3 for series of accessories that share similar

style. That's especially important for big corporate brands whose main identity might be too vague for individuals to identify with.

//. *dopt lean manu!acturing model and !ast iteration cycles• nsure the safe supply of best components, #eep your inventories small and

produce smaller batches.• Incrementally iterate product batches based on things you learn from interaction

with your fans and customers – and regularly predictively release upgradedversions /both hardware and software3.

• 2onitor your sales and reactions of your fans – and continuously predict demand

for each product.

• %espond by ad"usting production capacity accordingly.

The Xiaomi ay

Xiaomi is a Chinese smartphone manufacturer. %ecently it made a debut in Indian mar#et

with an e!clusive sales tie&up with 0lip#art for its smartphone 2i K. Also #nown as the

LApple of ChinaM, Xiaomi received an unprecedented consumer response in the Asian

mar#ets, when it launched its new smartphone Xiaomi 2iK.


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-n Tuesday, uly DD D;?E, the first stoc# of Xiaomi 2iK was completely sold in KN minutes

as ma"or technical issues sprang up amidst une!pectedly high traffic. Ta#ing a lesson from

this website was improved for betterment of consumer e!periences and the results wereF -n

uly DN, D;?E the he entire inventory li*uidated in "ust under : seconds and on August :

D;?E, the entire lot of Xiaomi 2iK went out of stoc#s in merely D seconds.

In view of the success achieved by this relatively un#nown manufacturer, it is worthwhile to

analy=e its and mar#eting strategy. The following attributes proved to be instrumentalF The

roductF The company offers high end phones on e!ceptionally low costs. The ricingF The

ma"or earnings are e!pected to come from the sale of content and not the sale of the phone.The product was sold near to its cost, ma#ing it *uite cheaper in the mar#et. To reduce

overhead costs the phone was sold via online platforms. ust&in&Time inventory managementF

This techni*ue is believed to #eep costs down through less inventory holding costs, and

decreases the ris#s of overstoc#ing. 4owever, it has an additional benefit too. 0rom a

consumer perspective, the limited availability of its products in batches has strongly driven

consumer fervor and inculcated built&up demand. -rder placementF 1y only purchasing

components and manufacturing products after users have placed orders, Xiaomi also

eliminates having to manage surplus raw material, and drastically reduces holdingGshipping

costs.

romotionsF )ocial mediaF Xiaomi not only broadcasted messages and announcements but by

actively engaging with their customers using social media. ngineers are routinely

encouraged to spea# directly to consumers and use gathered feedbac# to refine software.

+edicated fan baseF Xiaomi has also succeeded in building a dedicated fan base. Those 2i&

fans are very active in social media and were always present at Xiaomi$s product launches

,cheering and applauding. This enhances the trustworthiness among the prospective buyers.

ord of 2outhF The 0lash sales created an sensation and was being tal#ed everywhere. This

helped Xiaomi to amass popularity far and wide. 2ar#et )electionF 0or the present, Xiaomi

has abstained from entering into highly competitive orth American and uropean mar#ets.


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Instead it has focused sharply on the )outh and )outh ast Asian mar#ets where its can derive

ma!imum benefits of its low priced handsets.

Xiaomi6 7ein$enting the Smartphone 0usiness&odel in China

*bstract

The case discusses 1ei"ing&based Chinese electronics company, Xiaomi Inc. /Xiaomi3, and its

unconventional business model. 0ounded in April D;?; by 9ei un /un3, a serial entrepreneur

and investor, in association with his friend 1in 9in /9in3, a former (oogle and 2icrosoft

e!ecutive, Xiaomi was #nown to produce cheap smartphones with a nice build *uality.

Xiaomi followed a uni*ue business model where it sold its smartphones at cheap prices and

later too# advantage of the revenue streams generated by selling its software such as apps,

cloud computing, and games. The company sold its smartphones at B)O D;; or B)O K;;

whereas smartphones developed by )amsung lectronics 9td.

'ssues

The case is structured to achie$e the !ollowing teaching ob8ecti$es6

• valuate Xiaomi$s unconventional and innovative online business model.

• Bnderstand the need to reinvent the business model of a company amidst rising

competition and changes in the business environment.

• Bnderstand the reasons for Xiaomi$s success in China.• Identify the challenges faced by Xiaomi and e!plore strategies that the company

might adopt to overcome these challenges.

• !amine whether Xiaomi can increase its dominance in the Chinese smartphone

mar#et and become a leading player in the Chinese smartphone mar#et.

• !amine the strategies Xiaomi should adopt to enter and ma#e a mar# in the emerging

mar#ets it plans to enter.

• !amine the challenges Xiaomi could face in gaining a presence in the intensely

competitive B) smartphone mar#et.


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4ow Xiaomi wooed the best suppliers

The story

Chinese mobile phone ma#er Xiaomi Technology was founded in April D;?; by 9ei un.9isted by 0orbes as one of China$s wealthiest entrepreneurs, 2r 9ei was already worthO?.Pbn, having co&founded three successful technology start&ups since the late ?NN;s. 4isfounding team at Xiaomi included former Chinese e!ecutives from 2icrosoft, (oogle and2otorola.

The challenge

As a start&up entering an increasingly mature and competitive mar#et, Xiaomi – which meansLlittle riceM – needed to attract top suppliers of critical components. 1ut convincing suchsuppliers of its credibility would not be easy because Xiaomi had no brand, no factory and norecord of sales, let alone profits.

2ost large component suppliers were e!tremely loyal to e!isting customers and had tailored

their factories accordingly. Apple already sourced components from N; of the top ?;; global

suppliers and often invested in their factories to help them buy important machinery.

There was also a widespread perception that Chinese mobile phone companies simply produced cheap imitations of Apple products. )ome big suppliers had previously had bad

e!periences with Chinese tech companies that bought a lot of components, manufacturedmore handsets than they could sell, and went out of business.

)ure enough, Xiaomi was initially re"ected by Q: of these top ?;; global suppliers.

The strategy

Xiaomi undertoo# three strategies to bolster its credibility.

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The lessons

hen facing a credibility gap and scepticism among potential suppliers, new companies mustmove *uic#ly and imaginatively. Xiaomi did so by shifting the focus of its senior e!ecutives,ta#ing contrarian steps and emphasising its different business model

4ere$s the secret behind Xiaomi$s

disruptive success & are you ready

A high&resolution : inch 9C+ display manufactured by )harp, ?K2 and Q2 cameras made

by )ony, and a top&of&the&line eight&core )napdragon processor by Sualcomm – you'd be

forgiven if you thought these were specifications for Apple$s latest ihone, or the newest

(ala!y smartphone from )amsung.

1ut they$re not.

I$ve "ust described upstart Xiaomi$s latest flagship the 2iE, its newest disruptive entry into a

massively competitively global smartphone mar#et – yet another top&end offering from the

Chinese manufacturer going for "ust a fraction of what the latest ihone or (ala!y will cost

you.

There are hundreds of articles charting Xiaomi$s meteoric rise, particularly from a mar#eting

perspective and its wildly successful usage of 8hunger mar#eting$.

1ut un#nown to most, perhaps the most fascinating element crucial to Xiaomi$s ama=ing

success is not its mar#eting /or lac# thereof3, but rather its wickedly smart, 8ust"in"time

approach towards supply chain management, a radical departure from the traditional

inventory management techni*ues typically utili=ed by other ma"or manufacturers in the

smartphone space.

http://www.tradegecko.com/blog/heres-the-secret-behind-xiaomis-disruptive-successhttp://www.tradegecko.com/blog/heres-the-secret-behind-xiaomis-disruptive-successhttp://www.mi.com/sg/http://oizoioi.com.my/blog/xiaomi-mi4-specs-comparison-xiaomi-mi4-new-flagship-killer/http://www.tradegecko.com/blog/heres-the-secret-behind-xiaomis-disruptive-successhttp://www.tradegecko.com/blog/heres-the-secret-behind-xiaomis-disruptive-successhttp://www.mi.com/sg/http://oizoioi.com.my/blog/xiaomi-mi4-specs-comparison-xiaomi-mi4-new-flagship-killer/


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'Those who cannot remember the past are

condemned to repeat it'

political conte!t over a century ago, but learning from the painful past mista#es has always

been a #ey tenet of Xiaomi's founders – which has helped it so greatly disrupt the global

hilosopher (eorge )antayana$s famous *uote was originally made in a socio&smart phone

mar#et in "ust a few short years.

To get real insight into Xiaomi$s uni*ue ethos, one has to delve deep into founder, Chairman

and C- 9ei un$s past. A computer science graduate from the prestigious uhan Bniversity,

9ei would "oin >ingsoft, a young 1ei"ing&based software company – swiftly rising to C- as

the company struggled to stay afloat /no surprise when your main competitor$s the global

"uggernaut 2icrosoft3.

9ei would eventually steer >ingsoft to profitability, e!iting the company in D;;P due to

8health issues$ after ta#ing the company public on the 4ong >ong )toc# !change for a

mar#et capitali=ation of B)+E;; million. This however, was largely based off its diversifiedinterests li#e online gaming, as opposed to its software suites.

hile B)+E;; million was certainly no small sum to scoff at, it paled in comparison to the

massive internet empires /and corresponding personal profiles and reputations3 built by

fellow Chinese tech superstars at the li#es of Alibaba, Tencent and 1aidu. This was ta#en

a#in to a personal failure for 9ei, and it would be the catalyst driving him to pursue the

success he felt his talent deserved.

2oving on from >ingsoft, 9ei$s subse*uent investment in ancl, an online retailer which

nearly folded, would teach him another vitally important lesson. oor inventory planning had

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led to severe overstoc#ing of its warehouses with goods that wouldn$t sell, a mista#e 9ei

would never ma#e again.

lanting the seeds of the smartphone

revolution

It was around this time in the late D;;;s, when 9ei would find himself increasingly fascinated

with the burgeoning smartphone cra=e. -ne thing led to another, and alongside 9in 1in /a

(oogle mobile e!ecutive at that time3 and several other accomplished, li#e&minded veteran

technopreneuers, Xiaomi was born.

Ta#ing pointers from his own e!periences, and where the li#es of industry players li#e o#ia

failed, 9ei$s compelling vision of a smartphone company which moved, reacted and adaptedto mar#et demands and conditions as fast as a tech startup found great favor amongst

investors, and ultimately as we would find out – the public.

ith a high&powered team assembled and substantial funding in the bag, securing buy&in

from component manufacturers was a crucial stumbling bloc# the un#nown Xiaomi had to

overcome. hile initially re"ected by Q: of ?;; of the world$s top suppliers, through sheer

persistence and some uni*ue strategies, this would be a challenge they would eventually ace.

A phone worth OK;;, selling for OK;;

XIaomi$s uni*ue, wildly successful business model is one for the history boo#s – they$vedrastically cut down on the traditional costs associated with mar#eting and distributing, by

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relying purely on the internet for sales. 4owever, many still wonder how it manages to put

together such high&*uality products at such low price points, which it claims to be "ust above

cost.

hat Xiaomi has done, is to essentially eliminate the large D; percent to D: percent cut

retailersGdistributors typically get, and pair that with the vision of earning profits from

accessories and web applicationsGservices within its eco&system /2IBI3 instead. That$s not to

say Xiaomi does not earn from its mobile phones at all, for it still certainly does /albeit at a

much lower margin3.

1ut it$s this conscious decision to forgo greater margins from the phones itself, despite

sporting components coming mostly from the same e!act original e*uipment manufacturers

/-23 Apple or )amsung would use, that has allowed it to carve out such a substantial

mar#et share in no time at all.

hat has resulted is a succession of mobile phones that consumers love, which are absolutely

nothing li#e the cheap #noc#&offs that many traditionally associate China manufacturers with.

Xiaomi phones are top&of&class, full&featured products often containing components from

some of the top tech firms in the world such as )ony, )harp and 9( – put together by the

same assembly factories used throughout the industry such as 0o!conn.

%ecently&released statistics for SD D;?E have "ust reported that Xiaomi is now the top

smartphone vendor in China, overta#ing the venerable )amsung – and with their ambitious

e!pansion plans, the rest of the world had better watch out.

ust&in&time, with "ust&the&right&amount

http://www.computerworld.com.au/article/545377/why_xiaomi_phones_cheap_/http://www.businessinsider.sg/xiaomi-passes-samsung-in-china-2014-8/http://www.businessinsider.sg/xiaomi-passes-samsung-in-china-2014-8/http://www.businessinsider.sg/xiaomi-passes-samsung-in-china-2014-8/http://www.computerworld.com.au/article/545377/why_xiaomi_phones_cheap_/http://www.businessinsider.sg/xiaomi-passes-samsung-in-china-2014-8/http://www.businessinsider.sg/xiaomi-passes-samsung-in-china-2014-8/


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0rom a consumer perspective, the limited availability of Xiaomi's products in batches has

strongly driven consumer fervor and inculcated built&up demand – regardless of whether

this supply scarcity is legitimate, or one artificially implemented, precisely in a bid to build

up and drive that demand /a topic which has been widely debated online umpteen times3.

0rom a supply chain management perspective however, Xiaomi$s 8ust&in&time$ inventory

holding techni*ue has been a staple of its business model that$s helped #eep costs down by

lowering inventory holding costs, and decreasing ris#s of overstoc#ing on products which

don$t move /li#e 9ei$s ancl3.

1y only purchasing components and manufacturing products after users have placed their

orders, Xiaomi also eliminates having to manage surplus raw materials, and drastically

reduced holdingGshipping costs /with as much as up to Q;@ less inventory in the warehouse3

by delivering finished phones almost as soon as they have rolled off the production line.

In addition to the limited production runs, Xiaomi has also brilliantly departed from

traditional mobile sales strategies to augment its ra=or&thin product profit margins, by selling

the same phones for a much longer period than the ma"ority of its competitors.

0or e!ample, it might stic# with a flagship product for ?Q months instead of one every half a

year, giving it more fle!ibility with profits, better scope to sell accessories, and most

importantly to ta#e advantage of economies of scale, when component and production costs

drop over time.

Xiaomi$s model was oft&moc#ed in the company$s infancy, with naysayers arguing along the

8if it isn$t bro#e, don$t fi! it$ line. 1ut even giants li#e o#ia and 2otorola fell by the

wayside, trying to compete traditionally with today$s leaders li#e Apple and )amsung.

9ei and team$s vision has clearly paid off – they spotted an opportunity to not "ust impact, but

greatly disrupt the worldwide smartphone mar#et through the ground&up rethin# and

implementation of a business model never before tried in this industry.

-ne thing$s for certain now, nobody is doubting Xiaomi anymore.

A 2i in every business

o two businesses are ever perfectly ali#e, and a bevy of stars certainly aligned for Xiaomi to

achieve the success it has today. 1ut there would certainly be lessons applicable from

Xiaomi$s story for "ust about any company.

These would include their famed 8hunger mar#eting$ tactics /already a wellnown case study

in itself3, as well as that unwavering belief in a compelling vision which radically departed

from the norm & not an easy tas# at all when everyone else was trying to #noc# them down.

http://www.nytimes.com/2013/06/05/business/global/in-china-an-empire-built-by-aping-apple.html?pagewanted=all&_r=0http://www.nytimes.com/2013/06/05/business/global/in-china-an-empire-built-by-aping-apple.html?pagewanted=all&_r=0http://www.computerworld.com.au/article/545377/why_xiaomi_phones_cheap_/http://www.computerworld.com.au/article/545377/why_xiaomi_phones_cheap_/http://www.computerworld.com.au/article/545377/why_xiaomi_phones_cheap_/http://cmuscm.blogspot.sg/2014/02/regrading-to-technology-and-supply.htmlhttp://www.theverge.com/2013/8/29/4672668/what-is-xiaomi-china-smartphone-hugo-barra-androidhttp://www.nytimes.com/2013/06/05/business/global/in-china-an-empire-built-by-aping-apple.html?pagewanted=all&_r=0http://www.computerworld.com.au/article/545377/why_xiaomi_phones_cheap_/http://www.computerworld.com.au/article/545377/why_xiaomi_phones_cheap_/http://cmuscm.blogspot.sg/2014/02/regrading-to-technology-and-supply.htmlhttp://www.theverge.com/2013/8/29/4672668/what-is-xiaomi-china-smartphone-hugo-barra-android


19/24

Inventory however, will always remain the biggest asset and lifeblood of any retail business,

and putting in place effective inventory holding and stoc# management techni*ues will give

you a good "ump&start on the path to success.

The most important lesson to ta#e home would thus perhaps be the one 9ei learnt from ancl,

and which he absolutely nailed the second time around with Xiaomi – the importance of

finding, understanding and implementing the right inventory holding techni*ue to suit the

needs of your business.

9ei understood that inventory management can literally ma#e or brea# a business, and

structured Xiaomi$s entire business operations around the 8ust&in&time$ inventory holdingtechni*ue to minimi=e logistics and holding costs, while giving the company the best

opportunities to reap enormous long&term success and profits.

The answer for your business might not be 8ust&in&time$, but perhaps an alternative

techni*ue such asdrop shipping /sellers on e1ay, Ama=on etc3, consignment, or even cross&

doc#ing /almart3. 1ut whatever the right answer is, Xiaomi$s remar#able success story has

highlighted how crucial a decision that is, and the massive impact it has on your business as a

whole.

And that$s something we can all definitely learn from – for the little Chinese startup thatcould is now a rapidly&growing powerhouse con*uering one mar#et at a time, well on the

path to global domination.

http://tradegecko.com/stock-management-software/http://tradegecko.com/inventory-management-techniques/http://tradegecko.com/inventory-management-techniques/https://ecommerce.shopify.com/guides/dropshipping/evaluating-sales-channelshttp://blog.tradegecko.com/incredibly-successful-supply-chain-management-walmart/http://blog.tradegecko.com/incredibly-successful-supply-chain-management-walmart/http://blog.tradegecko.com/incredibly-successful-supply-chain-management-walmart/http://tradegecko.com/stock-management-software/http://tradegecko.com/inventory-management-techniques/https://ecommerce.shopify.com/guides/dropshipping/evaluating-sales-channelshttp://blog.tradegecko.com/incredibly-successful-supply-chain-management-walmart/http://blog.tradegecko.com/incredibly-successful-supply-chain-management-walmart/


20/24

Xiaomi Inc.F The world's fourth largestsmartphone company the est has never heardof

In anuary D;?:, Chinese company Xiaomi Inc. announced it had tripled its smartphonesales to U?m handsets sold while more than doubling its revenues to O?D.?bn over its D;?Kresults. In +ecember D;?E, the company became the world's most valuable technology start&up company after another round of funding, shortly after it was revealed it had become theworld's fourth largest smartphone seller.

eatures and bene!its

• rovides a profile and analysis of Xiaomi's enigmatic C- and founder 9ei un.

• +etails Xiaomi's beginnings and its early success.

• 0ocusing on Xiaomi's smartphone business, provdes a detailed analysis of its sales

performance in its home mar#et of China.

• Analy=es Xiaomi's uni*ue business model, and loo#s at why it has been so successful

selling almost e!clusively through online channels.

• Covers Xiaomi's entry into India, assessing how well it has performed thus far.

9ighlights

The world's fourth largest smartphone ma#er, and the world's most valuable tech start&upcompany, Xiaomi is also China's third largest e&commerce company. )elling U?msmartphones in D;?E, the company has set itself a target of ?;;m devices sold for D;?:.

Xiaomi mar#ets itself as a software company first and a hardware company second. It sellsits phones at close to cost in order to get as many devices into as many hands as possible inorder to e!pose the ma!imum number of customers possible to its e&commerce ecosystem.

-perating in China, 4ong >ong and Taiwan, Xiaomi e!panded into India, )ingapore,2alaysia, hilippines and Indonesia in D;?E, with plans to e!pand into Thailand, Tur#ey,

1ra=il, 2e!ico and %ussia in D;?:.


21/24

:our key ;uestions answered

• hat is Xiaomi, and why has it become so successful

• hy is Xiaomi referred to as 5the Apple of China,5 and why is this not strictly

correct• hat ma#es Xiaomi's business model so uni*ue, and why does it more closely

resemble Ama=on over Apple

• 4ow well has its e!pansion into India gone

Xiaomi#s +rowth Strategy ,etailed

osted by Sameer Singh


22/24

ta#e pictures V great imagesW e have to do a great "ob building a great product /software3

before any of the other things can wor#.

e are the only company who does thatF being super open and embracing user feedbac# and

upgrading /our software3 every wee#. e are the only company no others.

That$s e!actly the reason why we have built a group of fans that are super loyal to us. They

don$t get any reward by giving us feedbac# and trying things. I thin# the sense of ownership

and a sense of being part of the effort to improve the system, improve the handset, ma#e them

feel being respected and ma#e them feel being part of it.

)o it$s the sense of participation that will get them involved into the discussions, and by

nature that$s also the reason they become a big fan of us.

In my previous post, I showed that Xiaomi users are about twice as engaged as other

ihoneGAndroid users. This is primarily driven by the fact that Xiaomi users belong to a

favorable demographic, i.e. early technology adopters. These users also tend to be e!tremely

vocal about their product choices and as a result, word&of&mouth has become a very strong

mar#eting channel for Xiaomi.

I also see somewhat of a parallel with +ell in the late N;s & +ell had reali=ed that hardware

*uality had reached mar#et e!pectations, but the retail interface and customi=ation options

were still limited. This is what +ell sought out to fi! with its online model. 2otorola has

been moving in the same direction with the 2oto X. 1ut Xiaomi has ta#en this concept a step

further, as it has allowed users to provide actionable feedbac# or essentially 5customi=e5 the

software itself.

Current 'nternational 3resencee actually have hundreds of thousands of phones in the )tates. e couldn$t sell to the )tates

because of logistics V shipping only allows shipping to China cities V but somehow through

analysis, we figured out that there are hundreds of thousands of phones in the B).

0ew people #now that Xiaomi already has an international presence & both via devices and

the 2IBI firmware that is distributed online for free. -n a smaller scale, this suggests that

Xiaomi's model does have international appeal.

Also, it seems as though Xiaomi phones are "ust slightly outnumbered by @indows 3hone

de$ices in the (S. This *uite surprising as indows hone devices have received fairly

strong mar#eting support from ATT, Nokia B &icroso!t, while Xiaomi hasn't evenattempted to mar#et to B) consumers.

http://www.tech-thoughts.net/2013/09/xiaomi-international-growth-data-usage-carriers.htmlhttp://www.tech-thoughts.net/2013/04/nokia-q1-smartphone-feature-phone-shipments-region.htmlhttp://www.tech-thoughts.net/2013/04/nokia-q1-smartphone-feature-phone-shipments-region.htmlhttp://www.tech-thoughts.net/2013/09/microsoft-nokia-deal-tale-of-desperation.htmlhttp://www.tech-thoughts.net/2013/09/microsoft-nokia-deal-tale-of-desperation.htmlhttp://www.tech-thoughts.net/2013/09/xiaomi-international-growth-data-usage-carriers.htmlhttp://www.tech-thoughts.net/2013/04/nokia-q1-smartphone-feature-phone-shipments-region.htmlhttp://www.tech-thoughts.net/2013/04/nokia-q1-smartphone-feature-phone-shipments-region.htmlhttp://www.tech-thoughts.net/2013/09/microsoft-nokia-deal-tale-of-desperation.html


23/24

Segmentation by 7egional 3re!erences

+ifferent regions, different countries$ consumers will have different needs. /e need to3understand what these consumers want when it comes to software design, and even some of

the hardware design and some of the Internet services that we provide, and we have to do a

great "ob adapting to international users before we can actually sell it.

)o that$s why we need 4ugo, with really in&depth product e!perience. 4e$s one of the best

persons in the world able to do this.

To me, this was the single most important comment from 1in 9in's interview. Xiaomi's long&

term strategy will be to customi=e their software services based on regional preferences.Combined with their use of consumer feedbac# and services&focused model, this presents an

asymmetric attac# on leading smartphone companies that will be difficult to defend against.

4owever, this will also be challenging to implement as Xiaomi continues to e!pand.

@ill Xiaomi Need to ork *ndroid to *chie$eAocali)ationThe biggest worry for Android is the fragmentation. That people will ta#e a branch ofAndroid, for# it off, ma#e a bunch of changes and then never go bac#. )o as Android evolves,

then you have a branch of Android that also evolves, and it becomes so distinctly different

then apps built for this Android version doesn$t wor# on the other version of Android. That$s

what concerns (oogle.

1ut 2IBI phone – since day one, we$ve never done that. e ma#e a system that always

follows Android updates closely and for many occasions, we have upgraded together with

Android$s updates.

)ince customi=ation is at the core of Xiaomi's value proposition, some may thin# that they

would be tempted to 5for#5 the Android operating system. 4owever, Xiaomi seems to reali=e

that the path to international success hinges on full compatibility with applications /and by

e!tension, (oogle services li#e lay3. In fact, compatibility and *uic# firmware updates are

some of the #ey reasons behind Xiaomi's appeal to the vocal, early adopter community. And

by e!tension, customer loyalty and word&of&mouth mar#eting are some of the primary reason

behind their rapid ascent.


24/24

Xiaomi>s 0usiness &odele thin# of hardware as "ust a platform to run services. e don$t loo# to ma#e money on the

hardware, we are loo#ing at users who have bought the hardware, then started to use our

servicesW It$s the services that eventually bring in revenue.

2ost of the product features that people are feeling are really the software and the services.

Bsers li#e the software, they li#e the e!perience, they li#e how they get onto the Internet and

browse the eb, how they download the A>s. They play games that run really smooth, they

ta#e pictures V great imagesW e have to do a great "ob building a great product /software3

before any of the other things can wor#.

Their services&focused business model certainly seems to be wor#ing. In "ust K years, Xiaomi

has "oined the /e!tremely3 short list of pro!itable smartphone -2s. I thin# the following

chart complements this *uote perfectlyF

I have always harped on the fact that high hardware profit margins are not a sustainable trend,

even for industry giants li#e *pple B Samsung. -ver the ne!t few years, the companies thatsucceed in the mobile industry will not be those that follow an integrated approach to

hardware software, but rather those that have the capabilities to le$erage dominant

plat!orms to deli$er and moneti)e o$er"the"top #DTT% ser$ices. Xiaomi loo#s li#e the

ideal case study for studying the effectiveness of that strategy.
http://www.bloomberg.com/news/2013-09-06/xiaomi-turns-profit-as-sales-of-iphone-beating-handset-to-triple.htmlhttp://www.tech-thoughts.net/2013/05/apple-samsung-profit-share-trap.htmlhttp://www.asymco.com/2013/09/04/whos-next/http://www.tech-thoughts.net/2013/08/impact-of-value-chains-evolution-on-pc.htmlhttp://www.tech-thoughts.net/2013/08/impact-of-value-chains-evolution-on-pc.htmlhttp://www.bloomberg.com/news/2013-09-06/xiaomi-turns-profit-as-sales-of-iphone-beating-handset-to-triple.htmlhttp://www.tech-thoughts.net/2013/05/apple-samsung-profit-share-trap.htmlhttp://www.asymco.com/2013/09/04/whos-next/http://www.tech-thoughts.net/2013/08/impact-of-value-chains-evolution-on-pc.htmlhttp://www.tech-thoughts.net/2013/08/impact-of-value-chains-evolution-on-pc.html

xiaomi casestudy

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