Xiaomi Company Audit

Executive Summary

This report seeks to analyse the strategic and marketing policies that have enabled Xiaomi to retain its competitive advantage over its rivals. Since its establishment in 2010, the company has increasingly outsmarted its competitors who include Apple, Samsung, and Android. This paper will explore the internal and external environment of Xiaomi to gain insight of the forces that have guaranteed its success.

Given that the company is in the technological industry, it has to be flexible and innovative enough to keep up with the pace of industrial changes. Innovation, research and business intelligence will be discussed in details in this paper to give insight to the reader on the factors that have placed the company ahead of the competitors. SWOT analysis, marketing mix analysis, point-of-difference and point-of-parity concepts are used to evaluate Xiaomi’s internal and external state.

Although the analysis concludes that Xiaomi has already gained its popularity due to attractive prices, high-quality products and respectful treatment towards its fans, it still faces various setbacks in its attempts to dominate the technological industry. The setbacks range from high competition to strict copyright legislations. The report shall recommend the following actions to the organisation:

  1. Forming alliances with local retail operators/distributors
  2. Well diversified product lines
  3. Business development in overseas market
  4. Ensuring employee satisfaction
  5. Embark on research to enhance innovation

Methodology

To conduct a brand audit of Xiaomi and prepare the report, the qualitative research method has been applied. All data used in the report has been gathered through the literature analysis. Literature sources include books, journal articles and web articles; all of them can be found in the reference list.

Introduction

Xiaomi was founded in 2010 by Lei Jun with the primary objective to produce and sell electronic devices in China (An et al. 2013). Being a part of the technological industry, Xiaomi presents mobile phones and media devices, which have significantly gained customer acceptance globally. Although the new brand is very similar to some others, such as Apple or Samsung, for example, it still has many unique characteristics, which guarantee its success and development. Most importantly, Xiaomi is now associated with affordable prices and high-quality products. Additionally, Xiaomi is famous for its unique MIUI system that earned a lot of positive responses and the Xiaomi’s Smartphone that boosted the sales volume and was ranked the best-selling in China at the end of 2014 (Jiao, Zhao & Dong 2015). Finally, the brand is not only respected but also loved. Xiaomi respects its buyers and tries to meet all their expectations. For this purpose, consumers’ feedbacks are always taken into account when creating new products or improving the existing ones.

The Brand

The brand Xiaomi is based on the concept that the ‘high-quality technology doesn’t need to cost a fortune’ (About Xiaomi 2015, para. 1). Due to an appealing price-quality ratio, Xiaomi has attracted an enormous audience of buyers and managed to retain it because of attentive and respectful treatment. Therefore, another brand’s pillar is the contact with its buyers: consumers are invited to various events and always welcomed to leave feedbacks, which are claimed to be considered for the further production. Xiaomi is also famous for the team of highly qualified employees gathered from such corporations like Google, Microsoft, Motorolla, and others (About Xiaomi 2015, para. 1). All of this contributes directly to the brand equity and makes people recognize the brand and buy its products only because those are Xiaomi (Lee 2014). Xiaomi’s brand mantra is: ‘Always believe that something wonderful is about to happen’ (About Xiaomi 2015, para. 2). Being a newcomer in the technology market, it is necessary to be guided by such optimistic and inspiring words.

Internal Audit: Brand Inventory

Xiaomi’s Products

On the basis of the brand vision, as well as the feedback from fans, Xiaomi successfully develops, manufactures and sells qualitative hardware, software and accessories. Currently, according to Xiaomi’s official website, the range of products consists of the following: smartphones (including Mi Note, Mi 4, Mi 4i, Redmi 2 and Redmi Note 4G) smart devices (among which are Mi Air Purifier and Mi Mand), Mi Pad, Mi TV, Mi Power Banks and headphones.

Point-of-difference. The term point-of-difference refers to unique characteristics, which distinguish a particular brand from its competitors (Keller 2011). For Xiaomi, affordable prices definitely go first on the list. In addition to those, the brand is also famous for the high quality. Another unique feature is an audience of Mi fans and all that is done to attract them. Finally, Xiaomi is different from its rivals because of MIUI, a skinned version of Android, which improves customers’ experience (Amadeo 2014, para. 4).

Point-of-parity. Although Xiaomi has several significant advantages over its competitors, it also has many characteristics that are not unique, and those constitute point-of-parity (Keller 2011). Xiaomi smartphones are most commonly compared to Apple’s production. The brand is even called ‘Apple of China’ (Amadeo 2014, para. 1). Indeed, one look is enough to see that every Xiaomi phone is ‘basically a big iPhone’ (Amadeo 2014, para. 3). Due to a big size, many people also compare Xiaomi smartphones with those of Samsung.

SWOT Analysis

To evaluate Xiaomi’s strengths, weaknesses, opportunities, and threats, the SWOT analysis is used (Ferrell & Hartline 2012). The last two factors are analysed within an external audit.

Strengths. Due to a unique policy regarding its fans, Xiaomi has earned the loyalty among customers. Besides, high quality and affordable prices do their job. Products are widely sold through the Internet, which attracts even more buyers and benefits the brand itself. Since online marketing is cheaper as compared to other forms of marketing, and operation costs are low, it, in its turn, translates into low prices for products, which guarantee a competitive advantage over the rivals. The innovative supply chain strategy that comprises of zero inventory cost, e-commerce and zero marketing cost also enables Xiaomi to sell its products at a relatively low price in comparison to other companies. Moreover, MIUI system that fans like also contributes to the brand’s strength.

Weaknesses. The major weakness of the brand is its small scale nature. Even though Xiaomi is known and sold internationally, it is still not as powerful and famous as its competitors. In view of this, many other disadvantages follow, for instance, an inability of Xiaomi to produce raw materials on its own and buying from the same suppliers who serve competitors. Bargaining power of suppliers is rather high since they may give priority to the competitors, who buy in large volumes, leading to delays in delivery of raw materials to Xiaomi. Another significant weakness is uniqueness, which is especially true of the design of products. Finally, the “Hungry Marketing” strategy adopted to boost sales challenges the company’s survival. It is easily imitable by the rivals, and therefore, it is not a sustainable marketing policy. Additionally, the aggressive marketing plan may disgust customers and turn them to the rivals.

Marketing Mix

Product, price and promotion. To create a successful marketing mix, four components are needed: the right product, beneficial price, effective promotion, and the right place (the analysis of the place is made within an external audit) (Lamb, Hair & McDaniel, 2008, p. 46). Xiaomi definitely has the right price, and it is one of its strongest advantages. As for promotion, Xiaomi plays an active role in social media, uses the word of mouth marketing strategy and involves fans to the brand development. Besides, the CEO of the company, Lei Jun, always presents it really well.

Market Share and Financial Performance

An analysis of Xiaomi’s financial statements sheds light on its performance both strategically and financially. The company managed to introduce MIUI system and the best Smartphone in China, sixty million of which were sold in 2014, including eighteen million in the local market (Li & Reimers 2015). Xiaomi’s market share has successively grown over the years as shown in the pie charts below.

Market Share and Financial Performance
Market Share and Financial Performance

Presently, Xiaomi is the third largest smartphone brand in the global market. Moreover, expansion in Brazil, Indonesia and Russia is planned (Leswing 2014, para. 6)

However, figures in the company’s financial statements are not as good as those of Samsung or Apple (Mihalcik 2014, para. 3). In Xiaoma’s 2013 filing, 26.6 billion yuan (or 4.3 billion dollars) of revenue was indicated. Also, such figures as operating profit (486 million yuan or 78 million dollars), profit before tax (524 million yuan or 85 million dollars) and net profit (347 million yuan or 56 million dollars) are mentioned (Jones 2014). A table from Xiaomi’s filing is presented below (the numbers are in tens of thousands).

A table from Xiaomi’s filing is presented below (the numbers are in tens of thousands)
A table from Xiaomi’s filing is presented below (the numbers are in tens of thousands)

The organization’s operating margin is only 1.8% while the same of Samsung is 18.7%, and the same of Apple is 28.7%. Considering this, Xiaomi seems to be much more focused on its volume sales and expansion rather than on its own revenue.

External Audit: The Brand Exploratory

Position in the Market Place

Xiaomi now is one of the most famous brands all over the world. Due to its unique strategy of customer service and the usage of the Internet, Xiaomi has gained customer acceptance globally and managed to grow its domestic and global market share significantly. While becoming more and more popular on the global scale, Xiaomi definitely leads the China market now. After the introduction of Xiaomi’s Smartphone, the sales volume has vastly increased, and at the end of 2014, the Smartphone was ranked the best-selling in China (Jiao, Zhao & Dong 2015). Presently, times when Apple is the ‘king of the smartphone market in China’ have passed, and Xiaomi takes the first place with the market share nearly 16% (Whitney 2015, para. 1). Moreover, Apple now is not even in the second place since it is taken by another Chinese brand, Huawei. It seems that Xiaomi now will be competing with Huawei on the local market since the difference between their market shares is only 0.2% (Whitney 2015, para. 2).

SWOT Analysis

Opportunities. Xiaomi has in the past used the Internet to market its products both locally and internationally. The promotional strategy has led to Xiaomi acquiring a bigger market share due to the convenience of purchase brought about by the Internet. The platform created by the Internet marketing should be used to embark entirely on the international market. Moreover, the strategy attracts customers’ review that the firm may use to create more inclusive devices for a better user experience.

Threats. One of the greatest threats that Xiaomi faces is competition from other companies. Apple, Samsung and Android, who are the main competitors, are strong forces in the technological industry (Mamiit 2015). These three brands enjoy worldwide acceptance and keep the bargaining power of customers high. Customers have the ability to choose what devices to purchase from the variety available in the market. That is why Xiaomi has to consider customer reactions when making major decisions. The other imminent threat that is likely to affect the brand is the legislations against counterfeits. In the recent past, most countries have continually enacted stringent laws to regulate infringement of products. More strict rules are likely to be adopted in the future posing a significant challenge to the company’s survival.

Marketing Mix

Place. Although the brand now is known worldwide, the organization’s primary interest is China. This country has always been a producer and consumer of affordable goods, which is why it has only been a matter of time when a cheaper alternative to iPhones will gain its deserved popularity.

Recommendations

Strategic

Firstly, to compete with competitors and maintain a good reputation among customers, Xiaomi needs to focus on innovation and produce an improved integrated and inclusive device with more features than the current Smartphone has. Secondly, most producers of Smartphones are big business with a strong customer loyalty all over the world; they may attempt to oust the Xiaomi from the industry by introducing superior Smartphones at lower prices. Therefore, it has to find a way to mitigate the potential ousters. Thirdly, to maintain the high sales, Xiaomi has to ensure that both the customers and the employees are satisfied (Kotler & Armstrong 2013). Finally, the company should go global, expand and increase its profitability.

Tactical

To be able to innovate and come up with more integrated and inclusive device, the company should gather feedback from customers through the social media and comment cards to gain insight into the customers’ needs that the current Smartphone does not fulfil. Xiaomi can engage customers with giveaways: several users who provide the most useful ideas for creating a new device will get that device for free. That will be successful since Xiaomi already uses social media very effectively (Lun & Yazdanifard 2014).

To mitigate rivals who may try to oust the Xiaomi by introducing superior Smartphones at lower prices, the brand should become more diverse and present other products, apart from smartphones and smart devices. Those can be, for instance, routers or some devices for the home.

While listening to buyers’ feedbacks is enough to satisfy them, employees need something else. Firstly, employees’ remuneration should be matched with their performance, and new ideas should be rewarded to encourage innovation (Lun & Yazdanifard 2014). Xiaomi should also introduce an employee training program that will ensure that workers benefit from continuous training.

Finally, Xiaomi has to improve its revenue. Since it can not significantly raise prices for its products because that will scare buyers away, it should increase the profit by multifunctioning (introducing a wider range of products) and expansion (Kotler & Keller 2011). The company should establish subsidiaries in countries with potential users of the Smartphone and other devices that it manufactures (Li & Reimers 2015). Xiaomi should partner with overseas telecom service providers to ease its entry into the global market. Opening such stores will boost one-on-one contact with customers and may increase the sales volume of the company’s products (Keller 2011). Moreover, it will enhance diversity in the workforce that may increase knowledge regarding the different markets for the enterprise. Additionally, the increased sales will enable the firm to purchase raw material in large quantities. To become successful in markets of Brazil, Russia and Indonesia where Xiaomi is about to expand the company should again use social media (Facebook, Twitter, Weibo, etc.) for advertising purposes (Lun & Yazdanifard 2014).

Conclusion

Xiaomi is one of the most successful brands in the field of technology. It has won customers’ loyalty over the past few decades due to its high-quality products. Xiaomi applies a product mix founded on lifestyle, value, and reliability that has boosted its reputation. Since the business introduced the Smartphone, the threat of substitute products decreased considerably due to the innovative inclusion of various features in the device. Xiaomi must remain creative and embrace the new technology to retain the competitive advantage that it acquired in the past.

Reference List

About Xiaomi 2015, Web.

Amadeo, R 2014, Xiaomi Mi4 review: China’s iPhone killer is unoriginal but amazing, Web.

An, X, Deng, H, Wang, Y & Chao, L 2013, ‘An integrated model for effective knowledge management in Chinese organizations’, Program, vol. 47, no. 3, pp. 320-336.

Ferrell, OC & Hartline, M 2012, Marketing Strategy, 6th edn, Cengage Learning, Mason, OH.

Jiao, L, Zhao, X & Dong, D 2015, ‘Design for temperature measurement system based on smartphone and infrared thermal camera core’, International Conference on Intelligent Systems Research and Mechatronics Engineering, vol. 3, no. 8, pp. 234-249.

Jones, C 2014, Xiaomi’s Financials Don’t Come Close To Apple’s, Web.

Keller, K 2011, Strategic brand management: building, measuring, and managing brand equity, Prentice Hall, New York.

Kotler, P & Armstrong, G 2013, Principles of marketing, Prentice Hall, New York.

Kotler, P & Keller, K 2011, Marketing management, Prentice Hall, New York.

Lamb, C, Hair, J & McDaniel, C 2008, Essentials of Marketing, 6th edn, Cengage Learning, Mason, OH.

Lee, Y 2014, ‘When Google meets Xiaomi: comparative case study in western and eastern corporate management’, Journal of International Technology and Information Management, vol. 23, no. 4, pp. 75-83.

Leswing, K 2014, With slim profits, China’s Xiaomi is more like Amazon than Apple, Web.

Li, M & Reimers, K 2015, ‘Innovation in China’s information and communications technology industry: bottom up or top down?’, Chinese Management Studies, vol. 9, no. 1, pp. 27-37.

Lun, K & Yazdanifard, R 2014, ‘Guerrilla marketing: a successful business model for Xiaomi’, Global Journal of Human-Social Science Research, vol. 14, no. 7, pp. 134-145.

Mamiit, A 2015, Huawei dethrones Xiaomi in lucrative China smartphone market, Web.

Mihalcik, C 2014, Xiaomi made only $56M last year, filing shows, Web.

Whitney, L 2015, Apple loses top spot in Chinese smartphone market to Xiaomi, Web.

Appendix

Brand Plan

Situational Analysis Objectives and Strategies Implementation Plan
Strengths
  • Loyal customer base
  • No advertisement cost
  • Sells products at low prices
  • Has efficient supply chain

Weaknesses

  • Small scale nature
  • To high bargaining power of suppliers
  • Uniqueness
  • Easily imitable marketing strategy

Opportunities

  • Potential global market

Threats

  • Competition from rival companies
  • To high bargaining power of buyers
  • Legislation against counterfeits

Strategic brand challenges

  • How to develop a new inclusive product that will compete with larger smartphone makers’ products?
  • How to retain both consumers and employees?
  • How to enter markets in Brazil, Indonesia and Russia?
Objectives
  • Increase the sales volume and profit
  • To manufacture quality android phones

Brand positioning

  • Functional brand values: affordable prices, high-quality products, skilled employees.
  • Emotional brand values: attention and respect towards fans.
  • Essence: price-to-quality ratio

Marketing mix

  • Price: Offers products at low prices and increases the price gradually
  • Product: Manufactures quality products at low prices
  • People: Xiaomi has skilled employees that manufacture its products
  • Distribution: Xiaomi has outlets in 11 countries
  • Promotion: Xiaomi relies on the power of mouth
Action Schedule
  • 3 months: Research on ways to improve the quality of the products
  • 2 months: Employee training
  • 5 months: Product development

P&L Forecast

  • Revenue: $16 billion (100 billion Yuan)
  • Operating margin: 2.5%
  • Net profit: 75% increase

Marketing Budget
The marketing budget will comprise communications costs, advertising costs, promotions costs, and tracking cost (about 800-900 million Yuan).

Control

  • Regular check of the feedback from customers
  • Monthly test employees within training programs
  • Regular evaluation of advertisement programs in new markets