Getting a consumer durable brand in the market meant significant investments in distribution, on-ground displays, marketing and everything else that was traditionally associated with the launch of a consumer durable brand.
I.e. creating a consumer product brand required large capital, and therefore was not something that new and emerging entrepreneurs without access to capital could aspire to do.
Well, Xiaomi just debunked that theory with a model execution of a creative & unconventional strategy.
Without opening a single store, without keeping the products on shelves in physical stores, without spending on advertising, this China-headquartered company has already become the world’s 3rd largest handset manufacturer in just under 3 years time since launch.
Xiaomi reportedly accounts for 6% of global smartphones sold, trailing Samsung, which accounts for 25% and Apple, which accounts for 12% of all smartphones sold. Also, Xiaomi has done this by selling only in parts of Asia, and they are yet to enter Western markets. It also dethroned Samsung to become the largest handset maker in China, where it now commands a 15% market share.
Xiaomi’s performance in India has been extraordinary. It sold 20,000 units in less than 38 minutes, and a few days later another 20,000 units were sold just 2.4 seconds and later sold 40,000 units in less than 4.2 seconds. All this with a team that is rumored to be less than 5 people, and operating out of a small office in a business centre. And no advertising.
Moreover, Xiaomi is also profitable. It claims that its net profit nearly doubled last year to USD 566 million.
It is reportedly seeking USD 1.5 billion in fresh funding. If that comes through, it could value the company at over USD 40 billion. i.e. twice the valuation of Sony and Lenovo.
There are some significant lessons to be learnt from this handset-seller that calls itself an e-commerce and mobile Internet company and does not like to be called a handset-maker. How does a company that bypasses retailers and sells directly to consumers redefine the consumer retail business?
- Leverage online infrastructure: Xiaomi did not sell offline. Instead, it preferred to use existing online marketplaces. Savings in distribution costs (which includes cost of unsold goods, damaged and dead inventory) were passed on to consumers, resulting in a much stronger value proposition.
- Xiaomi plans to open consumer ‘experience’ centers, which will be their service centers where consumers can go not just to repair & service products, but can also experience the next set of Xiaomi products.
- In a market like India, this means that distribution power is no longer a competitive advantage. And that’s a significant change in the market dynamic.
- You do not need advertising dollars to build a brand: Xiaomi did a low-key launch i.e. they invited 30 tech bloggers to a club, demonstrated the products, talked about them… and the bloggers helped to spread the word.
- Additionally, exclusivity with Flipkart also meant that they got front-page on the site and support in promoting it via newsletters, etc.
- Another significant learning for me is that word-of-mouth, online media and power of content-based outreach to stakeholders is super powerful. And inexpensive. Traditional advertising driven brand building activity at this scale would have set Xiaomi down by at least INR 250 mn, thus increasing product prices by at least INR 3000 or 4000. That’s a lot in a price-sensitive market like India, and can be the difference between success and failure.
- Managing versus doing: Xiaomi launched with a team of 2 people. Two. They focused on getting the relevant partnerships done to get the product to the consumers. From Flipkart, to bloggers to media, and everything else that would be required for the physical product to move from manufacturing to the buyer’s hands.
The learning for me is that with the support system around doing business getting more organized, tech- enabled and much more professional than before (certainly in India), it is possible for companies to have lean structures with high-quality talent that can bring the various service providers to work in sync. The traditional organization structures of layers of people, instructing what is to be done and then supervising it are no longer required.
The most important lesson for me is that – it is possible to launch a consumer product brand with little or no capital. And that opens up the opportunity to every entrepreneurial-minded individual who wanted to start a consumer product company but did not think he/she had the capital required to convert that dream into a company. Outsourcing production, leveraging online infrastructure, efficient management of service-providers and content-based social media use can help you launch a brand with a very limited capital.
About the Author:
Sanjay Bansal, Founder, Aurum Equity Partners LLP, is an investment-banking veteran with over 20 years of experience and on-ground understanding and exposure of handling more than a 100 mid and large sized transactions, across multiple sectors.