Xiaomi Inc. – 2015 India Positioning

Strategy (Part 1) By Caio Porciuncula and Aldo Martinez

Strategic Focus

Mission Statement

Xiaomi Inc. has had an exciting, and lucrative, start since its founding in 2010. In a little over

four years, the company has become the third largest smartphone distributor in the world and

has grown to be the world’s most valuable technology start-up; it is currently valued at around

$46 Billion. Xiaomi is primarily known as a hardware company, but its leaders claim that the

company is more of an internet and software company. The company’s mission statement is as

follows:

“At Xiaomi, we strive to create the highest quality products at the lowest possible

prices in order to provide people access to the necessary tools and services that

connect them to the world and, ultimately, their dreams.”

The mission statement for Xiaomi reflects the three key values that the company emphasizes:

1. A premium product: Xiaomi ensures that its products not only meet market industry

standards but also exceeds them. The products they make are second-to-none and can

compete with any of the higher end brands that competitors offer.

2. Lowest prices: The focus on producing great products is matched only by the emphasis

on providing products at incredibly low prices that normally wouldn’t be offered for such

premium items.

3. More than just hardware: Xiaomi’s outlook on what type of company it is strays from

what a conventional hardware company might have for itself; Xiaomi envisions itself as

an internet and software company above all else. The company wants to bring the

internet, and all its uses, to markets where smartphones are only just starting to flourish.

The Chinese company has leveraged these values to its benefit, becoming the number one

maker of smartphones in China during 2014. Xiaomi has been growing at an exponential rate in

its home country (183% rise in sales in 2014 alone) and has plans to expand to several other

countries in the coming years.

Company Objectives

Xiaomi’s tremendous growth in China has made them one of the most successful companies in

recent memory, but the company must look towards other markets in order to continue to

grow. Apart from expansion, the company also has several other objectives that it wants to

focus on in both the short-term and the long-term.

Short-term:

Further develop the Indian Market: In July of 2014 Xiaomi entered the Indian market

with massive demand. The company wants to be able to control the sale of its products

online so it plans on building its own online platform for the Indian market.

Expand manufacturing capacity: In order to keep up with demand, Xiaomi plans to

increase the supply of its product in order try and keep up with demand. The company

did not expect such an explosive demand in India, thus it did not properly increase its

production capacity prior to entering the Indian market.

Bring all of its core products to India: While Xiaomi has introduced its smartphone line

to India, the company plans on bringing in the rest of its suite of products to the country

as well. The company wants to bring in its tablet, TV, set-top boxes, and router products

to India as the country is a great opportunity for the business to expand internationally.

Enter Brazilian and Russian markets: In 2015 Xiaomi plans to begin entering new

markets that are more developed than the Indian market. Of the countries announced,

Brazil and Russia are two of the countries that stand out for the potential size of the

markets.

Long-term:

Home Tech/Internet of Things: Xiaomi has begun investing in Midea, a Chinese

appliance maker, in hopes to potentially break into the “Smart Home” market that

continues to grow. The company plans to increase its product portfolio outside of just

smartphones, TVs, and routers, which are its current main focus.

Enter developed western markets: The biggest future challenge Xiaomi faces will be

breaking through to western consumers, but it plans on trying nonetheless. The

company realizes that western markets will have to be handled far differently than they

have with their current markets. Low prices will not be enough to entice shoppers that

already buy highly subsidized phones.

Increase software portfolio: Xiaomi considers itself a software company more than a

hardware company and is why it plans to continue to grow its software line. The

company has bought stake in Chinese software company KingSoft Corp. and plans on

investing future capital in similar software companies.

Patent acquisition: Patent lawsuits have been a problem for Xiaomi in the past and

might continue to be so in the future. The company plans on continuing to grow its

patent portfolio in China and the rest of the world as much as it can. Xiaomi also wants

to continue to strike licensing deals abroad in order to be able to further its expansion

into new markets without dealing with intellectual property issues like it has in India.

Core Competencies

Being named the most valuable tech startup in world in just four years is a testament to the

incredible business model and ingenuity that Xiaomi has brought to the table. The company

could easily be touted for the quality of its premium products at such low prices, but that would

only be scratching the surface of what makes this company so successful. Xiaomi is often called

the “Apple of China”, but while the company might agree with that statement in terms of its

high quality products, it sees itself more in line with Amazon than it does with Apple. The

company’s ability to see itself as an e-commerce business instead of just a hardware company

is crucial to its success. The company’s CEO Lei Jun has explained that the company’s products

are merely a portal to their software ecosystem, and that is what makes them different from

many other competitors. This mentality is what defines the company’s innovative methodology,

and that is only where it begins.

MiUI is Xiaomi’s customized version of Google’s Android OS that comes integrated into every

one of its smartphones, and it has become one of the driving forces behind the company’s

popularity with its users. The personalized software is very intuitive and beloved by its users, so

much so that the users of the software are called “Mi Fans.” The company has been able to

leverage the fan base around its products so well that they essentially spend nothing on

marketing, as the users do all the marketing on social media for them. Xiaomi’s organic

advertising model has created a sort of “cult” following that is reminiscent of when Steve Jobs

was at Apple, and Lei Jun, Xiaomi’s CEO, is even seen as an equivalent to the late Mr. Jobs. This

branding has only helped bolster Xiaomi’s popularity since its inception in 2010, and the

company often throws fan events, such as concerts, that all Xiaomi owners can go to as a way

of showing appreciation to its users. In the future, Xiaomi hopes that this sort of fan base come

to exist in markets that the company plans to enter.

Another key component to Xiaomi's success is its ability to tap into developing markets that are

just starting to takeoff. China, the world's largest smartphone market, has only just recently

exploded into the smartphone market that it currently is, and Xiaomi has been an instrumental

factor in that process. Now, with the experience of already being extremely successful in their

own developing market, the company has begun to set its eyes on the up-and-coming markets

of the world. These markets are fresh and ripe with huge revenues to be made. Xiaomi's vision,

methods, and experience provide the company a huge advantage over some of its major

competitors.

Sustainable Advantages

In reality, Xiaomi shines as an innovative tech company for two crucial reasons: 1.) its online

sales business model and 2.) the method in which it improves its phones through user

feedback.

1.) Online Sales Method/Flash Sales:

Major smartphone companies like Apple, Samsung, and HTC sell the majority of their products

through third-party retailers and physical stores, whereas Xiaomi sells almost all its products

online. Xiaomi has created a business model around selling the majority of its products online

through a method called “Flash Sales.” These flash sales are basically limited batches of

products that go on sale at specific time and run till they are sold out. This direct to consumer

method also allows Xiaomi to increase profits by avoiding the fees that come with having

retailers sell its products in-store. This method is perfect for Xiaomi, as it prevents the company

from overproducing phones that it might not sell.

By limiting its manufacturing, Xiaomi has a smaller inventory that provides less risk and easier

mobility. Since Xiaomi builds its phones in batches, the company saves money on the

decreasing costs of materials as time goes on instead paying for large, expensive quantities up

front. The online business model is made all the more successful by the methods in which the

company upgrades and updates its hardware and software.

2.) Weekly Update System/High User Input:

Possibly the most innovative part of the Xiaomi business model, and what sets it completely

apart from any other major competitor, is its weekly system of phone updates that uses user

feedback forums to determine what needs to be fixed and improved. Essentially, once Xiaomi

has released a product into the market, the company allows and encourages any one of its

users to give recommendations on how to improve the product’s hardware or software. The

company then releases new software patches every week that reflect user requests.

Incredibly, the company does take hardware recommendations seriously and, if enough people

request a certain update, the company will incorporate the minor hardware updates to its

future phone batches. This rapidly-executed updating system is completely against the yearly

OS updates that other major smartphones provide and is a huge factor in Xiaomi’s success. The

company prides itself on providing what its users want, and not what they think they want. This

unique model is a big draw because it gives users a lot of power they normally would not have,

and it also allows Xiaomi an opportunity to know exactly what its users want.

Another benefit of this model is that it allows Xiaomi devices to have longer life spans (usually

around 18 months), compared to competitors that release new phones every six to twelve

months, resulting in higher profits from a single model.

Situation Analysis

SWOT Analysis

In order to truly understand Xiaomi and its business model’s success, we must understand its

main core strengths, weaknesses, opportunities, and threats.

Strengths Weaknesses

Internal

Direct online sales to customers

reduce overhead costs and eliminates retailer fees

Vertically integrated hardware and platform system that provides a unique user experience

Collection of excellent leaders who come from some of the best tech companies in the world

Very strong and innovative update system that relies on user feedback

Seen as more than just a "hardware" company (especially in developing markets

Quickly becoming Android's largest client

Doubled its profits from 2013 in 2014, selling 61 billion devices and has become the third-largest smartphone maker in the world

Lack of cash reserves to compete

with bigger competitors

Reliance on Foxconn (single manufacturer) limits manufacturing capacity

Limited patent portfolio increases company's need to license and pay royalty for "borrowed" technologies

Strong dependence on other companies for devices' components (camera sensors, etc.)

Brand is less established in markets outside of East Asia

Less developed supply chain systems as big competitors increases potential risks and costs

Opportunities Threats

External

Plenty of developing countries that

have untapped markets

Company has a high market valuation that provides it with many financial backing opportunities

Has the ability to enter up-and-coming markets, such as "Smart Home"

Increasing global demand for cheap smartphones

Competitors can quickly adapt to

mimic Xiaomi's online business model

Increased risk of patent bullying from competitors in new markets

Risk of suffering law suits and legal action from American companies upon entering western markets

Competitive threat from both Indian and Chinese start-ups

Strengths:

Xiaomi's model of vertically integrating hardware and software is a core strength of the

company, as it provides a common, high quality experience for all users across a range

of Xiaomi devices. Through the development of the MiUI UX (User Experience), Xiaomi

integrates its services, such as MiCloud and MiTalk, so that it becomes a natural

extension of its existing ecosystem, persuading users to use their services rather than

Google's. Competitors, such as Samsung and Huawei, have failed at this strategy, as

users of their products often fall back to native Android services and apps instead of

their respective proprietary products, as seen with the Samsung App Store(to compete

with Android's Play Store) due to their inheritably low quality and lack of utility to users.

Xiaomi's direct sales of devices to customers through their online store reduces

overhead costs as it cuts the number of "middle men" involved in their sales chain.

Xiaomi is one of the few companies who have successfully adopted this model in a way

that is both sustainable and lucrative, and as such it is one of the biggest internal

strength of the business. While some of its competitors are able to partly do this, such

as the sale of iPhones through the Apple Store and or of Lumia phones through

Microsoft Stores, Xiaomi's business model is fundamentally based on this sales strategy,

giving the company a great advantage over its competitors.

Weaknesses:

Xiaomi has extremely limited capacity in manufacturing. The company outsources all

manufacturing of its devices to Foxconn, a Chinese factory. This not only increases the

potential risk that Xiaomi faces in basing their supply and manufacturing chain in a

single partner, but also limits the manufacturing capacity of the company. Xiaomi is only

able to produce a limited number of devices at any given time, and the company is

actively seeking ways to expand its supply of products in order to successfully expand to

overseas markets.

One of the key aspects of Xiaomi's supply chain is that it purchases different device

components (such as camera imaging sensors and touch screen modules) from a

number of other business. Xiaomi claims that this is an essential element of making their

devices superior to those of its competitors'. Instead of spending an increasing amount

of money on R&D, Xiaomi obtains its best-in-class components from specific companies.

For example, it obtains its imaging sensors from Sony, touch screen modules and

displays from LG, and a number of its batteries are supplied by Samsung. However, this

is a strong internal weakness as the company is not self-sufficient. If one of their

partners decide to nullify their partnership, Xiaomi's supply chain will be disturbed and

the quality of their devices could possibly go down.

Opportunities:

Xiaomi's financial performance can be credited to the previously untapped potential of

the emerging Chinese market. This success can be reproduced in other developing

nations in which the demand for high quality, and yet cheap smartphones is increasing.

Xiaomi has the potential to expand and replicate its success in other parts of Asia, in

Latin and Central America, and in Europe.

Evaluated at $46 Billion, Xiaomi has many financial opportunities. The ease in which it

can acquire further funding from investors, in addition to its skyrocketing financial

performance bringing about $12 Billion dollars in annual revenue in 2014, allows Xiaomi

to be a financially flexible company equipped with the necessary tools to scale with

sustainability and speed.

Threats:

Xiaomi's direct sale, although unique in success at the moment, can be easily replicated

by bigger competitors with large cash reserves that can afford to lose money initially to

perfect their online sales model. Both Lenovo and Huawei, for example, have created

subsidiaries that focus on the direct sale of cheap, high quality phones to customers

through the internet. This is an increasing threat to Xiaomi, as it will need to seek other

ways to remain unique and relevant in the near future as bigger companies have more

success in mimicking its sales model.

Large patent portfolios of Xiaomi's competitors, in combination of Xiaomi's own limited

number of patents, impose an additional threat to the company. Xiaomi is susceptible to

patent bullying (whether justified or not) from bigger companies, such as Sony Ericsson.

In 2014, Sony Ericsson sued Xiaomi for patent infringement upon the Chinese company's

entry in the Indian market, and effectively imposed a ban on Xiaomi's business activities

in India. This threat can directly affect Xiaomi's sales, and it must actively seek ways to

avoid these threats.

Industry Analysis

The smartphone industry has

grown exponentially since the

introduction of the original

iPhone in 2007. Since then,

Google’s Android OS has

become Apple’s main

competitor. Android is

provided to phone makers for

free, and has become the main

driving force of the

smartphone’s industry growth

(as seen on the graph to the

right). As such, Android

(including its many variants,

such as the one developed by

Xiaomi) dominates the

industry with a 51.5% of market share. The android platform is dominated mostly by Samsung, which

provides phones across a wide range of prices. Xiaomi emerged to compete with all Android and

smartphone manufactures with an innovative principle: Cheap, high quality hardware. Xiaomi has then

seen its market share skyrocket, and is now considered a strong threat by its bigger rivals, who still build

expensive, well performing devices. Another minor player in the smartphone industry is Microsoft, who

has acquired the mobile devices division of Nokia in 2014. Microsoft develops the Windows Phone OS

(which will soon be renamed to just “Windows 10 for Phones” with the introduction of the new

universal OS) and designs and sells the Lumia smartphone line. Although Microsoft has not acquired any

significant market share with its products (Windows Phone currently has less than 5% of global market

share, as seen above), the company have been significantly increasing their mobile presence by

producing extremely cheap smartphones and selling them in developing nations, strategically focusing

where demand is increasing.

This increase in demand for smartphones is global. Developing nations, such as India, Russia, and Brazil

have an ever increasing demand for both entry-level and mid-range smartphones. In these markets,

Apple has lost ground to both Android and Windows Phone as they offer solid performance at much

cheaper prices. Although Apple still has a market in these countries, it is selling devices at a much slower

pace than its competitors. In developed markets, like the United States and Europe, Apple has a strong

stand as their brand and products are much more established and are affordable by the population. In

these markets, Apple has been quickly gaining market share, while Android has been a close second to

Apple, and Microsoft struggles to have any meaningful share.

Competitor Analysis

In the competitive landscape, Xiaomi faces stiff competition from not only established

companies (like Apple, Microsoft, and Samsung), but also from both Chinese and Indian start-

ups and small companies that imitate Xiaomi's business model.

Apple competes directly with Xiaomi in the high end smartphone offerings. To compete

with the new iPhone 6 and iPhone 6 Plus, Xiaomi launched its Mi Note and Mi Note Pro,

which rivaled Apple's phone in features at approximately half the price. Similarly,

Xiaomi's MiPad competes with the Apple iPad. In the high end of Xiaomi's product line,

it follows a more Apple-esque design model, offering high end devices with limited (if

not non-existing) personalization choices in terms of features and price. Xiaomi faces a

particularly tough competition from Apple, as the California based company has an

extremely well established brand with the more affluent portion of India's population.

Samsung competes with Xiaomi in both the middle- to high end of their smartphone

portfolios. Xiaomi's Mi and RedMi Note phones compete directly with Samsung's Galaxy

S and S Note lines at a much lower price point while offering customers the same

features and specifications. In order to remain competitive against the more globally

known Galaxy S (Note) products, Xiaomi allows for further product segmentation in

India with its RedMi phones. Users can chose the standard 3G enabled RedMi Note, or

they may upgrade to the LTE variant for a fee.

Microsoft competes with Xiaomi in the lower end smartphones offerings. Microsoft

(after its acquisition of the Nokia Mobile Devices division in 2014) designs and sells to

the Indian market extremely cheap Lumia devices that have a high degree of quality and

performance for the price. Although Xiaomi does not offer any products in the same

price range as the Lumia phones, Microsoft may present a long-term threat to the

company as it is shaping the consumer behavior of a an extremely large portion of the

Indian population. As individual with lower incomes move to higher socioeconomic

classes (due to both India's ever increasing middle class and to federal initiatives aiming

to increase the population's standard of living), Microsoft may become a credible threat

to Xiaomi's middle to high range offerings.

Small Indian and Chinese businesses are in increasing threat to Xiaomi's business model.

Companies like Micromax (with its Yureka brand), Lava (with its Xolo subsidiary), and

ZTE are having success in both mimicking Xiaomi's business model (cheap, decent

devices sold directly to consumers online) and in acquiring market share in India. As

these start-ups become more successful in India, Xiaomi loses its major competitive

edge. In an attempt to avoid this, Xiaomi is investing in a number of Indian technology

start-ups in order to have a greater degree of influence over their business. Xiaomi is

attempting to turn these potential competitors into partners.

Customer Analysis

In the past decade, the

Indian government has

taken an active role in

improving the living

standards of the

population through

economic incentives

and social programs. As

result, the Indian

middle class is

expanding extremely

quickly, and with it so is

the disposable income

per capita of the nation.

The overall spending

power of the Indian

population is rapidly increasing, and the new members of the middle class are creating an

increasing demand for technological goods, especially cheap smartphones with good

specifications. As such, smartphone penetration in India has more than doubled in less than

two years, and are expected to reach 21.5% of the population by 2018 (as shown in the chart

above).

Xiaomi intends to take advantage of the current trend for two reasons. First, it wants to sell its

devices to the sect of the population that has moved into the middle class and is seeking to

acquire new smartphones. This is the portion of the Indian population that Xiaomi can be

successful with. The second reason is that Xiaomi wants to shape the consumer habits of the

segment of the population that it cannot reach (due to their low disposable income levels) in

order to acquire these users in the future. These are the people who Xiaomi cannot be

successful currently but may have future potential.

Similarly, the smartphone market in India can be segmented in a similar way: individuals who

cannot afford smartphones or that can only afford low-end smartphones, individuals who may

afford mid-range smartphones such as the Mi (this is the segment with most opportunity to the

company), and individuals who may afford high end smartphones such as the Mi Note Pro

(Xiaomi may face limited success in this segment). Xiaomi must focus on the middle segment,

the mid-range smartphone segment, as it is the one that presents the most opportunity for the

company in the foreseeable future.

Xiaomi Inc. – 2015 India Positioning

Strategy (Part 2) By Caio Porciuncula and Aldo Martinez

BACKGROUND

The future of Xiaomi is very bright. In 2014, only four years since its founding, Xiaomi was

valued at $45 billion and will likely continue to grow as the company begins its expansion

efforts. The first major move for Xiaomi is India, the world’s second most populated country.

The Indian market is a treasure trove of potential growth for the tech company, but it will have to

manage a variety of issues in order to effectively tap into the market.

The company faces immense criticism from its major competitors outside the walls of its

homeland, China, and the looming threat of lawsuits and patent infringement run the risk of

tarnishing the company’s name before it even arrives on the Indian market. Data security is also

in question at the Chinese company. Many fear that the Chinese government will have direct

access to their data on Xiaomi servers, so the company will have to fight to prove its worthiness

to potential new consumers. Moving forward, Xiaomi will have to be cautious in its handling of

possible legal issues, so it can focus more on building its brand reputation and less on defending

its integrity.

Another of Xiaomi’s issues is that it will be a newcomer in an Indian market that, while still

young, is rife with competition. While the technical and cheap cost of its products will be a good

starting point for enticing consumers to switch to Xiaomi devices, this strategy alone may not be

enough to completely uproot the market it is entering. The company will need to emphasize that

the services it provides is superior to its already established competitors. Xiaomi’s brand

recognition in India will not be as high as its competitors (Micromax, Samsung, Apple, etc.) so it

will need to generate buzz in many different ways. The Indian market is too big for the company

to tackle as a whole, so it will need to narrow its focus on a segment of the market that is looking

for a great product but is also financially conscious of what that product will cost them.

TARGETING STRATEGY

There is great diversity within the Indian market for smartphones. In order to become successful

in India, Xiaomi must create different marketing and product mixes to better target each

individual segment of the larger market. Following industry standards, the segments within the

larger Indian market should be segmented on the basis of four factors.

Economic Purchase Power: The proportion of the disposable income that an individual is

willing to use to acquire a smartphone. This factor is directly related to the

socioeconomic class that an individual currently is in, and is based on a customer's

demographics. A person's PEP can vary from a few hundred Indian Rupees to dozens of

thousands Indian Rupees (Rs).

Technological Familiarity: The level of knowledge that an individual has over

technological trends in the smartphone industry. This factor is based on usage rate.

Usually, Technological Familiarity increases with socioeconomic class positioning and

purchasing economic power.

Required Functionality: The minimum required functionality by the consumer. This

factor is based on benefits sought by the customer. The array of functions within the

Required Functionality increases with the PEP. For example, consumers with a low PEP

may require a device with only a camera and web browsing capabilities, while a high

PEP individual may require biometric security sensors and cutting edge processors.

Intended Use: The intended uses are the different reasons as to why an individual

purchases a device. This factor is based on both psychographics and demographics. This

may include both functional/physical needs and wants as well as psychological ones. For

example, while a middle class consumer may use a phone to use web services and apps

and to communicate with other people, a high net worth individual may use his phone to

showcase his or her economic power and to be "at parity" with other individuals in the

same economic class.

Using these guidelines, we have identified three major segments in the market.

1. Entry-Level Consumers: Members of the Entry Level segment consist of individuals

located in the lower socioeconomic classes of India. They possess low discretionary

income to spend on technology, yet they are eager to become tech-users. They prioritize

pricing above all else, and are willing to sacrifice technological capabilities of the device

for cheaper prices. They are also unfamiliar to technology, and due to their lack of

knowledge towards the latest trends in smartphones, they tend to be more responsive to

advertising and other marketing strategies. Individuals in this segment may look to their

new phones as an entryway to the internet, and may utilize smartphone devices mainly to

begin consuming media and apps and to become connected on social media. They look to

their new devices as a window of opportunity to commence their digital lives and to take

advantage of all that technology has to offer.

2. Mid-Range Consumers: This segment consists of the existing members of India's middle

class and individuals from lower classes who are moving to higher socioeconomic classes

as a result of the recent upward mobility that is sweeping the poorer individuals in India.

There are approximately 267 million individuals in this segment. These consumers want

a reasonably priced device and expect a plethora of features, and in some instances, even

high end specs. These individuals require consistent engagement as they have a multitude

of options to choose from, and building brand loyalty may be especially difficult in this

segment as users will prioritize function and price over brand and design. It is also

important to note that this segment is extremely large, as it includes a large spectrum of

users from individuals who are just now joining the middle class to wealthy, intellectual

families that verge on the higher classes. Therefore, this segment can be further

segmented in the following manner:

a. Newcomers: Members in the low-middle class who just now developed enough

Economic Purchasing Power to buy a mid-range device.

b. White Collar Professionals: The large majority of its parent-segment, the white

collar professionals work in offices in large cities and may support families with

their moderate salaries.

c. Wealthy Ones: Individuals who are at the top of the middle class, dispose of

generous salaries, and are close to leaving the middle class to join higher

socioeconomic classes.

3. High-End Consumers: This segment consists of consumers in the high middle class and

higher economic classes of India. Not only are these individuals extremely affluent, but

they are also used to utilizing technology and are accustomed to high end devices.

Members of this segment prioritize functionality and design over price, and may be more

inclined to consume Apple products due to their prestige and iconic symbolism among

high net worth individuals. Individuals in this segment may also use their devices to

showcase their affluence or their ability to acquire such products, as is the case of

customers of the Vertu brand.

This marketing plan will focus on the mid-range device users, as Xiaomi does not have any

product offerings that tailor to the entry level market, and as it will face too much competition in

the high end segment. These middle range users require high end specifications, such as cutting-

edge processors, latest features, and OS versions. As these users will most likely be a part of the

upward socioeconomic movement in India, they will want to believe they are getting the most

out of the price they pay for their devices. In addition, as they consume more luxury goods, they

will require further functionality from their phones. As these users will have a pre-existing

"internet life", they use their mobile devices to manage and make use of social media, apps, and

media. They will also do most of their social interactions (whether through social media, phone

calls, messaging platforms, SMS, VoIP, or other messaging venues such as Snapchat) through

their mobile devices. These users expect a consistent, smooth experience tailored for their

respective ecosystems (whether it may be Apple's, Google's, or Microsoft's)

KEY PRODUCT/SERVICES ATTRIBUTES AND BENEFITS

The products Xiaomi sells exemplify some of the highest quality products on the market for our

mid-range users target market. Xiaomi devices will provide the market with distinct attributes

defined by the following key factors: relative low price, technical features, and user experience.

Price: In India, users buy their devices without any subsidies from their service

providers, so cost the cost of devices can vary greatly and factor greatly into what

consumers can purchase. Smartphones are usually classified into price ranges that span

from under Rs. 5000 to more than Rs. 25000, with some of the higher end phones costing

up to Rs. 70000. In terms of price, Xiaomi’s product mix falls primarily into mid-range

priced devices. However, Xiaomi’s devices compete with higher-end devices even

though they are moderately priced. For example, Xiaomi’s flagship phone, the Mi 4, will

fall in the middle price range at a modest Rs. 19900 for the base level 16G model. This is

in direct comparison to Apple’s iPhone 6 which starts at Rs. 46000 and Samsung’s

Galaxy S6 which costs Rs. 49900. The very fact that Xiaomi’s offering in the high-end

smartphone spectrum is less than half the price of its most powerful competitors

highlights the bargain prices of its devices. This steep difference in price allows middle

class users the option to purchase a phone that rivals high-end “luxury” phones that don’t

fall in their price range.

Xiaomi will also offer a lower cost phone that competes with some of the some of the

lower mid-range smartphones on the market. The RedMi 2, Xiaomi’s more economic

phone, will cost Rs. 6999 and will directly compete with popular competitors in the Rs.

5000 – Rs. 10000, such as: Microsoft’s Lumia 535, Asus’ Zenfone 5, Micromax’s Unite

2, and Motorola’s Moto E. This lower-end phone that Xiaomi provides allows for

consumers at the bottom end of the middle class to purchase a cheaper priced phone

without compromising the quality and features of the device.

Technical Features: Our consumer segment is price conscious about the products they

buy but are still interested in the feature richness, functionality, and overall presentation

of their devices, which are all things Xiaomi’s devices exemplify. The Mi 4’ features

rival that of Samsung’s Galaxy S5 but at less than half the price. In regards to look and

feel, the Mi 4 has a sleek design with a large screen that closely resembles the iPhone 6.

One of the main draws of the Mi brand is the unique MiUI software platform that allows

Xiaomi’s users to have exclusive access to a wealth of applications unique to its

ecosystem. The pairing of high quality design and feature richness puts Xiaomi products

in a class far above its price point. By being able to compare itself to the more luxurious

brands, Xiaomi is able to provide its users with a sense of prestige that they would not

normally be able to attain within the under Rs. 25000 price range. Ultimately, Xiaomi’s

technical features are a point of parity because they can compete with the competition but

they don’t necessarily provide the company with a true competitive advantage. While

Xiaomi’s products are extremely well designed and built, they are not really distinct

enough that they can stand out amongst the higher-end brands.

User Experience: The most important and differentiating aspect of Xiaomi products, the

user experience is the factor that will give our target market a unique sense of satisfaction

in the fact that they have a large amount of say in how their device evolves over time.

The company’s implementation of user feedback will be crucial to building brand

recognition and loyalty in the Indian market. Mid-range users are quickly becoming more

tech-savvy and they will increasingly use their Xiaomi products as a part of their

everyday life so being able to provide input into product development will be something

they will appreciate.

The feedback system also benefits Xiaomi consumers by allowing errors to be recognized

and corrected faster than usual. The effectiveness and short time frame of the company’s

updating system will help the average user experience to be more streamlined and

effortless. This more responsive and customized customer service gives Xiaomi users a

sense greater sense of appreciation as a user.

Another benefit that the Xiaomi brand can provide is a powerful sense of community

amongst its users. The categorizing of users as “Mi Fans” allows users to feel as if they

are a part of a team or club. This sense of community will provide Xiaomi device user a

form of network effects that will allure consumers into inviting friends and family to join

in on the fun. Additionally, Xiaomi occasionally provides free, exclusive events for its

users to attend which further compounds the sense of pride and community that is

accompanied by being a Xiaomi device owner.

SUSTAINABLE ADVANTAGES

The two sustainable advantages that Xiaomi will be able to leverage against its competitors are

their low prices and unique user experience. Since Xiaomi’s business model revolves around

selling their devices at extremely low profit margins they can maintain the sales price low as

long as they can cover their costs. This is a key ability that competitors cannot easily copy

because it would require that they completely restructure their business model. Additionally, the

completely unique user feedback system that Xiaomi incorporates within its weekly update

process is something entirely different from its competition. Because Xiaomi designs customized

software that is packaged with all their phones, they allow their customers to have a lot of input

into the updating process. Xiaomi’s update system allows users to feel empowered and gives

them some say into how their

devices are improved both

digitally and physically. This

system uproots the traditional

relationship between business

and consumer, where businesses

usually have complete say into

what changes are made and

when. Xiaomi’s system is

unlikely to be imitated by most

smartphone manufacturers due to

the limiting structure of

traditional business-to-consumer

communication channels.

POSITIONING

As Xiaomi has never previously

operated in India, it is vital for

their success that Indian

consumers have a positive opinion towards the company that is also aligned with the business'

core objectives. To accomplish that, Xiaomi must target its consumers in such a way that they

view the company as a business that competes head-to-head with major players in the

smartphone industry, such as Samsung, Micromax, and Apple, but at bargain prices. Xiaomi

wants its devices to be viewed as having the best value above all other competitors in India.

When promoting value, Xiaomi must also avoid being classified as a "generic" brand that

sacrifices functionality for price, as it is often the case with inexpensive Indian brands such as

Forme or Intex. Xiaomi will need to push the mentality that its low pricing does not signify low

quality. Potential consumers should be made to understand that expensiveness does not

unequivocally equate to a better product and that inexpensiveness does not systematically mean

absence of quality. Product excellence needs to be highlighted so that the consumer positively

associates Xiaomi devices to both affordable prices and technical capabilities.

Another perception that Xiaomi will want to shake off will be the negative connotation it has in

terms of data privacy. Many Indian consumers have expressed concern in the fact that they

believe that the Chinese government will be able to intercept data that navigate through Xiaomi's

servers. Privacy concerns will need to be dealt with delicately and strategically when moving

into India. Xiaomi will need to assure its consumers that their data and information will be safe

from foreign governments monitoring. The company will have to proactively prove its

trustworthiness and reliability to customers in order to be viewed in a positive light. It is in

Xiaomi’s best interest to ensure that the company handle user privacy carefully to avoid any

smearing of the brand name. It is critical that the company brand be built upon trust and

customer satisfaction in the very early stages of market penetration to encourage quick user

adoption and customer acquisition.

Being classified as a major player in the Indian smartphone business is further reflected in the

objectives outlined by company’s Indian market positioning statement:

"For mid-range smartphone consumers, Xiaomi is the most cost-effective, high quality device

manufacturer among all smartphone manufacturers in India because it does not sacrifice

high quality materials, customized end-user experience, and overall design for higher profit

margins."

Consequently, Xiaomi's desired messages to the Indian market consist of three major points:

High Quality Products: Xiaomi produces high quality products because it develops each

device component alongside the most experienced companies in the market. This results

in phones with Sony camera modules, Sharp touch screen displays, Snapdragon

processors, and so on. By avoiding designing and producing the majority of their own

components (as Apple does, for example), they avoid having a device that's exceptionally

good at one feature but average on all others, as is the case with HTC M9 phone, where

the design is highly acclaimed but camera capabilities have received strong negative

feedback over the years. This creates a consistent level of quality throughout its many

product lines, and for Xiaomi to be able to leverage its high quality through its products,

this theme must be first recognized by customers in their perceptions of the company.

Social media, some product advertising, and direct promotion will be the main forms of

communicating our high quality message out to consumer. We will make use of internet

websites and social media services to help promote the public’s view of our devices and

spread awareness. Xiaomi might also consider opening up specific locations where

consumers can do tryout and experience their products.

Bargain Priced Products: Xiaomi passes on great value to customers, as they are able to

purchase devices with best-in-class features with best-in class prices. Xiaomi is able to

reduce costs to price their devices at such low price points in three main ways. It cuts

R&D expenses by combining other manufacturers' components into their devices, they

cut selling expenses by selling directly to retailers for the most part, and they are willing

to sacrifice their profit margin with sales of device in hope that customers will subscribe

to their other MiUI services. As a result, they design and manufacture devices that

compete head to head with the flagship phones from Apple and Samsung, but at a

fraction of their competitors' prices. The philosophy of cost-effectiveness is a cornerstone

of the Chinese company, and the Indian market must recognize that bargain priced

products is one of the key benefits of purchasing a Xiaomi product. Mass communication

will be the key channel in promoting the affordable prices to our target market.

Displaying our prices online as well as having traditional media outlets talking about our

products will help convey the value the products will provide their consumer.

Value of Investment: Xiaomi believes that the value of the investment you make when

acquiring a new smartphone should expand well beyond the device itself. As such, the

company has engineered the Mi ecosystem to be the connecting web among all its users.

On the technological side, Mi services and apps not only encourage users to retain loyalty

to the Xiaomi brand, but also provides an easy-to-use, familiar interface for users to

download apps, listen to music, track biometric data, message with friends, and so on.

This is similar to Apple's iCloud and iMessages, and help to create a close community

around it devices. Xiaomi also extends the values of its products through Mi-members

exclusive events throughout multiple locations. These events include exclusive music

concerts, social gatherings with free refreshments and free gifts, and invitations to

exclusive company events. It is in Xiaomi's best interest that potential customers are

aware of this idea, and that they take these fringe benefits when making purchasing

decisions. Xiaomi will communicate the value it provides by using heavy social media

campaigns and direct promotion stores. Social media will be a powerful tool because it

will leverage network effects amongst users and cause consumer demand to increase at a

faster rate. Promotional stores will not only allow Xiaomi to provide current and future

users to try out their products, it will also allow them to host events and provide unique

services for its “Mi fan” user community.

The importance of being classified as a major player by the Indian market is true in relation to all

aforementioned segments but is especially important for the mid-range users segment and all of

its sub-segments. Ultimately, Xiaomi plans its smartphone business activities in India around

objectives outlined by its common, company-wide position statement.

MARKETING PROGRAM OBJECTIVES

This plan will also outline six marketing objectives that should serve as guidelines to the specific

marketing program. These objectives include goals in the areas of sales, market share

acquisition, place, price, and promotion. The market objectives are as follow:

1. Acquire 2.5% of mid-range consumer segment of the Indian smartphone market share

by April 2016: Xiaomi must aim at acquiring 2.5% of the 267 million potential customers

in the mid-range consumer segment, or approximately 6,667,000 new customers within

12 months. This is a reasonable estimate as it takes into account the company’s past

success in China, as well as the factors that helped Xiaomi become successful in China

that will not help its expansion into India, such as nationalistic pride and cultural

identification. This initial customer acquisition phase is critical to Xiaomi, as it needs to

generate enough traction in the market to become considered one of the big players in the

industry in India.

2. Acquire 3 Million new Indian users to Xiaomi services and apps to improve company's

profit margins: In order to become a sustainable and viable business in the long term,

Xiaomi must be able to improve its profit margins through its software ecosystem.

Xiaomi is famous for using a “free now, pay later” software model, where they acquire

software users at a cost, and then leverage their user base to generate revenue. With its

Indian launch, Xiaomi must attempt to have 3 million users – about half of its market

share acquisition goal –sign up for at least one of its many service offerings in 2015,

whether it may be downloading apps from its proprietary app store, using its Mi

messaging platform to communicate with other Xiaomi customers, among its many

others offerings.

3. Generate US$800 Million in revenue from operations in fiscal year 2015: Xiaomi must

aim at generating at least US$800 Million in fiscal year 2015 to cover the launch and

one-time costs of its Indian expansion and to avoid generating large amounts of debt onto

its new business. As the company will aim to acquire approximately 7 Million new

customers, US$800 Million in revenue is a very feasible goal, even if they only sell their

cheapest device which is prices at approximately Rs.7,000 or US$120. Realistically, little

to no portion of this revenue will be retained as profits; most of the Indian earnings will

be used to cover Xiaomi’s past and future expenses in its expansion endeavors and should

be reinvested in the company’s Indian subsidiary.

4. In introductory phase of Indian launch, price Xiaomi devices at least 40% lower than

their direct competing counterparts until January 2016: The flagship phones of

Xiaomi’s main rivals are far too expensive for most mid-range consumers to purchase.

One of the Mi 4’s greatest advantages is that its price will be less than half of Apple’s

latest flagship phone, the IPhone 6. Even Samsung’s previous generation of its flagship

phone line, the Galaxy S5, is almost Rs.10,000 more than Mi 4. These huge price

difference are key to Xiaomi’s success in India and will be a main objective that we will

try to keep throughout the next year.

5. Increase production capabilities within India by 2016: Xiaomi must make sure that its

production rate will be able to manage entry into the world’s second largest smartphone

market. While it has an efficient and effective supply chain in China, Xiaomi is

increasingly beginning to overextend its production capabilities back home. If the

company’s entrance proves to be a huge success the demand for its products might be too

much for the current supply chain. Investing in local production within India will not

only increase the supply of products but will also reduce transportation costs that the

company incurs from shipping its products all the way from China.

6. Build two new data centers in India by the end of 2015 to assure customers that their

data will be kept in domestic territory: One of the key messages that Xiaomi must

communicate to its market is that the company protects its users’ data from prying eyes.

Xiaomi must build new data centers in India to back up its privacy claims as well as to

create the infrastructure to provide high quality, well performing Mi services. Although

these two new data centers may initially be built at cost using a portion of Xiaomi’s

recently acquired investing funds, the buildings would serve as a long term investment in

the Indian market, and would be a key differentiator in terms of performance and

reliability in comparison to its competitors who rely on American or European data

centers to serve India.

7. Spend $3 Million in advertising during Q2 and Q3 of 2015 in order to spread brand

recognition and increase individual product awareness: Even though Xiaomi does not

normally spend very much on advertising, it will be crucial to the initial branding of the

company in India. Ads will make consumers aware of the product value and numerous

fringe benefits that Xiaomi products will provide them. Entering the new market with

effective advertising will provide Xiaomi with the chance to associate high production

standards with its products right from the beginning and before any serious market

perception has been molded. Ultimately, the overall goal of the promotional efforts will

inform the consumer about how Xiaomi is providing the consumer with an experience,

instead of just a product.

Although these six marketing objectives do not detail all the specifics of Xiaomi’s larger

marketing program, the objectives do establish the guidelines by which the marketing plan

should be developed. These objectives leverage a variety of marketing mix components –

including price, place, promotion, sales, product, and market share –and can be measured and

achieved within the period of 12 months or before the end of fiscal year 2015.

Xiaomi must be careful and strategic when planning its expansion into India for 2015. For a

company that has achieved so much success and has become a major player in some of the

biggest markets of the word in just shy of five years, a detailed and carefully crafted marketing

plan is just the first few steps in the evolution of the Chinese smartphone manufacturer into a

major global business.

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