September will bring the highest selling quarter for mobile phones, as well as most other products, as per past trends, to an end. We are already in early September, and it would be worthwhile to try and analyse the Q3 projections.
The brand-wise rankings for the top 5 have been consistent in the last 2 quarters (H1) - with #Xiaomi at the top and #Realme at the bottom. What is the expected movement in Q3, if any? My analysis is based on the following parameters:
- Past trends
- Existing brand-wise shares in the offline and the online channels
- Expected growth in each space for each brand keeping in mind the approaching festival season and the channel voices.
I am not looking at it from the product perspective, as I feel all the top 5 brands have some great existing and new products lined-up. I feel that the gain or loss, if any, would be more from the offline/online contribution - which should be skewed in Q3 - and the channel management by the brands.
I would expect the overall market in terms of shipment to grow between 15-20%. Taking a moderated shipment of 36.5 million, this translates to 42.5 million units in Q3. While there is a lot of talk of Xiaomi slipping overall and Realme catching up, especially offline, when I do my maths I don’t see much of a change in the market shares at least in Q3. However since most agencies share shipment data and not sell through data, excessive imports by a brand or low imports by another due to high inventory could have some impact on the shares.
Xiaomi to stay at the top in Q3, and why?
a. Their existing lead in the market share. It is difficult for any brand except #Samsung to give a fight.
b. August is the beginning of the festival season which will go on till Diwali which is in October. There is a huge overall spike in demand of smartphones prior to Diwali. Ideally it should favour all brands, but would favour Xiaomi more and why not! Online becomes more active thereby increasing its contribution in this period with the discounts and offers. We must keep in mind that Xiaomi has close to 45% share of the online market and thus gets the extra advantage.
c. The expansion with #MiHome, Mi Preferred partners in the last quarter and this quarter should add to their touch points, right down to rural markets. The overall offline distribution network looks reasonably good for this quarter though nowhere near stronger offline players like Samsung, #Oppo, #Vivo.
Xiaomi has approached offline distribution in a non-traditional way. While it looks good today, one has to see if it really fires in the long run. I have my doubts on this one, but in any case these should add to their sales at least in this quarter.
2. Samsung should be able to retain its No. 2 position. I don’t see it beating Xiaomi in Q3 at least in volumes though the gap may decrease very marginally. I also don’t see Vivo beating Samsung as is being said by some. The reasons are as follows:
a. The gap in share between Samsung and Vivo is a bit high for Vivo to go higher than Samsung in the short term.
b. As mentioned earlier, Q3 will be high on online sales and it is here that they will not be able to pull it off versus Xiaomi in spite of the exclusive #SamsungMSeries for online.
c. There is not much Samsung can do on offline distribution as it seems to have reached the best level it can of approximately 1,80,000 outlets.
3. A brand like Vivo may still show some gain, around 1-2% point despite the online channel contribution going up in Q3 and part Q4. 1-2% is not bad considering Vivo is primarily an offline brand and to gain when the online will pick up, is great.
The reasons for growth are:
a. Better marketing campaigns as compared to Xiaomi or Samsung.
b. Better channel management
c. Momentum based on past trend of growth.
4. The same may not apply for Oppo. I would expect them to just hold their share. I have always believed, and figures show, that Oppo has been losing share/not growing more so after the launch of Realme. While I rate them very high in products and R&D but it seems they are not happy with what is going on, and one major signal is their withdrawal from the sponsorship of the Indian Cricket team to save on costs. One does it when the returns do not match the investments.
5. Realme should gain over Q2 , though it would still not be able to achieve a market share in double digits. Reasons:
a. Their strength lies in online and Q3 will favour them.
b. Their new leadership team for offline should be able to use the offline channel better as compared to earlier times when it seemed they had limited presence and no clear strategy except a no holds barred sales which was encouraging trading. I hear some good reports on this front.
One thing we do keep in mind that while the online space is more about price specification ratio, offline is more about team, distribution/channel coverage, channel margins and shelf space.
To be honest based on feedback from some retailers including Mi preferred partners, selling (read keeping) Xiaomi is a “majboori” (they have to sell) due to customer demand. Given a chance they would prefer to sell a Vivo or an Oppo or any other brand including a new brand if they have a better return. This is one factor both Xiaomi and Realme will have to keep in mind if they are looking at an increased offline share in the long run. Retail will look at maximising returns during the high sales period. If the footfalls are low, retailers will try and convert customers specially Xiaomi ones to Samsung/Vivo/Oppo subject to good returns, changing the equations for all. The increased offline presence of Realme will also impact Xiaomi placements and sales.
Herein lies the opportunity for dependable brands to enter. We can all talk about consolidation and rankings but then is ranking more important than profits? How many of the top 5 brands make profits in any case, and if they don’t how long can they continue to take losses.