Can Santa Claus Be The Guardian Angel?
2018 has been a pretty eventful year for the smartphone industry. Let me recapitulate some of the interesting ones, and hope 2019 brings in potluck of fortune.
Market Size
The smartphone market should touch approx. 145 million devices this year. This implies – a less than 10% growth. While Q3 was a great quarter, Q4 is looking below average. One could say that for a growing market like India, the growth is not that great. But, in the light of the entry of #Jio “Fusion Phones” which cannibalised the entry level smartphones and the replacement cycle going up, I would say it wasn’t all that bad. After all in 2018, India is the only major market to grow with global shipments showing a decline.
New Entrants Still Lining Up
There were some new brand launches which got a lot of attention initially by the offline channel. However, the delay in supplies and non-refund of advances paid by some partners for one of the brands and the lukewarm response to the other, left the channel disappointed. Exit of #HTC and #Comio offline brands, only made matters worse. The way things are moving one could see more exits.
#Meizu has made an entry for the third time. They do have an advantage of some Jio distributors aligning themselves as mentioned in my last blog. Meizu has to make it work now or they may not have the privilege of another attempt.
From what I’ve been seeing, more brands will launch or relaunch depending on the way you look at it. And why not? With the sales in China falling down quarter-on-quarter, and ODMs sitting on large inventory and spare capacity, India is their best bet.
Products Reaching Hardware Saturation
2018 was also a year of hardware showdown.
Great looking devices with gradient colourful backs.
Better processors
Higher memory
Better cameras with AI enablement and an enhanced experience on Low Light Photography
Bigger & better screens – FHD+, bezel-less (90% plus Screen to Body ratio), Full View Displays (18:9) to Notch (19:9) and now to Dew Drop notch 19.5:9
Split Screens/Dual displays
More powerful batteries with fast charging
Dual VoLTE
Many of these originating out of the requirements of 4G data consumption in terms of video streaming, downloading video/audio content, graphically demanding high performance games like #PUBGMobile and #Fortnite on one side and uploading high quality content requiring the best of cameras on the other. And to keep you hooked on to your smartphone - bigger batteries doubled with fast charge technology are the trump card.
To be honest, barring a few tweaks (which may be required in hardware with new technology coming in), the current hardware configurations are more than what are required by more than 80% of the users.
Prices (ASPs) Moving Up
Breaking the market into price segments of Rs 5k each starting from Rs. 5k, the growth equation is as under:
Rs. 5-10k segment < Rs 10-15k segment < Rs 10-15k segment. Rs. 10-15k category, as per reports, was till now showing the highest growth. This was bound to happen as India moves to the next level of being an upgrade market. It also shows that people are willing to spend more if their expectations are met. The sweet spot has moved from Rs. 8-10k to Rs. 15k
As per the latest report by IDC – approximately half of the mid-price segment (Rs. 10,000 - Rs. 20,000) customers moved to the Rs. 30,000+ segment with #OnePlus being the leader in this segment.
What I saw as a miss was the Indian brands not being able to do much in the market for smartphones in the Rs. 2.5-5k price segment where the global and Chinese brands do not play. Yes, the market did not grow or maybe contracted but is still a reasonably big market for Indian brands to get decent survival numbers alongwith the 2G feature Phones. They did have the advantage of reach and awareness in the smaller towns with their Feature Phone users. Of course, they may be worried of Jio causing some disruption here – which could hit them both in FPs as well as low end smartphones. But if one were to tread carefully, despite getting stuck, the exit cost in this segment would be low. Better to fight and move ahead than to take a step back.
December will go down in history as the month of price drops across brands, across price points. I am sure the objective was to catch up on the numbers and clear out the stocks carried forward by the offline brands who could not sell during the festival period due to the online blitzkrieg.
Channel Churn:
The rise of online. The ratio between offline and online for 2018 is expected at 62:38 vis a vis 68:32 in 2017 – a growth of just below 20% over last year. This is primarily due to ease of business for the companies, especially new entrants, lower costs of sales meaning a lower MOP and last but not the least… the #Xiaomi success story. Of course, the offline trade also thrives on the fact that most online players are hungry for GMV (Gross Merchandise Value) to support the heavily discounted perpetual sale days they keep on having.
The resurgence of organised retail, both at national and regional level. Organised retail had all but died out a couple of years back in terms of players and contribution. But with companies now eyeing immediate access to multiple outlets at less margins, they are coming back as a preferred choice for all brands. More so for online brands coming offline as they are their own distributors and retailers as well in many cases. #Realme and now Meizu would be taken as examples of brands which are leveraging some of these channels.
For the Bricks and Mortar stores the going has indeed been tough with online on one side and the OT also eating into its share. They will have to find innovative ways which I have discussed in one of my previous blogs. <https://www.sharmaajay.com/home/rewriting-rewiring-reviving-offline>
Existing Brands – The Ups And The Downs
The year has been relatively steady with the top 4 positions very clearly defined with minor changes in shares.
Out of the leading global/Chinese brands, a total of 6 brands – #Samsung, #Vivo, #Oppo, #Tecno/#Itel , #Nokia and #Lenovo/#Motorola are focussed more on offline and; 8 brands – #Xiaomi, #Honor, #Realme, #OnePlus, #Asus, #Infinix, #ZTE, #Coolpad are more focussed online. #Apple would be present in both channels approximately evenly.
4 brands out of the 6 (Samsung, Vivo, Oppo/Realme, Tecno/Itel) would be in the top 6 and 2 (Nokia and Lenovo/Moto) in top 10. So, considering 6 out of the top 10 brands are offline, we should stop doubting the potential and strength of this channel.
Only 2 out of the 8 (Xiaomi and Honor) would be in top 6. The remaining two (One Plus and Asus) in top 10. So total 4 out of 10 in top 10.
Another thing to be seen here is that the number of brands doing major business online are much higher so it is not that online does not have internal competition as well.
Market And Customer Behaviour
The movement from offline to online has started and so has the movement from online to offline. One cannot grow without being present in both channels. It’s a fact realised by all. Optimising both the channels without cannibalising is the key. In the Oppo and Realme case, I do see a clear case of cannibalisation. It cannot be a copy paste model of Xiaomi as times have changed.
Message to the channel – Do apply due diligence while picking up any new brand for distribution or retail.
Family and friends, as per IDC, are turning out to be key influencers. Find ways to be a part of such communities and have them as your brand ambassadors. Xiaomi’s Mi Fan club is a good example.
Against popular perception that Xiaomi sells on price, IDC findings say it is also the trust factor that its followers breathe that gets the brand its standing. I have always maintained that any business in India moves a lot on trust. And it does take time to build it and not even a day to lose it.
Work on DoD more than WoD ? – as was done by Xiaomi through appointment of limited Mi Preferred partners earlier in limited cities. The strategy is now changed and the number of cities, Mi preferred partners, Mi Homes and small format exclusive retail outlets in rural areas have been announced and started.
Samsung is working purely on going down to rural markets and increasing WoD. This year they have gone up to 1.8 lac retail base from 1.5 lacs. They also set up they World's largest factory and opened the world's largest showroom exhibiting their commitment to the Indian Market.
Oppo/Vivo have to go below the Tier 4 cities being presently covered by them.
To each his own.
Indian brands have taken a big hit and while the only ones supposed to be in contention were Micromax and Lava till some time back, it seems #Lava is shaky based on news in the papers. I would not like to go into the reasons as this topic requires a separate blog which I will do later.
The strong emergence of Finance options and Cash Back offers to drive up gradation further.
The year was also not a good one for the offline channel for known reasons not to mention the immediate effects on the employees in this sector with massive job losses, and salary cuts.
The formation of the #AIMDA or the All India Mobile Distributor Association by the offline channel..
Marketing Cost Down
Companies were conservative on spends with outdoor and print investments being flat.
Digital, mobile and e-commerce platforms got importance. Digital contribution went up substantially with online reviews/influencer marketing playing an important role in decision making.
Cross channel campaigns across social media and on-ground activations are trending and will continue.
Conclusion: As the year ends with online sales not in full swing, it is confusing times for the customer who still refuses to go to the market which leaves the offline complaining of poor walk ins. Let’s hope the price drops of December make that difference. From what it seems, it is not going too great on the online front as well with brands like Realme and Honor struggling hard to drive speedy sales of their newly released models, which now are available for hours for anyone to buy vis a vis the “Sold Out” message popping up in seconds post making the product available online. It evident the days of flash sales or “Sold Out” are not in sight immediately.