The Race to No. 1: The Samsung, Xiaomi story
* First published in ET Telecom, Feb 01, 2023.
The Mobile Phone Industry in India has been a volatile one. We have all seen how brands like Nokia, followed by Samsung, and for a short period Micromax, failed to retain their No. 1 position for long. If one goes by the data released by various agencies, it seems Samsung has displaced Xiaomi from the No. 1 slot in Q4, 2022. Some agencies go to the extent of saying that Xiaomi has even lost the No. 2 position to Vivo.
While becoming No. 1 in a specific quarter may be a one-off scenario, most trade analyst forecast Samsung retaining its No. 1 position in 2023. Even my own survey conducted on Linkedin, showed close to 80% of the people (mostly from the industry), putting Samsung at the top in 2023. Even if one goes by data, one will see how Xiaomi’s market shares has declined from ≈ 30% in 2020 to ≈ 20% in 2022. Samsung in the same period has been steady at ≈ 18%.
It is not a simple scenario of one brand’s loss being another brands gain. If that be the case, one needs to analyse the reasons for Samsung’s rise, and Xiaomi’s decline. Based on my discussions with the channel and my own analysis, there are many. It would be better to break them into what has gone wrong for Xiaomi, and what has worked for Samsung.
Xiaomi’s Challenges
A) Loss in Demand
i. Based on market reports, there has been a reduction in the demand for the brand due to Increasing quality and service issues. This apparently has impacted their repeat buying, and thereby a shift to other brands.
ii. Apparently, a lot of phones being billed to the trade were getting exported. A decrease in the exports either due to the non-availability of models which are in demand abroad and/or a decline in demand for Xiaomi in those countries, has led to the drop.
B) Channel Management
i. Xiaomi has been primarily an online brand, and it was the online pull that helped it to create the offline distribution. Distributors and retailers were happy to work at low margins without any support, like In Store Demonstrators (ISD’S), as the product was in demand with the retailers making timely payments. Xiaomi did not do the hard work which goes into developing the offline channel like the other Chinese brands and Samsung had done over the years. It was more of trading. When the demand fell, the channel went back to selling what was selling. Why should the channel, especially the retailer pushes the brand, when he makes more money and gets more support from the other brands.
ii. Heavy reliance on online which apparently could not deliver to the extent required during the festival period. The offline was also unhappy with Xiaomi with the price differences, offers and discounts given by online and the lesser or delayed allocations of stocks of new/fast moving models to them.
iii. Most of the Xiaomi distributors today are not the happiest working with Xiaomi but are continuing due to lack of alternatives which can give them the same turnover. Given a chance they will reduce their stakes or exit if things don’t change. A team of uncertain and unhappy distributors and retailers would obviously affect the brand’s aggression in the market.
C) Disoriented Product Portfolio
i. Sub Rs. 15k price segment was Xiaomi’s strength being the No. 1 brand. They did not build on it. While one would agree to the fact that it is important to move up the price ladder as the ASP’s move up, one should first consolidate further in its core price segment which was not done.
ii. A wide portfolio of models and their variants only made their portfolio too confusing for the channel and the customers.
D) Changes in Leadership Team
i. Whether one likes it or not Xiaomi means Manu. He used to be active on social media keeping the end customers and the channel excited with his posts. With Manu out of the Indian picture directly, possibly the channel confidence possibly reduced to some extent. The government scrutiny did not help matters. All this followed by departures of some of the key leadership team members created uncertainty in the channel as to where the brand was heading. The weakening demand effect mentioned earlier was thus compounded by an uncertain team and channel which was also afraid of coming under scrutiny, leaving or playing it safe.
E) Poor Inventory Management
As a result of the Disoriented Product portfolio Xiaomi got saddled with high stocks of their old models. They failed in clearing these out through their main channel-online.
Samsung’s Growth Strategy
A) Balanced Product Portfolio
Samsung with its presence and acceptance across the different price segments has developed a very price competitive product portfolio. They have also narrowed their price difference with the Chinese brands to a great extent, taking away the price advantage the competition had. With the race for capturing the 5G customers gaining ground, they have already announced their intentions with the launch of a sub Rs. 15k 5G device with more to follow.
B) Samsung Finance+
The ease of the finance scheme in terms of the time taken for approval and high approval rate combined with the reach of Samsung which has the highest Width of Distribution, has done wonders for them. Retailers are also happy pushing Samsung with good margins, ISD and Finance support.
The other brands must depend on third parties for financing with issues of limitation on the cities where these are available, the documentation and time taken for approvals and the lower approval rates.
C) Balanced Channel Strategy
Starting as a primarily offline brand they got into the online business, and over these years has been able to manage the two in a way that both the channels do not clash and complain.
With online gaining importance post the arrival of Xiaomi, Samsung continued their hard work in offline as the No. 1 brand keeping themselves within striking distance of Xiaomi. With their basics in order, a fine-tuned and well thought of product portfolio with the Samsung Finance+ and a decent online presence was all Samsung needed to move up, as Xiaomi slid due to the weakening demand online- their only strength.
And this time around, Samsung will not let go its position easily. Xiaomi has a lot of work to do to first stabilise itself at the No. 2 position and then to surpass Samsung which will require going back to basics and building on them.