Products made in China are controversial these years, especially in smart phone industry. As the “Shan Zhai” culture which means Imitation is more and more rampant in China, people are losing faith on Chinese products and this deeply affects each industry in China. However, in 2011, the appearance of Xiaomi phone M1 broke the scale of Chinese smart phone market. It is the first smart phone with dual-core 1.5GHz published in China and undoubtedly a strong impetus to the Chinese smart phone field. Based on the information from Xiaomi official website, the sales volume of M1 has achieved 3.52million in 2 years and it was a spectacular performance for a new company and product.
Many people may wonder that how they could stand out from the rest. This dissertation is written about Xiaomi phone and explains why it succeeds in Chinese chaotic market. I will analysis the focal innovation combining with different aspects which include Technology push and market pull, First Mover Advantage, Blue Ocean Strategy, Business Model Innovation and Technological Innovation, Intellectual Property as well.
The History of Focal Innovation In April 2010, seven people who were from different top-ranking companies like Google, Microsoft and king soft, etc built a start-up mobile internet company, giving a name of Xiaomi for it. This company is dedicated to developing high-end smart phones and creating an all aspect user experience.
Xiaomi smart phone M1, a self-developed product, which published in 16th August 2011, sold at ￥1999 on Xiaomi official website. Until nowadays, Xiaomi smart phone has already become ‘The top three’ among Chinese local companies in Chinese mobile market.
Technology Push or Market Pull Dual-core 1.5GHz CPU whose speed is nearly twice of other smart phones with one core. As part of the snapdragon package, the phone is also powered by a powerful adreno 220 graphics processor, which will no doubt make good use of the phone's 1GB RAM and a staggering 4GB ROM and 1930mAH lithium polymer battery which has 30% more volume than a normal smart phone. It seems that all these settings are not the unique and top level comparing with other phones. However, It is uncommon if you can buy a smart phone with all of these settings at only ￥1999. Under this circumstance, I would like to say the boom of Xiaomi is more likely because of the demand of market. As most people know, the imitation of smart phones in China is extremely serious and we name those imitations ‘Shan Zhai’.
Even if the quality of these imitations is inferior, they have not been protested by consumers but become more welcome in some consumer groups who are the one of main stakeholders of “Shan Zhai” culture. As we know, there are 1.3 billion people in China and it is impossible for them to afford the cell phones at the price of 400 euro or more as many people may only earn 200 euro per month. Von Hippel (2011: 297) said that ‘In many markets it is not ordinary users that are the source of innovation, but lead-users. It is the pull of users in the market that is responsible for innovation.’ A high setting with relatively low price sounds like as beautiful as fairy tale. Xiaomi exactly grasp the needs from users, especially those who have high demand on settings.
Users in China can be classified as three groups in general. One is those are in favor in apple, Samsung or HTC. Another group could be those who are only fund of the smart phones at cheap price and ‘Shan Zhai’ smart phone can fit their needs perfectly. The last group is users who chase for high quality but at reasonable price, occupying a majority of users. Xiaomi group seized this very moment and successfully pushed their first phone into the market, regarding to real market needs. And they attracted all groups of users.
First mover advantage The time of entry is the key issue before a company enters a new market. M1 appears in the era filled with chaos. Apple and Samsung take up biggest market share, while other imitation phones were the mainstream for specified consumers. These two groups represent high level and low level market separately. However, Xiaomi did not compete with them in the same areas but enter into medium-high level and low price market. Selling phones only online is also totally new way to develop the market. We could say they are the first one who combines these features. ￥1999, it seems that they just earn very low profit. Well, but a ‘first-mover often prefer to sacrifice profit margins for sales growth and, besides, besides, monopoly is usually temporary. ‘(Johnson, Gerry. Scholes, Kevan. Whittington, Richard. 2011: 307). The blossom of M1 wouldn’t help Xiaomi keep monopoly for a long time since the competitors like Meizu, Tianyu imitate the strategy M1 used. Equipping phones with high configuration and selling them at low price online, they are ready to compete with Xiaomi.
Product or Process innovation Regarding to the features and the way it distributed of M1, I think M1 should be counted in process innovation. As I mentioned before, even if M1 has comparatively high configuration, the part that they attract people is selling it at low price. After all, this is all because they only sold phones online instead of using the traditional way to sell and distributed the phones.
Radical Innovation versus Incremental Innovation Since M1 makes a relatively minor change from existing practices, thus it somehow should belong to incremental innovation in Chinese market. After all, its configuration is relatively higher than other phones in the market and the distribution channel are more direct than traditional channels. However, changing a configuration of a smart phone from one that has one-core to one that has dual-core that enables much faster and stronger would represent incremental innovation. In addition, distribution through official website was adopted by google in 2006, which couldn’t count very radical change.
Business Model Innovation Business model innovation definitely counts one of the most vital reasons why M1 could succeed. As Alexander Osterwalder and Yves Pigneur (246) mentioned in their book ‘Business model innovation rarely happens by coincidence. But neither is it the exclusive domain of the creative business genius. It is something that can be managed by companies, structured into processes, and used to leverage the creative potential of an entire organization’. That grasping such a lot attention from people wasn’t accident for Xiaomi. Xiaomi Company is actually an internet company. The business model of many cell phone manufactures like apple, Samsung or even those ‘Shan zhai’ companies are earning profit through selling cell phones. However, Xiaomi did not follow their step and went in another direction.
Customer segment To start with customer segment, I would like to say they aim to niche market of users. As the most competitive Chinese smart phone in recent years, M1 has very high configuration and sells at low price. It only sells on xiaomi official website. In Chin, the market positioning of most smart phones is for common users. However, the increasing number of a young generation of consumers are chasing for customization, fashion and high-tech. normally, these consumers has good capability of accepting new things and understand well about internet. They buy cell phone are not only for making phone calls. Under this circumstance, those who have very demand on configuration and usually surf the internet undoubtedly is the main segment of Xiaomi.
Unlike those phone users who only care about brand or price, these users are stickier to the phone which is with high configuration. Even if it only sells online, it achieved 1 million sales record within 3 months. At the same time, this phenomenon became the hot issue people discuss about during that period, which also adequately proves that they correctly found the main customer segment. In addition, Xiaomi keeps updating the system version of M1 every week and it perfectly match and satisfied the users’ needs. In Xiaomi’s eyes, customers should be not only consumers but also partners of technology development. Thus, they allow Xiaomi fans to get involved in system developing and revise their system based on the suggestions from Xiaomi users.
Value Propositions The Value Propositions of Xiaomi is to provide products of high cost performance to customers. It includes improving product value and lower customer cost. Jun Lei, the CEO of Xiaomi, always says that the core of a smart phone is the quality. Unique system MIUI, big screen, and CPU etc, all these advantages enable Xiaomi has a relative high value in Chinese phone market. Xiaomi so far has more than 100 reliable suppliers including Toshiba, Samsung and LG to supply Xiaomi spare and accessory parts. On the other hand, considering most local smart phones use Android system in China, Xiaomi decided to adopt lower customer cost to seize market share. They fixed themselves at medium-high smart phone position and only use online selling strategy to lower customers’ time cost.
External Value Chain
Customer relationship Xiaomi also adopts an innovative way to keep the relationship with their customers. According to one interview to Bin Lin, CEO of Xiaomi , they tried to reduce the distance between Xiaomi and customers. Sometimes their management team acts as customer service, chatting with users and listening to the advice from their customers. Also, all the workers in Xiaomi used Weibo which is the most famous social website in China to interact with net users. I deem that this smart method effectively enable their users feel being a part of Xiaomi.
Marketing and sales strategy The one of most potential innovation in business model is the selling which plays very important role in generating an enterprise’s revenues. With the development of internet, e-business brings tremendous changes on the way to sell the products. M1 maybe the first smart phone only sold through the internet, while other phones mainly sell through the retail stores. As the cost in distribution may occupies at least 10% or more, selling online save lots of money for Xiaomi and that is maybe why M1 only sold at ￥1999. Of course, this is not the only reason they sell online. The radical reason is to make online panic selling. Each time they provide a firm number of phones online and organize such selling activity once a week to remain the sense of hunger of users. And the fact is that M1 has successfully sold 3.52 millions.
As for the marketing strategy, they insist to combine online selling with online promotion. Xiaomi did not spend any cost in doing advertisement as they are aware that there is a better way to make others know them better. Until June 2013, there are already 6 hundred million users on Sina weibo, according to the report from Sina finance. Xiaomi made full use of internet to promote their products. Instead of spending time on advertisement, they dedicated time and cost to developing best product and depending on words of customers’ mouth. Even though there are both positive and negative responses from users, it doesn’t hold them back.
The last point I need to mention is that a system in smart phones has a significant position. Comparing to other systems, Xiaomi insisted to update their own system every week as their CEO deems that fast update is curial part in mobile phone industry. According to Jun Lei, they worked 6 days per week in of which two days for scaling, two days for developing and another two days for testing the new system.
Blue Ocean Strategy The blue ocean strategy is come up with by W. Chan Kim and Renee Mauborgne in their book ‘Blue Ocean Strategy’. It represents that an organization should create new demand in an uncontested market space, or a "Blue Ocean", rather than compete head-to-head with other suppliers in an existing industry. The imperatives of blue ocean strategy include that creating uncontested market space, making the competition irrelevant, creating and capturing new demand, breaking the value/cost trade-off and aligning the whole system of a company's activities in pursuit of differentiation and low cost. (W. Chan Kim and Renee Mauborgne 81)
In 2011, smart phone had become the mainstream in Chinese cell phone market. According to Gartner1, an information technology research and advisory firm, the sale record in 2011 reached to 4.72 billion, taking up 31% of whole sales of cell phones all over the world. ZOL, which is consider the most valuable business and IT website in China, published a report about the buying willingness of smart phone in 2011. It showed that smart phones users are more nitpick and professional than normal phone users. They buy phones based on different aspect of phones including price, configuration, quality as well as system.
