This case study explores how Xiaomi, the world’s 4th largest smartphone brand, grew their business without having a great offer and why its growth is suffering as a result.
By levering a lean business model and providing massive value, Xiaomi became the “Apple” of China. But their competition has caught up and the lack of a great offer is killing off their growth in key markets.
Find out why that is and how to avoid it by reading this case study.
Let’s check it out!
Can You Build A Great Business Without A Great Offer?
Chinese company Xiaomi totally revolutionized the smartphone market in 2011 with a daring business model. They only sold phones online, kept no inventory, and had super low prices.
Their founder modeled himself on Steve Jobs and held slick presentations that earned the firm the nickname of the “Apple of China”.
Source: Xiaomi (YouTube)
Yet, what really made Xiaomi like Apple was its canny marketing and deep understanding of how to make its prospects a high Return-On-Investment (ROI) offer.
You see, Xiaomi phones come with a beautifully designed custom version of Android plus software and hardware that you’d expect from much more expensive phones.
As much as this sounds counter-intuitive, it’s actually a brilliant bit of marketing.
According to Tech In Asia, Xiaomi sold 118.7 million phones around the world in 2018 -despite a decline in the global smartphone market that year.
Xiaomi probably makes a loss on selling its phones and that’s okay.
Industry analysts have estimated that Xiaomi probably only has a 9% gross profit margin on every smartphone they sell. When you add marketing costs, taxes, and other overheads to that they are probably selling below cost.
Smartphone hardware is a pretty lousy business. So far only Apple and Samsung seem to have figured out how to make money out of it.
But Xiaomi doesn’t have to worry about that because they make their real money on the backend, i.e. by selling internet services.
At this point, it’s important to add that Xiaomi has always presented itself as an “internet company” not a smartphone company.
When you buy one of their phones, you’ll find that it comes with a bunch of helpful online services pre-installed. Services that are tightly integrated into their customized version of Android. Margins on these sorts of services are estimated to be up to 60%!
Until now this all sounds like a massive success story. But there’s a catch, which we will explore in a minute…
Let’s first have a look at how Xiaomi has built a business on a high ROI offer.
Break Down: What Does Xiaomi Offer Smartphone Users?
A High ROI Offer
As mentioned in the previous section, Xiaomi offers its customers beautifully designed smartphones, with the power and features of much more expensive phones at much lower prices.
The company does this through two brands.
Redmi offers entry-level and mid-range devices, whereby the Mi brand produces top-range phones that go head to head with the best that Apple and Samsung have to offer.
Some of the premium value that these phones provide include:
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- A beautifully designed custom version of Android called MIUI. It looks great, is fast, and is a pleasure to use.
- Useful free apps that expand your phone’s capabilities out of the box. Normally you’d have to pay for apps like screen recorders in the Google Play store, with MIUI that isn’t necessary.
- Powerful hardware that you’re more likely to see in much more expensive phones from other brands.
Source: MIUI 12 Website
As mentioned in the previous section, Xiaomi phones provide a much better cost to performance ratio than their competition.
When I was looking for a reasonably priced phone last year, Redmi cropped up on a bunch of expert forums like Reddit.
After I did my own research, I bought one and have been very satisfied, with some reservations -more on that later.
In light of this, it makes sense why Xiaomi has become a major international smartphone brand. Yet the real magic lies in their business model.
The company sells affordable, high-value smartphones loaded with useful software. This brings users into their ecosystem and locks them into their proprietary web services -which cost money.
Essentially, it’s the Apple iOS strategy without the high price tag.
So far so good… Xiaomi provides a high ROI offer for people looking to buy great smartphones at a lower price.
Yet, as we’ve said in previous articles, that only one piece of the formula for building irresistible offers.
And it’s the other two pieces that are killing Xiaomi’s growth outside China and emerging economies.
Why Xiaomi’s High ROI Offer Isn’t Enough Anymore
Xiaomi struggles to compete in more sophisticated markets like the EU and the USA.
In these markets, price isn’t the major consideration that figures into purchasing decisions.
To that end, it’s also important to talk about an uncomfortable truth. Many Chinese companies are really bad at marketing themselves to the rest of the world.
In my opinion, this goes beyond language difficulties and poor cross-cultural understanding.
Most Chinese businesses that I know, or have heard of, have a “product-led” marketing mindset. They focus on building a better and/or cheaper mousetrap and then go out to sell it on that basis.
Source: Skitterphoto
Now, this works (for a limited time) in both China and many emerging economies where disposable income is smaller and demand goes down when goods are priced above a certain point.
But this kind of marketing leaves your offer open to poaching by the competition because there is absolutely nothing to differentiate you from them.
Which is exactly what has happened to Xiaomi.
Other Chinese brands like Oppo/OnePlus and Huawei/Honor have replicated their business model and are now competing with them on an even footing.
An Awful Tagline
To stay competitive and keep your competitors away from your customers, you’ve got to tell the market how you’re different!
The easiest way I know how to do that is by having a compelling and clear tagline.
And Xiaomi’s tagline sucks… They have changed it a couple of times since their founding in 2010, which is always a bad sign! The current tagline goes something like this:
“Making Quality Technology Accessible To Everyone”
As a direct-response copywriter and marketer, I cringe at that!
Nobody cares about these “We-Are-A-Socially-Responsible-Business” type taglines.
Why not use this opportunity to tell us what’s great about Xiaomi with a persuasive tagline instead?
It makes me mad when I see a business with a great product or service waste a marketing opportunity with trendy corporate gibberish!
What would a better tagline for Xiaomi look like?
Of the cuff, I’d say they should really focus on cost to performance, a beautiful user experience, and all the extra software and hardware goodies you get when you buy from them.
(If anyone from Xiaomi is reading this, I am available for a paid consulting gigs 😉)
Xiaomi modeled itself on Apple when it was starting out. Apple is great at telling people why they should buy their products and services.
Providing a high ROI offer is what built Xiaomi. Yet they will never be Apple without telling people why their offer is great and what it does from them.
Which leads us to the next and most important part. You can tell people all sorts of things, whether they believe you… well that’s another story.
A Struggle With Believability & Trust
Xiaomi started off as a brand focused wholly on its home market -China. It’s done extremely well there and is highly regarded and respected.
After that, it first internationalized to developing markets like Brazil, India, and the African continent. And it’s done well in these places.
To show you how hot Xiaomi is in some of these markets, let’s look at what happened when Flipkart in 2014.
Source: Flipkart
Flipkart is India’s largest online retailer. When they held a flash sale for the newly launched Xiaomi Mi 3 smartphone their site crashed! Not only did they sell out their entire stock of Mi 3s, but their servers also crashed under the load.
Yet Xiaomi has struggled to replicate this success in the wealthy North American and European markets.
Politics and often unfair brand perceptions have something to do with this. Yet so do poor communication practices.
Some well-informed users who in these markets have discovered this brand and it’s not unusual to see recommendations for Redmi and Mi phones in niche forums on Reddit and on social media.
That’s how I discovered the brand myself and I’ve been very happy with it so far.
Now to the reservations I mentioned earlier…
When you do try out a Xiaomi phone, there’s something that will make you uneasy.
The in-built apps are all ad-supported, which can get quite annoying.
On top of that, the MIUI operating system routinely sends data back to Xiaomi.
Now I’m given to understand that this is a normal business practice in China and that users there accept this as part of the bargain for getting a great phone at a lower price.
And Xiaomi has already been called out for these tracking practices by security researchers and the media.
Needless to say, this is a huge “No, No” in the West -especially given the current political climate.
How F.U.D Is Affecting Xiaomi In The West
This is the spicy part of this case study.
At this point, I have to point out that this isn’t a political blog and that I really don’t care about all this “great-power competition” nonsense.
But to quote Pericles:
“Just because you do not take an interest in politics doesn’t mean politics won’t take an interest in you!”
There’s a lot of “Fear, Uncertainty, and Doubt” (F.U.D) about Chinese businesses right now. Some of it may be true, some of it is not.
Unfortunately, people love to conflate business with politics and vice versa.
When you google “Are Xiaomi phones good?” or “Are Xiaomi phone safe” you get millions of answers and most of them are positive.
Yet while the general consensus seems to be that they are no worse than their Western and Asian competitors -the frequency of these questions points out that many people just aren’t sure.
Unfortunately for Xiaomi, the Western media has been on a drive against China and Chinese business for the last few years. I leave you to draw your own conclusions on this.
Needless to say, FUD is going to be the biggest obstacle for Xiaomi’s future growth in Western markets going forward.
Which brings us back to believability and trust. Xiaomi hasn’t done anything I can find to build social and factual proof that would build a foundation of trust for its products and services.
Yes, when you use them, they are great. Yet, outside a small community of enthusiasts, nobody is going to give them a chance without them taking the first step.
The Takeaway: Build Your Offer Right & Avoid The Xiaomi Trap
In this case study, we looked at how Xiaomi built a profitable business without having a great offer in place and why their growth will suffer as a result of it.
Here is a summary of what we looked at and some takeaways on how you can build your offer the right way and avoid the Xiaomi Trap:
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- Xiaomi, the “Apple” of China, provides a high ROI offer by providing smartphones with premium hardware and software at an affordable price.
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- Xiaomi likely sells its hardware at a loss to lock users into its ecosystem. The firm makes most of its revenue through web services.
While the above sounds like a great deal for customers, Xiaomi is very bad at communicating the value it provides. The current tagline of the brand has nothing to do with the products and services they offer.
- Xiaomi likely sells its hardware at a loss to lock users into its ecosystem. The firm makes most of its revenue through web services.
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- Furthermore, the company is likely to struggle with believability and trust in markets outside of China. Annoying mobile advertising practices and general data privacy and security concerns will kill it’s growth in premium markets if they are no addressed.
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- What is the Xiaomi Trap? It’s building your business model around an offer that has high value but none of the other two elements needed to take it from good to great.
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- How do you avoid the Xiaomi Trap? Build your offer the right way from the start. Provide massive value and clearly communicate it to your prospective customers. Then provide them with the social and factual proof they need to believe you.
Remember, at the heart of every successful business is a great offer! Find yours, dial it in, and watch your business grow. 🚀
- How do you avoid the Xiaomi Trap? Build your offer the right way from the start. Provide massive value and clearly communicate it to your prospective customers. Then provide them with the social and factual proof they need to believe you.
Want a rough and ready critique of your offer?
Get me on…
Amadeus Musumali is a Direct Response Copywriter & Consultant who helps businesses find their irresistible offer & pitch it to their market. He works with Startups and Soloprenures who have traction and are looking to scale up their marketing.
