Xiaomi has so far been known for offering an incredibly low margin for its smartphones, which was barely 5%. Now it has to change and I have the impression that it is not only not a good decision, but above all – it is not in the style of the Chinese, who have already managed to turn the industry upside down.
Yesterday's presentation of Redmi Note 7 and Mi 9 showed that Xiaomi can do something that the competition is not too inclined to do. Offering equipment at a price that the competition can dream of is something that – you can colloquially say – has grown into the landscape of the global mobile industry precisely because of this Chinese manufacturer. The growth dynamics of Xiaomi, which fiercely chases Apple, and in some time it will probably reach Huawei is due to the incredibly aggressive and very thought-out pricing policy and methodical expansion of new markets, where presence is marked in a properly planned manner.
Xiaomi has sought out competition to earn even more?
It can not be concealed, however, that Xiaomi – in addition to the good quality of the devices offered – is winning the market primarily through the price, which is the result of a hellishly low margin by industry standards. Of course, no other company boasts this coefficient in public, but all you need is a brief glance and a quick comparison of smartphone prices based on the same components to say that it is Xiaomi that beats the competition and claims of Lei Juna, the head of the group, talking about just The 5% margin may have much to do with the truth. All the more so you can be afraid of the consequences of the latest decision, which is to increase your earnings from the sale of smartphones , which is going to be effected by the management of the company. For now, this decision is supposed to apply only to premium line devices, so the representatives of the Mi line, but we all know that this is just a prelude and with time, the Chinese will also raise price lists of other mobile devices. Such are the laws of the market, which acts as a flywheel and one decision drives the other, and the growing receipts to the account cause that the desire to even more green "green tables" is getting bigger. It is no coincidence that the old market rule says that "the rich get richer and the poor get poorer". Oh, modern capitalism, but also a reward for stubbornness, ingenuity and entrepreneurship (or punishment for the lack of these qualities).
Margin increase? Useless
Anyway – Damian points out that the decision to raise the margin (and thus also the prices) is not a clearly wrong decision. I do not think so either, but they say that it is a decision – in these market conditions – completely unnecessary. Although it sounds strange, Xiaomi is still a company on the achievements, which from the perspective of the big four (I do not count Oppo here, which strongly slowed down with development) still has the most to gain. The Chinese have yet to explore the largest market in the world (USA), which before Apple, Samsung or Huawei has long been open. Well, in the face of recent events on the China-US line, the situation of this last concern in this aspect is not so obvious, but it is still a company that has already managed to penetrate America in business terms. Xiaomi is also in a completely different stage of development compared to another Chinese monster, or the aforementioned Huawei. While no one heard about the former, others sold modems and internet equipment around the world, creating a distribution network of products around the world and operators, which allowed them to enter the smartphone market and use sales experience. I have the impression that Xiaomi, wanting to revolutionize the mobile market, at the same time is still learning the rules governing it. And it looks like it is slowly adopting this basic, talking about maximizing profit.
A decision that can be Xiaomi not on hand
In the face of this state of affairs, it seems to me that raising prices is an issue that may not be on the hand of Xiaomi alone. Although I do not think that the rises were huge and struck with all the firmness in the portfolios of customers, we can certainly expect that Mi 9 will be the last so cheap flagship . This may echo in the context of the company's image, but above all does not necessarily mean a significant increase in income. It can be assumed that price increases will divert some customers from plans to buy new models – this in turn will reduce the sales volume, which can be offset by higher prices, but … it does not have to.It seems that a good idea could be to stop this trend and take advantage of the scale effect, which will be clearly visible in the case of such well priced models presented yesterday by Xiaomi. Of course, it's hard to philosophize about the company's finances without access to official statistics, but I have a feeling that selling more smartphones at a lower price, taking into account the dynamic development of the brand, could give a similar effect to supplying the market with fewer devices, though at a higher price . And certainly the first variant would be more effective in terms of marketing – after all, nothing attracts interest, like low prices, competitive in relation to products from other manufacturers. Time will tell if the new Xiaomi strategy will be effective. Personally, I have the impression that in the recent Xiaomi activities there is a bit of inconsistency – on the one hand, the announcement of a higher margin, and on the other hand, smartphones that, at their price, sweep the competition from the market. The other thing is that the discussion on this issue is a very nice change from the consideration of equipment for PLN 7,000 and for how long we will pay 10,000 for a mobile device.