by NEW DELHI/LUCKNOW, March 16 (Reuters) – Xiaomi Corp is revising its India strategy after misjudging consumer tastes in mobile phones, a costly mistake that has allowed Samsung Electronics to take the Chinese company to the world’s second largest market Tip to bring the devices.
While Xiaomi continued to focus on selling phones under 10,000 rupees ($120), Indian consumers were willing to pay for better-looking models with richer features. South Korean company Samsung launched products to meet these aspirations and offered innovative financing programs that made them affordable for most.
These moves have helped Samsung (005930.KS) wrest the lead from Xiaomi (1810.HK) in India’s competitive mobile phone market, with data from Hong Kong-based Counterpoint Research showing it had a 20% market share compared to the last quarter of 2022 18% of the Chinese company.
“The Indian market is witnessing a ‘premiumisation’ trend. (But) Xiaomi was ill-prepared for change with a budget phone portfolio,” said Tarun Pathak, research director at Counterpoint.
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The loosening of Xiaomi’s vise-like grip on India’s 626 million smartphone users — the second largest after China — shows how companies that fail to respond to changing consumer preferences in a fast-growing economy with rising disposable incomes are being penalized.
Best known in India is the 100,000 rupee (US$1,200) Tata Motors (TAMO.NS) Nano, which was touted as the world’s cheapest car but was shunned by consumers who associated the low price with inferior quality .
Indians’ push for pricier handsets to consume videos and other content will also benefit social media app providers like Meta (META.O) and iPhone maker Apple Inc (AAPL.O), which so far have a tiny market share the country has due to its sole focus on high-end phones, which cost between $605 and $2,304 according to its website.
According to Counterpoint, the market share of sub-$120 phones in India has fallen from 41% two years ago to 26% in 2022. And for premium phones priced over 30,000 ($360), their share doubled to 11% over the same period.
Both Xiaomi and Samsung rank India among their top growth markets, with smartphones being their top-selling electronic device. The Chinese company recorded total revenue of $4.8 billion in India in 2021-22, while Samsung recorded revenue of $10.3 billion, of which $6.7 billion came from smartphones.
However, Xiaomi is already facing heat in India, with at least five top executives departing and the government facing increased scrutiny amid frosty relations with neighboring China. The company has frozen $674 million of its funds by the country’s financial crime agency over alleged illegal wire transfers to foreign companies, which Xiaomi denies.
A Reuters review of the product listings on Xiaomi’s website revealed the disconnect between consumer needs and the products the company offers. Xiaomi showed off six smartphones priced above $360, compared to Samsung’s 16. Under $120, Samsung had seven models, while Xiaomi listed 39 – most of which were proven to be out of stock.
And premium phones accounted for just 0% to 1% of Xiaomi’s total Indian phone shipments over the past two years, when Samsung’s high-end phones more than doubled their share to 13%, data from Counterpoint showed.
But Xiaomi, which has admitted it has launched “too many” models in the past, is revamping its lineup to focus on premium smartphones.
It launched the Redmi Note 12 in January, the top-end variant of which costs over 30,000 rupees, and more recently the Xiaomi 13 Pro for 79,999 rupees ($970) – its most expensive phone in India. The strategic shift appears to have paid off immediately, with the Redmi Note 12 grossing $61 million within two weeks of its launch.
“We have built a streamlined and cleaner portfolio with a focused approach to building expertise in the premium segment, and the launch of our latest flagship, Xiaomi 13 Pro, is a step in that direction,” said Indian President Muralikrishnan B.
“We understand we still have a long way to go on this journey, so we’re bringing in much stronger products.”
LOANS FOR PHONES
A Samsung program, operated with its financing partners and said to offer “convenient and secure” credit, has played a significant role in its recent success in India, helping to generate $1 billion in device sales last year .
A poster of Samsung’s offer, spotted by Reuters on a dusty road used by fruit sellers in the state of Uttar Pradesh, said even those with no credit history, low credit scores or no payslips could get a phone.
Sanjeev Kumar Verma, owner of a nearby multi-brand phone store, has benefited from the company’s loan program. Speaking to Reuters at his store, where hundreds of phones are stacked on the shelves, Verma said he used to sell five Samsung phones a month but has now quadrupled that number to 20, 18 of which are through the loan program.
Verma and another smartphone provider in Mumbai said that unlike rivals, Samsung doesn’t require local proof of address, making it easier for migrant workers or those working outside their home state to acquire phones on a loan basis. Samsung did not comment on the statements made by the providers.
Growth in premium cellphones has been much higher in small towns than in big cities, Raju Pullan, head of Samsung’s Indian mobile unit, told Reuters in February, adding that nearly half of consumers who opted for the financing program were loan seekers for the first time.
Samsung says its financing app installed on smartphones can lock the device and block outgoing calls for missing loan payments.
Xiaomi has also tapped into partnerships to offer credit, citing it as a key growth driver for sales of phones priced above 15,000 rupees ($183), adding that it will explore more such offers.
Muralikrishnan said the company will also open more stores beyond its current network of 20,000 retail partners and encourage local sourcing of cellphone parts, which will likely reduce costs.
Some industry analysts said the new strategy could help the Chinese company return to solid growth in India.
“Xiaomi has historically enjoyed strong brand equity, has a robust online and offline channel presence, and is poised to make a comeback with a potentially strong premium and value-for-money product mix,” said Prabhu Ram, Head of Industry Intelligence at CyberMedia Research.
Reporting by Munsif Vengattil and Aditya Kalra in New Delhi; Adaptation by Muralikumar Anantharaman
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