Xiaomi has been widely successful in recent years because it sells good devices at affordable price tags, but how does it manage to keep the costs down?
Just recently, Xiaomi managed to outperform both Samsung and Apple in China, becoming the top-selling smartphone maker in the country. At the same time, the company is also the third top-selling phone maker in the world. Xiaomi devices typically sell out in no time, and the company has broken record after record in terms of sales. Last year, for instance, Xiaomi sold 60 million phones.
The flagship Xaomi Mi devices have seen resounding success so far, as they come with powerful specifications for their price points, usually retailing for roughly $300. In fact, the company's latest Mi Note Pro phablet is the most expensive device in its portfolio, topping $500 for the first time, but it comes with utterly impressive specifications that still make it a bargain. The affordable Xiaomi Redmi lineup, meanwhile, consists of cheap devices retailing for less than $150.
Other smartphones on the market, for instance, go up to a whopping $1,000 off-contract, which makes even the most expensive Xiaomi handset quite affordable by comparison.
Hugo Barra, Xiaomi's vice president of International, has explained to TechCrunch in an interview just how the company manages to keep costs so low. The executive reckoned that Xiaomi is able to offer devices at such prices thanks to "the combination of a small portfolio and longer average selling time per device," TechCrunch reports.
In other words, while other companies such as Samsung invade the market with a slew of devices, some selling better than others, Xiaomi makes only a handful of handsets that continue to sell even after newer models come up. One key ingredient in this recipe could be the fact that Xiaomi doesn't forget about old devices once it releases new models, it keeps selling them at reduced prices that continue to attract consumers.
"A product that stays on the shelf for 18-24 months - which is most of our products - goes through three or four price cuts. The Mi2 and Mi2s are essentially the same device, for example," Barra detailed. "It was on sale for 26 months. The Redmi 1 was first launched September 2013, and we just announced Redmi 2 this month, that's 16 months later."
In turn, this longer lifespan for its devices allows the company to score more advantageous component deals with its suppliers, which again helps keep the costs down.
"The reason we do these price cuts is because we've managed to negotiate component cost decreases [with our suppliers] over time, which ends up leaving us with a bigger margin than we'd like to have, so we do a price cut," added the executive.
"The vast majority of the components [in our devices] are still the same, so from the point of view of supply chain and component sourcing, we're on the same supply contracts as Redmi 1, which means we're still getting the same discounts on components. We can continue to ride the cost curve, so the importance of having a very small portfolio is significant - the fact that we only launch a few products each year, and we only have two product families."
At the same time, Barra highlighted that price cuts alone do not guarantee the success of the device. Compared to other device makers, Xiaomi also supports its devices for longer periods of time, providing software updates, spare parts, and other services. Having a limited portfolio allows the company to focus more on each device.
With such a strategy and such demand for its devices, it's no wonder Xiaomi plans to broaden its horizons and expand beyond Asia in 2015. The company seems to have a great recipe for success, and we're bound to hear more about Xiaomi in the future.
