How Xiaomi Keeps Prices So Low?

img_9832If you haven’t heard of Xiaomi in any of the latest tech market reports, you’ll probably hear about them some time soon. Xiaomi has been making cheap smartphones in China for years now, and after several good years, they’re looking to globalize. One of the biggest sticking points to Xiaomi in the market, though, is how do they keep producing such high-end smartphones so cheaply? It’s their strong combination of well spec’d phones and low prices that drove them to over 60 million sales last year, which resulted in Xiaomi replacing Samsung as China’s top-selling smartphone company as well as becoming the world’s third top selling phone maker at the same time.

The Chinese company’s flagship Mi devices typically retail for around $300 – it’s new Mi Note Pro will be $500+, their first phone to break the $500 barrier – while the more affordable Redmi family is sub-$150. These are all insanely cheap phones when you compare them to Apple or Android devices, where Apple’s top-of-the-line iPhone sells for over $1,000 off contract, while the Samsung Galaxy and Note devices are also priced similarly. So why can Xiaomi be so aggressive with its pricing?

Many theories have been put forward, including that Xiaomi prices phones at cost and makes money on other services. Hugo Barra, the company’s VP of international, gave Techcrunch a peak at their special operations in an interview in Beijing last week. Apparently, according to Barra, Xiaomi is able to make price concessions thanks to a smaller portfolio and longer average selling time per device. Additionally, Xiaomi continues to sell older devices (and tweaked versions of them) at reduced prices, even after it releases newer models.

“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 explained. “The Mi2/Mi2s were on sale for 26 months. The Redmi 1 was first launched in September 2013, and we just announced the Redmi 2 this month, that’s 16 months later.”

That’s a big deal, mainly because the longer runway for devices allows Xiaomi to leverage its suppliers to get better component deals.

“The vast majority of the components [in our devices] are still the same, so in terms 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,” he explained. “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 (the fact that) we only have two product families.”

These dynamics requires a great deal of dedication to devices for two to three years, and it isn’t just about making price cuts. Xiaomi maintains software updates, spare parts and other services that customers require, longer than most companies normally do. There are additionally other factors that go in to the cost structure, including Xiaomi’s lean, online-only marketing focus and it’s close proximity to manufacturing plants in China. But of greatest importance is the management of components and supply chain partnerships.

Xiaomi has big plans for expanding their market share outside of Asia this year, which will make its pricing model and supply chain management more important than ever. The company sells its phones using an online-only model in most markets, though it’s recently been testing operator partnerships outside of China. It is currently running a limited trial in India, and has found partners in Taiwan, Malaysia, and Singapore.

from Douglas MacFaddin’s Tech Market Page http://ift.tt/1wodcvp

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Published by: Doug MacFaddin

Douglas Willis MacFaddin was born June 16, 1961 in the Miamisburg Hospital to Patricia Ann MacFaddin and Richard Willis MacFaddin. My mother’s maiden name is Morrison and she is the youngest of seven children who were raised in Lycippus, PA. My father was the second of four children and was a twin. He was raised in the town of Viola, DE. At the time of my birth, my father worked at the Mound Laboratories in Miamisburg, Ohio in research. Mound was an Atomic Energy Commission facility for nuclear weapon research during the Cold War. My mother made a home for our family. My father passed away in 1991 and my mother is currently living in Avon, CT. Doug MacFaddin is the oldest of five children (Doug, R. Stuart, Anne Marie, Megan and Mary (Heather)). I lived in Ohio for two years, spent the next seven years in Murrysville, PA (outside of Pittsburgh), moved to Little Silver, NJ and relocated my senior year in high school to Avon, CT. My four siblings currently live with their families in Avon, CT and are members of St. Ann’s Church. I attended Mother of Sorrows School in Murrysville, PA. In NJ, I attended Little Silver Point Road School, Markham Place School and Christian Brothers Academy (CBA) in Lincroft, NJ for three years. My senior year, I attended Avon High School and I then spent the next four years at Union College, Schenectady, NY. I received a BS in Industrial Economics and graduated in June 1983. While at Salomon Brothers, I was asked to attend a two-week seminar for Public Finance at the University of Michigan in 1986. In Little Silver, I was involved in Troop 126 where I achieved the rank of Life Scout and was both a Patrol Leader and a Senior Patrol Leader. I also was an alter boy at St. James Catholic Church and spent summers a the Ship Ahoy Beach Club in Seabright, NJ and caddying at the Rumson Country Club. At Christian Brothers Academy, I wrestled for the varsity squad for three years. I took second in the districts my junior year and went on to the regionals. I also ran on their cross country team freshman year and was part of the CBA Colt team that hasn’t lost a duel meet since 1973. My senior year at Avon, I won the wrestling States (S). I went on to wrestle at Union College and qualified for the Div III nationals twice (1981, 1982) and was co-captain both years. My senior year at Avon, CT, I also won the States (S) in pole vaulting. It was the first time Avon High School had a state champ in two sports in the same year. During my four years, I earned nine varsity letters between wrestling, track and football. In 1979, I was accepted into The National Honor & Merit Scholars Society. Upon graduating from Union College, I accepted a position at Salomon Brothers Inc in August 1983. I was an analyst in their Public Finance department at One New York Plaza. I lived in Park Slope, Brooklyn and spent the next four years working at Salomon Brothers. As a result of Black Monday, October 19, 1987 the Public Finance Department of Salomon Brothers was jettisoned to conserve capital. By November 1, 1987, I was working at Dean Witter Reynolds in the new Public Finance Department made up of many of my former Salomon Brother’s colleagues. The new Department was located on the 57th floor of 2 World Trade Center.

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