ASIA PACIFIC INSTITUTE OF MANAGEMENT

MARKETING PROJECT REPORT ON

“MARKET STUDY AND ANALYSIS OF XIAOMI INC.”

Submitted to:

Prof. Ritu Gupta Dutta

Submitted by:

Karan Kapoor

Sourabh Arora

Rajat Kukkar

Shivani Gupta

Neha Dixit

ACKNOWLEDGEMENTResearch work on Xiaomi Inc. is a combined effort, so one should thank all that have helped in

making the report purposeful. Hence, We as of whole group members thank to all that have been

instrumental in helping us to prepare this report.

It is great honour to be assigned this topic. We are immensely grateful to Prof. Ritu Gupta Dutta

for her continuous support and guidance while pursuing the project and for taking pains to give her

valuable inputs to the structure of report and guidelines, the completion of this project would not

have been possible.

We specially wish to thank all other people directly or indirectly related with our research & study

and our friends, colleagues, and other members of group as without their valuable support

successful completion of this report would not have been possible.

CERTIFICATE

Certified that this report entitled “MARKET STUDY AND ANALYSIS OF XIAOMI INC.” has been prepared by KARAN KAPOOR & GROUP of PGDM 1st year students during the session year 2016-2018.

We forward this Project Report to Prof. Ritu Gupta Dutta for evaluation purpose.

Date:-

………………………

……………………………………

(Signature of Supervisor)

(Designation)

DECLARATIONWe hereby declare that this survey titled as “Market Study and Analysis of Xiaomi Inc.” Is our original work, under the guidance of Prof. Ritu Gupta Dutta, towards partial fulfilments of the requirements for the PGDM course of ASIA PACIFIC INSTITUE OF MANAGEMENT.

We claim the report to be our all group members’ indigenous work.

Karan Kapoor,

Sourabh Arora,

Rajat Kukkar,

Shivani Gupta

and Neha Dixit.

PREFACE

It is a great privilege for us to present this project report to the Prof. Ritu Gupta Dutta. This report is concerned with “Xiaomi Incorporation and its business operations in India”.

This project has been completed with the combined efforts of our group members, and consists of:

1. EXECUTIVE SUMMARY2. OBJECTIVE OF THE STUDY3. INTRODUCTION4. CORPORATE MISSION AND VISION5. ENVIRONMENT ANALYSIS (PEST)6. SWOT ANALYSIS7. MARKETING OBJECTIVES AND GOALS8. FOUR P’s OF XIAOMI9. COMPETITOR ANALYSIS10. SEGMENTATION, TARGETING AND POSITIONING

EXECUTIVE SUMMARY: AN OVERVIEW OF SMARTPHONE INDUSTRY IN INDIA (2016)Western smartphone makers, like Apple and Google, are increasingly looking east for growth, giving countries like India significant influence over the sorts of features they build into their phones.

"Normally what happens in emerging markets is they leapfrog others in terms of forging ahead," said Satish Meena, forecast analyst at Forrester. "India has the advantage of volume — they have sufficient volume so they can tell smartphone makers to build certain features. The smartphone makers can then try and use them in the African market, and the Middle East market, for example. The African market has similar problems in terms of purchasing power and penetration of smartphones," said Meena, indicating towards India’s scenario.

Although we all know that India has the fastest-growing smartphone market in the world, the smartphone market in India crossed the 30 Million unit shipments milestone for the first time ever in a quarter in CY Q3 2016 maintaining its healthy traction with 11% Year-on-Year growth.

According to the International Data Corporation's (IDC) Quarterly Mobile Phone Tracker, smartphone shipments clocked 32.3 million units in CY Q3 2016 with 17.5% growth over the previous quarter. “This seasonal spike in third quarter of the year can be attributed to the channel preparation for the festive season, mega online sales and early import of smartphones owing to Chinese holidays in October” says Karthik J, Senior Market Analyst, Client Devices, IDC India. Mobile subscriptions are expected to hit 1.4 billion by 2021, according to the Ericsson Mobility Report, released in June.

"Everybody is looking at India as a huge landing ground for their innovation and also as a next big step in that part of the world," said Sanjeet Pandit, Qualcomm senior director for business development and sales for Asia-Pacific and India. Qualcomm's chips are used in about 30% of smartphones in India.

Online share of smartphone increased to 31.6% with impressive 35% Quarter-on-Quarter (QoQ) growth due to strong performance by key online players primarily from China-based vendors, namely Xiaomi, Lenovo and Motorola. Also, closing weeks of the quarter witnessed incremental supplies as many vendors were preparing their inventories for the online festival sales in October. Lenovo Group continues to lead online channel followed by Xiaomi. “Lenovo Group accounts for almost one-fourth of total online smartphone shipments driven primarily by Lenovo’s K5 series and Motorola’s G4 series models. Also, Xiaomi’s Redmi Note 3 and newly launched Redmi 3S fuelled the online shipments to a large extent”, adds Karthik.

4G smartphone shipments grew 24.8% over previous quarter in CY Q3 2016. Rollout of Reliance Jio network has further increased the share of 4G enabled smartphones in India. 7 out of 10 smartphone shipped in Q3 2016 were 4G enabled and 9 out of 10 smartphone sold by eTailers were 4G.

SMARTPHONE OEMs AND BRANDS LEADING THE MARKET:

Samsung leads the Indian smartphone market with 23% share with 8% sequential growth and

9.7% growth from the same period last year. Despite the recall of Samsung’s flagship Note 7,

multiple new launches across both offline and online channels added onto the its strong portfolio

helped vendor to grow at a healthy rate in CY Q3 2016.

Lenovo Group (including Motorola) climbed to second place with 9.6% share of smartphones.

Similar to the CY Q3 2015 trend, Lenovo Group’s shipment spiked in CY Q3 2016 with growth of

46.1% over previous quarter. Motorola’s volume almost doubled Quarter-on-Quarter.

Micromax slips to third position with a 32% decline in smartphone shipments over previous

quarter. The vendor is facing tremendous pressure from other local vendors in sub US$ 100

segment and with Chinese players in US$100-150.

Xiaomi grabs fourth position and makes its debut in Top 5 as its shipments doubled over

previous quarter. With primary focus on online and minimalistic product portfolio, vendor has

grown more than 2.5 times over the same period last year. As the vendor plans to expand its

footprint in the offline channel, competition is likely to get intense in Indian smartphone market.

Reliance Jio sustains its fifth position in CY Q3 2016 despite a healthy 20.9% growth over

previous quarter. With the commercial launch of Reliance Jio Service with attractive introductory

offer, the LYF branded smartphones saw a sharp demand with reports of stock outs at some

locations.

OBJECTIVE OF THE STUDY CONDUCTED:The Objective of this study and reports included are to focus solely on the Indian Smartphone

Industry, both in terms of the major players involved in the market as well as the Chinese

counterparts which have entered into the market in the last years which are highly effecting the

smartphone and smart devices market in India. While we understand that every player has a great

national as well as a global presence, We being representatives to the Chinese technology

company, Xiaomi Incorporation which is just a six & a half year old company and former start up,

felt that it’s important to analyse the company on Strategic Marketing and how the company has

made it this large in these six years, which once as a start-up used to build custom ROMs over

Android OS.

The Objectives are covered and highlighted by conducting Environmental Analysis of external

environment of the company which is provided using the PEST analysis & SWOT analysis

discussing company’s Strengths, Weaknesses, Opportunities and Threats in light of its operating

environment, followed by its Corporate Goals and Objectives and the strategies followed by the

company through which it’s able to capture the market, enjoying a very favourable growth rate.

INTRODUCTION: Xiaomi Inc. is a Beijing-based company which was founded on 6 April, 2010 by Chinese serial entrepreneur Lei Jun, along with eight other partners, Xiaomi’s team of professionals includes people from reputed organizations and industry leaders such as Google, Microsoft, Yahoo, Kingsoft and Motorola.

It has shown meteoric growth in the few years since its inception. The company began its activities with the development of Android based firmware MIUI, which was launched that same year in August. A year later Xiaomi unveiled its first flagship which was a smartphone with pre-competitive MIUI firmware.

In April 2014, they hired former Google employee Hugo Barra as Xiaomi VP to expand their business to international markets. And, then launched itself in INDIA in July, 2014 with their then flagship product, a Smartphone name Xiaomi Mi3 which offered same specifications as Samsung Galaxy S4 or Apple iPhone 5s was providing. The company saves the operational cost by minimizing expensive marketing and touting its products through micro- blogging, user forums, social networking and social media marketing. Xiaomi is known for being responsive to feedback and suggestions submitted by their customers, as well as updating their interface weekly. The company’s product lines includes Mi Phones, Mi Pads, Mi TV, Mi Routers, Power banks, mobile accessories and wide range of Smart Home devices.

Xiaomi has 8,100 employees and it is currently operating in China, HongKong Taiwan, Singapore, Malaysia, Indonesia, Philippines, and India.

Xiaomi’s Company Mantra:

“Always believe that something wonderful is about to happen”

CORPORATE MISSION AND VISION:MISSION:

1. Making Quality Technology accessible to everyone: Xiaomi is a company which believes that high-quality technology doesn't need to cost a fortune and create remarkable hardware, software, & internet services for and with the help of their users whom they call ‘Mi Fans’.

2. Engaging Users or Fans helping them develop their new Products: Xiaomi runs dedicated user forums, and keeps in touch with their fans conducting many activities and taking user feedback which helps them create their next best products.

3. Creating an Internet Ecosystem through their innovation in technology: With their innovation in technology & services they’re winning hearts and acquiring market share with their loss leader strategy, they are creating an internet ecosystem linking one product with another because they are having a huge product line-up.

VISION:

1. To make Xiaomi an Indian Company: Xiaomi’s Global VP, Hugo Barra has always showed Xiaomi’s dedication towards India and its culture and want to make it an Indian Company.

2. To lay more focus on After-Sales Service: Major focus of the company is on providing the Customers better after-sales service and to open 100+ own service centres across the country.

3. To open 10,000+ Offline Stores by early 2017: Xiaomi makes 90% of its sales from online and has existing stores are in Tier I and Tier II cities, and would now enter Tier III cities too, while increasing presence in the two former categories, visioning to open 10,000+ offline stores by early 2017.

EXTERNAL ENVIRONMENT ANALYSIS (PEST):

Political factors:1. In August 2014, just after launch when Xiaomi was accused of sharing user data, like Phone

no., IMEI no., Text messages, contacts etc. to a server in Beijing, without notice of users, it

became an issue for the company. Which when investigated came out to be a 4 month old report

of even before when Xiaomi started selling smartphones in India. It could have had a political

impact on its business. The Company for being on the safer side shifted its servers out of Beijing.

2. Later in 2014, Xiaomi's smartphone Redmi note 4G's imported was banned in India when

directed by Delhi High Court, following a lawsuit filed by Ericsson India, where Xiaomi was using

Ericsson's Standard Essential Patents without paying out a royalty to the company in India. The

smartphone (after two successful flash sales) was permanently discontinued to be sold in India.

Economic Factors:1.This November only, the Indian Government implemented Demonetisation Policy which affected

the online smartphones sales. One of the sectors reeling from the impact of demonetisation is that

of feature phones and affordable smartphones, which are priced under Rs 10,000. Since most of

these purchases are made using cash payments even now, the initial impact was as high as 90%.

Sales of Xiaomi products, the Smartphones had a worse-hit and other products too suffered from

bad sales, ie. Powerbanks, Bluetooth speakers, Mobile accessories, and Earphones.

Social Factors:1.Lack of customer service centre: The main problem behind xiaomi is lack of service centre as

compared with Samsung. As in the todays era service become a part of a product so this is the

factor which can create the problem for xiaomi to decrease in sales.

Technological Factors:

1.Xiaomi's line of smartphones which use Android, support the cause for open source systems

which are being championed by many technology-savvy people, as compared with Apple which

strongly protects its proprietary and closed system. Xiaomi has aggressively offered “MIUI” which

lets its users take the lead in customising their own user experience with unparalleled flexibility.

2. Xiaomi's technology captures the heart of its customers by allowing them more freedom than

Apple’s IOS or even the standard Android handsets. Thus Xiaomi capitalises on user innovation,

which is one of the main factors that drives the Xiaomi fortune today.

3. Another strong point is that Xiaomi promotes online shopping which erases the cost for

intermediaries

SWOT ANALYSIS OF XIAOMI:

STRENGHTS:1. Having Skilled and Experienced Workforce in which the professionals from other leading companies like Google, Microsoft, Kingsoft, and Yahoo are also included.

2. It has Competent and Experienced Business Units. Have wide distribution and sales network to expand its business to new existing markets.

3. Providing Quality Components in Smartphones and other products at the most affordable prices, with specifications that won’t obsolete till next 12-18 months.

4. Added with Strong Management Team and has direct consumer sales as well.

5. Use Word of Mouth Advertising rather than other sources.

WEAKNESSES:1. Online Advertisement model and the Word of Mouth advertisement is not as effective as other sources like TV advertisements or Celebrity endorsements. Also Social media marketing is becoming popular but it is still in under developing stage and it takes time to get success in online business.

2. Lack of consistency in bringing more and more professionals in the company, who can guarantee its success. And Logistics issue due to direct consumer selling.

3. Weak After-Sales Service and Lack of enough technical staff to carry on their electronic work and introduce new and fresh specifications in it (System updates are rolled out every week in China).

OPPORTUNITIES:1. Adopting Offline Sales Channel can really help company boost its sales along with the Online Sales Channel.

2. Explore new and existing markets while expanding the exhibition of their products, because they have a huge product line in China.

3. Having a huge product line consisting of many smart home devices, they can dominate Indian market and can create a great Internet Ecosystem outside China too.

THREATS:1. Face strict Government Regulations and the effect gets transferred on manufacturing and transportation of their products.

2. Their Loss Leader strategy is laying a question mark on sustainable future of Company.

3. Profitability in future at stake, because many competitors are coming up with affordable products with handsome specs.

MARKETING OBJECTIVES AND GOALS OF THE COMPANY:

1.Earning Profits from Its Software: Xiaomi’s revenue stream

comes from its software — the highly-customizable MIUI firmware that is based on

Android which already has more than 30 million users. Thus unlike Apple, for example,

which makes money from margins on selling its phones, Xiaomi is a more like

Amazon where it wants to earn via its ecosystem by selling various goodies and reap

profits like an ecommerce company.

2.Retailing Directly: Another objective is going directly to retail to cut out the

margins and, in turn, pass on the benefits to the consumers.  Xiaomi will sharpen its

focus on its own Mi online stores to sell its wares, a strategy which has paid off rich

dividends in its home market.

THE FOUR P’s OF XIAOMI:

Product:Having a cheap price in the market does not always refer to low quality. Xiaomi’s prices are lower

than their two big competitors, Apple and Samsung. Presenting itself as the good Quality phone

maker with the low prices is the good strategy that drives Xiaomi to the top spot in the smartphone

industry in China. The phones consists of good quality, robust case, high Resolution screen,

reasonable battery, and runs on the Android-based OS ROM called MIUI. It has more special

features than the standard Android phones and has options for Customization. The biggest key

that drives Xiaomi on becoming successful is the software rather than the hardware.

Price:Xiaomi sells its phones at a price that just covers the cost of the device rather than its cost of

production. Xiaomi is focusing more on selling its phones at a low price today, but gaining more in

the future from selling contents such as applications, services, and accessories. Moreover, Xiaomi

mostly sells its products online which can reduce costs of opening stores, hiring staff, and

inventory keeping, and also may lessen the problems in communication when dealing with

distributors and retailers. 

Place:There are many countries outside China where the smartphone market is dominated by Apple and

Samsung. This is the main obstacle for Xiaomi in expanding its brand internationally.  Xiaomi

already has a strong base in mainland China, Malaysia, and Singapore. Currently, Xiaomi is

expanding its market to India and the Philippines. Despite its expansion into other markets, the

company’s main focus is still in China where its largest consumer base is located. And second

most focus in all other developing countries in Asia Pacific, in which India is on the top. Xiaomi

mostly sells its products online instead of opening physical stores. This is a win-win situation for

both the company and consumers. The company can save a lot of money from building the stores

while consumers can easily access the products. Because the company spends less money, the

price of the phones will also be cheaper.

Promotion:Promotion of word of mouth. Xiaomi uses flash sales, a mean of selling their product in limited

quantities within a limited period as part of their sales strategies. This strategy enables Xiaomi to

save money from doing advertisement because it creates the anticipation and urgency on

consumers. Only limited quantities are available in the market and they will be sold out quickly

which means many people have to wait for the next slot. This strategy therefore makes people talk

a lot all over China including in the social media. This also grabs lots of the consumer’s attention

and makes the advertising less important for Xiaomi in promoting the launch of new products.

Social media. Xiaomi uses social media not only to broadcast messages to actively get in touch

with its customers, but the engineers from Xiaomi also use this platform to routinely communicate

directly with users to get feedback. The engineers listen to the consumer’s needs and refine the

software to complete those needs weekly. This distinguishes Xiaomi from other brands because it

shows that the company is always concerned about its customers and immediately takes actions

to improve the products.

COMPETITOR ANALYSIS:Xiaomi has many competitors with Samsung being the biggest of them and the

nearest toughest competitors are:

Lenovo (Motorola including) with 9.6%,

Micromax with 7.5% if we go by market share, which is constantly falling due

to non-satisfactory sales, poor marketing strategies and non-competent

products.

Reliance Jio Smartphones, which as Smartphone product line started up in Q1

2016 and has gained 7% market share due to overwhelming marketing

strategies such as free Jio 4G sim offer on buying their LYF branded

smartphones.

SEGMENTATION, TARGETING AND POSITIONING OF

XIAOMI IN INDIA:

Segmentation: Xiaomi has followed the Demographic Segmentation strategy and used

factors like, Age & life cycle, Age stage, Income, and Generation to target its customers. Xiaomi as

an Internet company has segmented the market to those group of people who are tech savvy,

mostly use e-commerce platforms for shopping, and see electronic buys as Value for Money i.e.

Brand value is not the priority to them, but VFM is. The consumers in Indian market wanted

Smartphones and devices to be distinguished with customisations in the Android OS without

compromising with their budget. And, Xiaomi India gave a combination of both, a better OS and

high quality components in their budget, and then the other consumer segment by word of mouth

followed.

Targeting: Xiaomi targeted consumer who are tech savvy as well as who are in the group

of age 18-35 i.e. from students to working class people, who wanted good quality products and

knew that market leaders like Samsung, LG, and Apple were overpriced for the specifications they

were providing in their products. So, the targeted audience are: Students, Working class people,

Heavy internet & social media users, who are driving the e-commerce market in India.

Positioning: Positioning is the act of designing a company’s offering & image to occupy

a distinctive place in the minds of the target market. The goal is to locate the brand in the minds of

consumers to maximize the potential benefit to the firm.

Xiaomi has positioned itself on the behalf of its smartphones so well in the Indian market that

whatever product it comes up with, is taken cheerfully by the mass that they become massive hits

along with their existing smartphone line-up. These products include, Power banks, Earphones,

Bluetooth speakers, Smartphone accessories and wearable. The company has set up and gained

such a place in the customers' hearts because they come up with such specifications & high

quality components that make their products' life cycle near to indestructible for next 15-18

months.

PRODUCT LIFE CYCLE:

Introduction: Xiaomi was founded in 2010 by serial entrepreneur Lei Jun, who believes

that high-quality technology doesn’t need to cost a fortune. The company creates remarkable

hardware, software, and internet services for and with the help of Mi fans. It incorporates their

feedback into its product range, which currently includes the Mi Max, Mi 5, Mi Note Pro, Mi Note,

Mi 4S, Mi TV, Mi Band, Mi Smart Home gadgets and other accessories. With more than 61 million

handsets sold in 2014 and products launched in Taiwan, Hong Kong, Singapore, Malaysia,

Philippines, India, Indonesia and Brazil, Xiaomi is expanding its footprint across the world

to become a global brand. Xiaomi entered the Indian market in July 2014 via flipkart. Xiaomi

launched its first made-in-India smartphone named Redmi 2 Prime at a price of Rs.6999.

Growth: Sales were up 33% year-on-year. But the lack of growth between the end of 2014

and the first half of 2015 means dark clouds are gathering for Xiaomi, just as they are for nearly

every smartphone maker that isn’t Apple. “Good enough” smartphones are becoming a

commodity, and to stand out, phone makers need to be reduce prices or sell add-on products and

services. There are several specific factors behind Xiaomi’s stagnation. In China, Xiaomi leads

the Android hardware market, beating out Samsung for market share in 2014. Xiaomi gets its first

Indian investor Ratan Tata. Xiaomi had recently raised $1.1 billion from All Stars Investment, GIC,

DST and others.

CONCLUSION:

In conclusion, Xiaomi has a unique business model and a very interesting method

which is disrupting the smartphone and technology world. It has been successful at

incorporating a crowd sourcing strategy into its product development process. At the

same time, it has dispensed with all traditional marketing methods and is fully

engaged in utilising online communities & social marketing for its marketing. With

this innovative model, it has taken the world by storm and has created a huge cult

following here in India.

In just 6 years after its founding and 2 years of setting up in India, it has already

become the world’s third largest smartphone maker (in shipments) and is the world’s

most valuable technology start-up company which has just been valued at US $46

billion.