I n the summer of 2014, when Xiaomi’s Manu Kumar Jain went from pillar to post seeking expert advice about the company’s launch in India with an unusual selling

model - flash sales online - he was told that it would “flop”. Ironically enough, the flash sale model not only raised eyebrows, it ended up breaking Flipkart’s servers and ‘marketing gurus’ were forced to rework their own ideologies.

Four years later, the Chinese brand has grabbed the numero-uno spot in the final quarter of 2017 in the smartphone segment; a claim refuted by the erstwhile market topper for six years, Samsung. Xiaomi was founded in 2010 by billionaire Chinese entrepreneur Lei Jun who had established big businesses like software company Kingsoft and tech firm, Joyo.

On the India front, Xiaomi claims to have closed financial year ending 2017 with a turnover of $1 billion and is confident of clocking $2 billion this year. Xiaomi operates in over 70 markets including China, India, Pakistan, Malaysia and Singapore. After China, India is Xiaomi’s largest market. The smartphone brand is expected to go public in India with its initial public offering (IPO) in the second half of 2018. As per news reports and estimates, the IPO could lead to a $100 billion valuation of Xiaomi.

Xiaomi‘s ability to manufacture hi-tech smartphones equipped with innovative specifications at a price which is way below that of its competitors is its unique selling point. The company which originally started as a software firm now has its own operating system which sits on

Google’s Android, providing Xiaomi an opportunity to play around with apps and target specific needs like allowing users to run two Whatsapps on one phone.

Jain, who is Xiaomi India’s managing director and vice president at Xiaomi Global, has been with the company since the start of its India chapter. An alumnus of Indian Institute of Technology, Delhi and Indian Institue of Management, Calcutta, Jain, 37, has spent time at McKinsey & Co as an engagement manager and, later, co-founded Jabong.

The brand initially differentiated itself from the competition by rejecting conventional advertising norms and proudly declaring its customers to be its ambassadors. However, things changed last year and Xiaomi now has a mainline ad agency (Lowe Lintas), media agency

(Madison), celebrity brand ambassador (Katrina Kaif), TVCs along with a presence in offline stores across the country.

As Xiaomi gets ready to move from its cramped, but colourful, office in Bengaluru into a larger space (its employee strength has gone up to 400) afaqs!Reporter asks Jain to unravel the reason behind the brand’s visible strategy shift and analyse the brand’s steady growth in the Indian smartphone market. Edited Excerpts:

Independent research agencies have estimated Xiaomi’s market share to be 27 per cent in 2017’s final quarter - the highest in the Indian smartphone segment. What do you attribute your success to?

A couple of factors like our product,

“I hope we don’t do what other brands do”

Manu Jain on how brand Xiaomi went from ‘flop’ to top of the heap. By Sankalp Dikshit

COVER STORYMANU KUMAR JAIN MANAGING DIRECTORXIAOMI INDIA

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quality and pricing equation, our cool creative fan-driven-marketing and positive word of mouth about our services. However, it didn’t happen all of a sudden; things were building up slowly and gradually. From shipping 100,000 phones in the first quarter of the first year to a million, then three million and finally nine million a quarter now, we have grown every quarter over the past three years.

Tell us more about this ‘cool’ fan-driven marketing tactic that you employed?

Our marketing is driven mainly by three things: social media, the Mi Fan Community and word of mouth. If you look at our social media pages, including mine or our team members’, you’ll see that many of our pages are rated as one of the most active pages on Facebook, Linkedin and Twitter.

We constantly build our fan community which currently boasts over 400 million active participants. We have official fan clubs in more than 20 Indian cities where people gather to discuss Xiaomi and technology.

It’s like a cult. These forums have really helped us since phone-buying is a social phenomenon. When you think of buying a phone, most people will refer to a friend or family member. Most importantly, the people you go to for recommendations are generally those who are young and tech-savvy since you subconsciously think that kids understand new age tech better. Eighty five per cent of people who buy Xiaomi phones in India are between the age group of 18 and 34. While they may, or may not, be the end user, they are the decision makers. And so these people are Xiaomi’s brand ambassadors. Which is why I have always said that we don’t have big Bollywood stars or the Khans - we actually have fans.

But you have Katrina Kaif! Didn’t Xiaomi sign her last year to endorse the brand’s Redmi Y series?

Now yes, but till the time we became No.1, we never had a big Bollywood celebrity on board. We signed Katrina after 2017’s third quarter when we launched our first selfie-camera-focussed phone and wanted to portray how beautiful the selfies can be.

We needed someone very active online: who takes selfies and puts them on social media. That’s how Katrina came in the picture. Even if you look at our strategy here, unlike other brands who have stars as the brand’s spokesperson, we

have signed Katrina for a particular product because it’s a perfect match.

But even Xiaomi fans could have uploaded beautiful selfies. Has your confidence in Xiaomi’s fan base run out?

In the first three years, we were mainly relying on Mi fans to spread the positive word of mouth about the brand. But we signed Katrina - or for that matter, we started advertising on TV - because we began building our offline business.

In the offline segment, there are a

lot of first-time smartphones buyers who do not read reviews on Amazon or Flipkart but will simply walk into the shop and ask: ‘Which phone should I buy?’

Even today, only half of the people know about Xiaomi. That is actually a great opportunity for us since we already have 27 per cent market share. So, we had to create brand awareness since the same was high in the online segment but moderate in offline.

What necessitated your foray into the offline space? Is it safe to assume Xiaomi’s online-only, flash sale-driven success ran out, leading to a new phase in the brand’s life cycle?

When we started our business, online comprised 10 per cent of the total mobile market. With our entry in India, this 10 per cent started growing since many people wanted to buy Xiaomi phones and it was only available online. The 10 per cent became 35 per cent within a year-and-a-half of our entering the Indian market and then it stagnated at 35 per cent. After that, Xiaomi

just continued to grab more market share in online. We now have a staggering 57 per cent share within the 35 per cent overall online share of smartphones in India.

We realised that a huge population lives in regions which are still not online savy. Unlike how it’s in India, people in the West or China came online using a desktop or a laptop. So people were already online before they bought a smartphone. However, a majority of Indians leapfrogged the desktop and laptop to directly arrive online with a mobile phone.

Past trends reveal that online, in the beginning, is a very small proportion of the total market. It grows rapidly, reaches a certain threshold and then stabilises. It will be unrealistic to assume that online becomes 100 per cent of the business.

Offline will remain and we had less than 0.5 per cent market share in it. So, that’s why we took a conscious call at the beginning of last year to build our offline business and it’s currently our fastest growing segment, contributing about 30 per cent of our total business. Overall, we now have 11 per cent share in the offline market. Right now, we have still not fully achieved our true potential in offline.

Xiaomi’s entry in the offline domain seems to be mired in mainstream marketing pursuits...

The aim is to use online efficiency and thinking to further scale up our offline business. If you look at a traditional company’s distribution model, it comprises of the brand, a national distributor, a regional distributor, a city distributor, a retailer and finally consumer. If a brand makes a phone for `10,000, by the time it reaches the consumer it becomes `20,000 since - apart from the middlemen cost - there is also a marketing cost involved. However, we either sell directly to consumers using our exclusive Xiaomi stores (Mi Home Stores), otherwise we opt for one level distribution.

The reason why we are able to do this is that we are a pull-brand. Unlike a push-brand which is present across every single traffic source, pull brands help drive traffic to the source. So, we select one store and work exclusively with it. When you are a pull brand, you don’t need width, you need depth.

Most of the retailers who work with Xiaomi work on a lower margin than any other brand. However, they make more return on investment (ROI) than on any other rival brand because the rotation with Xiaomi is so fast. The pull of the brand is so rapid that retailers don’t need to buy

“Most retailers who

work with Xiaomi make more return on investment than on any other rival

brand.”

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advertising

inventory. While other brands force them to buy inventory worth 15 days, we ask them to buy and replenish on a more frequent basis. So, even with low margins, they can make much higher ROI.

While the brand has now arrived in mainline advertising, it has still not adopted the strategy of outshouting the competition in the media buying game. Unlike rival brands - and despite having Lowe Lintas and Madison by its side - Xiaomi has been less aggressive on the advertising front. Why is it so?

I really hope we don’t do what other brands are doing. Advertising is helpful as long as we do not commit two mistakes. Mistake No.1 is thinking that advertising is the only form of marketing because then we will always be dependent on it. The ‘Mi community’ is our core target audience and in order to talk to other people, we will also use traditional mediums. But since we are using traditional mediums, we should not let go what we originally stood for or how we started. Advertising is an add-on and not a substitute.

Point No. 2 is that we are still very frugal and cost-conscious. Our entire philosophy and vision is innovation for everybody. If you look at Mi TV (a smart TV), there are brands like Sony,

Samsung and LG who sell similar TVs for about `2-3 lakh; we sell it at `40,000.

We are able to do this because we let go of a lot of additional costs like distribution, inventory and advertising. While we will advertise in the future through traditional means, we may even have brand ambassadors, but we will not make the mistake of spending hundreds or thousands of crores on marketing. I am guessing our advertising spend would be one-fiftieth of what many other big brands spend in India.

From where are these ideologies about advertising coming from? Does it drive its roots from Xiaomi’s experience in other countries?

We are driven by social media and word of mouth across all major global markets. When we launched our India business, most people said that Xiaomi’s business philosophy can never succeed. The reason being: smartphones in India are sold offline by investing a lot in mainline advertising.

I was confused and nervous - after all, there were 300 mobile brands in India at that time. However, for our first sale, half a billion people turned up on Flipkart and the servers broke. We understood that our entire marketing will now be led by fans.

What, according to you, is the reason behind Indian smartphone brands’ underwhelming performance in the industry?

Irrespective of the region, a lot of brands today are not innovative enough. Just going to China, buying products, putting your own logo

and selling in India under a different brand, will not lead to success. It may

have been possible a few years back but certainly not in today’s

world. The problem with this approach is that you cannot be innovative because you are buying from somewhere else. Neither are you designing the hardware nor the software

of the product which is why you cannot have quality control

and hence are dependent upon someone else.

What is your current pain point when it comes to Xiaomi?

Not really a pain point. However, I think we need to focus on maintaining the start-up culture at our office. We are now India’s No.1 smartphone brand and everybody looks up to us. It’s really easy when you grow so fast and eventually let go of your core philosophy. You become arrogant and say that we have arrived in life and that we don’t need to do anything else. So, being humble and polite is very important to us. n

sankalp.dikshit@afaqs.com

“I Hope We...<< continued from page 23

“Our advertising

spend would be one-fiftieth of what

many other big brands spend in

India.”

In July 2016, when Myntra acquired Jabong, people involved in that process certainly would

have been happy. But, there was an agency which had built a reputation for Jabong through its good work and they weren’t happy. Which is that agency? Bang in the Middle.

Just a few hours back, Prathap Suthan, managing director and chief creative officer, Bang in the Middle posted an ad on his LinkedIn profile and the copy reads, ‘Most of our clients leave us. They all get better jobs. It’s true. We get hired. We do a great job. The brand soars. Bottom line grins. Competition sulks. And in almost double quick time, the CMO gets headhunted, the Sr. Brand Manager follows, the Jr. Brand Managers quit, and in some cases, even the CMO shuffles along to a bigger richer brand. Soon enough,

new people come in. With their own agendas and pet agencies. We get sidelined, and then fired. Terrible, but true. So if you are planning to get a plum job or a fat raise, dear client, do pick up the phone on us. Let’s rewrite your destiny. Bang In The Middle.’

afaqs! Reporter asked Suthan what led them to do this ad. He says, “Couple of reasons to do that. This goes back to some of the clients we have had in the past and Jabong is a classic example of that. We built it into a pretty formidable brand and then what happened was they were bought by Myntra and the advertising went out of our hands. We weren’t responsible for that change at all. It was because of our good work that the brand got acquired but, in the end, we were not their agency anymore.”

Suthan sees a lot of similar movements very often with other

agencies too. “Whenever we do good work, we take the brand to the next level and suddenly there is a change in the management and the mandate goes to someone else. It doesn’t happen only with us but a lot of agencies,” he adds.

afaqs Reporter asked him, what is he expecting this ad will do for Bang In The Middle? He says, “Nothing. It is not a self-generating post at all. It is more of a point of view about the state of the advertising business.” n

feedback@afaqs.com

PRATAP SUTHAN

Bang in the Middle’s digital poster ad explains about the state of advertising business. By News Bureau

Food for Thought