Xiaomi, Huawei, and OPPO are in a "group fight", while Hammer and Meizu have a hard time "surviving"

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Sun Tzu said: Therefore, the method of employing troops is to surround them if you have ten of your number, to attack them if you have five of your number, to divide them if you have twice your number, to fight them if you are the enemy, to flee if you are fewer than them, and to avoid them if you are not as good as them.

The situation facing many Chinese mobile phone companies is as follows: A research report from IDC shows that China's smartphone shipments in the third quarter of this year were approximately 103 million units, a year-on-year decline of 10.2%; the top five brands are currently Huawei, vivo, OPPO, Xiaomi, and Apple, which together account for 88% of the market share.

The leading brands will inevitably surround, attack and divide the remaining market share and overseas markets. Among the niche brands, Meitu Mobile has chosen to "cling to the thighs" first, integrating imaging technology and Meitu mobile phone brand into the Xiaomi camp, in exchange for a breathing space; other niche brands are still making difficult choices about whether to escape or avoid in the future. A closer look at the covetous battle between the leading brands shows that in addition to the form of Xiaomi "incorporating" Meitu Mobile, others such as Huawei, OPPO and vivo have already formed a trend of "ganging up and fighting in groups" in their own camps. Faced with the declining market demand, this may be the current tactic of leading companies to further monopolize the market.

Fierce battle: Xiaomi 5, Huawei's two heroes, OPPO's trident

The multi-brand strategy is the unanimous choice of several major domestic brands.

After acquiring Meitu, Xiaomi now has five sub-brands, including Xiaomi, Redmi, Black Shark, POCO, and Meitu. Each brand has a clear division of labor and focuses on its own market segment. In addition to Xiaomi, Huawei and Honor's dual brands; OPPO, OnePlus, and Realme's three arrows are also the same (not to mention that vivo is also OPPO's own brother).

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Each mobile phone brand has formed a relatively fixed market positioning in the market competition and has its own target user groups. It is almost impossible to cover all market segments with one brand. The so-called "group fight" is to cover more market segments with a multi-brand strategy.

For Xiaomi, the acquisition of Meitu is a supplement to the beauty-conscious female user group. The users of Meitu mobile phones, which focus on beauty photography, are mainly young women with certain spending power, and this group of users has always been missing from Xiaomi, which presents itself as an "engineering man".

Xiaomi previously recruited popular young stars such as Wu Yifan and Liu Haoran as its spokespersons in order to expand this user group. The acquisition of Meitu smartphones last week was a more direct expression of its intention. Xiaomi also admitted that this move would help improve the photo taking experience and win more female users.

In addition, the position of Meitu mobile phones can also help Xiaomi increase the average selling price and profit margin of its products (after all, the gross profit margin of Meitu's smart hardware business is as high as 26.7%), and at the same time enter the high-end market, which is also in line with Xiaomi's long-term goals. As early as when the second quarter financial report was released this year, Xiaomi said: The domestic strategic focus of 2018 is to enter the high-end smartphone market (good progress has been made), and in the future it will optimize its product portfolio to further penetrate this market.

Without spending too much cost, Xiaomi has gained a capable member in its camp.

On the other hand, Huawei, which has always been ranked high, has been given the important task of attacking the online market since the birth of Honor. Honor, which is positioned as an Internet brand and targets Xiaomi, has formed an online and offline siege with Huawei, which focuses on the offline mid-to-high-end market. In the past one or two years, the dual-brand strategy has undergone subtle changes, and each has derived product series of different price segments from within, basically covering the entire price range of online and offline channels.

At the same time, for Huawei, this two-pronged strategy can also spread the R&D costs and improve operational efficiency. As we all know, Huawei's annual investment in mobile phone technology R&D is quite huge. According to the "2017 Global Corporate R&D Investment Ranking" previously released by the European Union Membership Council, Huawei surpassed Apple (9.5 billion euros) with 10.4 billion euros, ranking sixth in the world and first, and is the only Chinese company to enter the TOP50.

Such a huge R&D investment will undoubtedly be more effective if it is shared by the two mobile phone brands Huawei and Honor. Often, high-end technology outputs, such as the Kirin series chips, are first adopted by the Huawei Mate series, and will soon be used in Honor products. As early as two years ago at the Wuzhen World Internet Conference, Honor President Zhao Ming said, "Huawei and Honor share a lot of core underlying technologies in dual-brand operations, and chips are one of them." He emphasized that chip research and development is a large platform, and Honor will share core chip technology with Huawei. In addition, Honor and Huawei will also share resources in underlying technologies such as camera technology and Android system transformation.

This sharing has created a common market foundation for Huawei and Honor smartphones. According to the third quarter Chinese smartphone sales data released by Counterpoint, Huawei and Honor's market shares were 14.5% and 12.2% respectively, both achieving a high growth rate of 14% year-on-year, and the combined market share of the two brands is close to 27%. The strong performance of the two brands has also allowed Huawei to get closer and closer to Samsung and become the world's second largest smartphone brand.

The market has long recognized OPPO and vivo as "brothers", and judging from OPPO's current multi-brand operation, it is worth a careful study. Let's first talk about the OnePlus brand. Although OPPO has never officially announced its relationship with OnePlus, as a mobile phone brand founded by former OPPO executives, OnePlus and OPPO also share many core technologies, including photography, fast charging, and product production lines (molds). Therefore, the mobile phone industry naturally puts OnePlus under the OPPO umbrella.

Sun Yanbiao, director of the ***Mobile World Research Institute, told Dongdong Notes: "OPPO now has a parent company called 'OPPO+' in the industry, which controls both OnePlus and Realme."

At present, OPPO, which is good at creating hits, focuses on the domestic market, while OnePlus, which was born for the purpose of building an Internet brand, has successfully established a foothold in some foreign markets. At OnePlus's new product launch conference in New York on October 29 this year, Liu Zuohu announced that OnePlus has officially entered the US operator channel and reached a cooperation with T Mobile, the third largest operator in the United States, and will sell the new 6T mobile phone through its channel. For many Chinese mobile phone companies eager to enter the foreign market, this is definitely a record to be proud of.

So, what about the little-known Realme under OPPO? OPPO also faces the problem of market coverage in emerging smartphone markets such as India and Southeast Asia due to its positioning, while Realme plays an important role in conquering the local market. Realme 1, which is positioned in the low-end market and focuses on cost-effectiveness, became a new star in the local entry-level smartphone camp as soon as it was launched in the Indian market in May this year. At the beginning of its launch, Realme 1 was a success in the Indian market, setting a record of selling 400,000 units in the first 40 days of sales, and won more than 1% of the market share three months later.

On one side is OPPO, which has been releasing hit products in the domestic market, and on the other side is OnePlus, which has successfully entered the European and American markets, and Realme, which has established itself in the Indian and Southeast Asian markets. OPPO's multi-brand strategy has already begun to bear fruit in the global market.

Some analysts said that when smartphone products enter the mature stage, scale will become a barrier to future competition, which is similar to the situation in the global PC market when Lenovo acquired IBM PC in 2005. Therefore, scale is the direction that mobile phone giants value most at present. The dense coverage of multiple brands can enable leading mobile phone brands to gain the attention of new users and more market share in the shortest time, whether in the domestic market or in the overseas market, thereby improving their scale effect.

From the perspective of these mobile phone giants, behind the "group fight" is the all-round support of a complete set of basic systems.

For example, Huawei and Honor are both based on Huawei's large platform in terms of R&D and manufacturing. At the same time, thanks to Huawei's huge investment in technology R&D, many basic R&D results can be shared by both brands. The most typical examples are Kirin chips, lenses developed in cooperation with Leica, and EMUI, etc.

From a strategic perspective, sub-brands can also serve as a test. Taking Huawei as an example, we can see that many of Huawei's new technologies are first tested on Honor products, and then applied to the Huawei brand based on market feedback, including the previous GPU turbo. Of course, for large companies, only when a technology is applied to more products can the R&D efficiency be higher, and the amortized R&D cost be lower.

The common roots also allow these multi-brand strategy companies to use different brand strategies to cover different market segments while sharing the same underlying resources (such as R&D and supply chain). One technology, shared by multiple brands, will undoubtedly achieve twice the result with half the effort. This approach can not only gain greater market returns, but also reduce the risk of single-brand operations.

Ultimately, relying on this tactic, mobile phone companies with considerable strength can expand the coverage of their products in different price ranges, as well as user factors such as age, gender, and hobbies. At the same time, it can also greatly increase the resonance and success rate between its brands. Although different sub-brands focus on their own market segments, no matter which sub-brand succeeds, the parent company will ultimately benefit.

Join forces to win the hearts of the supply chain

Many people in the industry agree that making mobile phones is difficult, and the biggest difficulty lies in the supply chain.

The supply chain is the most important part of the production and operation of smartphone companies. Many previous industry cases have shown that those smartphone companies that have collapsed or nearly collapsed are stuck in the supply chain. Typical examples include Gionee, LeTV, and Xiaomi in 2016. Therefore, the ability to control the supply chain is also an important criterion for measuring the competitiveness of a smartphone brand.

Recently, Luo Yonghao, who has been at the center of public opinion because of his dispute with the media, once said in a media interview that "mobile phone manufacturers are all supply chain integrators."

This statement may be true for niche brands, but it is not always true for leading companies in the market. Mobile phone giants often guide and influence the industrial chain and market trends, which can be seen from the huge negative impact of Apple's recent mobile phones on the upstream supply chain and the technical reserves made by major brands for the upcoming 5G and folding screens.

Obviously, the current technology updates and iterations of the supply chain have not kept up with the needs of manufacturers and the market. Those companies that want to move faster often need to "make their own living". Honor President Zhao Ming pointed out after the Magic2 new product launch on November 1: "With the development of technology today, we all say that we need to break through the unmanned zone, and you will find that you are already at the forefront. You are not a supply chain integrator, you need to develop technologies that many industries do not have now. The future competition is really a fusion of scientific and technological strengths and a competition of technological innovation."

Strengthening one's own R&D capabilities and market size is also a direct way to increase a company's voice. In fact, the resources of the entire market are increasingly moving towards leading companies, and this is the consensus of the supply chain. Thanks to their own huge market size, leading companies can obtain support from more supply chain manufacturers, and the superimposed effect of this support will further increase their control over the supply chain and their voice.

In the past, when companies were weak, they chased after suppliers, but now suppliers are chasing after these giants. Last month, OPPO "blacklisted" the under-screen fingerprint supplier Goodix Technology because of a dispute, which attracted industry attention for a while. After being blacklisted, Goodix Technology conducted various mediations and apologized through official channels, and finally regained OPPO's recognition. This shows that the relationship between the head companies and the supply chain is only determined by strength.

As for those niche brands, they hope to develop independently but are "ignored" or even "bullied" by suppliers. More often than not, they are chasing after suppliers and can only see what suppliers can provide them, rather than what they want. This is also the reason why many new technologies in the supply chain are only first applied to those leading companies.

The multi-brand effect of mobile phone giants not only enhances their voice in the supply chain, but also raises the issue of bargaining power and future market competitiveness. A larger scale means that the leading companies have stronger bargaining power over supplier channels, and the manufacturing cost is lower. For the same component, the order price of 100,000 yuan and the order price of 1 million yuan are definitely different, and this advantage will eventually be directly reflected in the product retail price in the market.

Regarding supply chain-related topics, Sun Yanbiao told Dongdong Notes: "With the support of leading companies, the supply chain will have more trust in these niche brands. The supply chain is very honest and what matters most is quantity. Whoever purchases more will have a stronger voice."

Indeed, it is bound to be difficult for small brands to fight alone. OnePlus is a very typical example. To be able to achieve good results today, OnePlus naturally has to thank OPPO for its strong support. In terms of supply chain, OnePlus's own voice and bargaining power are very weak, which also means extremely high production costs. However, through the endorsement of OPPO, the "big brother" with a purchase volume of hundreds of millions, and obtaining its support in production lines (previously, OnePlus had revealed that it used the production line of OPPO's factory), OnePlus's pressure on supply chain and production has been reduced to a great extent.

A series of problems such as weak voice in the supply chain, small market size, low user recognition, etc. are the main reasons why the future freezing period of the global mobile phone market may "kill" niche brands. Speaking of this topic, I can't help but feel a little lucky for Meitu.

What opportunities are there for niche brands that are hard to group together?

Behind the leading companies' efforts to break through and fight in groups is the continued decline and uncertain prospects of the entire smartphone market.

According to the mobile phone shipment data for the third quarter of 2018 released by Counterpoint, although the domestic mobile phone market shipments increased by 6% month-on-month due to the frequent release of new products from major brands, it still fell by 13% year-on-year. At the same time, this is the fourth consecutive quarter that the domestic smartphone market has declined year-on-year; in the global market, IDC announced that the total shipments of global smartphones in the third quarter were 355.2 million units, a decrease of 6.0% from the same period last year, and this is also the sixth consecutive quarter that global smartphone shipments have declined year-on-year.

Under such circumstances, the multi-brand strategy of leading brands will undoubtedly further squeeze the survival space of niche brands, and there will not be many examples like Xiaomi's "acquisition" of Meitu mobile phones. Sun Yongjie said: "The main reason why Xiaomi acquired Meitu is that it values ​​Meitu's own high degree of differentiation and the special user group behind it. However, for niche brands such as Hammer and 360 that do not have obvious differentiation and have a high degree of market overlap with many large manufacturers, the significance and necessity of acquisition is very low, because the acquirer will not have a particularly obvious performance improvement after the acquisition."

From now on, whether it is acquisition or building new sub-brands, the influence of leading mobile phone brands will extend to more areas that have never been touched before, and the market and space left for niche brands will become smaller and smaller.

Today, Meitu has landed, while Hammer, 360, Gionee, Meizu, Coolpad, Candy, LeTV and many others are still struggling. Perhaps for some of these brands, being acquired by industry giants is the most ideal outcome, including those home appliance giants involved in the mobile phone market.

The Matthew effect is not only reflected in market share, but also in R&D investment, brand effect and supply chain integration capabilities. The 5G drama is coming, and with the top brands "fighting in groups" and being surrounded, attacked and divided, how many niche brands will be able to participate in the increasingly difficult market?