Xiaomi’s cost-effectiveness crisis has finally emerged. What is the road to future redemption?

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As one of the top emerging Internet mobile phone brands in China, Xiaomi has not had an easy time recently. The impact of the "screen replacement door" incident of Redmi Note 2 was so great that Xiaomi became the focus of public opinion. However, Xiaomi's predicament did not start with the Redmi Note 2 incident. Xiaomi's existing development model has become a shackle for Xiaomi's further development. Speaking of Xiaomi's situation since 2014, whether it is Mi haters, Mi fans or neutral users, they can no longer describe it as "a very good situation" as before.

As early as when Xiaomi was developing rapidly and prosperously, some people in the industry questioned Xiaomi's development model and marketing characteristics. The long-term sustainability of the Internet online marketing model, the unrestrained hunger marketing, the high configuration and low price with zero profit and other problems have become obstacles one after another on Xiaomi's development path. However, even when the market was unfavorable to Xiaomi, Xiaomi did not express concerns about its own development model, but looked down on the entire domestic mobile phone market with a condescending attitude. Finally, with the obvious decline in Xiaomi's growth rate in the first quarter of 2015, the "Xiaomi heyday" in the market almost came to an end, and the Xiaomi mobile phone, which was once regarded as the "savior of the losers", also seemed to be no longer glorious. Coupled with the joint efforts of many brands such as Huawei Honor, Meizu, Coolpad, Qiku, etc., Xiaomi finally fell into a situation of internal and external troubles.

The double-edged sword crisis of cost-effectiveness

It cannot be denied that Xiaomi was able to quickly become rich initially by relying on its extremely high cost-performance ratio, which reduced costs to the lowest level and kept the market price at the lowest point. In this way, Xiaomi was able to achieve a price that was more than 30% lower than that of first- and second-tier foreign brands with almost the same configuration, which was extremely attractive to a considerable number of domestic mobile phone consumers. Xiaomi tasted the sweetness of the cost-performance ratio route, so in the subsequent development process, it almost brought the three simple Chinese characters of "cost-performance ratio" to the extreme.

Xiaomi's cost-effective route is a market weapon that Xiaomi has repeatedly used, but the so-called cost-effective route is based on "futures marketing", that is, to activate the market through time and the number of products, and then use the two characteristics of large shipments and long sales cycles to prepare for later shipments. But the problem with Xiaomi's strategy is that it ignores the consumer's demand for products. Any consumer hopes that his needs can be met in a timely manner. Once his needs cannot be met in a timely manner, consumers will seek other channels to meet their needs. The "channel" mentioned here is of course not an online or offline channel, but a straightforward choice of other brands and other styles to meet one's desire to buy. When products with higher cost-effectiveness than Xiaomi and that meet consumer desires more promptly appear on the market, Xiaomi's cost-effective route will become invalid, which will trigger a series of crises.

Cost-effectiveness is a double-edged sword. Xiaomi's success and failure are both due to cost-effectiveness. In the early days, Xiaomi relied on its super high cost-effectiveness to quickly occupy the market and expand its territory. In a very short period of time, it jumped from an unknown small workshop to the largest smartphone shipper in China. When competitors realized the advantages of Xiaomi's cost-effectiveness strategy and began to follow suit, it was already foreshadowed that the domestic market would inevitably experience a bloody storm and price wars were inevitable, but Xiaomi sat upright and seemed to be unaware of the impending crisis. Today, the "cost-effectiveness strategy" is rampant everywhere, and high-end low-priced mobile phones are available in large quantities. Consumers have more choices in an instant, and Xiaomi's long-standing cost-effectiveness advantage no longer exists, and the so-called "cost-effectiveness route" is no longer popular.

The former king was trapped both internally and externally

After Xiaomi, which has established its advantages with its cost-effective strategy, has experienced a period of rapid development, the competitors that followed will naturally not let Xiaomi dominate the market alone. The market is cruel and the competition is fierce. No company or brand can stick to one strategy to the end. Of course, there are such examples. The most classic example is Nokia, which we all know. Unfortunately, Nokia, which has always insisted on its own opinions, has already died in name only under the pressure of Apple and Samsung. This also makes us start to worry, will Xiaomi become the next Nokia?

As an observer, whether I support or oppose Xiaomi, I don't want to see the day when Xiaomi reaches the end of the road. From the perspective of consumers, Xiaomi provides some cheap and high-quality products for the majority of mobile phone users and players; from the perspective of industry players, Xiaomi's cost-effective strategy has also given us a lot of inspiration to some extent. But the key to the problem is that Xiaomi's development has reached its ceiling, the growth rate is not as good as before, and the user scale is also shrinking. If Xiaomi does not change its development strategy, it is not a fantasy to be defeated by a competitor one day in the future. Although Xiaomi has entered the field of smart home and launched many simple and easy-to-use smart home devices, downstream companies shrouded in the "Xiaomi model" are also facing the same dilemma. Some companies have even launched their own brand products to fight against the "cheap product hat" that Xiaomi has put on itself. It seems that Xiaomi is already in a situation of internal and external difficulties. Although Xiaomi still has its own achievements in the field of smart home, in any case, Xiaomi's entry into the field of smart home can only be regarded as a compromise to expand the business field to share pressure and extend the industrial chain to avoid risks, which is regrettable.

What is the future of Xiaomi?

In 2015, Xiaomi has reached its fifth year of development. After all kinds of ups and downs, Xiaomi and its founder Lei Jun are standing at a new starting point. The cost-effectiveness advantage is no longer there, competitors are attacking it, and the mobile phone product innovation is weak. These are the survival problems Xiaomi faces. Lei Jun said, "The past five years have been the layout of Xiaomi's ecological chain, and the next five years will be optimization." I think that if Xiaomi wants to get rid of the crisis in the future, it must carry out a comprehensive innovation in product concepts and development models. The cost-effective route must still be taken, but it must not be cost-effective for cost-effectiveness. The development speed must be fast, but it must be more stable and of higher quality. Another point is that the simple online sales model is no longer enough to support Xiaomi's growing product line. Offline display and experience stores will be one of the focuses of Xiaomi's future channel development. As Xiaomi's high-end mobile phone products and smart home products are gradually launched, Xiaomi needs to give users a more intuitive offline experience display. Similar to Apple's practice of opening large flagship stores in crowded areas and even becoming landmark buildings, it will greatly enhance Xiaomi's brand image.

In addition, the expansion of Xiaomi TV's Internet video resources, Xiaomi Internet Finance, cloud services, big data systems and overseas markets are also the focus of Xiaomi's future development. Since Xiaomi has chosen to expand across the board, it must make achievements in every aspect and strive to become an industry model in every aspect. Xiaomi used to be a high-profile Xiaomi, and Xiaomi in the future will still be a high-profile Xiaomi. But I hope that Xiaomi in the future will be "high-profile in products and low-profile in life". Obviously, Xiaomi will not only take the "road of development" in the future, but also the "road of redemption".