Behind the "price increase" of domestic smartphones, has the "low-price era" really passed?

At the beginning of the new year, domestic smartphone manufacturers have made big news on the issue of product prices. First, Meizu rarely raised the price of the Meizu Blue Note5 3GB+16GB and 3GB+32GB versions by RMB100 respectively from January 3rd; then, after Huawei announced the annual performance of its consumer business in 2016, Ren Zhengfei was slightly dissatisfied with its profitability, and Huawei's Yu Chengdong said that the focus of the smartphone business in 2017 is scale and profit. Later, Luo Yonghao of Smartisan Technology said at the Geek Park Innovation Conference recently that "for the sake of quality, we will focus on high-end this year, and all product lines below 1,000 yuan will be cut, because low-end will affect product quality."

1. The “low-price era” of domestic smartphones is over

Domestic smartphones are entering an era of price increases.

In the first half of 2016, data released by international research institutions GfK and IDC as well as domestic research institutions Sino and Zhiyan Consulting all showed that domestic smartphones entered a period of price increase. For example, the data released by Zhiyan Consulting in Q2 2016 showed that the average selling price of Chinese smartphones had risen from 1,256.11 yuan in the same period of 2015 to 1,714 yuan in Q2 2016. This data is also consistent with the IDC data.

In the second half of 2016, we can more clearly feel that the prices of domestic new products have further increased, and some brands have even taken the route of luxury goods with prices of tens of thousands of yuan. At the beginning of 2017, domestic manufacturers have made frequent moves on the prices of smartphones.

2. What are the reasons behind the “price increase wave”?

Domestic smartphones are collectively rising. This is due to objective factors such as exchange rate fluctuations and rising BOM costs, as well as the differences between the incremental market and the existing market, the further enhancement of the comprehensive competitiveness of products, and users' own wishes. It is the inevitable result of many factors.

1. Exchange rate fluctuations and rising BOM costs have given price increases a realistic basis and urgency

When explaining why the price of Meizu Blue Note 5 increased, Meizu said, "Due to the continuous increase in product component prices and the impact of exchange rate factors, the BOM cost of Meizu Blue Note 5 has exceeded the range of the original product definition." What Meizu said is true.

As we all know, smartphones are not made without roots. The composition of a smartphone is inseparable from the core basic components such as "screen, processor, memory, flash memory, camera, fingerprint recognition module". However, since the second half of 2016, the keywords surrounding these essential components are price increase and shortage, and the price increase of high-end OLED screens and memory sticks that are in short supply in the industry is even more staggering. For example, the price of memory has started to rise since the second half of 2016. After two rounds of price increases, the increase has exceeded 20%. In 2017, the supply status of components is still not optimistic. Some industry forecasts have said that the mobile phone parts that will be in short supply this year include display screens, memory, flash memory and optical sensor components, and OLED screens will definitely be in short supply.

On the other hand, since the second half of 2016, the exchange rate of the US dollar against the RMB has basically been in a state of continuous rise. For the smartphone industry, which usually settles payments in US dollars, this naturally leads to an increase in costs.

The strengthening of the US dollar and the increase in BOM costs have brought greater cost pressure to smartphone manufacturers, making price increases more realistic and urgent. It can be said that in the more mature, more competitive and more costly smartphone market, the previous money-burning war that relied on cost-effectiveness and made losses to gain publicity will be a bottomless pit that no manufacturer can afford.

2. The stock market is more driven by innovation, and profits are the support for product innovation

At present, from the overall trend, the mobile phone market has entered the stock market from the incremental market, but the difference between the stock market and the incremental market is significant. The core lies in the fact that consumers' demand for smartphones has changed from rigid demand to improvement demand.

In the incremental market, the growth momentum of products comes from the rigid needs of users. Under the huge rigid demand, we see that manufacturers are springing up like mushrooms after rain. They can take off quickly and become bigger and stronger by relying on the incremental trend, and they can capture a large number of users by relying on cost-effectiveness. It is even frankly said that anyone can get a piece of the pie in this incremental trend.

However, in the stock market, the price-performance ratio has been proven to be ineffective. The core reason is that the source of product growth has become the user's demand for replacement. The logic behind this is that on the one hand, consumers have experienced the use of multiple products and have a clearer understanding of the product's advantages and disadvantages and needs. On the other hand, the overall improvement in product quality has made it more difficult for products to win the favor of consumers.

This also makes it more difficult for manufacturers to achieve results, and they need to further rely on product innovation capabilities that meet the core needs of consumers. However, product innovation requires continuous R&D investment and capital support. Under this reality, products must obtain a reasonable premium to support product R&D investment and technological innovation. As Luo Yonghao said, "It is very reasonable to make money with hardware premiums. This is not evil. If the company is in a state of low profit for a long time, it will be difficult for it to improve technology and polish out better products."

3. The comprehensive competitiveness of domestic mobile phones is further enhanced, and they are moving towards the mid-to-high-end market.

On the other hand, the collective increase in the prices of domestic smartphone brands is also due to the further enhancement of domestic comprehensive competitiveness. At present, domestic products are showing more and more technological leadership and unique features, such as Huawei's communication technology, Meizu's mBack interactive design, OPPO's VOOC flash charging technology, vivo's HiFi sound quality, etc. These leading international brands enable them to confidently challenge and erode the mid-to-high-end market that was previously monopolized by Apple and Samsung in the higher-end market. According to monitoring data from market research organization GfK: In the first half of 2016, the sales volume of domestic smartphone brands in the price range of 3,000 yuan to 4,000 yuan increased by 70% year-on-year. Perhaps this year, we will see that some domestic brands can begin to compete with Apple and Samsung in the market above 4,000+.

4. Consumers begin to pay more attention to quality and experience and are willing to pay a "premium"

From the perspective of market reality, after using products many times, consumers have shifted from pursuing cost-effectiveness to comprehensive consideration of brand, product, service, craftsmanship and other aspects. They would rather pay for "premium" and choose products with increased price and configuration than choose products with reduced configuration at the same price. An interesting reality is that the price increase has not suppressed sales, but has had a more obvious stimulating effect on the mid-to-high-end market.

Data from Nielsen's smart device share monitoring platform show that in the first half of 2016, the overall share of mid-to-high-end smartphones (models priced above 2,000 yuan) reached 47.59%, a year-on-year increase of nearly 4.38%. The overall share of mid-to-low-end smartphones (models priced between 1,000 and 1,999 yuan) fell by 1.17% year-on-year, and the overall share of models below 1,000 yuan fell by 3.21%. GfK and IDC data also support this trend. This consumption upgrade trend has also prompted smartphone manufacturers to begin to abandon the embarrassment of "selling products at a low price and making a profit at a loss."

3. How do domestic mobile phones open up a new dimension of “quality-price ratio”?

Undoubtedly, the replacement of existing phones and consumption upgrade will continue in 2017, and the prices of domestic smartphones will further rise. But frankly speaking, there is still a considerable gap between domestic products and the market leaders Apple and Samsung, which has created an embarrassing reality: when the price increase exceeds a certain critical point, a very realistic question also arises: Why don’t I buy Apple or Samsung at this price?

Therefore, for domestic mobile phones, the urgent problem to be solved is: how to break the inherent thinking of consumers and let consumers choose more of themselves when they need to change their phones? In this regard, I personally think that domestic mobile phones need to open up a new dimension of "quality-price ratio".

So how can domestic products open up a new dimension of "quality-price ratio"? Based on the current market reality, I have summarized the following ideas:

1. Enhance brand premium through factors such as brand characteristics and design aesthetics

The quality-price ratio is not just the comparison between the quality of the product and the price of the product, but also the comparison between the design, service and other aspects of the product and the price of the product. Under this reality, the first thing that domestic mobile phones need to do is to work harder to "build brands, strengthen services, focus on design, win reputation, and make high-quality products." So what can we do?

For example, as we all know, brand is not only an important factor affecting consumers' choice of mobile phones, but also builds the segmentation of consumer groups. So I personally think that what we need to do in terms of brand is to further clarify our own characteristics. In reality, those manufacturers with clear brand characteristics are developing very well at the moment, such as Huawei for business technology, OPPO and vivo for young fashion, and those manufacturers whose brand positioning is not yet clear or even confusing, we also see that they are struggling in the process of development.

Another example is design. In the current era where appearance is productivity, the appearance of a product has become an important factor affecting consumers' purchasing decisions. Because of this, we can see that some good designs are always borrowed by some manufacturers, such as the waist-shaped key of Meizu. Therefore, in the new era, how to launch a more beautiful design will also be an important means to capture consumers.

2. Respond to consumers’ core needs more quickly

Consumers who have used multiple products will inevitably further clarify their core functional requirements when changing phones. Whoever can meet core requirements faster is likely to gain consumer favor faster.

According to the "2016 Mobile Phone Report" released by Toutiao Arithmetic Center, consumers' core demands for smartphones are concentrated in five aspects: "whether the photos are clear, whether the running space is large enough (RAM), whether the storage space is large enough (ROM), whether the video picture is clear and not stuck, and whether the battery life is long."

These five aspects will also be the focus of smartphone manufacturers this year. Frankly speaking, major manufacturers have already begun to focus on these aspects. For example, Meizu, even on a thousand-yuan model like the Meizu Blue Note, has equipped it with a 4000m battery capacity, a 5-megapixel front and 13-megapixel rear camera, 4G RAM and a large storage capacity of 64G (high-end version) to meet the core needs of consumers.

3. Accelerate technological innovation to drive experience upgrade

In the new era, new technologies emerge in an endless stream, and making good use of new technologies to promote the upgrading of consumer experience will be an important means to win consumption at the stage of consumption upgrading. We have seen that in the past year, high screen-to-body ratio, dual cameras, and AI technology have quickly entered smartphones, and manufacturers hope to use this to further promote the experience of smartphone products.

From a practical point of view, the rapid use of new technologies has indeed improved the consumer experience. For example, Huawei was the first to launch dual-camera photography, which increased the fun of smartphone photography experience; Meizu added intelligent AI acceleration to the Flyme6 system, breaking the experience barrier built up by cost; Xiaomi greatly improved the visual experience of smartphones through the full-screen design of Xiaomi MIX.

Last words

Consumption upgrades, replacement of existing devices, stronger exchange rates, and rising BOM costs have created a new market reality, which has made the previous cost-performance model unsustainable. It has become an industry consensus to review the value of hardware, obtain reasonable profits, and enhance R&D innovation. It can be said that price has driven the improvement of user experience and also provided impetus for investment in product innovation.

As for domestic mobile phones, under the new market reality, if they want to compete with the current market leaders Apple and Samsung and further erode their market share, they need to work harder on the "quality-price ratio" and improve the quality-price ratio of their products from multiple aspects.

As a winner of Toutiao's Qingyun Plan and Baijiahao's Bai+ Plan, the 2019 Baidu Digital Author of the Year, the Baijiahao's Most Popular Author in the Technology Field, the 2019 Sogou Technology and Culture Author, and the 2021 Baijiahao Quarterly Influential Creator, he has won many awards, including the 2013 Sohu Best Industry Media Person, the 2015 China New Media Entrepreneurship Competition Beijing Third Place, the 2015 Guangmang Experience Award, the 2015 China New Media Entrepreneurship Competition Finals Third Place, and the 2018 Baidu Dynamic Annual Powerful Celebrity.