Xiaomi is declining, Huawei is rising: Why are the brands taking turns to lead?

Recently, with the release of China's smartphone sales figures for the second quarter of 2016, comments from all sides have increased. Judging from the sales figures, Huawei, OPPO and vivo are all doing well, especially OPPO and vivo, which have seen amazing growth. As a result, articles from all sides have begun praising the OPPO and vivo models.

In fact, this type of article is often timely. When Xiaomi rose in 2012, almost all media were praising Xiaomi's "speed" and "focus". When Samsung rose, almost all media were talking about Samsung's vertical integration. When the iPhone was selling well, all media were worshipping Jobs. Going back further, in the era of feature phones, Motorola's three-meter rule was regarded as the secret to success, and Nokia's brand potential was used by Lang Xianping as a business success case.

So, is there any pattern behind these brands’ three to five-year dominance? Will the current winners continue to be successful in the future?

1. Behind the three to five years of dominance

Mobile phones have only been in our lives for more than 20 years. And they have only been popular in China for more than 10 years. It doesn't take many words to review the history of each brand.

The first mobile phones entered our lives as high-tech communication products. Before mobile phones, there were pagers. For a long time, Chinese companies were not able to produce mobile phones.

At that time, the mobile phone market was basically homogenized, and mobile phones were used for making calls and sending text messages (text messaging was also an advanced function in the early days).

In the era of homogeneity, the competition is about brand, appearance design, and marketing. Chinese people generally have a good impression of brands from the white world, so the hot sellers at this time are Nokia, Motorola, and Ericsson. South Korea and Japan are second-rate, and China has no products yet.

In the era of black-and-white phones, Chinese manufacturers introduced hardware solutions from South Korea. Some manufacturers represented by TCL, Haier, and Hisense made mobile phones, but at that time the technology level was relatively weak, the stability was relatively poor, and they did not occupy any position in the market.

In the era of homogeneity, those with strong brands, marketing, and channels have the advantage, while domestic mobile phones that cannot even achieve stability are marginal products.

After the black and white phones came the color screen phones with camera and music. In this transition, Japanese and Korean phones rose to prominence. The reason is that Japan and Korea have a stronger accumulation of LCD screens, cameras, and CMOS than European and American manufacturers.

This was the first round of reshuffle. Although Motorola had a design masterpiece like V3, it soon got into trouble. Ericsson was merged with Sony, and Nokia was also hit hard in the early days. Later, it made timely changes and introduced Carl Zeiss's camera technology to successfully counterattack.

Among Japanese and Korean manufacturers, Japan has not made any achievements in the Chinese market due to its traditional narrow-mindedness (focusing on local products), while Samsung has become a mainstream brand, following closely behind Nokia.

That is to say, when there are major changes in product functions, those who experience technological advantages have the opportunity to catch up.

At this time, domestic MTK chip mobile phones rose, including OPPO, vivo (which was still using the BBK brand at the time), Gionee, and Tianyu. Although the quality of MTK's solution was still very poor, it could already provide color screens, camera, and music functions.

Manufacturers such as TCL, Haier and Hisense have been replaced, and Motorola, which cannot provide differentiation, has also fallen into a weak position. Nokia relies on its hardware advantages and Symbian smart system to maintain differentiation and still has a high price and high market share.

That is to say, in the era of technological advancement, you must have a hardware or software moat to maintain high profits. Only brands without differentiation will be impacted.

In 2007, the iPhone came out; in 2008, Android appeared, and mobile phones entered a new stage, the era of smartphone PCization.

When there are major changes in product functionality, those who experience technological advantages have the opportunity to catch up.

In the era of smartphones, Apple rose, and Chinese manufacturers such as ZTE, Huawei, Xiaomi, OPPO, and vivo rose. Even though Samsung followed suit, it managed to maintain its position, while Nokia, which did not use Android, wasted its brand advantage and died.

The process of smartphones replacing feature phones is similar to the process of color-screen camera phones replacing black-and-white feature phones. In the popularization stage, low prices are king. In the era of color-screen camera phones, MTK and other low-priced knockoff brands rose first, and in the era of smartphones, Xiaomi rose.

And when popularization is completed and products become homogenized, the value of the brand will return, and channels and marketing will become important again.

The current hot sales of OPPO, vivo and Huawei are a process of recovery of the brand value of smartphones.

2. What is the reason for the success of OPPO, vivo and Huawei?

OPPO and vivo are both companies spun off from BBK. Before BBK got involved in mobile phones, it was making home appliances and had already set up distribution channels in various places. The manufacturer’s representatives stationed in various places later became agents of OPPO and vivo.

The relationship between OPPO and vivo's agents and manufacturers is extremely close, and they basically share the same fate. When the manufacturer's products are not good, the dealers will work hard to maintain the channels, and when the manufacturer's products are good, they will not be stingy in supporting and rewarding the dealers.

After the rise of smartphones, OPPO and vivo worked hard to build offline channels. From first-tier cities to county towns and villages, you can always see blue and green stores. This huge channel supports the sales of OPPO and vivo.

The high-price and high-interest rate route taken by OPPO and vivo not only ensures the strength of advertising, but also gives offline dealers sufficient profit margins, forming a virtuous circle.

In fact, Gionee, which has also been engaged in offline layout for many years, also had good sales this year, but it did not make it into the top five and just made money quietly.

Huawei is a typical example of later success. Huawei only started to develop offline channels in 2012, and was not successful in the early stage. However, Huawei is rich and powerful, and it insists on layout, insisting on Huawei's high-end positioning, and leaving the low-end to the Honor brand.

The result was that after smartphones became popular in 2014, Huawei had a high-end brand to meet users' demand for phone replacement, and Huawei's sales soared.

In the round of replacement demand from low-end phones to mid-to-high-end phones, OPPO, vivo and Huawei have made a lot of money, Gionee has made a lot of money, and Samsung has also gained some benefits. Low-end Xiaomi and high-end Apple have suffered losses. This result is clearly shown in the mobile phone sales figures in the second quarter of 2016.

3. Who will take the lead in the future?

Data shows that the penetration rate of smartphones in China exceeded 90% in cities by the end of 2014, and people started to replace their phones after the popularity was completed. The normal replacement cycle for mobile phones is about 24 months.

That is to say, before the end of 2016, the current popular brands are unshakable. In the next round of replacement wave after 2017, other brands will have the opportunity to take the lead.

As an emerging product, the first stage of smartphones is the rapid popularization of cheap products. This was particularly evident in the Chinese market in 2012 and 2013. Xiaomi, Coolpad, Honor and Huawei were the leaders.

The second stage is to switch from low-end to mid-to-high-end brands, which is the heyday of OPPO, vivo, and Huawei today.

In the third stage, another round of phone replacement will begin, and high-end brands will benefit, especially when they have mid- and low-end products.

If Apple lowers its price, the iPhone will benefit, but if Apple cannot lower its price, Samsung will benefit. OPPO, vivo and Huawei also have the opportunity to go one step further and bring their high-end products on par with Samsung in price, thus taking on the third phase of the replacement wave.

When the market is fully mature and smartphones have been fully instrumentalized, various consumption levels will become relatively solidified and cost-effective products will regain a place, similar to today's PC market.

Companies like Xiaomi, LeTV, Meizu Blue and Qihoo, which are similar to Shenzhou, will regain opportunities, with meager profits but good shipments.

High-end brands that survive the third round will enjoy brand premium for a long time, similar to Lenovo and HP in the PC industry.

The number of middle brands will decrease, and eventually there will be less than 10 mainstream brands, and the average profit margin will continue to decline. Brands that can stand out in the third round of replacement will take the lead. Apple and Samsung are more likely to take the lead, and domestic brands also have a chance.

Manufacturers like Xiaomi that failed in the second round of phone replacement still have the possibility of rising in the third round of phone replacement.

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.