Honestly speaking: Manu Jain on Xiaomi’s exclusive organization model, cracking offline marketplace and beating Samsung

When Xiaomi was hunting to start off its India organization about seven years ago, Manu Kumar Jain seemed just the suitable man to kickstart the proceedings. He co-founded the e-commerce firm Jabong and had worked at McKinsey &amp Company for 5 years, prior to that. He had also recognized the founders of the firm by way of widespread mates. It seemed like a excellent chance, so he decided to take it up, and the rest as they say, is history.

During the early days – this was in March 2014 – Manu’s home was his workplace. And the one soon after that, was at a cafe nearby exactly where he used to host his meetings. Sometime in July, just ahead of their 1st launch, he rented a smaller six-seater space in a shared workplace space. In case it wasn’t clear, Manu was the only group member at that point of time. People would ask him about his group all the time.

“I used to joke at that time that I am the head, I am the tail, I am everybody. I used to do almost anything and everything,” Manu tells TheSpuzz Online. “Those were interesting times,” he adds.

On July 15, Xiaomi launched its 1st item in India – the Mi 3. It was also the day the firm onboarded its second employ. Manu ultimately had somebody to speak to.

The initial organization strategy was to sell 10,000 Mi 3 phones a week and have a 10-member group sooner or later. The workplace required an upgrade as well, one more time. This time, it had to be massive adequate to seat 12-15 men and women, at least. The Redmi 1S and Redmi Note 4G had been launched quickly soon after.

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During the company’s 1st Diwali, somebody had a “crazy” notion of promoting 1 lakh units. Even more, if probable. A charter plane was flown in from China to bring the devices to India.

In 2015, Xiaomi launched its 1st phone made for India, the Mi 4i and its 1st ecosystem item, the Mi Band. This was also the year it began sales on Mi.com, its e-commerce platform. Xiaomi was playing to its strengths. The on the net retailer would go on to turn out to be the third biggest e-commerce platform and biggest single brand e-commerce platform in India.

Learning issues, the challenging way

In 2016, Xiaomi began promoting its goods by way of a retail chain named the MobileStore. The firm also appointed some distributors and attempted a couple of experiments in a couple of pockets of the nation. None of them worked out. Manu says it was for the reason that they had been attempting to just copy what other brands had been undertaking in that space for a although. Xiaomi was not becoming correct to itself.

Contrary to the norm, Xiaomi did not have a massive advertising and marketing price range. It did not have a lot of cash to give to distributors or retailers, or to have any promoters to “chase” shoppers. Almost everyone was unhappy for the reason that the firm couldn’t spare a margin for anyone and as a result, “nobody focused on us and because nobody focused on us, we couldn’t win,” Manu says.

“We are a pull brand. Inherently, 80-90% of our sales come because people come asking for our products. That isn’t the case with many other brands. There, when people walk into a shop, the promoter will do the magic,” he explains, adding “our core philosophy is, we will build great products with great quality, great price and then people will automatically come and search for them.”

Xiaomi discovered it the challenging way, but it was speedy to transform its offline model fully soon after realising this. The firm went on to reduce the middleman out fully as considerably as probable by setting up its personal shops. This would assist it save on margins and provide a excellent expertise to buyers.

In the situations exactly where it would be working with distributors – by way of Mi Preferred Partner retailers and Mi retailers – it would have only one level of distribution among the firm and the retailer. Then, alternatively of forcing the retailer to choose up a couple of thousand units, it would ask them to choose only a couple of units every single week, and then utilizing technologies, it would attempt and replenish them more rapidly. Lastly, it would have restricted width of distribution. If there had been one hundred shops promoting smartphones in an region, Xiaomi would be present in only two or 3 massive shops, these who had been prepared to focus on the firm and its goods.

For instance, if there had been one hundred phones becoming sold by way of one hundred shops and Xiaomi had a 30% marketplace share, these 30% shoppers had been acquiring from only two or 3 of these shops based upon the size of the marketplace and therefore every of these shops would finish up promoting 10-10 phones.

“Even though our margin is lower, but because the throughput is higher and because we’re asking them to buy less inventory, the return on investment (ROI) that they own on our investment is significantly higher,” Manu explains.

Today, Xiaomi goods are sold by way of about 15,000 shops out of which 3,000 are exclusive and 12,000 are non-exclusive or Mi Preferred partners. The firm is preparing to double its exclusive retailer count to about 6,000 more than the next two years assuming there’s no third or fourth wave of COVID. Since a majority of men and women who would be opening these shops would be 1st time entrepreneurs, they would call for coaching and economic help, Manu says, adding Xiaomi has earmarked a fund of one hundred crores for this objective.

Honestly speaking

By Q3 2017, Xiaomi had overtaken Samsung to turn out to be the biggest smartphone brand in India inside 3 years of launch. The Korean tech giant has failed to catch up, ever given that. A substantial component of Xiaomi’s results can be attributed to a knack for delivering terrific worth by way of goods that, more typically than not, punch above their weight class.

Honest pricing is a recurring theme. It’s a culmination of two issues. Firstly, the firm will attempt to reduce down on all probable charges as considerably as it can. For some context, Xiaomi has one of the leanest distribution networks across the world. It has one of the lowest advertising and marketing spends. Its working capital charges are also one of the lowest. Secondly, Xiaomi has been limiting revenue from its customer hardware goods soon after-tax earnings to 5% given that 2018. This is a firm policy.

The positive aspects are then passed on to its shoppers. Question is, how is Xiaomi producing profit soon after all this. Manu believes, 5% profit margin is superior adequate.

“We want our customers to be our friends from a long-term perspective and for that, we need to control our greed. We are not in a hurry because our objective is not to make this company big and sell it to somebody else. We are building this company for the next 50-100 years. Our goal is to win the trust of our users,” he says.

On best of this, “wherever possible, we will try and make money from our Internet services and that should be good enough,” he adds.

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Controversy’s personal kid

For these unaware, Xiaomi is an Internet firm 1st and a hardware firm later. MIUI, which is the computer software that drives most of its smartphones, was its 1st item. One of the methods the firm tends to make cash is by way of targeted marketing. Though, for some cause, it did not tap this resource for nearly 4 years soon after setting base in India.

Eventually it did start off serving advertisements in MIUI in 2018, but without having any prior intimation. The move expectedly did not go down properly with critics although simultaneously opening a window of chance for some rivals to exploit. To be clear, Xiaomi was not the only firm undertaking this but the cause why it triggered a response was for the reason that of the nature of the firm. For a firm like Xiaomi that should stay in the public eye to make a promoting, sharing its every single move on social media, the sheer secrecy with which it began displaying advertisements was a bit questionable.

Manu says that was by no means the case. Things had been rather blown out of proportion.

“It’s not that we didn’t speak about it. We probably got a lot of limelight because we spoke about it a lot more than anybody else. We always said we have an Internet model, we want to monetise our phones, we want to monetise our content, we want to monetise our UI and hence everybody looked at it from a very microscopic view, a lot more than what they did for any other brand.”

He goes on to clarify why advertisements had been introduced in the 1st spot, so the firm could give services like themes and music cost-free of charge to customers. It’s comparable to any other theme retailer or third-party music streaming app. There have by no means been any method-level advertisements in Xiaomi phones, he adds.

Still, the firm is now cutting down on advertisements on the basis of feedback, as it is cutting down on bloatware to make way for what’s becoming named the “cleanest UI possible,” aka MIUI 12.5.

“I can confidently say if you look at any phone in the country whether it is Android or iOS, we will probably have the cleanest UI possible. There are no ads and there is no bloatware. You can delete almost every single app, except for 6-7 core apps. Our themes and music app are also now removable,” Manu says.

It’s a bold move, once again, to take a U-turn on one thing like this. But these maintaining track would know, Xiaomi is likely one of the extremely couple of tech providers that requires feedback extremely seriously and is speedy to make alterations in genuine-time. It learns, it adapts, and it cruises ahead on to the next frontier.

“Not everybody can be right 100% of the time. When you take a wrong decision, and you realise you have taken a wrong decision, there’s no shame in taking a U-turn or going back because at the end of the day, nobody is keeping a track on how many times you took a U-turn, but what is more important is whether you did the right thing for yourself, for your team, your family, for your company and for users,” he says.

Thinking ahead

Xiaomi began nearby manufacturing in India in August 2015 with a smartphone named the Redmi 2 Prime. At that point of time, there was no substantial tax distinction among import versus manufacturing. The genuine cause why the firm joined the Make in India bandwagon was so it could have tighter handle more than the provide chain and reduced its working capital charges. By the time the government introduced the phased manufacturing programme (PMP), Xiaomi was currently up to speed with nearby sourcing with the assist of partners like Foxconn and Flex.

Then in 2018, the firm hosted more than 50 element suppliers from about the world to assist them set up nearby manufacturing units in India. An incentive of this scale did not exist earlier, Manu says.

While a majority of its elements ranging from Printed Circuit Board Assembly (PCBA) to camera modules are sourced/manufactured/assembled locally, Xiaomi has even larger plans. The firm is eyeing to make Tier 2 elements such as camera sensors and battery cells in India in the days to come. Though, Manu is speedy to add that this will take time, saying “every three to five years, we will have to keep refining our goals and we will have to keep going to the next level.”

Xiaomi’s manufacturing partners contribute more than 30,000 personnel and the firm is very proud of the reality that more than 95% of these personnel are girls.

“We have added about 10,000 jobs during the last one year. We have opened two new factories for smartphones with BYD and DBG. We have opened a new factory for smart TVs with Radiant Technology. We have strengthened our team and launched multiple new product categories,” he says.

Bringing Mi to you

For the longest period, a substantial component of Xiaomi India’s portfolio was Redmi. This is for the reason that the marketplace typical promoting price tag point (ASP) in India was not “big enough for us to grow the Mi portfolio.” That’s why every single year, it would launch only one Mi item and then the majority of its goods had been Redmi. Until last year, the ASP crossed Rs 12,000 – this was about Rs 6,000 in 2014 – when the firm decided, it was time to switch gears.

Also, the percentage of the marketplace above Rs 20,000 crossed 10% only in 2019. This was hardly 3-4% in 2014. That was the second motivation. The third point that changed for Xiaomi more than the course of time was its personal capability to sell flagships offline.

“A majority of Rs 20,000 and above products were traditionally sold only through offline because people want(ed) the touch and feel of it. We did not have any offline presence till about 2-3 years ago,” Manu says, adding “now that we are present in 15,000 shops, both from a market point of view as well as from our own capability point of view, we felt this is the right time for us to focus on Mi brand above 20,000.”

After an nearly 3-year lengthy hiatus, Xiaomi launched a suitable Mi-branded flagship phone – the Mi 10 – in India last year. It was swiftly followed by the Mi 10T and Mi 10T Pro. Then came the very affordable Mi 10i. This year, the firm has launched the Mi 11X, Mi 11X Pro, Mi 11 Lite and its most ambitious phone to date, the Mi 11 Ultra.

The firm used to have only 1-2% marketplace share in the Rs 20,000-45,000 category. In the last 6-7 months, that quantity has gone up to 14% (as per information released by Counterpoint). Suffice to say, every of these goods has accomplished properly, Manu says.

“Maybe we will do even more this year and then a lot more next year. But we will remain conscious about where the majority of the market is. We will have to look at each segment (20k-30k, 30k-50k, 50k and above) and try to win in each one of them.”

But what ever be the case, “you’ll see us being more and more aggressive and doing a lot more on the flagship side” going forward.

Manu is one hundred% confident that Xiaomi will be open to launching more ultra-premium phones like the Mi 11 Ultra in the future. He wouldn’t share any particulars about the Mi Mix 4 although, so fingers crossed there.

With 30% marketplace share, Xiaomi is the biggest smartphone brand in the nation today. It is also the biggest sensible Television brand with 25% marketplace share. And, the biggest wearable brand, with more than 40% marketplace share. The firm holds a commanding 30% marketplace share when it comes to energy banks based on internal numbers. In the premium laptop category, it is quantity one in the Intel Core i7 thin and light category.

While all these superior issues have been taking place at the India level, issues are going exceptionally excellent even at the international level. Xiaomi has just turn out to be the second biggest brand in the world, overtaking Apple. In the last quarter, for a month, it also became quantity one, taking the lead from Samsung.

The focus now is “to cement a place as a number two brand in the world and then try and see eventually if we can become the number one, and just launch a lot of new really cool products along the way.”

Originally appeared on: TheSpuzz