Chinese upstart and smartphone manufacturer Xiaomi recently revealed the secret behind its surprisingly massive success — with more than 60 million units sold for 2014 alone — that has allowed it to become the world’s third top-selling phone maker, beating out more established brands Apple and Samsung in China.
No, it’s not actually the plush rabbit dolls that drive Xiaomi’s sales and revenue figures. Contrary to Kung Fu Panda’s “Secret Ingredient Noodle Soup” (“There is no secret ingredient!”) and to conspiracy theories, Xiaomi's VP for International, Hugo Barra, has revealed in a recent interview that the company’s recipe for sales success is quite simple: A small portfolio, combined with longer average selling time per device, that allows the smartphone maker to make significant price concessions.
On average, Barra says, a Xiaomi phone stays on the shelf between 18 to 24 months, allowing it to undergo three to four rounds of price cuts. In addition to this, the company continues to sell older devices—as well as their tweaked versions—at reduced prices even after it has launched newer models. The longer shelf-life allows Xiaomi to secure superbly better component deals with its suppliers, where component costs decrease considerably over time and provide bigger margins on returns, allowing for price reductions.
For comparison, the company’s flagship Mi smartphone sells at around USD$300, while the higher-end iPhones and the similarly-priced Samsung Galaxy and Note devices sell beyond the USD$1000 range. Apple can only drool with envy, however, as Xiaomi continues to dominate the Chinese market despite the boost from its highly-touted iPhone 6, according to consumer trendspotter Kantar Worldpanel. In fact, Apple and Samsung have more reason for concern, as Xiaomi has started to test the waters in other Asian markets, with forecast sales of 100 million devices for this year. With its unique pricing model and a planned modular phone reportedly in the pipeline, these two companies would probably do well to look behind their backs as Xiaomi looks set to conquer the world soon.