Chinese smartphone manufacturer Huawei has witnessed an exponential increase in sales of its low-priced Honor brand of Android smartphones, shooting upwards to 20 million units in contrast to 1 million units an year ago by adopting the disruptive online-only strategy, inspired by Xiaomi Inc.
Given the present scenario, executives at Huawei hope to emulate the phenomenal growth of Xiaomi which seemed to come out of nowhere and went to be in top 5 in global ratings in just a few years, something unlikely to go unnoticed by the increasing number of low-cost Chinese smartphone makers. Analysis however show that the ‘low-cost’ strategy has been prevailing in China for quite some time now, and that more and more manufacturers adopting this strategy could affect profit margins for all.
At the launch of Honor 6 Plus, Jeff Liu, Brand President, Honor series of smartphones said in an interview last week that the transition to sales online was inevitable, given the present competitive pricing, which was affordable as it reduced distribution expenses which otherwise made up 30% handset costs, and that the immense growth of e-commerce and the changing sales channels for smartphones, the company needed to adopt this strategy.
It is to be noted that Honor handsets dropped the Huawei brand name from December 2014 and have since been marketing and distributed independently, and are sold in countries ranging from Belgium to Brazil via marketplaces such as JD.com, and Flipkart.com in India.
However Huawei is not the only Chinese smartphone maker to take notice of Xiaomi’s online sales approach, with Lenovo Group also announcing in October that it would sell a range of devices exclusively through online marketplaces.
The strategy has been practiced in 2014 particularly, by Xiaomi which is valued at over $45 billion, and sold 15.8 million smartphone during July-September as supposed to Huawei’s 15.9 million, where the numbers being 3.6 million for Xiaomi and 11.7 million for Huawei just an year before.
The continued success of Xiaomi and the aggressive price tags that their products carry are likely to squeeze up more the upcoming year for all major handset makers, exceptions including high-end smartphone maker Apple Inc., and market leader giant Samsung having operating at a profit margin of 18.7 percent as supposed to Xiaomi’s 1.8 percent, and so to widen profit margins, Huawei need to raise their public image as a brand name and find strategies to attract wealthier consumers with top-quality products.