Sunday, 2024 May 26

Three Key Issues Plaguing Xiaomi in 2023

2019 was Xiaomi’s “Golden Age” — full of ambition, unprecedented international growth, and rapid market expansion.

Xiaomi started its rebranding route to establish itself as a high-end brand in 2019 and released the Xiaomi CC9 Pro that same year. The phone was awarded the highest overall score for smartphone cameras by DXOMARK at the time. The success was plastered across all marketing materials, elevating the positioning and reputation of China’s domestic smartphones.

In that same year, Xiaomi formed a team referred to as the “Avengers” of smartphone makers, consisting of previous executives from various mobile phone companies. Hopes were high, and the industry expected more great things to come.

No one would have imagined that in 2022, just three years later, Xiaomi would be facing setbacks in both its high-end rebranding and sales growth. Past personnel likened the current situation to the trough period encountered by Xiaomi in 2016.

The Xiaomi of 2023 is staring down a trifecta of problems — a decline in both revenue and profile, an incomplete rebranding due to multiple issues, and issues with getting its automotive business off the ground.

Hampered efforts in establishing a reputation as a high-end brand

Xiaomi has made the establishment of high-end branding an important part of Xiaomi Group’s strategy. Lei Jun, CEO of Xiaomi, emphasized the slogan “冲击高端” (translated in context as surpassing even the highest-end smartphones of the time) a dozen times at the Mi 13 conference in December 2022.

He vowed to challenge the benchmark set by Apple in terms of product and experience. “We will become China’s biggest high-end brand in the next three years,” said Lei in a post on microblogging platform Weibo.

However, the delivery has fallen short of the promise so far. For instance, users of the flagship mobile phone, the Xiaomi 11 series, began to report problems such as overheating, Wi-Fi connectivity issues, and even issues with turning on their phones. The number of complaints skyrocketed, evidently beyond what Xiaomi was prepared for.

When faced with an overwhelming number of complaints, Xiaomi’s solution was to offer users a six-month extended warranty. There was no means for users to exchange their faulty phones, and they could only opt for a replacement of the motherboard. This created the perception of a poor customer experience with Xiaomi.

In 2022 alone, topics related to issues with the Mi 11 trended on Weibo’s top searches three times. Coupled with multiple calls for collective protection from customers, Xiaomi’s reputation suffered greatly, even impacting its sales for the Mi 12 and Mi 13.

The Mi 11’s failure taught Xiaomi a heavy lesson on the road to high-end branding: the quality control of mobile phones and provision of better after-sales service are factors that will directly determine whether a brand can be respected as a high-end product.

The Xiaomi 13, latest flagship to compete with Apple, Samsung and Huawei. Image credit: Xiaomi

A slump in sales

On November 23, 2022, Xiaomi released its Q3 financial report. In the third quarter of 2022, Xiaomi’s revenue was RMB 70.47 billion (USD 10.2 billion), a 9.7% year-on-year decrease; adjusted net profit was RMB 2.1 billion (USD 305 million), a sharp decline of 59.1% year-on-year.

Its business segments also showed a downward trend: Xiaomi’s smartphone business revenue was RMB 42.5 billion (USD 6.2 billion), a year-on-year decrease of 11.1%; IoT and consumer products revenue was RMB 19.1 billion (USD 2.8 billion), a year-on-year decrease of 9%; Internet service revenue was RMB 7.1 billion (USD 1 billion), a year-on-year decrease 3.7%; other income was RMB 1.8 billion (USD 261.5 million), a year-on-year decrease of 6.6%.

As Wang Xiang, the former president of Xiaomi, explained, Xiaomi will not collapse or rise overnight because of the failure or success of its higher-end smartphones, as Xiaomi’s current core competitiveness still lies in Redmi’s budget models.

However, it is precisely these cost-effective and value-for-money models that stand as the obstacle between the Xiaomi of today and its goal of being perceived as a high-end brand. Customers are too used to the association of Xiaomi with budget phones, which makes their high-end branding strategy such a difficult route to pursue.

Ironically, those very qualities that stand in the way of Xiaomi’s progress were what made it the powerhouse it is today. Had it not been for Xiaomi’s early adoption of a cost-effective series to quickly narrow the gap with international giants such as Samsung, Xiaomi would not have had the opportunity to even be on the playing ground.

Entering the automotive industry

For Lei, building cars has become his top priority. The company’s first vehicle passed several production tests in early October last year, and there were even pictures of a new model being tested near the Xiaomi Technology Park earlier this year. Lei has also posted several Weibo polls to gain a better understanding of the price range netizens think is acceptable for Xiaomi’s first car.

Had Xiaomi’s mobile phone business continued its prosperous trend from 2019, this would have been a sustainable and game-changing plan for Xiaomi in entering and establishing itself in a new industry. According to their original plans, the Mi series would direct revenue to get the car-making business off the ground. Xiaomi’s financial report revealed that the car-making business spent RMB 425 million (USD 61 million), RMB 611 million, and RMB 829 million respectively in the first three quarters of 2022, with no signs of reining in the burn rate. Evidently, there is still a long way to go before the mass production of cars is profitable for Xiaomi.

Xiaomi was catapulted to success by its cost-effective and value-for-money products, allowing it to compete in the international arena and pit itself against international giants. However, this very factor is now proving to be the main impediment blocking Xiaomi in its attempt to take the next step in its growth plan as it establish itself as a high-end brand. While pursuing its mission as quickly as possible, Xiaomi compromised on key sectors such as product quality and after-sales service, resulting in customer complaints and a damaged reputation.

To effectively navigate the obstacles ahead, Xiaomi will have to reevaluate its positioning as a high-end brand and maintain a balance between fast growth and long-term growth.

In any case, Xiaomi has already begun to make changes in the management organization, as a younger team of professional managers headed by Lu Weibing, president of Xiaomi, has begun to take over more responsibilities. All eyes will be on Lu as he charts a new direction for Xiaomi in 2023.

This article was adapted based on a feature originally written by Zhang Yongyi and published on Power Plant (WeChat ID: wonder-capsule). 36Kr Global is authorized to translate, adapt, and publish its contents.

KrASIA Connection
KrASIA Connection
KrASIA Connection features translated and adapted high-quality insights published on 36Kr.com, the largest and most influential technology portal in Chinese language with over 150 million readers across the globe.
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