"We spend a fraction of what many big brands do on advertising": Manu Kumar Jain, Xiaomi

An interview with the India head of the Chinese handset marketer that beat Samsung to become the top brand in its segment in the last quarter of 2017.

In the summer of 2014, when Xiaomi's Manu Kumar Jain went from pillar to post seeking expert advice about the company's launch in India with an unusual selling model - flash sales online - he was told that it would "flop". Ironically enough, the flash sale model not only raised eyebrows, it ended up breaking Flipkart's servers and 'marketing gurus' were forced to rework their own ideologies.

Four years later, the Chinese brand grabbed the numero uno spot in the final quarter of 2017 in the Indian smartphone segment; a claim refuted by the erstwhile market topper for six years, Samsung. Xiaomi was founded in 2010 by billionaire Chinese entrepreneur Lei Jun who had already established big businesses that included software company Kingsoft and tech-based firm, Joyo.

On the India front, Xiaomi claims to have closed the financial year ending 2017 with a turnover of $1 billion and is confident of clocking $2 billion this year. Xiaomi operates in over 70 markets including China, India, Pakistan, Malaysia and Singapore. After China, India is Xiaomi's largest market. The smartphone brand is expected to go public in India with its initial public offering (IPO) in the second half of 2018. As per news reports and estimates, the IPO could lead to a $100 billion valuation of Xiaomi.

Xiaomi’s ability to manufacture hi-tech smartphones equipped with innovative specifications at a price which is way below that of its competitors is its unique selling point. The company which originally started as a software firm now has its own operating system which sits atop Google's Android OS, providing Xiaomi with an opportunity to play around with apps and target specific needs like allowing users to run two WhatsApp applications/ accounts on one phone.

Jain, who is Xiaomi India's managing director and vice president at Xiaomi Global, has been with the company since the start of its India chapter. An alumnus of the Indian Institute of Technology, Delhi and Indian Institute of Management, Calcutta, Jain, 37, has spent time at McKinsey & Co as an engagement manager and later, co-founded Jabong.

The brand initially differentiated itself from the competition by rejecting conventional advertising norms and proudly declaring its customers to be the brand's ambassadors. However, things changed last year and Xiaomi now has a mainline ad agency (Lowe Lintas), media agency (Madison), celebrity brand ambassador (Katrina Kaif), and TVCs along with a presence in offline stores across the country.

As Xiaomi gets ready to move from its cramped but colourful office in Bengaluru into a larger space (its employee strength has gone up to 400) we asked Jain to unravel the reason behind the brand's visible strategy shift, apart from analysing the brand's steady growth in the Indian smartphone market.

Edited Excerpts

A couple of factors like our product, quality and pricing equation, our cool creative fan-driven-marketing and positive word-of-mouth about our services. However, it didn't happen all of a sudden; things were building up slowly and gradually. From shipping 100,000 phones in the first quarter of the first year to a million, then three million and finally nine million a quarter now, we have grown every quarter over the past three years.

Our marketing is driven mainly by three things: social media, the Mi Fan Community and word of mouth. If you look at our social media pages, including mine or our team members', you'll see that many of our pages are rated as one of the most active pages on Facebook, LinkedIn and Twitter. We constantly build our fan community which currently boasts over 400 million active participants. We have official fan clubs in more than 20 Indian cities where people gather to discuss Xiaomi and technology.

It's like a cult. These forums have really helped us since phone-buying is a social phenomenon. When you think of buying a phone, most people will refer to a friend or family member. Most importantly, the people you go to for recommendations are generally those who are young and tech-savvy, since you subconsciously think that kids understand new-age tech better. 85 per cent of people who buy Xiaomi phones in India are between the age group of 18 and 34. While they may or may not be the end user, they are the decision makers. And so these people are Xiaomi's brand ambassadors. Which is why I have always said that we don't have big Bollywood stars or the Khans - we actually have fans.

Now yes; but till the time we became No.1, we never had a big Bollywood celebrity on board. We signed Katrina after 2017's third quarter when we launched our first selfie-camera-focussed phone and wanted to portray how beautiful the selfies can be. We needed someone very active online; who takes selfies and puts them on social media. That's how Katrina came into the picture. Even if you look at our strategy here, unlike other brands that have stars as the brand's spokesperson, we have signed Katrina for a particular product because it's a perfect match.

In the first three years, we were mainly relying on Mi fans to spread the positive word of mouth about the brand. But we signed Katrina - or for that matter, we started advertising on TV - because we began building our offline business.

In the offline segment, there are a lot of first-time smartphones buyers who do not read reviews on Amazon or Flipkart but will simply walk into a shop and ask - 'Which phone should I buy?' Even today, only half of the people know about Xiaomi. That is actually a great opportunity for us since we already have 27 per cent market share. So, we had to create brand awareness since the same was high in the online segment, but moderate in offline.

Katrina Kaif is the brand ambassador for Xiaomi's Redmi Y series

When we started our business online comprised 10 per cent of the total mobile market. With our entry in India, this 10 per cent started growing since many people wanted to buy Xiaomi phones and it was only available online. This 10 per cent became 35 per cent in a year-and-a-half of our entering the Indian market and then it stagnated at 35 per cent. After that, Xiaomi just continued to grab more market share online. We now have a staggering 57 per cent share within the 35 per cent overall online share of smartphones in India.

We realised that a huge population lives in regions which are still not online-savvy. Unlike how it's in India, people in the West or China came online using a desktop or a laptop. So people were already online before they bought a smartphone. However, a majority of Indians leapfrogged the desktop and laptop to directly arrive online with a mobile phone. Past trends reveal that online, in the beginning, was a very small proportion of the total market. It grows rapidly, reaches a certain threshold and then stabilises. It will be unrealistic to assume that online becomes 100 per cent of the business.

Offline will remain and we had less than 0.5 per cent market share in it. So that's why we took a conscious call at the beginning of last year, to build our offline business and it's currently our fastest growing segment, contributing about 30 per cent of our total business. Overall, we now have 11 per cent share in the offline market. Right now, we have still not fully achieved our true potential in the offline segment.

The aim is to use online efficiency and thinking to further scale up our offline business. If you look at a traditional company's distribution model, it comprises of the brand, a national distributor, a regional distributor, a city distributor, a retailer and finally, the consumer. If a brand makes a phone for Rs 10, 000, by the time it reaches the consumer it becomes Rs 20, 000 since - apart from the middlemen cost - there is also a marketing cost involved. However, we either sell directly to consumers using our exclusive Xiaomi stores (Mi Home Stores); otherwise, we opt for one level distribution.

The reason why we are able to do this is that we are a pull-brand. Unlike a push-brand which is present across every single traffic source, pull brands help drive traffic to the source. So, we select one store and work exclusively with it. When you are a pull brand, you don't need width, you need depth.

Most of the retailers who work with Xiaomi work on a lower margin than any other brand. However, they make more return on investment (ROI) than any other rival brand because the rotation with Xiaomi is so fast. The pull of the brand is so rapid that retailers don't need to buy inventory. While other brands force them to buy inventory worth 15 days, we ask them to buy and replenish on a more frequent basis. So even with low margins, they can make much higher ROI.

I really hope we don't do what other brands are doing. Advertising is helpful as long as we do not commit two mistakes. Mistake No.1 is thinking that advertising is the only form of marketing because then we will always be dependent on it. The 'Mi community' is our core target audience and in order to talk to other people, we will also use traditional mediums. But since we are using traditional mediums, we should not let go of what we originally stood for or how we started. Advertising is an add-on and not a substitute.

Point No. 2 is that we are still very frugal and cost-conscious. Our entire philosophy and vision is innovation for everybody. If you look at Mi TV (a smart TV), there are brands like Sony, Samsung and LG who sell similar TVs for about Rs 2-3 lakh; we sell it at Rs 40,000. We are able to do this because we let go of a lot of additional costs like distribution, inventory and advertising. While we will advertise in the future through traditional means, we may even have brand ambassadors, but we will not make the mistake of spending hundreds or thousands of crores every month, every year in marketing. I am guessing our advertising spend would be one-fiftieth of what many other big brands spend in India.

We are driven by social media and word-of-mouth across all major global markets. When we launched our India business, most people said that Xiaomi's business philosophy can never succeed. The reason being: smartphones in India are sold offline by investing a lot in mainline advertising. I was confused and nervous; after all, there were 300 mobile brands in India at that time. However, for our first sale, half a billion people turned up on Flipkart and the servers broke. We understood that our entire marketing will now be led by fans.

Irrespective of the region, a lot of brands today are not innovative enough. Just going to China, buying products, putting your own logo, and selling them in India under a different brand will not lead to success. It may have been possible a few years ago, but certainly not in today's world. The problem with this approach is that you cannot be innovative because you are buying from somewhere else. You are neither designing the hardware nor the software of the product which is why you cannot have quality control and hence are dependent upon someone else.

It’s not really a pain-point, however, I think we need to focus on maintaining the start-up culture at our office. We are now India's No.1 smartphone brand and everybody looks up to us. It's really easy when you grow so fast and eventually let go of your core philosophy. You become arrogant and say that we have arrived in life and that we don't need to do anything else. So, being humble and polite is very important to us.

This interview was first published in our magazine afaqs!Reporter on April 1, 2018.

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