How will the ban on Chinese apps hurt Xiaomi, India’s No. 1 smartphone brand?

Xiaomi has used its popular Mi Community app to power its success worldwide. Will the ban finally end the brand’s golden run in the Indian market?

While TikTok dominated much of the conversation around the ban on the 59 Chinese apps in India, a major brand, much bigger than the video app, also took a serious hit. Mi Community, a significant asset in the top smartphone brand Xiaomi’s marketing arsenal, also figured in the list.

The apps were banned by the government, considering ‘defence of India, security of state and public order.’ Another Xiaomi app in the list was Mi Video Call.

Xiaomi entered India in July 2014 in partnership with Flipkart first, followed by Amazon, and then Snapdeal. The brand initiated its unique online flash sale model, selling limited number of devices to a tech-hungry Indian audience. It had successfully tested it in China. Xiaomi has consistently kept its profits low, but maintained high volumes, selling feature-rich devices at low prices.

Manu Kumar Jain, Xiaomi’s global VP and Xiaomi India MD, is the face of the brand. He has an online fan base of around 1.7 million followers (Twitter, Facebook, Instagram, YouTube and LinkedIn combined) and celebrities, including Prime Minister Narendra Modi, have posed with him.

Mi Community is Xiaomi’s own user engagement and listening platform, where Mi Fans (read MIUI users) socialise and get access to brand updates. Users learn about Mi products/features and provide feedback. Members can also participate in Mi Community activities, like gaming events or meetups, and earn rewards. The ban comes at a time when the brand is already under fire for its Chinese lineage.

Jain told afaqs! in 2018 that the brand’s outreach is based on three key pillars - social media, the Mi Fan Community, and word of mouth. The brand resorted to traditional advertising only at a later phase of its journey in India (around 2017).

While the app has been taken off app stores, the Mi Community website, which would usually be abuzz with updates and exchange of experiences, displays a ‘thank you’ note from Xiaomi. The website and app have been disabled until ‘further clarification from the government’.

Mi Community’s role remains true to this day, as the brand retains the top spot in the Indian smartphone market for 11 consecutive quarters. According to IDC, it currently commands 31.2 per cent of the market. Between July 2014 (India launch) and July 2019, Xiaomi sold a little over 100 million smartphones in India. Anuj Sharma, CMO, Xiaomi India, refers to his company as a ‘social first’ brand.

The brand’s engagement remained unscathed despite the COVID-induced lockdown, thanks to its ‘community’ of Mi Fans as it launched six new products – Mi Robot Vacuum-Mop P, Mi 10 5G smartphone, Mi True Wireless Earphones 2, Mi Box 4K, Redmi Earbuds S, and the Mi Notebook. It has also assisted the brand in its transformation from only a smartphone seller to a company of IoT devices, products and services.

With the success of smartphones, the company expanded into TVs, home audio, beard trimmer, water purifier, shoes, backpacks and, most recently, laptops. According to IDC, Xiaomi now leads in the Indian smart TV market, with Mi TV recording a year-on-year growth of 69 per cent.

Despite winning the volumes game, Xiaomi reportedly holds the third spot, behind Samsung India and BBK Electronics (Oppo, Vivo, Realme and OnePlus), in terms of market value.

While Xiaomi still has a healthy presence across social media, how bad is the Mi Community ban?

Shubhajit Sen, founding partner, A Priori Consultants (former CMO, Micromax), says that the ban will have a marginal business impact in the short-term, but could have larger reputational impact in the long-term (due to a broader anti-Chinese sentiment, unless it’s reversed).

MIUI (Xiaomi’s android-based user interface) was launched in August 2010. This was followed by the launch of its first smartphone Mi 1 in China, a year later. In December 2019, the global monthly active users (MAU) of MIUI stood at 309.6 million, with China accounting for a third of the figure.

The interface is also an ecosystem of utility apps, which Mi Community and Mi Video Call were a part of. The list includes apps like Mi File Manager, Mi Commerce, ShareMe (file sharing), Mint Browser, Mi Pay, App Vault, among many others.

Xiaomi leaders have repeatedly mentioned India (the second largest smartphone market globally) as their most important global market. Several of the brand’s handset models were launched in India first. Its experience in India has helped it in penetrating other regional markets, like Bangladesh, Pakistan and Indonesia. The company plans to expand its offline base of 3,000 exclusive stores in India to 5,000 by the end of the year.

“To understand the short-term impact on Xiaomi, we must remember that the way the brand was built in India was very different from China. In China, MIUI and Mi Chat were released before the phones (were). They were instrumental in creating a community of technical enthusiasts (Mi Fans). They were technically capable people, who gave regular, free inputs for the improvement of MIUI. This community was instrumental in the success of Mi phones when they were launched…,” says Sen, of A Priori Consultants.

Xiaomi’s history with communities is as old as the company itself. With growth in China, Xiaomi initiated community platforms on Weibo (microblogging platform) and other forums where consumers could share feedback (more of user experiences than technical solutions). The company even sold its second smartphone Mi 2 directly on Weibo.

“In India, Xiaomi’s core proposition was, and is, incredible performance at a low price. This proposition was enabled (beyond the product itself) via a strategic partnership with Flipkart. Xiaomi helped India’s explosion of e-commerce as mobile phones were a key traffic and GMV driver (for e-commerce). Indeed, there are anecdotal reports of Hugo Barra (then global VP, Xiaomi) and Jain spending days and nights at the Flipkart office, reading feedback and engaging with Xiaomi customers,” Sen reveals.

Amar Wadhwa, founder and executive director, CrystalEyes (a marketing consultancy), says that the replacement cycle in the mobile phone category is among the fastest, and there are multiple potential buyers within a household. “There is a very big role for community engagement from the perspective of lifetime value maximisation of the consumer. Creating stickiness for up-selling, cross-selling and for turning the consumer into an evangelist for the brand is a very potent marketing strategy here. Most mobile phone brands haven't done as much as they should have on this front,” he adds.

Reiterating Sen’s take, Sandeep Budki, founder and editor, The Mobile Indian, says that the ban might not have a major impact, as consumers, who want to buy a Xiaomi phone, can still buy it. Budki adds that unlike Xiaomi’s global model where the revenues are led by services, it is driven by smartphone sales in India.

Indians look for the best value for money, which Xiaomi has always provided. The problem that they are facing is with importing components, which is affecting manufacturing and, in turn, affecting supply.

Apart from advertising, gaming, IoT, lifestyle and smartphone sales, a healthy share of Xiaomi’s global revenue comes from Internet services, like e-commerce, fintech, TV (and overseas) Internet services.

“The brand would be using more advertising to reach the community in recent times. It can always find other ways to reach out to their users and audiences outside its umbrella. Mi Community members are, in a way, brand ambassadors/influencers, who keep discussing the brand. But, of late, there hasn’t been many people who want to go all out and speak about using Xiaomi for the fear of a backlash. They are laying low,” Budki adds.

Speaking of Xiaomi’s attempt to create an ecosystem around smartphones, Wadhwa opines that the brand understood that the key differentiator won't be on megapixels and processor speeds. It will be through the experience and dependence that Xiaomi can create through customised productivity tools, gaming and community engagement.

“A vital aspect of Xiaomi's marketing strategy has got blunted due to the ban. It will also bear the brunt of the rising anti-China sentiment. At this point, it will be imperative for the brand to further enhance its price value proposition, as well as strengthen consumer experience through productivity and gaming,” says Wadhwa.

A Priori’s Sen adds that Xiaomi, having established itself as a leader, faces the dual challenges of expanding its volumes in traditional trade, as well as going up the value chain with more premium products.

“For the former, this ban will unlikely have major challenges... The ban may delay how it can build a community to help it upgrade its value proposition, but there are easy workarounds,” he signs off.