Chinese challenger brand has high hopes for the UK market

Taking on the might of Apple and Samsung is a big ask. But Xiaomi has the big boys in its sights

Xiaomi has the potential to take on the UK market but will face some challenges along the way according to analysts.

In a smartphone market so heavily dominated by Apple and Samsung, any challenger brand wanting to break through faces a tough time, and it’s no different for Xiaomi.

Figures from IDC reveal Xiaomi is currently in 20th position for the UK smartphone market with just 0.2 per cent share of the sector. In terms of market share value it is even less, at 0.1 per cent, as the top three brands accumulate 91.2 per cent of total market value.

On a wider scale Xiaomi is fourth overall for worldwide smartphone market share with 8.4 per cent as of Q1 2018, according to Statista, so the potential is certainly there for the challenger brand.

This figure has almost doubled from 4.3 per cent the previous year and highlights just how much of an impact the brand is having on the market.

Agreement

Not many people in the UK will be familiar with the Chinese brand and understandably so given the best-selling device Xiaomi currently has in the UK is ranked in 101st position.

However, a recent agreement with major network provider Three will allow Xiaomi a route into the UK market space.

Three CEO Dave Dyson told Mobile News that although there is no timeline at the moment for when Three will range Xiaomi products, it is working hard to get products into the market quickly.

It is not known exactly what products Three will offer, however Dyson suggests it could be more than just smartphones.He said: “From our perspective I’m just as excited about the non-handset portfolio as I am about the handset portfolio.”

Dyson also believes the deal with Xiaomi to be a good fit for both, focused around the fact that both are challenger brands.

He added: “Xiaomi is aligned in many ways to what we stand for in terms of the value equation. I think it is a very complimentary fit.”

IDC senior research analyst Marta Pinto agrees and believes Three is the “best fit” for Xiaomi in the UK at this stage.

Pinto said: “It’s a very good strategy and although Three isn’t the main telco in the UK it is perceived to be the future driven brand in the UK.

“It also looks young and unsettling: this dynamic could be why Xiaomi chose Three to be its partner.” 

Gartner research director Roberta Cozza agrees: “Xiaomi seem ambitious in its aim and having Three is impressive for it.”

GfK director of technology Imran Choudhary also believes the deal with Three will “help Xiaomi massively” as it gives it a high-street presence in the UK.

“The deal with Three will give it instant access to the high street and online reach through its website.

“In an ideal world, more retailers and network partnerships would be built but it’s not uncommon to see a strategy where, at launch, there’s a focus with one network.”

Dominant

The smartphone market in Britain is dominated by two main players, Apple and Samsung.

So dominant in the market are these two manufacturers they currently occupy the top 14 for most distributed devices in the UK, according to IDC statistics. This represents 65 per cent of the total market volume.

According to Pinto, the main challenge for Xiaomi is that the UK market is a premium market where people prefer to buy the latest iPhone.

Pinto said: “It’s not a price-sensitive market such as Spain or Portugal where people will spend less for a device that has the specs they want. In the UK that isn’t valid. Consumers want to have the S9 or iPhone X.”

Another challenge Xiaomi faces is that people are holding onto smartphones for longer and Cozza thinks this only adds to the already difficult job Xiaomi has in such a crowded market. 

Cozza said: “In the premium market users are really lengthening the lifecycle so premium smartphones are kept for longer which makes things even more difficult.”

Cozza added: “In the past we’ve had HTC, LG and Blackberry nearer the front, but now it’s all been monopolised by Apple and Samsung.”

Despite a partnership with Three, Choudhary believes long term Xiaomi will need to get into the right places to challenge the rest.

Choudhary said: “It is important that Xiaomi gets into the right retailers and network and gains a share of the voice other networks have. Ultimately, the true test will be with consumers and whether they’re willing to buy Xiaomi phones.”

Price sensitive

While Xiaomi would be a new addition to the UK market, the Chinese giant has been active across Europe, in particular in Spain and Greece where consumers are more price sensitive.

Xiaomi ranked first for market share in Greece in the first quarter of 2018 with 23.9 per cent and has 13.8 per cent of the total market value. Meanwhile in Spain, the brand currently has 5.8 per cent of the market value.

Three as a group has a presence across Europe in countries including Ireland, Austria, Denmark, Italy and Sweden.

Pinto believes that the deal with Three helps Xiaomi strategically move forward with operations in Europe.

She said: “Entering the UK market could be about also expanding to these other markets that Three operate in around Europe.”

Strategy

Essential to any successful adventure into a new market is the strategy and this is imperative for Xiaomi to gain any success in the UK.

Choudhary says the starting point for Xiaomi should be to “establish a foothold” in the UK and understand the target audience.

“A lot of consumers in the UK won’t have heard of Xiaomi so the first port of call is to establish itself, getting its name out there and sending out a message what the brand stands for.

“It will need to understand the core consumer segment it targets; perhaps it is the millennial or the younger customer. There are also pockets open for the challenger space in the mid-tier.”

Pinto, however, believes Xiaomi will instead opt to target the mid-tier sector of the market as there is more opportunity in this area for them.

Pinto said: “Xiaomi will target the mid-tier and compete in a price-point that it knows Samsung or Apple won’t be in.

“We’re waiting to see if Apple releases the iPhone SE 2 and if it doesn’t this means a huge chunk of the mid-range market will be addressable by Xiaomi devices and other small players.”

Cozza agreed that the mid-tier is most likely Xiaomi’s best market to target but does acknowledge this could be a difficult area.

“In a very crowded market, it is very challenging because to grab the attention of the users in the mid-tier will mean competing against Huawei which is targeting the UK market aggressively at the moment.”

Branding

Key to a strong strategy and plan is branding and this is essential for any business looking to succeed in any given market.

With only a small minority of people in the UK familiar with the Xiaomi brand, the need for effective branding is important as the company battles for a slice of a crowded market.

Choudhary believes that any chance of success for Xiaomi rests on how the manufacturer portrays its identity to the British public.

Choudhary said: “Building brand awareness will be key to success. From awareness comes brand consideration and Xiaomi will have to work at this to create a successful brand and convert shoppers into buyers.”

An example of another Chinese mobile manufacturer struggling initially with branding is Huawei. Huawei has struggled in particular in getting consumers to pronounce the name of the brand but set out to overcome this by releasing a video explaining how to correctly say it.

Cozza believes Xiaomi could benefit by following what Huawei has done in the past through some good marketing.

Cozza said: “It’s not as difficult as Huawei. Take what it has done and overcome over the years and it has been down to a sharp focus on channel and brand building. Xiaomi will need to be prepared to do something similar.”

Pinto agrees: “The pronunciation of the name isn’t easy but it’s something it can overcome by some marketing campaigns. It willl need to invest in marketing to get consumers aware of what it does.”

However, Pinto also acknowledged Xiaomi customers in Europe had faced issues with products but not always had Xiaomi present to help.

“In some countries in Europe, Xiaomi has faced another issue of not being officially present in the Western European region and the brand was not protected and this is a problem because it could damage the image of Xiaomi.”

Options

With an abundance of options available for consumers, Xiaomi has to offer something different to be successful in the UK, according to analysts.

Choudhary believes Xiaomi’s USP is centred around offering consumers devices with good spec but not at premium prices.

Choudhary said: “What it has done successfully in other markets and home territories is provide good spec but at really compelling prices.

“It can bring that to consumers that aren’t quite used to it.”

Customers, however, are winning according to Choudhary as “more competition means more excitement for consumers.”

It remains to be seen what Xiaomi will bring to the UK market, but it was evident at Mobile World Congress that the company isn’t just in the handset business.

As well as smartphones, Xiaomi showcased VR, Mi Box and Smart TV, Smart Home and laptop products, so it is not out of the question that these could be found in the UK, too.

In particular Xiaomi currently occupies second place behind Apple for worldwide  wearable shipments. Xiaomi shipped 3.7 million wearables in the first quarter of 2018, representing a market share of 14.8 per cent.

While Cozza doesn’t currently see a USP she did allude to the strong portfolio of products Xiaomi had on show at MWC in Barcelona in February.

Cozza said: “At this moment I don’t see a specific strong point unless it’s just around delivering interesting spec on the device for an attractive price. Xiaomi could perhaps focus around its ecosystems of devices such as tablets as well.”

Pinto also pointed towards the array of hardware that Xiaomi displayed on offer at MWC and believes it could be vital in building a customer base and disrupting the market.

“It has a huge portfolio of products from what was on display in Barcelona at MWC. It’s not just smartphones, you could build a house out of Xiaomi products.

“If it manages to bring the whole ecosystem it might attract more consumers because people might find it easier to build a smart home ecosystem around these devices. This could be a good approach.”

Successful

Despite the challenges ahead, Xiaomi can be successful in the UK, according to the analysts, and make an impression on consumers.

Pinto believes Xiaomi can be a success but feels realistically the main players such as Apple and Samsung will be too difficult to compete with. However, the top 10 is achievable.

“It will never be in the top two; this is dominated by Apple and Samsung. But it can easily break into the top 10.”

Expecting Xiaomi to beat Alcatel, HTC and ZTE, Pinto points to Honor, which is part of the Huawei brand, to be its fiercest competition.

“Its most fierce competitor will be the Honor brand, which got less than one per cent of the smartphone market last year.”

Xiaomi has clear intentions to make an impression and stay for the long term according to Pinto, as the move to work with a telco is a “strong statement”.

Pinto said: “Coming through a telco is a very strong statement because it will grab more or less half of the UK market. This means it wants to stay and target the types of consumers that are very demanding.”

Agreeing that there is success ahead in the UK for Xiaomi, Choudhary believes the challenger brand has an advantage over previous manufacturers that have attempted to come into the market. 

“Xiaomi has every chance of succeeding and with challenger brands on the rise, this could be an early indicator of wherethe mass market might go in years to
come.

“Given this backdrop and a market that is changing with consumer behaviours, Xiaomi is in a better starting position than other challenger brands that launch in the UK.”