Extended Essay in Business Management

Innovation at

Topic: Innovation at Xiaomi

Research Question: To what extent product innovation has helped

Table of content
Sr no. Content Page

1 Title Page 1

2 Index 2

3 Introduction 3

4 Methodology 5

5 Analysis- Product perception map 7

6 Ansoff matrix 9

7 PEST analysis 11

8 Marketing mix 14

9 XIAOMI’s OTHER STRATEGIES IMPACTING 19

MARKET SHARE

10 Conclusion 21
 INTRODUCTION

Product innovation adds more value in a product by establishing unique features(USP’s),

customers will be ready to pay higher prices; this added value enhances the Company’s brand

image. To fulfil the needs of the modern-day, Innovation is essential. Innovative products are

often built to increase productivity and ease consumer’s lives. Xiaomi, also known as ‘Apple

of China’ is a multinational company with a presence over 30 countries. Xiaomi was formed

by serial entrepreneur Lei Jun; he based the Company with his vision of,” Innovation for

everyone” and companies’ vision of “Xiaomi is committed to continuous Innovation, with an

unwavering focus on quality and efficiency. The Company relentlessly builds amazing

products with honest prices to let everyone in the world enjoy a better life through innovative

technology”. Based on Founder’s and Company’s vision, this extended essay aims to answer

the research question: “To what extent product Innovation helped Xiaomi in its marketing to

gain market share in India between the financial year 2016-17 to 2019-20”. The smartphone

market in India was very saturated, with many players who were well established to capture

the growing market. It is fascinating that such a young company steps in a saturated market

and grows tremendously using unique strategies leaving other giants behind. This

investigation is worthy because it will explicitly portray the importance and drawbacks of

product innovation to gain market share and these findings can help other mobile companies,

tech startups and also Xiaomi to improve. Xiaomi entered the Indian smartphone market on

15th July 2014 with its Mi 3 smartphone under the leadership of CEO Manu Jain. Since then,

Xiaomi phones have gained immense popularity in India. Phones for the Indian market are

manufactured at Foxconn India’s manufacturing facility. Amid the financial year, 2014-15 to

2015-16 Xiaomi launched four smartphones in India and had a negligible market share. Amid

the financial year, 2016-17 to 2019-20 Xiaomi launched more than 50 innovative phones with

unique handsets and features at economical prices. At the end of these three financial years,
Xiaomi acquired 27.5% of the market share. Golden year for Xiaomi in India was the

financial year 2016-17 where they achieved their major significant growth; they launched

twelve innovative phones with unique and high specifications considering modern-day

requirements which helped them capture a total market share of 5.75%. They exponentially

grew across these three financial years, in 2016-17 they acquired 5.75%, In 2017-18 Xiaomi

grew to 19%, and in 2019-20 they held 27.5% market share. (Kanuj Sharma)
 METHODOLOGY

1) SOURCES

The data used to examine and evaluate the reason for Xiaomi’s success in acquiring market

share through product innovation is taken from varied secondary sources.Use of several

sufficient websites, articles, research papers, personal blogs and books to obtain data has been

used. These varied sources will give insightful data and varied perspectives which assisted

me further with detailed analysis, evaluation and drawing a balanced conclusion.

Journalists and bloggers are often bribed by the companies to write in their favour which this

bias decreases their reliability, to overcome this bias, I have verified several websites and

factual data in order to obtain correct and unbiased information. Furthermore, to increase the

credibility of the research and understand the Company’s innovation model, culture and

business model at a grass-root level primary research was essential, due to the coronavirus

pandemic, I was not able to meet or reach any internal stakeholder for an interview.

To eliminate this difficulty and extract information from the grass-root level, I have watched

several interviews of CEO Manu Jain available at YouTube and other websites.

interviews contained inherent bias as stakeholders were internal and spoke only positives

about product innovation and . However; I have maintained a holistic balance between factual

data and perspectives to increase the accuracy and reliability of the investigation.

Each source comprehensively contributed to understanding Xiaomi’s business model along

with product innovation strategy which helped them increase market share. Additionally, I

have analysed other factors which influenced their market share by inserting into relevant

business management context through application of appropriate theory.

This research is mainly composed of the theory which arrived from unit 4 of business

management syllabus: Marketing. Initially, I developed my research by understanding the

consumer’s perception of Xiaomi’s innovative product and evaluated whether building that

particular perception helped Xiaomi to gain market share. Usage of this map issued an idea

about their pricing and quality of the innovation which helped develop this essay with a

broader range of perspectives. Product perception maps are relatively more useful for

individual brands rather than to determine a company’s product portfolio as a whole.

Xiaomi’s price for all their smartphones lies in a specific range, they also maintain standard

quality across all their variety of phones, and these factors permitted me to determine

Xiaomi’s product perception as a whole.

I used Ansoff Matrix to assess whether Xiaomi's growth strategy helped them capture market

share. Ansoff matrix does not account for the external factors affecting the growth; to avoid

this, I will be considering external factors by executing PEST analysis to examine factors

which would have affected Xiaomi’s strategy. The outcome of the PEST analysis is more

likely to be subjective as external factors change over a short period.

To overcome this, I will study trends and changes over three financial years and aggregately

analyse the data comprehensively.

To appraise the quality of the essay, I will also be using theoretical applications like USP’s,

branding, product differentiation and other industrial insights to develop my analysis which

will help me further to draw balanced conclusions.

1) PRODUCT PERCEPTION MAP

Xiaomi’s mission is , ‘making quality technology accessible to everyone’. If we unpack this

mission statement, this conveys they desire to provide high-quality products to everyone.

‘Everyone’ symbolizes all income groups and consumer types. This tool will outshow the

perception of consumers about Xiaomi’s innovative products, the main objective is to

understand, to what extent Xiaomi’s product perception helped them to achieve their market

share.

Figure 1: Perception Map

Xiaomi’s innovative phone is perceived as bargain products by the consumers due to its high

quality and low prices since their launch in India. The low prices of innovative, high-quality

phones was the primary reason for Xiaomi’s in capturing market share. Creation of bargain

perception aided Xiaomi to develop its consumer base of low and middle-income consumers,

thus developing brand loyalty in their customer base, which assisted in capturing a market
share from 0% to 27.5% in 4 years. Bargain products are often known as a short term tactic to

generate sales and market share, but Xiaomi has adopted this tactic as a long term strategy.

Due to the creation of bargain product perception in the consumer’s mind, there is a high

chance that Xiaomi will not be able to survive at low prices and cover the costs of innovating

products in the long run as India’s GDP is growing and the price level of the economy will

keep increasing cumulatively due to which their market share will fall. To overcome this

issue they will increase their prices and make it a premium product by repositioning their

product portfolio.

There is still less chance that consumers will buy after repositioning, as they would prefer

established brands like Apple and Samsung who are already set in the premium product

market. This will decrease their market share and will not be able to innovate due to high

costs, which will make it difficult for Xiaomi to survive. To tackle this problem, Xiaomi

could switch to another growth strategy in the future. We will be analysing Ansoff’s matrix to

assess possible growth strategy.

Ansoff matrix will be utilised effectively to assess current and possible alternative growth

strategy. This tool will determine the extent to which Xiaomi captured the market share with

their current growing strategy.

Figure 2: Strategy of growth

Xiaomi’s vision is “Xiaomi is committed to continuous Innovation, with an unwavering focus

on quality and efficiency”. This suggests, Xiaomi wants to continuously innovate their

products and bring new products in the Indian market.

This growth strategy is product development. This depicts, Xiaomi wants to continuously

bring new and innovative products in its existing Indian market to its existing customer base.

This strategy has been followed since the start,it helped Xiaomi to face competition with its

innovative USPs in their product which helped them to differentiate themselves with their

competitors, Oppo and Vivo are not able to grow exponentially due to the presence of

identical features at high price . However, due to this strategy Xiaomi’s product had short
product life cycles,there were times where phones went out of stock for days. If Xiaomi

didn’t launch new phones they could have obtained higher market share than 27.5% at the

end of 4 years. Furthermore, this strategy might fail in the future as innovating and bringing

new products needs high technological adaptive users. If the users have resistance towards

complex and productive technology in the future, they might fail to sell. Innovating and

bringing new products needs intricate pieces of machinery which may degrade the

environment. The government might set regulations in limiting the use of those machines,

which may limit Xiaomi to innovate and bring new products.

In the future, Xiaomi India can expand to African markets by market development strategy.

Xiaomi can export their existing products to new African markets, this will increase Xiaomi’s

market share. On the other hand, Entering a new market involves lots of bureaucracy;

registering the Company and products with the local African authorities is a lengthy

procedure. To sell the products effectively, the Company might have to invest in promotion

methods which will be a massive cost. Nevertheless, this tool doesn't consider external

factors which influenced their product development strategy. To understand external factors,

I will be performing PEST analysis.

Political:

Xiaomi’s product portfolio is contract manufactured at Foxconn India plants. Indian

government launched a national skill development mission, Foxconn India recruited and

trained workers through this program, This mission launched in july 2015 was one of the

factors which helped Xiaomi to increase its market share from 5.75% in 2016-17 to 19% in

year 2017-18.

The anti-china sentiment is rising in India due to tension at Indo-china borders, Xiaomi is a

Chinese company. There is a chance that ease of doing business will fall in the future due to

the anti-China sentiment of Indian government, additional bureaucracy will increase the cost

of production, which will be unhealthy for their strategy, this will decrease their market share

in future.

Economic:

In 2016-17 GDP per capita was 1797.7 USD, in 2017-18 it was 1981.27 USD, in 2018-19 it

was 2009.98 USD, and in 2019-20 it was 2169.10 USD. The increase in income generated

consumer demand for Xiaomi’s innovative smartphones and is clearly evident by continuous

increase in its market share throughout the 4 year period. This economic growth is expected

to move upward in the coming years. In 2024, GDP per capita is expected to reach 3209.67

USD.

On the other hand, due to the income in these 4 years, consumer who entered high income

bands switched their preferences to premium brands which is evident by increase of Apple’s

market share, In year FY 2016-17 Apple’s market share was 2.49% in FY 2019-20 it

increased to 2.73, Although the increase is insignificant but this market share could have been
captured by Xiaomi. Increase of consumer’s income is also a threat for Xiaomi; the rapid

increase in income will lead to a change in taste and preferences of consumers; they may tend

to buy premium smartphones like Apple. This economic growth might decrease sales and

profits in the future for Xiaomi, making it difficult for them to innovate and increase market

share.

Xiaomi has increased regional employment to unskilled and skilled labourers of Tamil Nadu

and Andhra Pradesh. Regional employment gained the goodwill of the regional commuters

and inflated their brand image.

Social:

Xiaomi donated 110 thousand recycled notebooks and 2500 smartphones, worth 250 crores to

children and donated 15 crores to COVID-19 relief funds in India. They have employed 95%

of women in their manufacturing plants to support women rights. These activities

undoubtedly augment the brand image and have contributed to increase their market share as

customers often think they are being socially responsible too. These ethical steps could lose

out a lot for Xiaomi , presence of 95% women in the workforce decreases labour flexibility.

In future, the women working at the manufacturing plants could create a labour union and

pressurise Xiaomi for wage hikes. CSR is a considerable cost, they contributed excessively

than the minimum requirements of CSR. Those excessive funds could have been allocated to

R&D and marketing which could have increased their market share more.
Technology

Technology at Xiaomi has helped them to innovate their products; the machinery and system

have aided to faster product development and launches. They continuously invest in R&D to

develop their technology. In the year 2019, Xiaomi invested 1 billion USD in its R&D to

upgrade its designing and AI systems. The upgraded systems increase productivity and

efficiency will lead to a decrease in variable production costs and an increase in the output

produced.

One billion USD is a hefty expense, to save this expense Xiaomi could have outsourced its

R& D centre which already had the equipment they needed to innovate and research.

Xiaomi is currently selling on different e-commerce platforms in India. India has 22

recognised languages; the internet can easily translate the product details (especially its

innovative features) effectually. The language conversion translations deflate ambiguity and

barriers, which would help Xiaomi to reach more customers and increase their market share.

E-commerce platforms make it easy to compare competitor’s products with Xiaomi’s

products.

Comparison between the prices and features provided on e-commerce platforms' , gives

maximum transparency to consumers, if they find competitors' products better, Xiaomi could

lose its market share.

Xiaomi has ample PEST opportunities to work further and increase their market share beyond

27.5%. To do so, Xiaomi has to overcome and face threats in future, in addition, they have to

plan out and be ready with alternative growth strategies like market development (analysed in

Ansoff) if the threats manage to fail their product innovation strategy.

4P’s analysis will determine how Xiaomi marketed the product innovation strategy to

the consumers, which helped them obtain a 27.5 % market share in the span of 4

years.

§ PRODUCT-

Xiaomi’s R&D team used a mix of adaptive and innovative creativity for innovating

all their products across their product portfolio. Examples of adaptive creativity

includes the development of mi 8A after mi 8. Innovative creativity included various

technologies like light core rendering engine, Ultra battery saving mode and full-

screen displays.

To retain and grow its market share Xiaomi ensured continuous brand development

activity, Xiaomi heavily generated brand awareness on social media and e-commerce

platforms for brand development. During brand development, Xiaomi showcased

innovative features. These platforms didn’t hide any details from the buyers and

provide complete transparency on every information. Usage of E-commerce and

social media platforms didn’t reach the whole mass market, for example, the non-

social media and users resistant to use e-commerce platforms didn’t receive utmost

transparency about their innovative feature which would have restricted the growth of

market share.

Along with the innovative phone, Xiaomi offered free lifetime support including two

years warranty on their phone; they have over 1000 service centres across 600 cities

in India, free phone outlines, email and online chat support. This rigorous service with
the phones increases brand loyalty which aided in capturing market share. Lifetime

support was a massive expense for the Company. Xiaomi could have provided phone

insurance at a nominal price. This insurance scheme would have increased consumer

confidence in Xiaomi, which would have enhanced their brand image and captured

larger market share.

Xiaomi kept on innovating their phones and launching continuously, due to this they

had a short product life cycle.

They could have extended their PLC by focusing more on brand development. This

extension would have helped them to gain more market share and better penetration in

the market.

§ PRICE -

Xiaomi used a combination of cost-plus pricing and psychological pricing strategy for

its innovative phones. The cost-plus strategy helped them gain sufficient profits and

cover their cost price. This strategy gave their finance team ease to calculate profits

on their phones. Profit oriented strategies create a negative brand image about

Xiaomi; customers perceive that the Company’s sole objective is to make profits

instead of providing high-quality products. This perception could have made

Psychological pricing gave the customer perception of a low price on high-quality,

innovative phones. For example, Redmi note 5 costs 5999 rupees. The pricing

strategy helped Xiaomi to appear in lower price bands which led to consumer

purchase, increase in sales and market share. This strategy would negatively impact

Xiaomi’s brand image and decrease their market share as customers might have

perceived that they are being manipulated.

innovative. This would have given them high profits, which would have given them

motivation and funds to innovate more.

§ PROMOTION-

Xiaomi’s focus is promoting through social media marketing. When Xiaomi entered

the Indian Market, they only advertised through Facebook/ and then moved to other

platforms like Instagram and Google. Social Media marketing helped them spread

their innovative phones across the mass market. On social media, Xiaomi also

received negative feedback about their product. This forum also impacted their brand

image negatively. They marketed their innovative features through social media; it

became trending and caught the eye of the consumers. To emphasise more and create

a greater reach, Xiaomi also used a mix of ATL and BTL promotion methods

comprehensively. They used sponsorship as the primary BTL method, they sponsored

the highest TRP show, The Kapil Sharma Show and they were also the title sponsor

for FC Goa in ISL (Indian football tournament). These BTL methods did not only

advertise their innovative phones on the show and tournament but also displayed them

to the mass market through indirect media and Television coverage. This sponsorship

focuses on promoting the Company rather than focusing on a single product;

corporate advertising increases brand recall and generates awareness which is also

essential to increase market share. Sponsorship is an immense expense; Xiaomi could

have used sales promotion techniques like coupons and discounts as consumers are

more likely to get attracted to schemes rather than TV coverage. Xiaomi promoted

themselves in PVR Cinemas (India’s leading cinema joint), this ATL promotion

method helped them increase their reach to more customers and capture significant

market share in the 4 year period . In cinema halls, viewers are not always the target
buyer. For example, there is a high traffic of young children during the release of

animated and comic-based movies; advertising during these movies is a waste of

funds and other resources for Xiaomi, these funds could have been allocated to other

promotion methods, which could have increased their market share more.

§ PLACE-

Xiaomi started selling its innovative phones on flipkart.com, which is known to be

India’s second-largest e-commerce platform. Selling on a reputed e-commerce

platform like flipkart.com enhanced its reach to more customers, resulting in increase

of market share. Xiaomi uploaded details, videos and pictures of their innovative

phones, this gives maximum transparency to the buyer about the innovative features

in their phone. Initial stages when Xiaomi used E-commerce platforms as a place, it

reduced costs for the company in terms of opening shops and employing labour but

also lost an opportunity to gain more market share. Initially along with starting online

they could have supplied to mobile retail stores which could have helped them gain

more market share.

When Xiaomi started growing, they increased their selling platforms to other e-

commerce websites like Amazon and later they started their own to increase reach and

market share. The E-commerce platform is an open platform where anyone can

express their views by giving a review. Positive reviews increased Xiaomi’s brand

image, whereas negative reviews harmed its brand image and consumers refrained

from buying which could have restrained the growth of market share.

They later started selling to other retail stores like Croma and Reliance Digital, which

increased their reach to the people who prefer the old conventional way of buying,

which increased their market share.

salesman at those retail stores often failed to detail the innovative features of their

phones effectively, due to which consumers tended to buy alternative brands.

Xiaomi directly supplied e-commerce platforms and retailers; this approach enabled

them to supply products at lower prices. Expansion by opening exclusive Xiaomi

stores and eliminating middle channels helped them gain market share. In May 2017,

they came up with their first offline store where their innovative features were

effectively detailed, Xiaomi currently has 3000 stores India. Opening stores and

training employees is a considerable cost. However, Xiaomi could have opened it’s

shops and distribution to other retailers at the start of their establishment. This could

have increased their reach and generated more brand recognition leading to gain

additional market share.

The overall generation of the marketing mix determined the pricing, product, place,

and promotion factors which aided Xiaomi to gain their market share with a product

innovation strategy. The factors consisted of restraining forces which slowed down

their strategy in order to achieve quick outcomes. Xiaomi still managed to gain 27.5%

market share in four years from innovation strategy.

Creation of a loyal customer base and building a community- Xiaomi calls their customers

‘MI fans’, and they quote that they are ‘just for fans’. This term ‘MI fans’ was given to make

customers feel important and give them a sense of belonging towards Xiaomi. They created a

Facebook community where all the Xiaomi customers could come and discuss the product

and tell what they feel about it. One customer helps another customer with products, for

example, explaining the use of an innovative feature effectively. In 2017, they started the

‘Xiaomi fan festival’ . This festival happens for three days every year where they float offers

and discounts on their products at various e-commerce platforms. This increased brand

loyalty and market share. On the Facebook community users also shared negative reviews

and details of the products which depleted their reputation too.

Working Culture- Xiaomi’s working culture favours its product innovation strategy; they

explain their working culture by saying “As a team, we share the same relentless pursuit of

perfection, constantly refining and enhancing our products to create the best user experience

possible. We are also fearless in testing new ideas and pushing our own boundaries. Our

dedication and belief in innovation, together with the support of Mi fans, are the driving

forces behind our unique Mi products.” Their risking taking approach of always trying new

approaches and getting out of their comfort zone. Dedication towards continuous

improvement and innovation is an essential factor which has helped Xiaomi to grow. Testing

of new products and getting out of comfort zones frequently may not be adaptable by all their

employees, which could decrease their motivation and productivity, which could affect the

quality of innovation.

Creating demand by a shortage of their products during launch- Xiaomi sells a particular

quantity of product for a particular amount of time during it launches. They show that their

innovative phones are only limited in number; this scarcity creates an urge in the buyers to
buy the product spontaneously. The scenario of early sold out of their phones is later

marketed, which attracts other customers; this increases market share. However, customers

who weren’t loyal to Xiaomi, might have switched to alternative brands which could have

negatively affected market share.

In this essay, we were answering, “To what extent product Innovation helped Xiaomi in its

marketing to gain market share in India between the financial year 2016-17 to 2019-20”. The

analysis detailed several factors Xiaomi considered and took care to use product innovation.

The strategy helped them create an established spot in the market, the innovative features at

low prices, drew consumers attention which helped them to increase their market share. In the

short run, Xiaomi could continue with product innovation to increase its market share.

However, in the long run, it will be difficult for Xiaomi to survive and increase its market

share due to factors such as increased income (explained in PEST) and repositioning of its

product portfolio (explained in product perception map). If the R&D team fails to innovate or

is not able to deliver the consumer’s requirements. This product innovation approach could

cause stakeholder conflict between the R&D, marketing and sales team, as the sales and

marketing team won’t have USP’s to highlight which would decrease the sales and market

share. The research could have been more accurate and reliable if there was primary data

collected from Xiaomi’s marketing team but due to the coronavirus pandemic, it was not

possible. The primary data could have provided the essay greater depth and authenticity. The

essay would have been more insightful if I had used a financial tool like profitability ratios

which would have helped me determine the financial feasibility of the product innovation

approach in marketing, due to the restriction of accessing the data, applying financial tools

was not possible.