For a long time, Xiaomi shunned advertising, saying that by cuting the spending on commercials, it could pass those savings down to consumers by keeping the overall price of its high-spec phones down. Instead, Xiaomi relied on the star power of founder Lei Jun – dubbed China’s Steve Jobs – to create online buzz for its new products and attract new customers through social media.
But now Lei’s had a change of heart as Xiaomi’s market share in China continues to shrink. Its share in 2016 fell to 9.5%, ranking it in fourth place. The smartphone maker is changing tack accordingly by tapping local celebrities like Wu Xiubo and Liu Shishi to endorse its products. It has also opened over 50 bricks-and-mortar stores and invested heavily in offline advertisement, with its ads spotted everywhere from buses to subways and malls.
It’s certainly no coincidence that it was the same strategy that propelled the growth of its biggest rivals Oppo and Vivo (the two smartphone makers were founded by the same entrepreneur but operate independently). Even though the two companies are little known outside China, they lead its smartphone industry with 16.8% and 14.8% of the market’s sales, respectively, says research firm IDC. Oppo has also moved slightly ahead of Huawei, which had a 16.4% share.
Never heard of Oppo?
Founded in 2009 by Duan Yongping, one of China’s most colourful entrepreneurs (see WiC42), in Dongguan, Oppo made its start by focusing on making cheap handsets to sell in smaller Chinese cities and overseas markets like Eastern Europe and Southeast Asia, where smartphone penetration was lower.
To target those customers, Oppo stuck with the traditional bricks-and-mortar strategy. It struck exclusive distribution deals and worked with a group of resellers to reach customers in small cities. To motivate its distributors to provide better service, Oppo offered margin guarantees and rebates for when they completed a sale. The company now has over 200,000 points of sale in China.
That strategy helped secure its growth in the sector: “A few years ago, smartphone sales were highest in first- and second-tier cities, where consumers shopped online frequently. However, more recently, the biggest consumer has shifted to the rural countryside, which brought about a revival for physical stores,” says Liu Qicheng, an industry observer. “Since the last quarter of 2016, most of the handset upgrades came from the rural areas. So while shoppers flocked to Oppo and Vivo outlets, Huawei could only watch on the sidelines. Oppo and Vivo have essentially monopolised the rural market.”
Liu reckons that only 10% of Oppo’s sales were made online. Nevertheless, the company works with e-commerce sites in a different way. “How we view e-commerce firms is that they serve better as a platform or middleman for users to understand our products better. It is more a promotional tool for us,” says Oppo.
How to stand out from the competition?
What consumers remember most about Oppo is its high-profile advertising campaigns. The company was one of the first smartphone makers to advertise on primetime television, buying coveted slots at CCTV, the state-run broadcaster. More recently, it paid to be the title sponsor of the reality TV hit series Running Man (see WiC259).
Oppo has also tapped A-list celebrities like Yang Mi (see page 16) and Korean heartthrob Song Joong-ki to endorse its smartphones. Hollywood star Leonardo DiCaprio, too, was the spokesperson for its flagship phone back in 2011.
Even though Oppo primarily competes in China, the company was one of the biggest advertisers at this year’s Academy Awards on US network ABC. Those who watched the live broadcast would find Oppo’s ad in virtually every commercial break.
“What makes Oppo stand out from the competition is that it knows how to connect with young consumers: which is through celebrities, trendsetters and popular TV series… But it doesn’t merely just splurge on the title rights. On the shows where it has won these, the company also made sure to include product placements during the episodes to engage consumers subliminally,” says Liu.
Oppo focuses most of its advertising expenditure on promoting its flagship high-end smartphones, which are useful in attracting young shoppers to its outlets and presenting the image of being cutting-edge and high-tech. After shoppers have arrived at its retail stores, Oppo’s sales staff will often close sales by offering more affordable (and lower tech) options, says Elecfans, a tech blog.
Knowing its target market, Oppo has catered to local trends. For instance, the company’s flagship phone the R9, which sells for Rmb2,799 ($405.5), has sold over 10 million units since it launched in the middle of last year. One of its biggest selling points was a dual-pixel Sony IMX362 sensor that allows users to take better selfies, an important feature for China’s selfie-obsessed consumers.
The road ahead…
Competition is about to get more intense. Xiaomi recently announced that it will open a chain of about 1,000 bricks-and-mortar stores under the Mi Home banner over the next three years (currently it has 50 outlets). The Wall Street Journal also reported that Xiaomi will sell smartphones powered by its own processor, called Pinecone, within a month. This will pit it against Huawei in an expensive R&D arms race, as its bigger rival has also developed its own processors.
Worse, Chinese consumers have shown little loyalty to phone makers. In fact, Tech in Asia, a blog, says the country has seen four different handset brands take the top spot in the past five years.
IT Times, a tech portal, notes: “The reason China’s smartphone industry has taken off in the past few years is because of technological breakthroughs and excellent product quality. Attaching too much importance to or blindly expanding distribution channels is missing the bigger picture. The real secret to staying relevant is through innovation and constantly upgrading the technology.”
Nikkei, the Japanese newspaper, says Oppo’s use of in-house production gives it an advantage in engineering new innovations.
Meanwhile, Oppo is ready to expand beyond China. The smartphone maker has expressed ambition in cracking the India market, where its rival Xiaomi has made headway in recent years. It has built a factory in India able to produce up to 100 million smartphones a year and last week announced a five-year deal worth $160 million to sponsor the Indian cricket team. The company has also signed up ace cricketer Yuvraj Singh as a brand ambassador. Sky Lee, Oppo’s boss in the country, told China Daily: “Cricket in India isn’t just a sport, it’s also a way of life, a culture, even a religion.”
Watch this space to see if this redeployment of its China marketing strategy helps Oppo to grab the top spot in the subcontinent…
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