18 November 2018

Next challenge for Chinese phone makers: the upgraders’ market

Major domestic smartphone makers have exceeded expectations in deepening their market penetration. But with nine out of 10 people forecast to own at least one smartphone this year, manufacturers would need more than just a low-price advantage to stand out in the crowded arena. This is especially true when it comes to attracting upgraders.

Industry research firm Gartner has predicted that China could sell as many as 443 million mobile phones this year, of which 90 percent or 400 million units will be smartphones. That suggests tougher competition for market share. Players will need to come up with new models with better features — not just a bargain price — if they hope to convince existing smartphone users to buy a new one. 

The boom in the market for the past two to three years was mainly driven by the ongoing migration from traditional cellphones to smartphones, which enable users to access the internet for information and entertainment.

This industry-shaking trend witnessed the rise of local players such as Xiaomi, Lenovo, Coolpad, Huawei, ZTE and OPPO, which were not even engaged in the handset business previously but were able to grab market share from first-tier players like Samsung, Apple, Nokia, Sony and HTC.

These Chinese makers offered advanced hardware specifications at low prices to penetrate the market.

Xiaomi’s Hongmi (red rice), for example, costs just 777 yuan, while a foreign-brand phone with similar specifications is priced at more than 1,500 yuan.

The strategy helped the domestic brands to tap the massive potential in the inner cities as well as the market consisting of migrant workers.

This low-price tactic, however, is not likely to yield the same resounding success as in the past since new business is going to come mainly from upgraders, which tend to be more demanding for unique features. As for the low-end segment, foreign brands are planning to launch less pricey models to fight back.

One option is for indigenous brands to invest more in talent to develop high-tier products to tap the most profitable slice of the market, and challenge Apple and Samsung which dominate this segment.

Chinese phone makers have long been criticized for being market followers rather than leaders in terms of product features and functions. Changing their image and the quality of their products won’t be easy.

Xiaomi, which considers itself a first-tier phone maker, still has to come up with a model that has that “wow effect” on consumers even after it put all its top hardware and software into its latest offering, the Mi 3. The overall feeling among sample consumers is that its latest device is a “me, too” clone of existing products in the market. Some users even complain of bugs and other technical issues.

Lenovo, on the other hand, appears to be burdened by its “old, staid” image, a brand that is not seen as cool enough among the young consumers. 

But there are some successful breakthroughs. 

OPPO has equipped its N1 model with a 13 megapixel rotating camera, which enables users to take high-resolution selfies. Such an innovative feature is an example of what Chinese makers must do to catch up with Apple and Samsung, as well as other local brands.

ZTE, which has been in the mobile market for years, has launched a new brand, Nubia, which features a metallic look, slimmer body and high-resolution camera using Konica Minolta lens, distancing itself from the maker’s own low-end product portfolio to tap the middle- to high-tier market.

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EJ Insight writer

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