Why Xiaomi is relaunching Redmi brand in sluggish market

January 04, 2019 14:46
Xiaomi will transform its second-tier brand Redmi into an independent brand offering low-cost smartphones via an online channel. Photo: Bloomberg

While Apple chief executive Tim Cook blamed weak China sales for the company’s poor holiday season performance, Xiaomi Corp., one of the country's leading smartphone makers, announced on Thursday that it will transform its second-tier brand Redmi into an independent brand offering low-cost smartphones via an online channel.

The Mi brand, on the other hand, will be used to explore business opportunities on a new online-to-offline platform for premium products.

Xiaomi has also scheduled a news conference on Jan. 10 to provide further details on the new Redmi.

Industry watchers are speculating that Redmi will launch a new smartphone with a 48-megapixel camera as its first product after the rebranding.

Explaining the rationale behind the plan, founder and CEO Lei Jun said separating the operations of Mi and Redmi will help them to find the best way to develop their own brands.

Lei said Redmi will focus on online sales channels and offer high price-to-function ratio products. Mi will focus on mid-range to high-end products.

For overseas markets, Xiaomi launched Pocophone in the summer of 2018. It has also secured a license to manufacture and sell Meitu smartphones. So the company will have four brands competing in the smartphone market.

The Redmi brand was launched five and a half years ago in July 2013. It used to be a second-tier brand under the Mi stable, offering entry-level smartphones at affordable prices – 1,000 yuan (US$146) or less.

Since Redmi's launch, Xiaomi has seen strong growth in smartphone shipments. In fact, the brand has been called “the national smartphone” primarily because of its affordability.

As Redmi gained popularity, products under the Mi brand, especially those priced above 1,000 yuan, found it harder to compete in the market.

As such, Xiaomi needs to overhaul its branding strategy to maximize its overall market share and prevent cannibalization.

Currently, despite having two major brands in the market, Xiaomi has seen its shipment lagging behind that of Huawei Technologies, which is operating the Huawei and Honor brands.

According to Counterpoint Research data, Xiaomi held only a 13 percent share of China's smartphone market in the third quarter of 2018, while Huawei led the market with a 20 percent share.

In fact, the Huawei brand is now focused on challenging market leaders Samsung and Apple in the global arena, while the Honor brand is seeking a greater share of the China market by offering high-end models at affordable prices. 

Such a dual-brand strategy has helped Huawei to cement its position as a market leader in China.

On the other hand, the Redmi brand is targeting users in the emerging markets. Xiaomi has just hired a senior executive from another smartphone brand to look after the Redmi's overseas forays.

In all, the company may operate three brands in the overseas market. It may need to carefully orchestrate the sales promotions of the three brands to avoid the risk of cannibalization.

Xiaomi should also watch out for another aggressive Chinese rival, Oppo, which is also implementing a multi-brand approach. The group has just launched a new brand called Realme for the Southeast Asia market.

The brand has launched several affordable models, which were well-received by the market.

Xiaomi may be right in its rebranding strategy, but that is not enough to carry it through amid stiff competition from fellow Chinese smartphone makers.

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EJ Insight writer