SMARTPHONES: Xiaomi Taps Star Power in Drive to Go Upscale

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Bottom line: Xiaomi’s new campaign that includes the hiring of 3 celebrity spokespeople and an aim of moving upscale looks like a move of desperation and is unlikely to produce strong results due to difficulty of making such a transition.

Xiaomi tries star power to revive fortunes

Struggling smartphone maker Xiaomi is having a bit of an identity crisis these days, as it tries to reposition itself in a bid to jump start its growth by becoming more mainstream. At the same time, the company also wants a more upscale image as part of its new look, in a nod to the intense competition that has thrust many makers of lower-end models into the red. To make the transition, the company is embarking on a major new campaign that includes the hiring of 3 big celebrities to promote the new image.

This new campaign marks a major change in strategy for Xiaomi, which once relied heavily on word-of-mouth for the huge popularity it enjoyed in its early days. That strategy was carefully cultivated by co-founder and company chief Lei Jun, who used a savvy marketing strategy that relied heavily on artificial product shortages and online fan clubs to create a cool and trendy image for his company.

But that strategy later fizzled for a number of reasons, including intense competition in Xiaomi’s home market and a go-abroad campaign that produced lackluster results. Perhaps most importantly, Xiaomi’s actual smartphones often failed to live up to the hype the company created, with consumers complaining of frequent problems and lack of special features to differentiate them from their many rivals.

Now media are reporting that Lei Jun and another Xiaomi co-founder Li Wanqiang have embarked on a new campaign over the last 2 weeks to tell the world about their company’s new, more mainstream and upscale identity. (Chinese article) That campaign includes the decidedly conventional approach of hiring 3 celebrities to promote the brand, actors Wu Xiaobo, Liu Shishi and Liu Haoran.

Such an approach would have been unthinkable just a couple of years ago, when Xiaomi emerged as a different kind of company that didn’t rely on such traditional marketing tactics. But those days are firmly in the past, and in my view this latest marketing move has slight overtones of desperation. But that said, I have to at least credit Xiaomi and Lei Jun for trying some new approaches to reverse their declining fortunes.

Upscale Drive

As part of the new campaign, the company is also highlighting that it will focus on higher end models that carry much better profit margins. The reports say Xiaomi’s Note 2 is the kind of model it wants to promote, carrying a relatively steep price tag of 4,000 yuan ($600). By comparison, Xiaomi has found its biggest success to date with its Redmi line of low-end models, often costing 1,000 yuan or less.

The upscale drive certainly sounds logical in principle, but is much harder to do in practice. The only one of China’s homegrown brands to make any real progress in that direction so far is Huawei, though even that company is showing recent signs of running into trouble. Instead, most of the Chinese brands including Xiaomi have been forced to feast at the low end of the market, creating intense competition that is likely to claim at least one or two mid-sized players by year end.

In a sign of how far Xiaomi has fallen, the company’s latest campaign isn’t getting too much media attention. That contrasts sharply with earlier days, when Lei Jun could say almost anything and media would report about it. The celebrity approach certainly seems a bit conventional, though at this point it could at least bring some positive buzz back to the company. But at a more fundamental level, Xiaomi needs to focus more on R&D and roll-out some new, more unique models if it really wants to revive its fortunes.

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