Following a recent investment of $US1.1 billion at a valuation of $US45 billion, Chinese mobile phone maker Xiaomi is now the most valuable startup in the world.
Just a year and a half ago it was valued at less than $US10 billion.
The company put up $US12 billion in revenues in 2014. So how has it done it? A new report by Bernstein Research sheds new light on the Asian company, and the secret behind its meteoric rise: An extraordinarily loyal fanbase.
Xiaomi could become the first Android phone company with a fanbase as rabid as Apple’s.
Apple’s customers are known for their loyalty. The Cupertino company’s fanbase is (in)famous for its tribalism, and they’re not averse to spending days queueing for Apple’s latest product — even in blizzards. Apple has the most zealous fans of any electronics company on the planet. (A lot of people like Samsung devices, but not to the extent of Apple’s customers.)
But Xiaomi’s fans are something else entirely.
They call themselves “Mi-fans.” They have fan clubs. They have their own dedicated “Mi-fan Day” on April 6, when Xiaomi holds special marketing campaigns and announces new products.
An article from the Next Web goes into more detail about the level of devotion that these Mi-fans have. They often travel all the way across China to attend new launches , which have turnouts in the thousands. And these crowds can get so rowdy that heavy security is required for “crowd control.” During a “festival” celebrating Xiaomi’s fourth anniversary, the company sold 170,000 stuffed toy Mi Rabbits — a mascot of Xiaomi that is much-beloved by fans. In 2014, the “Mi Day” festival saw $US243 million in sales in a day — a new domestic record.
According to Bernstein Research’s report, this isn’t just a case of heavy marketing. Samsung is one of its closest competitors, and spends around 8 per cent of its revenue on sales and marketing expenses, according to Bernstein Research. Xiaomi, in contrast, spends just 3.2 per cent. The company isn’t buying its fans’ loyalty — it’s earning it.
And they’re doing this by very actively engaging with their customer base. They interact with fans frequently through social media — far more than Apple does — and actively draws upon user feedback when it comes to making changes and adding features. They keep things exciting by hosting online flash sales, and are reportedly known to give away products to especially “fervent” fans.
Apple hasn’t ever faced a company with this type of fanbase before, as Xiaomi hasn’t even launched in the West yet.
“What is the secret to the Xiaomi brand?” asks co-founder Wanqiang Li. “My answer is customer participation. Xiaomi isn’t selling a product, but the desire to be a part of something.” Industry analyst Ben Thompson says that what Xiaomi is ultimately selling isn’t electronics — it’s a “lifestyle.”
Xiaomi founder and CEO Lei Jun is as a Steve Jobs-esque figure. He has a “charismatic personality that inspire loyalty in his customers in much the same way” as the late Apple co-founder, the Next Web wrote in 2012. He’s also reportedly deliberately modelled his oratory style on Jobs. He dresses the same, too, giving presentations in a jeans topped by a black shirt.
Xiaomi’s focus on online distribution also helps keep costs low. About 70% of its handsets are sold online, bypassing the need for costly physical distribution networks. The company further leverages this by employing “hunger marketing” — long reservation lists and wait times before shipping products. This creates the impression of scarcity and helps “frenzy demand,” Bernstein Research says.
A charismatic leader, a loyal fanbase — it’s the Apple playbook, being used to great effect. For now, Xiaomi’s attention remains focused on Asian markets. But Lei Jun says the company could be the No.1 smartphone maker on the globe in five years. If so, there will be challenges to overcome — not least the accusations that Xiaomi phones copy Apple’s, and amount to “theft.”