Pricing strategy game: Xiaomi’s three price anchors

Xiaomi

http://www.mi.com/en/about/

 

On May 6th 2015, Xiaomi gave the official announcement of Mi Note top-of-the-line version. It was regarded as the “Android emperor” in the view of Xiaomi CEO Lei Jun and would “seckill” most of Android flagship phones. However, Lei Jun was very cautious in pricing. The final price of Mi Note top-of-the-line version was RMB 2,999 rather than RMB 3,299 published at the beginning of 2015.

This pricing made me a bit puzzled at first, but I gradually understood the underlying reason by carefully organizing the pricing strategy of a range of Mi phones.  

 

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Do not know you remember Lei Jun priced the first phone at RMB 1,999 in the press conference of Mi 1 on August 16th 2011. After that, the standard version of each flagship model like Mi 2, Mi 2s, Mi 3 and Mi 4 was priced at RMB 1,999. It was later proven that this was a successful pricing strategy (Androidauthority, 2015). Xiaomi built the first price anchor so that other domestic mobile phone brands got out of the market of nearly RMB 2,000. Then, Xiaomi also launched the Mi youth version priced at RMB 1,499 and Redmi of RMB 999 one by one. It turned out that Redmi was more popular than Mi series. Whereupon, Xiaomi launched the big-screen Redmi Note to make this price of RMB 999 become the second price anchor successfully.

 

However, whether Xiaomi could have nothing worry about, depending on these two price anchors? Not necessarily

In fact, China mobile phone market has been in the year-on-year negative growth stage since the second half year of 2014. And the domestic phone brands fully competed with international brands. They showed the stronger competition than international brands in two price ranges: RMB 1,500 – 2,500 and RMB 2,500 – 3,500. Of course, Apple and Samsung were still in the dominant position in the price range of over RMB 3,500.

Obviously, Xiaomi was absent in this price range and had no such a phone like Mate7, OPPO R5, VIVO X5 and MOTO X. some consumers said that the focus of Xiaomi was cost performance and would pay little attention in this price range (Abhash, 2014). However, this would make Xiaomi fall in a dangerous situation. Facts proved that Mi 4 cannot protect the price anchor of RMB 1,999. Maybe Lei Jun also realized this potential risk. Then, Xiaomi launched the Mi Note priced at RMB 2,299 in January 2015 and reduced the price of Mi 4 to RMB 1,799 for building the new moat.

 

Of course, Mi Note standard version was too hot to give Lei Jun more confidence. He may want to build the third price anchor by launching the Mi Note top-of-the-line version. If the third price anchor was successful, Xiaomi would be steadier in current industry position. But if the top-of-the-line version of Mi Note just played a defense role, it is not necessary to get into a flight.

 

Let us understand the prices of Xiaomi phone in the below table

Mi Note top-of-the-line version RMB 2,999
Mi Note standard version RMB 2,299
Mi 4 RMB 1,799
Redmi Note RMB 899
Redmi 2 RMB 699
Redmi 2A RMB 599

 

Do not you find a question? There is a big price gap between Redmi Note and Mi 4. It means that the important price anchor of RMB 999 is very dangerous. For any enterprise with multiple product lines, there is an inexorable rule of product pricing that it cannot give a too big price gap between two product series. The Mi 4c with the price of RMB 1,299 launched in September 2015 effectively filled up the gap from strategic perspective (Engadget, 2015).

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Then, how to fix a price of Mi 5? For Lei Jun, what he needs to take into account is not only the price of Mi 5, but also the potential price question of whole product series.

 

 

 

References

 

Androidauthority. (2015), Xiaomi: past, present & future, [ONLINE], Available at 

http://www.androidauthority.com/xiaomi-past-present-future-640218/ [Accessed 29 April 2016]

 

Abhash, Kumar. (2014), How Xiaomi sells its high-end phones at low prices: a short lesson in the Economics of Pricing, [ONLINE], Available at 

http://yourstory.com/2014/09/xiaomi-pricing-strategy-hugo-barra/?utm_source=tuicool&utm_medium=referral [Accessed 29 April 2016]

 

Engadget. (2015), Xiaomi will sell a flagship Android phone for $204, [ONLINE], Available at http://www.engadget.com/2015/09/22/xiaomi-mi-4c-announcement/ [Accessed 29 April 2016]

 

 

Wang xiaoyang(ID:216038464)

 

 

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