Xiaomi’s huge new phone won’t solve its existential crisis

Photo credit: SteveC.

Xiaomi, for the first time in its six-year life, is going through an existential crisis.

After missing its 2015 phone sales target, the Chinese brand is now facing the prospect of static – or maybe even shrinking – sales this year.

That’s because China’s consumers – already very shrewd shoppers – are getting even pickier.

“There is a change of consumer buying pattern where people are buying more premium handsets,” said Canalys analyst Nicole Peng earlier this year.

Xiaomi has missed the chance to build up cachet for its brand.

The average phone purchase price in China rose to US$319 last year, up from US$260 in 2014, says Canalys’ data. That means more and more consumers are moving past Xiaomi’s best-selling budget phones, which range from US$110 to US$230.

And that’s why Xiaomi’s newest phone, the Max, launched earlier this afternoon at an event in Beijing, makes no sense. While Xiaomi has given it the biggest screen it has ever put on a phone (6.44 inches, if you’re wondering), the new gizmo hasn’t gone upmarket. The startup has priced the Xiaomi Max from US$230 to US$307. That’s below what the average phone buyer shells out for a new phone.

With that, Xiaomi has missed its chance to build up cachet for its brand. It’s condemning itself to being a cheapo brand.

It’s being left behind by consumers.

Thinking big

Larger and more premium-styled phones with price tags around US$400 are helping Xiaomi’s rivals grow at an unprecedented pace while Xiaomi itself stagnates. The brand was last month pushed out of the global top five smartphone makers as Oppo and Vivo – both Chinese companies – sailed past Xiaomi’s tally of phone shipments. Most of Oppo’s models are priced from about US$300 to US$460, putting it smack bang in the right zone of what the average Chinese consumer will be spending on a phone upgrade in 2016. Huawei is also benefitting from this upscale trend in its home market.

The new Xiaomi Max, revealed yesterday, costs less than the average purchase price for a new phone in China. Photo credit: Xiaomi.

Brand has increased in importance relative to other purchase drivers such as price.