Suresh Sharma, Founder and Director of iSpyPrice.com traces the emergence of pure-online sales strategies of mobile product players
In the last 12 months or so, a numberof mobile brands have adopted the online -ony sales strategy -- and results indicate that consumers have taken a liking to this new approach.
In India, the online-only strategy was first embraced by Motorola with their then flagship product Moto G in partnership with India’s largest e-commerce marketplace, Flipkart. When Motorola first announced this approach, few market analysts would have expected the Moto G to sell out within 15 minutes of its first opening. While this event has been eclipsed by rival brands such as Xiaomi and OnePlus, in hindsight, it will forever be remembered as the beginning of a consumer trend that nobody had previously anticipated.
Now that this model has stood the test of time and has been adopted by a number of brands, reasons for its success are slowly coming to the fore.
Reaching smaller cities
One very plausible reason why mobile brands such as Xiaomi and OnePlus have successfully entered the market through their online-only strategy is the reach that an online platform like Flipkart offers their product. By adopting an online-only strategy, these brands are able to reach consumers in smaller cities where the retail sector isn’t organised as well as it is in bigger cities. An online-only strategy actually allows these brands to give their products unprecedented visibility in Tier 1 and Tier 2 cities right from day one.
Another important factor why the online-only approach has worked is that with time, consumers have grown more comfortable with online buying. Consumer awareness of products has increased manifold compared to what it was a few years ago.
Consumer awareness and improved online buying experiences have also led mobile brands into believing that offline buying is overrated. These days, when consumers want to buy a new phone; they often resort to comparing the prices and specifications on offer from various brands before arriving at a decision. This process can be best executed online with a wide variety of brands for them to choose from when compared to the limited variety they might find at a retail store.
Also, the process of price and spec comparison is made all the more simpler online thanks to leading price comparison websites like iSpyPrice.com, mysmartprice, smartprix etc and consumers don’t have to visit multiple physical retail outlets before they can finally zero in on their choice.
Ability to control prices
Perhaps the most important reason why brands like Xiaomi, OnePlus, and even new entrants like InFocus are using an online-only strategy is that this allows them to control the pricing strategy of their products.
Just like other consumer electronics goods, mobile brands have always had to go through the cumbersome distributor-retailer cycle to make their product accessible to the consumer. In the traditional offline model, mobile brands either build their own distribution network or strike a deal with one or more established distributors. And if you are a foreign brand looking to make inroads into a local market, this cycle gets further complicated.
In a market that changes every few months and has an incredible number of competitors, building one’s own distribution network is a hassle most foreign brands would ideally want to avoid. This is mainly because this is a time consuming process.
National distributor route
The other option for these brands is to opt for a national distributor. These national distributors will end up making a margin on the sale of each device, pushing the price of the device up. Then come the regional distributors, they also need to make a margin on the sale of each device, pushing the device’s price further up. Finally, it’s the turn of the retailers to make a margin on the sale of each device. By this time, the price of the device goes up by a fair notch.
If you think Xiaomi’s current flagship the Mi4′s 16 GB version is a steal at Rs 19,999, consider adding another Rs. 3,000-5,000, or maybe more, to that price and it doesn’t sound like a steal deal anymore, does it? That’s what the distributor-retailer cycle can do to the price of a device. Xiaomi and the likes can afford to give the consumer a favorable price because the online-only strategy allows them to do so.
This is also why you get to see different prices for the same devices on various e-commerce marketplaces. Mobile brands are able to pass the benefit of price saving to the consumer. The e-commerce brands also don’t need to save a margin from a sub-retailer. It’s a win-win situation for all parties involved.
Motorola’s online-only strategy for the various versions of the Moto G and later the Moto E was such an incredible success that they ended up selling more than a million of these devices. Xiaomi followed suit and has done well with the sale of its Mi3, Mi4, and Redmi 1s devices. This strategy has paid rich dividends for Xiaomi as they are now among the top 3 smartphone brands in the world, third only to Apple and Samsung.
Earlier this year, the Micromax-owned Yu Televentures brand launched its first flagship product- the Yureka. They entered into a deal with e-commerce giants Amazon for the online sale of this device.
Brands such as Lenovo and Xolo have also decided to adopt this strategy. Lenovo has already announced its plans to take on the likes of Xiaomi with its online-only brand Shenqi. Brands like vivo are making a foray into the market taking advantage of this method.
Lava International’s smartphone brand Xolo has been in the news for building its own e-commerce platform which it intends to use for the purpose of reaching a wider consumer base for an online-only sub-brand it is building.
This still isn’t the right choice for everybody
While the online-only strategy may have many ups, it also offers no immediate reasons for bigger players to join the bandwagon. Huge brands like Apple Inc. aren’t likely to switch to this sales channel full-time anytime in the near future. They have no reason to do so. Apple’s sales are built upon brand value and standing in queue to buy an Apple iPhone is still very much a fan thing. Apple’s marketing makes the brand and its products desirable and that is why switching to an online-only model seems highly unlikely.
Then there is the South Korean behemoth Samsung. Samsung currently sells a large majority of its smartphones through the traditional model. It does offer select e-tailers exclusive deals where they can sell a particular Samsung mobile through their online marketplace, but by and large Samsung is a supporter of the traditional method and believes in this sales channel.
Some would argue that’s only two brands to take into consideration but the fact is these two are the current flag-bearers of the mobile industry, the top two smartphone makers in the world. And as long as they, and others like them, are convinced, the offline distributor-retailer cycle is likely to remain healthy in the foreseeable future.
The growth of e-commerce, Internet penetration, and future prospects for the online-only strategy
While a number of these brands have taken to this approach, it is undeniable that there are other factors that have led to the success of this sales channel. The first is the growing Internet penetration. India’s Internet penetration has grown to 300 million+ and is on the rise all the time. Although e-commerce is said to account for only about 1% of total retail sales, this 1% accounted for sales worth $5.3 billion. It is a given that as this online-only strategy by smartphone brands takes shape, these figures will see a surge in sales.
The growing penetration of Internet is allowing e-commerce brands to reach a critical mass of potential customers and there is no doubt that in time, as more and more mobile brands opt for an online-only strategy, e-tailing would begin to rival traditional sales channels. Perhaps not immediately, but definitely!
Suresh Sharma is Founder and Director of iSpyPrice.com, a leading Indian price comparison site that assists its customers to find the lowest price of products available for sale on various e-commerce websites. The site provides hourly updates for products with fast changing prices like mobile phones, tablets etc.
April 28 2015