Group 5

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Assessment Submission Form

Student Names

Benjamin Butler 12735451 Shona Dunleavy 12354811 Abubakr Elsayed 11380031 Colm Egan 11306701 Sinead Feely 12535707

Group Number Word count:

Group number 5

Assessment Title

Global Marketing Plan

Module Code

MKT30080

Module Title

Global Marketing

Lecturer

Mahabubur Rahman

Date Submitted

20/04/2015

Date Received

Grade/Mark

Declaration of Authorship We declare that all material in this assessment is our own work except where there is clear acknowledgement and appropriate reference to the work of others. Signed………………………………………………. Date …………………………………………… Signed………………………………………………. Date …………………………………………… Signed………………………………………………. Date …………………………………………… Signed………………………………………………. Date …………………………………………… Signed………………………………………………. Date ……………………………………………

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Contents .................................................................................................................................................... 0

Global Marketing Plan Xiaomi Brazil ....................................................................................... 0

Assessment Submission Form ................................................................................................... 1

Xiaomi & The Product Overview .............................................................................................. 3

Analysis of the Brazilian Market ............................................................................................... 4

Analysis of competitive environment in Brazil ......................................................................... 4

Analysis of The Political & Legal Environment in Brazil ......................................................... 5

Analysis of The Economic Environment in Brazil .................................................................... 7

Analysis of Cultural Environment in Brazil .............................................................................. 8

Entry Strategy to Brazil ........................................................................................................... 10

Marketing Mix ......................................................................................................................... 11

A. Product Strategy ........................................................................................................ 11

I. Brand Architecture ........................................................................................................ 11

I. Product ...................................................................................................................... 11

II. PLC – Microeconomic Approach .......................................................................... 12

Parallel Importing ............................................................................................................. 12

III. Packaging............................................................................................................... 12

IV. After Service .......................................................................................................... 12

A. Marketing Channel .................................................................................................... 13

B. Promotion Strategy .................................................................................................... 14

C. Pricing Strategy ......................................................................................................... 16

Major Competitor’s pricing strategies .............................................................................. 17

I. Samsung pricing strategy .......................................................................................... 17

II. Apples pricing strategy .......................................................................................... 18

III. Motorola Pricing Strategy ..................................................................................... 18

Conclusion ............................................................................................................................... 18

Appendix .................................................................................................................................. 19

Bibliography ............................................................................................................................ 25

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Xiaomi & The Product Overview

Xiaomi is one of China’s largest consumer electronics companies who primarily manufacture

and sell smartphones. Xiaomi was founded in 2010 by serial entrepreneur Lei Jun. “Xiaomi

has the software engineering power of a Google, the design ambitions of an Apple and an

ecommerce platform and customer service focus of an Amazon”-Hugo Barra, VP of Xiaomi

International (Kumar, 2014)

Xiaomi is growing at a rapid rate. In less than five years, the company has grown from a

start-up to a global player in the smartphone market. In 2014, Xiaomi sold over 61.12 million

handsets, a 227% increase on 2013 (Mick, J. 2015). It also launched products in Taiwan,

Hong Kong, Singapore, Malaysia, Philippines, India and Indonesia. (Xiaomi, 2015). In the

last quarter in 2015 it was noted that Xiaomi sold more of its Mi4 device than Apple’s iPhone

6. (TechCrunch, 2015)

Buyers of this product are looking for fast pace high tech devices and Xiaomi is capable of

providing such products at lower prices than their competitors. Buyers of this product are cost

conscious while also seeking value for their money and expect a high quality product.

Xiaomi has a 24-months product life cycle; meaning products like the Xiaomi Mi4 will be

available to the market for about 2 years before a new product comes out to replace it. This

keeps Xiaomi products development costs low. Unlike companies like Samsung, who come

up with new devices every month or so, Xiaomi does not (Sucipto, 2014). The Mi4 was

released to the Chinese market in July of 2014 and is in the early stages of its product

lifecycle.

Coupled with Xiaomi’s renowned User Interface and hardware specifications, Xiaomi is a

strong competitor in the premium smartphone market. The Mi4 bezel is very slim making the

experience of a 5” screen much more comfortable. The back panel is glossy plastic with a

variety of styles such as trendy bamboo. Xiaomi stacks Sony CMOS cameras. The rear

camera packs an impressive 13-megapixel. The Xiaomi sports a crisp-clear Sharp 5” inch IPS

LCD capacitive touchscreen screen with 1080 x 1920 pixel density. It is equipped with glove

and wet finger technology. Xiaomi Mi4 supports the latest hardware in the market. In regards

to speed and performance the Mi4 is equipped with Qualcomm latest CPU Snapdragon 801

2.5 GHz quad-core processor, Adreno 330 GPU and 3GB Ram. All this is backed with a

powerful battery of 3080 mAh, ensuring it can last a full day.

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Analysis of the Brazilian Market

We propose that Xiaomi bring their Mi4 product to Brazil. Brazil is the 5th largest country in

the world (85,148,772 sq. km), 5th most populous country (201m people) and 8th largest

economy ($2.33trn GDP). (New world Encyclopedia, 2015) According to the Brazilian

Internet Steering Committee, around 85 percent of Brazilians whom are aged 10 or over own

mobile phones, which is estimated to be around 143 million people. Smartphones represent

76 percent of all phones in Brazil (Mari, 2014)

The country’s burgeoning middle class is becoming an increasingly avid consumer of

smartphones. Akin to buyers in China potential consumers in Brazil are looking for high

quality products coupled with competitive prices. (Accenture, 2015)

Mobile penetration is upward of 132% and growing by about 7% annually (See FIG.A3)

(Buddecom, 2015). The price of smartphones in Brazil, mainly due to the high import tariffs

which are discussed later on, is still too high for the country’s socio economic environment.

As a result of this the Brazilian smartphone black market is booming which illustrates the

need for a product with the value proposition of the MI4 (Toor, 2013).

In Brazil, the proportion of purchases made from mobiles is still minimal, but Brazil seems

set to soon become the m-commerce pioneer in South America. Vendors and technology

developers are creating and designing inventive strategies and applications to meet the

challenge. Mobile shopping in Brazil is expected to skyrocket in the near future (See FIG.A1)

(Report Linker, 2015).

Analysis of competitive environment in Brazil

Prior to 2012, Brazil’s smartphone market applied a subsidised model structure. This meant

that network operators acquired phones from manufacturers and sold them to customers at a

lower price point. Subsidisation is very profitable for carriers, as long as customers agree to

sign a contract with the given carrier for a given length of time. The initial discount is

recuperated by the carrier before the end of the contract. Customers seldom complain about

this arrangement, given that unlocked smartphones are for most part too expensive to be paid

for up front. This is particularly true in price sensitive emerging markets. Furthermore,

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Brazil’s taxation on imported smartphones can add up to as much as 70%, creating an uneven

playing field for foreign smartphone vendors unless vendors manufacture locally (Bevins &

O'Brien, 2013). In 2012, Brazil’s Federal Public Ministry (MPF) stated that “forcing

consumers to sign up for a contract when they buy a mobile device and blocking said device

is characteristic of a tie-in sale, an unlawful practice in this country” (Heim, 2012). To

illustrate how this can harm foreign competition, in 2013 the Apple iPhone 6 starts at $1080

in Brazil as opposed to $649 in the US (Chao, 2015).

In China, Xiaomi already operate in an unsubsidised market, which is usually characterised

by higher level of competition, predominantly price competition. Much of Xiaomi’s success

is due to its unique low-cost business model which they have perfected, which has lead them

to become one of the top 5 smartphone vendors in the world in 5 years of their inception

(CCS Insight, 2014).

Presently the top 5 Competitors in the smartphone Brazilian market are Samsung (38.66%),

Motorola (20.79%), LG (13.08%), Apple (11.48%) and Nokia (6.28%) [See FIG.A5].

Motorola only recently achieved 2nd place in the market due to their affordable mid-range

device Moto G, currently top selling smartphone device in Brazil priced at $260.

In Brazil the market is dominated by two Operating systems (OS) Android and iOS with

latter former almost operating as a monopoly. In July 2014 Android OS retained more than

80% of OS market share (StatCounter, 2015) [See Fig.A.6] This works in the favour of

Xiaomi as Mi User Interface (MIUI) is Android based. This leaves Xiaomi with a majority of

the market to contend for from the get go. For Industry analysis [See FIG.A7]

Analysis of The Political & Legal Environment in Brazil

Within the BRICS emerging markets, Brazil is ranked No. 2 in terms of political risk. Most of

the political risk in Brazil originates from political interference in the economy, due to a range

of regressive measures such as taxation on investment, to monetary policy related to the foreign

exchange rate (Property Casualty 360, 2015).

Brazil, a CRT-3 (Country risk tier) country, is the largest economy in Latin America. CRT-3

Country definition- a country with developing legal environment, legal system and business

environment with developing capital markets; developing insurance regulatory structure.

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(Ambest, 2015) Brazils risk profile has improved as the insurance regulatory environment has

bettered since 2008 and economic stability has been sustained over the last decade.

The new government led by Dilma Rouseff has been successful in dispatching plans to

eliminate poverty in Brazil. The government have pursued foreign policy through seeking

deeper ties with the US and EU. The Brazilian government is a deeply nationalistic authority

and has consistently prioritized local businesses. (IHS, 2015)

Brazil ranks 120th out of 189 countries in the Ease of Doing Business Index. (Doing business,

2015)

Although Brazil has made considerable advances in reducing trade barriers, tariff rates continue

to be high and continue to favour locally produced products.

There are three taxes that account for the bulk of import costs: Import Duty, Industrialized

Product tax and Merchandise and Service Circulation Tax. (Export.gov, 2015)

The Import duty is a federally-mandated product specific tax levied on a Cost, Insurance, and

Freight basis. In most cases, Brazilian import duty rates range from 10% to 35%. (Export.gov,

2015)

The Industrialized Product Tax is assessed at the point of sale by the manufacturer/processor

in the case of domestically produced goods, and at the point of customs clearance in the case

of imports. (Export.gov, 2015) The Brazilian Government levies the IPI rate by determining

how necessary the product may be for the Brazilian end-user. Generally, the IPI tax rate ranges

from 0% to 15%. Brazilian exports are exempt from the IPI tax. (Export.gov, 2015)

The advertisement industry in Brazil is regulated by the Consumer Defence Code (CDC),

specific laws and CONAR (The National Council for Self-Regulation in Advertising). Articles

of the Consumer Defence Code create regulations of advertisements in Brazil in order to

safeguard consumers. Article 67 of the consumer defence code, establishes the protection

against misleading or abusive advertisement. Customers have the right to claim for anything

and everything that was promised. If what was proposed was not adhered to, then consumers

have the right to revoke the purchase and receive their payment back. Misleading/ abusive

advertisements are treated as a crime according to the CDC. (Mello, 2012) not to mention the

fact that all outdoor advertisements are illegal in Sao Paolo thanks to the ‘Clean City Law’

there (Goodson, 2012).

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Products must go through a conformity assessment which follows International Organization

for Standardization (ISO) guidelines. ISO ensure that products and services are safe, reliable

and of good quality. Conformity assessment includes test and calibration laboratories, product

certification bodies, accreditation bodies, inspection and verification units, quality system

registrars, and others. (ISO, 2015)

The Brazilian Consumer Protection Code makes it a necessity that product labelling administer

the buyer with precise and easily readable information such as the product’s quality, quantity,

composition, price, and risks to the consumer’s health and safety. Imported products are

required to bear a Portuguese translation of this information. (Export.gov, 2015)

Imported smartphones, tablets, and other electronics are subject to a 16 percent tariff. Foreign

technology companies can avoid tariffs and taxes by setting up manufacturing facilities in

Brazil. Steep taxes and import tariffs have sent prices skyward in Brazil. (Export.gov, 2015)

Analysis of The Economic Environment in Brazil

Brazil’s GDP in 2015 was $2245.67 Billion, making it the 7th largest economy in the world and

the largest in South America (Trending Economics, 2015). Brazil became a designated member

of the BRIC countries in 2001 (O’Neill, 2001), given its stature as a large emerging market

economy, thanks to their large population and potentially strong export trade among other

things. During the presidency of Luiz Inácio Lula da Silva, from 2003-2011, Brazil had made

many improvements in situating its economy in a position to experience strong growth such as

ensuring inflation has fallen, reducing public debt and stabilising the economy (O’Neill, 2007).

However, much of this progress has been impeded in recent years by da Silva’s successor,

President Dilma Rousseff. Despite her government’s prioritisation of small businesses, her

term in office has seen inflation rise and her approval rating fall in the aftermath of the large

corruption scandal involving state-owned energy company Petrobras. (Fontevecchia, 2015)

This political turmoil has had a significant effect on the Brazilian Real, which slumped to its

lowest level in 12 years in March 2015, given concerns over the lack of fiscal reforms in Brazil.

As a result its immediate growth trend is expected to be sluggish, and the start of 2015 saw the

median estimate for growth fall to 0.13% from 0.55% a month earlier (Forbes, 2015).

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Brazil also has a history of high inequality. This may have been hampering growth in the past,

as high inequality is thought to be economically inefficient as it gives people lower incentives

to save and lower motivation to work hard (Stiglitz, 2012). However, this appears to be

changing in Brazil, as over the last ten years Brazil has put measures in place to improve health

and education standards for all, thus improving the quality of life for the poor and hopefully

reducing inequality in future (The World Bank, 2004). As prominent economists such as Joseph

Stiglitz and more recently Thomas Piketty have argued persuasively (Piketty, 2014), such a

reduction in poverty should improve Brazil’s economic strength.

Given this impending reduction in poverty, and despite the negative short term conditions,

Brazil is a country which presents an attractive market for Xiaomi economically. However,

even short term there are positive points for Brazil. Last year the OECD pointed out that the

global recession was easing up and that this would have a positive impact on Brazil’s

economy moving forward, and even predicted a 5.7% level of growth for Brazil in 2015

(Global Trader, 2014).

However, the jewel in Brazil’s crown remains their long term growth predictions which are

overwhelmingly positive, and while they were the 7th largest economy (by purchasing power

parity) in 2011, this is expected to increase to 6th by 2030 and 4th by 2050 (PwC, 2015), growth

predominantly built on Brazil’s large, young and increasingly well educated population.

Indeed, 2011 saw Brazil spend 19% of GDP on education, considerably more than the OECD

average of 13%. This increase in spending is reasonable given that 25% of Brazil’s population

is between ages 10 and 24, higher than both Russia and China (Population Reference Bureau,

2013). Brazil can expect this young educated population to come into its own in future

generations, and propel Brazil forward.

Analysis of Cultural Environment in Brazil

Culture is defined as shared motives, values, beliefs, identities, and interpretations or meanings

of significant events that result from common experiences of members of collectives that are

transmitted across generation.” (House et al, 2004)

Culture has a huge influence on business practises, especially when looking to expand into an

unknown market. The different business etiquettes employed by the Brazilian and Asian

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markets can be attributed to variances in cultural and historical development (Hofstede, 1984).

The Brazilian market is the 7th largest economy in the world with a population made up of a

mix of ethnicities and races, although nearly 100% of the population speak Portuguese.

When comparing the cultures of the markets in which Xiaomi currently operates, largely in the

East, to the proposed market of Brazil several cultural environmental differences arise.

- Language differences are crucial when launching products in new markets. It can cause issues

in designing marketing campaigns and product names and labels. We believe that Xiaomi may

need to rebrand the company name to ‘Mi’, this would help locals with the pronunciation of

the brand name. They will need to be extremely careful when translating and designing

marketing campaigns and brands that are suitable to the Brazilian market.

-Uncertainty avoidance can be described as the extent to which people of a given society strive

to avoid uncertainty of future events (Hofstede, 1984). The East is described as having a high

level of uncertainty avoidance particularly in China and Singapore. Brazil is said to have a low

level of uncertainty avoidance. This could affect aspects of technology, law, rules, coordination,

rituals and policies used within the organisation.

-The markets Xiaomi currently operate in have low levels of assertiveness. This is the degrees

to which individuals in an organisation are confrontational, assertive and aggressive in social

relationships. Brazil has a high level of assertiveness. The Brazilian market is very verbal and

argumentative this is direly different to the East where saying no can sometimes be seen as a

challenge and is frequently expressed non-verbally.

-When looking at the level of institutional Collectivism China has an extremely high level,

where as Brazil has a low level (Hofstede.G, 1984). Institutional Collectivism places an

emphasis on shared objectives. In organisations with a high level of institutional collectivism

there is often a strong orientation around the importance of teams and group work. There is a

low level of this in Brazil so possible local employees and partners may have a strong sense of

self-reliance and independence. Xiaomi must take this into account when entering the market

especially given that we recommend Xiaomi partner with Foxconn in Brazil.

- Cultures have different types of taboos and customs associated with them. While entering a

new market Xiaomi must ensure that they research the local customs in order to be familiar

with what is appropriate and inappropriate, this will aid them in avoiding negative publicity

and backlash. For example in Brazil it is considered ill-mannered to make appointments for

meetings any less than two weeks in advance.

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-Xiaomi’s staff organizational structure is very flat, with very little hierarchy. There exists three

levels - the founder, the department leaders and the employees (Yu-Feng.L, 2014) In Brazil a

strong hierarchical structure exists with respect to age, status, etiquette and experience. Xiaomi

must ensure that they heavily research into Brazil’s norms regarding hierarchy structure to

ensure they follow correct business practises. This hierarchical structure can be described as

paternalistic and authoritarian.

-Xiaomi must also ensure they have full knowledge of the importance placed on hand gestures

and touching as it plays a huge role in communication in Brazil. Touching is often seen between

friends and work colleagues in business situations and is viewed as the norm.

-Similar to the East, the culture in Brazil often results in organisations being very lenient of

time constraints. Meetings may start late and the beginning informalities may go on longer than

expected in the East.

Entry Strategy to Brazil

In adherence with the ‘Break-Even Shifting’ model (Hollensen, 2008) we feel that Xiaomi

should directly export to Brazil from China first. At this point sales will remain low and so

revenues would not be enough to compensate for the construction of a sales subsidiary in Brazil.

However, once sales begin to increase substantially, Xiaomi should move to a combination of

an intermediate and hierarchical entry mode. The entry mode would be intermediate in that

Xiaomi should use ‘Contract Manufacturing’, the outsourcing of manufacturing to an external

partner, (Hollensen, 2014), to subcontract manufacturing to Foxconn. Not only are Xiaomi

already in talks with Foxconn (Bloomberg News, 2014), but Foxconn have a strong presence

in Brazil (Luk, 2012), complimenting Xiaomi’s expansion nicely. Xiaomi’s expansion would

also be hierarchical in that we recommend they build a wholly owned subsidiary in Brazil,

comprising of a distribution plant to facilitate Xiaomi’s online distribution strategy. The

subsidiary should be built in Brazil’s tech hub, Rio de Janeiro. Rio has already seen the likes

of Microsoft and Cisco move in, emblematic of Brazil’s increasing relevance in the world of

technology (Watts, 2014).

Xiaomi should also be cognisant of ‘The Transaction Cost Model’. It dictates that Xiaomi

should continue to expand until ‘the cost of organizing an extra transaction within the firm will

become equal to the cost of carrying out the same transaction by means of an exchange on the

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open market. (Coase, 1937). Establishing a distributional plant in Brazil, a form of forward

integration, adheres to the ‘Internalisation’ method of achieving TCA.

Marketing Mix

A. Product Strategy

I. Brand Architecture

Considering the psychic distance between Brazil and China, Xiaomi should rebrand and

truncate their name to simply ‘Mi’. There are push factors that compel them to rebrand; For

non-native Chinese speaker ‘Mi’ is much easier to find, remember and pronounce than

Xiaomi (pronounced as Shiao-Mi) (Leswing, 2014). Furthermore it is in line with Xiaomi’s

International branding strategy (The Economist, 2014).

Given our recommendation that Xiaomi should rebrand to ‘Mi’, a corporate dominant brand

structure should initially be adopted, as only one product will be available in the market.

Moreover as a new brand in Brazil, Xiaomi do not want to confuse customers with different

names. After Xiaomi gain a foothold in the market and gain traction among people, they

should pursue a mixed brand structure. Xiaomi have several product lines, including a budget

smartphone line called Hongmi (Hong-Red). In the future when Xiaomi decide to introduce a

budget line to serve a different market segment, they should distinctly differentiate their

premium line so as not harm its value, whilst using the new line to build on Xiaomi’s gained

brand equity. Xiaomi should also rename the budget line from Hongmi to ‘Verde Mi’ as the

colors red (meaning good luck in Chinese culture) has no association in Brazilian culture and

the colour green is a Brazilian national colour.

I. Product

Tech products are generally culture-free products and so the Mi4 specification and general

design should not require adaptation. The Mi4 should be provided in 2 generic colours, black

and white. In saying that, the Mi4 back panel is replaceable and Xiaomi should provide

several Brazilian design edition back panels as optional accessories to be purchased with the

phone.

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II. PLC – Microeconomic Approach

The Mi4 is at the end of its product cycle in its home country, China, as a global device is

scheduled to be launched in April 23rd in India (R, 2015). The product specification of Mi4

still places it in a highly competitive position to compete against existing competition in

Brazil. Therefore they should adopt a microeconomic approach [See FIG.A.8]. The Mi4

should be sold at the initial price it was released at in China and not at its current discounted

price. The production cost of Mi4 has become considerably cheaper due to the depreciation

of the cost of building components, in accordance with Moore’s Law. Along with setting up

costs, and establishing production with higher labour costs, the original price that Xiaomi

Mi4 was offered at should be sufficient to cover the extra costs.

Parallel Importing

Xiaomi need not worry about parallel importing or grey marketing. Firstly, due to Brazil’s

policy of high import taxes on technological products, Xiaomi products being imported into

Brazil cannot competitively compete with Mi4’s being produced in Brazil. Secondly, given

the network frequency of Chinese phones, they are not compatible with the network

frequency of the Brazilian network.

III. Packaging

Xiaomi product packaging reflects the frugal nature of their business model (The Economist,

2014). The packaging for Mi4 is made of good quality cardboard that would sustain

numerous falls and bumps. Engineering wise it’s very apt but design wise it does not convey

premium quality. Regarding packaging of Mi4 in Brazil, Xiaomi should continue to use the

same packaging material, as it is in line with Xiaomi’s streamlined business model. But in

addition, Xiaomi should use coating material that exemplifies premium quality. Xiaomi

should work with local designers to find the right design that in the eyes of Brazilians is

perceived as premium high quality product that can be trusted [See FIG.A9].

IV. After Service

After-sales service lags behind in Brazil. Rapid economic growth has helped create a

consumption boom. The growth of the so-called new middle class of 40 million, who having

risen from poverty, have increased demand and put pressure on infrastructure. But customer

service standards have not been able to keep up with the pace (Carrico, 2014). Xiaomi are

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very well known for their exceptional service provided in their service centre. Speaking from

personal experience, when one of our group members broke his Xiaomi phone, he made a

trip to a service centre in Beijing. They have service policy to fix your phone in 45 minutes

and he was not let down. Xiaomi should work to establish service centres in major cities in

Brazil, initially in Rio de Janeiro as previously outlined in section 1, and train their

employees to recreate the same customer service experience. This added value can be their

key differentiation among competitors.

A. Marketing Channel

As we have pointed out in the ‘entry strategy’ of Section 1, Xiaomi should initially use an

export mode but then quickly alter this to a combined hierarchical and intermediate mode.

Having done this, Xiaomi would not be using any form of export mode and so their sole channel

of distribution would be via the Foxconn factories in Brazil and the Xiaomi owned distribution

plant. We feel that this transition should be made in accordance with the ‘Break-Even Shifting’

model (Hollensen, 2008). In addition, Xiaomi should pursue many other channels of

communication with consumers, especially given that the product is Xiaomi’s first offering in

Brazil. A huge aspect of Xiaomi’s promotion strategy is through online promotions, which we

examine in detail in the Promotion Strategy section below.

In accordance with the Network Model, (Hollensen, 2014) the establishment of this distribution

centre in Brazil, and sub-contracting production to Foxconn there, should be useful for further

expansion in the surrounding area as these domestic connections can act as bridges to other

countries.

Xiaomi’s strategy of eliminating middle-men and delivering straight to customers via the

internet is known as disintermediation and can lead to channel conflict as Xiaomi will now be

competing with resellers as well as manufacturers. Those resellers that are cut-out may engage

in anti-disintermediation, through higher levels of personalised service, cost cutting or legal

action (Hollensen, 20140. We believe that, given Xiaomi’s philosophy of selling at only

slightly above cost and the anticipated demand already outlined in our market analysis in

section 2 of the report, Xiaomi’s is a value proposition that would be very hard to trump for

intermediaries in Brazil, and so should not affect Xiaomi’s sales unduly.

We do not envisage Xiaomi working with any distribution intermediaries, and so ‘Exclusive

Coverage’ would describe their market coverage best, as they distribute solely to those who

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purchase the product. This absence of intermediaries will also ensure a very short channel

length, facilitating rapid distribution to consumers. Given that Xiaomi’s products primarily fall

into the categories typical of an ‘Exclusive Distribution’ product, such as being a relatively

high-price product in a market where brand is very important, the channel width is quite narrow.

The dearth of intermediaries also ensures a highly vertically integrated channel of distribution.

B. Promotion Strategy

Xiaomi has experienced a great amount of success over the last number of years. Their strategy

to strengthening their position in their home market before expanding overseas and their

promotional strategy have contributed greatly to this success. Xiaomi do not implement

traditional advertising, they avoid selling through retail stores and focus largely on their online

market, positioning themselves as a low cost advertiser (Kaplan. V, 2015)

We recommend that Xiaomi implement an E-Commerce strategy similar to the strategy that is

implemented across other nations they operate in. This online sales strategy allows them to

save sufficient costs in marketing and distribution. E-commerce offers Xiaomi the opportunity

to sell directly to the consumer, B2C, and is a cost effective solution to traditional retail

methods.

Xiaomi should sell their devices via “flash sales” where products are available for a limited

time period. This creates a persona of exclusivity around the products and brands while giving

them a huge opportunity to promote these flash sales through social media and word of mouth.

Flash sales create great anticipation and urgency which excites consumers about their products.

“Social media is where we live. We are an internet company and that’s what we do,” (Barra.

H, 2015)

Xiaomi harnesses the power of social media by consistently interacting with their customers

on social media using their feedback to refine their future software development. We

recommend that Xiaomi continue to carry out the same social media practices in Brazil as they

have done previously in China.

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Remarkably in 2014 it was noted that Brazil was the second largest user of Facebook. Brazilian

users spent 41% more time on twitter in September 2012 then in September 2011. Brazil has

also been crowned the second largest market for YouTube (Chao. L, 2013).

As a result of these statistics we recommend that Xiaomi create a social media campaign to

raise awareness in Brazil of their impending entry into the market. We would recommend that

a Twitter, Facebook page and YouTube advertisements be created in order to promote

Xiaomi’s entrance.

WeChat is a mobile messaging application whose percentage active user increased by 1,108%

during 2013 in Brazil (Oleaga.M, 2014). We would advise Xiaomi to establish their brand on

this social media platform to avail of its broad reach. Xiaomi could look into founding a

partnership with WeChat in Brazil, exploring opportunities to sell through the mobile

application, a similar strategy to their pilot trial in China.

We propose that Xiaomi tie in their slogan “Always believe that something wonderful will

happen” into their social media campaign and that they engage with potential consumers to

share special events that have happened in their lives on their social media pages, creating

further buzz about the brand (Xiaomi, 2014).

We would advise Xiaomi to avail of mobile advertisements. A recent study has shown that 62%

of smartphone owners in Brazil receive at least one advertisement via their mobile device per

day with 50% agreeing they are okay with these ads as long as they can access free content

(Rodrigues. L, 2013). Mobile advertising as a whole in Brazil is growing at a rapid rate showing

how influential this platform is. (See FIG.A4)

The leading operating systems for Smart Phones in Brazil are Android at 80.34% of the

market share with iOS only capturing 11.48% (StatCounter, 2015). This works in the favour

of Xiaomi as Mi User Interface (MIUI) is Android.

Brazilian smartphone users have a preference for gaming applications. As Xiaomi first

established themselves as a software development company we believe they should consider

creating miniature/trial games, as they do on their online forums, offering products as prizes.

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This will create a huge amount of awareness and in turn brand advocates across the mobile

gaming community.

Xiaomi should integrate forms of comparative advertising into their promotion strategy as

Brazil is a very price sensitive market. The comparisons should focus in on the product features

as this will appeal to consumers looking for high quality products at a reasonable price [See

FIG.A10].

It is interesting to note that when entering the Indian market Xiaomi have shown a willingness

to adapt by opting to pursue an offline model and we feel this is something that they should

implement in Brazil also, given the very low brand recognition they currently have there.

However this should be pursued with reference to the political and legal environment which

we detail in section 3 of the report, as all outdoor advertisements are illegal in Sao Paolo

(Goodson, 2012). On first entering this market in 2014 Xiaomi implemented an online-only

sales strategy. This technique resulted in the selling of over 90,000 units of their Mi3 model

within a few seconds over a course of flash sales. (Rao.R, 2015) This unmet demand resulted

in Xiaomi receiving the wrong kind of media attention due to the large number of disappointed

consumers. Xiaomi made the decision to sell its devices through the largest telecom operator

in India, Bharti Airtel. This is a strategy which could be implemented in Brazil if there is a

similar uptake on their products. We would advise Xiaomi to prepare for this situation, creating

a strategy and developing relationships with possible retailers.

C. Pricing Strategy

From its birth, Xiaomi has never believed in traditional old fashioned advertising. Xiaomi

shuns the concept of retail stores and chains and decides to do all its selling online. This

inevitably leads to a significant reduction in its cost price as the price on e-commerce is

essentially just fulfilment and shipping cost. (Kumar, 2014)

Xiaomi’s pricing strategy for its MI4 should be a value based pricing strategy. Value-based

pricing is defined as a pricing strategy which sets prices primarily, but not exclusively, on the

value, perceived or estimated, to the customer rather than on the cost of the product or

historical prices. (Wikipedia, 2015).

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Xiaomi will make the MI4 affordable with premium hardware, software and look as they

have done thus far in other developing economies. The reason for this is as follows. Xiaomi

will hardly have any marketing spend and they will go to the customer directly through

online channels to cut distribution and various intermediary costs. This in turn will let Xiaomi

able to pass the benefit to the customer. Typical smartphone makers like Apple or Samsung

put their products in retail stores around Brazil. This process incurs staff, real-estate and

maintenance costs.

Xiaomi will cut costs at every stage. Xiaomi will source components for the MI4 themselves

and deal with sellers with a different strategy. Xiaomi will follow ‘Moore’s Law’. Unlike

Apple or Samsung who discontinue their models after 6-8 months in the market, Xiaomi

should sell the MI4 for up to 18-20 months after launch. This means that, in accordance with

Moore’s law, the price of the individual components go down while the price of the phone

remains constant throughout. (Kumar, 2014) As mentioned previously, Xiaomi will be able

to further cut its costs by agreeing a deal with Foxconn to manufacture its products.

Another important aspect to note is that Xiaomi is a mobile internet company. Xiaomi will

not look to make money on MI4s hardware similar to Apple or Samsung but by selling apps,

games and special Android themes and Internet services on top of its custom MIUI.

The Brazilian government has also taken steps to push consumers toward domestic products.

In April, the country lifted federal taxes for all smartphones manufactured in Brazil, after

implementing similar policies for domestically produced tablets and computers. (Toor, 2013)

But the smartphone exemption only applies to devices priced below 1,500 Real ($660 USD),

meaning Brazilians may still need to look overseas for higher-end Apple or Samsung products.

This is exactly what Xiaomi will exploit. (Toor, 2013)

Major Competitor’s pricing strategies

I. Samsung pricing strategy

Samsung uses both a value based and skimming price strategy in Brazil. They offer a

premium product for a premium price. Samsung initially sets a high value with high price in

the start before competitors catch up. Samsung discontinue their models after 8-12 months in

the market. (Marketing91, 2015)

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II. Apples pricing strategy

Apple price their premium products at premium prices. Apple’s cheapest products are usually

priced in the mid-range, but they ensure a high-quality user experience with their features.

The hardware and user interface are designed to provide a lot of value for the price, which

keeps profits high. Apple sells fewer phones that it would if it was cheaper as profit is what

it’s all about for Apple, not volume. (Nielson, 2014) In 2015 the worldwide average selling

price for an Apple iPhone will be about $649.

III. Motorola Pricing Strategy

Motorola will be key competitor for Xiaomi as they recently launched its first low-cost

device in Brazil. This is part of its strategy to beat its main competitors in what is Motorola’s

second largest market. Motorola found that the most essential thing in terms of buying a

smartphone in Brazil is that it has an affordable price as most mobile users in Brazil can't

afford a $500 smartphone. (Mari, 2013)

Conclusion Xiaomi is a rapidly expanding smart phone company which has had great success in

developing markets in a short space of time since its inception 5 years ago. Xiaomi’s success

has been rooted in its low cost model and high specification products which have flourished

in developing economies.

Brazil presents a valuable opportunity for Xiaomi. With its large population and rising middle

class it offers Xiaomi the perfect platform to build on its already impressive

accomplishments. The smartphone market in Brazil is growing at an exponential rate and

smartphone buyers are crying out for a low cost product as can be seen from the thriving

smartphone black market in Brazil. (See.FIG.A2)

Brazil’s efforts to eliminate poverty coupled with their seismic long term economic forecast

are quickly rendering Brazil a global power in smartphone retailing. Our recommended

strategies would enable Xiaomi to obtain a strong foothold in the prosperous smartphone

market in Brazil and potentially act as a springboard to the wider South American market.

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Appendix

FIG.A1

FIG.A2

FIG.A3

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FIG.A4

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FIG.A5

FIG.A6

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FIG.A7

23 | P a g e

FIG.A8

FIG.A9

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FIG.A10

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