Written by | Wu Xianzhi
Edit| Wang Pan
On April 9, the annual rice noodle festival opened, in addition to product updates, "Lei Jun Comparison Method" also ushered in an epic iteration.
Lei Jun mentioned that high-end in the past three years is Xiaomi's most important strategy, and the high-end road is not easy to follow. Then the conversation changed, pointing out that Xiaomi has initially established itself in the high-end market. Lei Jun's reason is that the user praise rate of Xiaomi's recent three waves of new products (Mi 11, Mi 12, Mi 13 series) is above 98%, "indicating that Xiaomi has fully proved its ability to make high-end flagship products that everyone is satisfied with."
"High-end" does have a situation of "no first", without considering channels and sales, it seems far-fetched to "fully" demonstrate Xiaomi's high-end product capabilities by relying on the praise rate alone.
In the past year, the industry downturn and the user replacement cycle have lengthened, and Xiaomi has faced great challenges. As the core business, the shipments of the mobile phone segment and ASP suffered a double kill, and the overall revenue was not good. High inventory pressure and impairment are further eating into already small profits.
The more serious problem is actually on the channel side, and we have learned from a number of dealers that the Xiaomi distribution model does not provide assistance for high-end products.
Under the combined action of a variety of factors, the external "praise rate" is like a life-saving straw, giving Lei Jun a dose of comfort, but unfortunately, all kinds of contradictions still cannot cover up Xiaomi's current difficulties.
Instead of attacking the high ground, the base camp caught fire
Although a single dimension cannot measure the level of premiumization, at least the trend can be seen by combining multiple dimensions.
Data does not lie, ASP can most intuitively reflect the high-end situation among the many data. In February 2020, as Xiaomi's high-end first mobile phone Mi 10 came out, in 3 years and 12 quarters for nearly 1200 days, the four generations of high-end series during the period did not bring qualitative changes, Xiaomi ASP has always hovered between 1000-1200 yuan, and the last 3 quarters showed negative year-on-year growth.
ASP decline, superimposed on quarterly shipments three consecutive declines, last year the overall market share of Xiaomi showed a contraction trend, people down I am not a problem, the terrible thing is that as a folding screen product that carries the heavy responsibility of high-end, Xiaomi also did not get much market share.
According to data disclosed by IDC a few days ago, Xiaomi's domestic market share will decline from 15.5% in 2021 to 13.7% in 2022, while as a high-end main product, its folding screen market share is 6.4%. It even lags behind Vivo, which has a 7.7% market share with a folding model, the X Fold.
In addition to the data, the premium of high-end products is also a window to observe the high-end of the brand. Multiple channel providers reported that in addition to Huawei, the three folding screens of Honor, vivo and OPPO are all in a ready-to-sell situation, and in the third-party market, there is a more obvious premium for spot, but there is no Xiaomi.
Finally, there is the user's mind, which is also an indicator that can be indirectly quantified - the per capita mobile phone consumption of MIUI users and the repurchase rate reflect Xiaomi's high-end has not boosted the mobile phone consumption of MIUI users.
From the past 8 quarters, it can be seen that the overall repurchase rate of Xiaomi is on the rise, but the per capita consumption of MIUI mobile phones continues to decline, as of the fourth quarter of last year, the per capita consumption of MIUI is only 63 yuan, which is roughly equivalent to the price of iQiyi's three-month consecutive membership.
Meituan Wang Xing said many years ago that whether users agree with a product or service can be seen from the purchase situation, because purchase = voting.
As for whether the success of Xiaomi's high-end is demonstrated by the "user praise rate", it depends on the scale of the data - the more users and the richer the channels, the more accurate the results. Without saying the source of the evaluation and the size of the data, we can only introduce other reference indicators. The performance of the high-end market is not outstanding, and the cost-effective market that originally belonged to Xiaomi's own land has been frequently attacked by other manufacturers.
"In this round of domestic high-end process, Xiaomi has gone relatively bumpy."
An ODM person told Photon Planet that in the past, the Xiaomi brand carried the cost performance, and after opening the high-end, Redmi undertook the banner of cost performance. Xiaomi's shift to high-end coincided with the poor performance of Qualcomm's chips, which affected its transformation process, and at the same time, the low-end market no longer had an advantage, "the highlands did not attack, but the enemy stole the crystal."
This year, two domestic ODM leading enterprises, Huaqin Technology and Longqi Technology, went public, further revealing the upstream situation of the mobile phone industry. Among them, Longqi Technology has become its largest customer since it created the explosive Redmi 9A with Xiaomi. Since then, from the prospectus of Longqi Technology, it can be found that since Xiaomi became its largest customer in 2020, the gross profit margin of this ODM company has continued to decline, and as of the first half of 2022, its gross profit margin level is much lower than the industry average. Longqi Technology gross profit has entered a downward channel for various reasons.
The ODM model makes the inventory pressure mainly on the brand side.
"After the brand owner gives a total order, it will be given in batches according to a certain batch, and the number of approval orders will be given to ODM manufacturers for testing, which materials need to be prepared, such as how many cycles are needed to prepare the corresponding display, how many cycles are required for radio frequency, and also avoid price and exchange rate fluctuations and supply chain security, so inventory problems will not be reflected in ODM manufacturers, but on the brand side."
The distribution mode and high-end are contrary to each other
Whether Xiaomi admits it or not, offline channels are still the most important battlefield for the high-end of mobile phone brands, after all, offline scenarios can provide users with more touchpoints, thereby building a trust relationship.
When it comes to the offline market, we have to mention two channel models, namely the buyout model and Xiaomi's distribution model. In fact, the two models originally had their own advantages and disadvantages, the so-called buyout model refers to the channel or distributor to buy out the goods, and bear their own profits and losses.
Under the buyout model, the sales channel is at your own risk, and once the product backlog, it will lead to a plunge in the channel price, which will then trigger a price crash. In recent years, both Honor and OV have strengthened channel price control capabilities by establishing linkage relationships, for example, manufacturers will cooperate with the channel side to promote the promotion of old models, or Huawei and Honor have used visual methods in the past to alleviate merchants' inventory problems.
On the one hand, merchants do not need to worry about whether the product is easy to sell, as long as it cannot be sold, it will eventually be recycled by the manufacturer. On the other hand, low gross margin products allow Xiaomi to control various channels with the help of incentives such as rebates. The distribution model domesticates the channel into a "best-selling oriented", which is contrary to the high-end "brand orientation".
In addition, low gross margins force merchants to survive elsewhere or shop on a large scale; Or rely on other brands to survive.
A representative of a province in the Central Plains told Photon Planet, "So far, I have not seen Xiaomi merchants who can make a lot of money, and this model of Xiaomi is very strange, if you do not shop stores, it is impossible to make a profit, it can be said that the fewer stores you open, the more you lose; Open a store no more, no less, when you earn and when you lose; The more you open a store, the more money you can make. ”
Another reason why offline channels are out of control is that although Xiaomi claims to be a 10,000 store, it has not fully established a mature KA management system (key customers). By undertaking Huawei's KA users, Honor turned over against the wind in 2 years.
A mobile phone dealer in the southwest said that among the more than ten experience stores and comprehensive stores of various brands it operates, only Xiaomi made a profit last year. "All unopened goods, Xiaomi will be uniformly recycled, there will be no inventory pressure, although it is not profitable, but relying on sales rebates and smart devices, it can barely support gross profits."
According to the rough estimate of the above-mentioned people, Xiaomi accounted for only about 10% of his sales last year, and Honor, OPPO, and vivo were all above it. From the perspective of product structure, Xiaomi mobile phone products account for about 55% of revenue, which is not profitable at all, and it is IoT products that provide profits. "There are two main reasons why dealers are reluctant to do Xiaomi, low gross profit and many things."
Although Xiaomi's quality control has been greatly improved in recent years compared with a few years ago, the adjustment and integration capabilities of various components still lag behind other manufacturers.
It is worth mentioning that Xiaomi's online traffic spillover effect has brought some help to offline channels. The above-mentioned southwest distributor mentioned that at present, their Mijia stores are undertaking the traffic on the wire, such as air conditioners, refrigerators, washing machines, and are distributed from the nearest store.
The problem, though, is that Xiaomi is going through a high inventory cycle.
According to the figure, from Xiaomi's financial report data in the past three years, it can be found that its inventory began to continue to climb in the fourth quarter of 2020 and reached a peak in the third quarter of 2021, with a range increase of 66%.
According to people familiar with the matter, in 2021, in order to seize the high-end market vacated by Huawei, many core components were purchased. However, with Huawei's divestment of Glory, the latter's supply chain has recovered, and its own product strength has not made great strides to innovate like other manufacturers, so the inventory pressure is huge.
The optimization of MIUI12 and the "fever gate" of Snapdragon 888 expose Xiaomi's shortcomings in tuning and block Xiaomi's high-end process. And in 2021, the overseas market performed poorly, losing the destocked market. Based on the past 12 quarterly reports, it can be found that Xiaomi's inventory impairment provision has climbed from 100 million to 2 billion. As of the end of 2022, Xiaomi's annual inventory impairment provision reached 7.79 billion yuan, a year-on-year increase of 175.3%.
Inventory pressure has added uncertainty to Xiaomi's high-end, and the other offline channel has never been able to open the situation, and Xiaomi's existing "Internet" model has not provided any help for high-end, at least for now.
There are not many projects left for Lei Jun to compare
At the end of 2021, some good people turned out a PPT picture about benchmarking MacBook Air at the Xiaomi notebook Air conference, and created a meme of "Lei Jun Comparison Method". The copywriting that is "thinner than a penny coin" and the picture of a coin standing up have sparked a lot of discussion.
For a time, many people concocted all kinds of similar comparisons, measuring the weaknesses of others with their own strengths. The outside world generally uses this way to ridicule manufacturers for stepping on others and raising their own value.
It is undeniable that Lei Jun understands "horse racing". Tian Ji can win, but also built in a limited static game, now the mobile phone industry has entered the intensive cultivation stage, Xiaomi's "volume" logic seems to be unable to cope with new challenges.
More than a decade ago, smart phones were still a brand new track, at that time, relying on the sea of machines and a large number of entry-level smart products, Xiaomi quickly established a huge business format, running through industrial capital, upstream suppliers, product matrix and downstream sales channels.
In 2023, when consumption recovers slowly, the user replacement market is significantly lengthened, and domestic mobile phone manufacturers are squeezed into the high-end track, the "volume" model not only cannot adapt to more and more picky users, but also cannot drive sales channels to "shout and cheer" for high-end products.
"Xiaomi's flagship products in recent years lack bright spots", a Lingnan dealer said, when a product does not have eye-catching functions, or design, sales staff can not transmit the manufacturer's high-end thinking to consumers. "This is not a problem that can be solved by buying traffic online, creating hot searches, and comparing parameters."
When Lei Jun began to use the praise rate to prove the high-end results of mobile phones, we need to be aware of a problem: if the praise rate is adjusted again, there are not many projects left for Lei Jun to compare.