How has Xiaomi done it?
The simplest explanation is clever pricing: Xiaomi's phones are affordable, but not too cheap. And that's a good thing. “The price is right in the sweet spot—it's cheap enough that it's still affordable to most people in their target demographic, but expensive enough that people know it's not garbage,” says Charlie Custer, a writer who blogs about the Chinese tech industry. Indeed, in a country where defective, substandard products are common, Xiaomi phones are noted for being well-made. “Feature for feature, you would likely pay 40 to 60 percent more for a similar phone from Samsung, and Xiaomi's quality is consistently acceptable,” says David Wolf, a public relations professional who has written extensively on the industry.
How has Xiaomi managed to achieve this balance? Though the company is often compared to Apple, its business model actually resembles another Internet phenomenon: Amazon. Like the retail giant, which deliberately loses money with each sale of its signature Kindle products, Xiaomi makes little to no profit from the physical phone itself. Instead, it makes its money through selling apps and movies through its software, which is based on Google's Android operating system.
But perhaps the real secret to Xiaomi's success is its marketing strategy; which, oddly, is to avoid any marketing at all. Most Chinese cell phone companies rent space in the country's ubiquitous multi-story shopping centers, but Xiaomi sells its devices online only. In addition to cutting down on costs, this strategy gave the company an edgy, exclusive factor that other cell phone manufacturers lacked. As Custer says, “The gold iPhone 5s is the phone your corrupt official uncle and all his rich friends will buy, while the Xiaomi is the phone your cool hipster cousin has.” In a country where criticizing—and mocking—the rich has become something of a national sport, Xiaomi's “cool and cheap” message has a powerful resonance.