Xiaomi, the Chinese designer and manufacturer of electronic goods, is managing to grow fast and conquer Latin American consumers’ minds and pockets, turning from a new entrant with no brand awareness in 2017 into a lingering threat to all consumer electronics competitors in the region. Showing a deep understanding of the price-sensitive Latin American consumer’s purchase behaviour, the Chinese manufacturer jumped from 14th position in 2018 in the regional consumer electronics market in value terms to fourth in 2022, considering Chile, Colombia, Brazil and Argentina. Now, it is increasing its presence by penetrating other industries such as consumer appliances. The void left by Huawei’s downfall in the regional shares, occasioned by the US embargo on the company, that blocked the usage of Google apps and decreased consumer interest in the brand, contributed to the quick rise of Xiaomi, especially in smartphones. With a comprehensive go-to-market strategy, the Chinese manufacturer put into place a package of actions aimed at growing fast and adapting to these local frugal consumers, beyond just smartphones.
With the highest regional inflation rate in the world, Latin Americans’ intention of decreasing their overall expenditure reached 46% in 2022, which also represented the highest in the world, according to Euromonitor’s Voice of the Consumer: Lifestyles Survey, fielded January-February 2022. Despite being hit heavily in terms of purchasing power, these consumers aim to trade down without losing access to the latest technological trend, as 50% of them declared that they would keep their expenditure on new technology.
Notes: (1) Data from 2023 onwards are forecasts, updated 14 January 2023; (2) Regional aggregates calculated using PPP weights
Comprehensive go-to-market strategy drives regional growth
Despite using its flagship smartphones to introduce the brand to Latin Americans, Xiaomi’s broad portfolio of products is also being leveraged as a value proposition itself, with its ecosystem drawing consumers to purchase other hardware from the company, since they have a higher degree of compatibility among them. This includes not only appliances such as air purifiers or robotic vacuum cleaners, where it already owns 4.5% and 3.5% volume shares, respectively, in Latin America as of 2022, but also wearable electronics (12.5%) and headphones (5.7%).
Smartphones with features such as 5G capabilities, long-lasting batteries or fast charging technology are part of Xiaomi’s product attractiveness package, given that they are available at a lower price point than its competitors’ gadgets with the same features. Its subbrands, eg Redmi and Poco, also operate in lower price bands, offering specifications that put even more pressure on rivalling flagship brands. This allows Xiaomi to cater to a wider consumer segment, as the company opted to limit its margins to a mere 5% for hardware sales, and hence it can undercut other brands in the market while offering equivalent or even higher specifications.
Its regional growth is also being fostered by its omnichannel presence. The expansion of its physical footprint with its MiStores both in major urban centres and rural locations, and partnership with region-wide marketplaces such as Mercadolibre.com or Linio, carriers and important retailers, give it broad regional coverage. Xiaomi’s decision to start producing its electronics in Argentina (Tierra del Fuego) is another big step towards making the products easily available in the region while keeping costs low, helping enable the low price strategy.
Financial accessibility and product quality are key to stay afloat in the fight for shares
The increase in competition will continue to impact the region, as more adventurous and knowledgeable consumers will constantly re-evaluate their brand preference, in view of multiple product options available on the internet and the need to make their money last longer. According to Euromonitor’s Voice of the Consumer: Lifestyles Survey, fielded January-February 2022, this trend especially hit Latin American baby boomers and Generation X, that traditionally had a higher preference for stronger or well-known brands, but now declare not to seek them as regularly as before the pandemic, matching millennials’ scores in the 2022 survey.
For new entrants to gain the trust and awareness of these open-to-experiment Latin Americans and turn them into brand advocates, a strong support system is needed to guarantee that their consumer journey will be consistent the whole way, which might mean investment in the pre-sale and post-sale processes. On the other hand, for well-established manufacturers that are not immune to the affordable flagship trend, to fight for shares will also mean to dry up costs in their whole value chain to deliver a better price.
Technology as a development engine for climbing shares
Xiaomi invested USD1.95 billion in research and development expenses in 2021, a staggering 42% increase in Covid-hit times. With such funding, it is expected that Xiaomi will continue to tap into other categories and industries, providing advanced features – fruit of its research efforts – in low-cost devices, continuing to climb in the regional shares.
The company’s creep towards premiumisation will fuel the competitiveness in the regional market even more, and the battle will be fought at every step of the value chain. As Latin Americans’ intention of expenditure on new technology remains high, Xiaomi aims to keep the innovation pace by mirroring traditional brands’ products, so that it can seduce frugal consumers that cannot afford them, and nurture its already broad legion of regional followers, so that one day it can be the number one brand.
For more insight on the topic, read our briefing, Frugal Innovation in Latin America.