Can Chinese Smartphone Darling Xiaomi Compete In The World Market?

(By Bryan Mezue)

The “jobs-to-be-done” theory articulates the gap between how producers view and market a product and how customers actually use it. Every time a customer buys a product, they are trying to do a job that brings some value to them – and not necessarily what the product says on the label. In the words of Harvard Business School marketing professor Theodore Levitt, “People don’t want to buy a quarter-inch drill. They want a quarter-inch hole!

In the week before Apple’s release of its latest generation of iPhones, a lesser-known Chinese upstart, Xiaomi, had a launch party for its new Mi3 phones. Led by its Steve Jobs-inspired CEO Lei Jun, the company has experienced breakneck speed since its first smartphone launch in October 2011. With a business model of at-cost hardware and software up-selling, it recently raised its 2013 sales targets from 15 million smartphones to 20 million, and is now gazing abroad.

Lei Jun has hired ex-Googler Hugo Barra to head Xiaomi’s international expansion. Barra has his work cut out for him: Chinese companies have had mixed success so far in competing with top Western brands on several fronts at once. For every success (like Huawei or Lenovo), there have been stumbles (like Jianlibao and or Li-Ning).

Why have Chinese companies struggled to build consumer brands overseas? The answer has been in large part a failure to meet consumers’ social and emotional needs.

What Job Are You Doing?

For Barra and Xiaomi the “jobs-to-be-done” theory, in particular, is relevant. Many internationalizing companies fail because they pick the wrong jobs; addressing this can save both Xiaomi and other companies money and strife.

The “jobs-to-be-done” theory articulates the gap between how producers view and market a product and how customers actually use it. Every time a customer buys a product, they are trying to do a job that brings some value to them – and not necessarily what the product says on the label. In the words of Harvard Business School marketing professor Theodore Levitt, “People don’t want to buy a quarter-inch drill. They want a quarter-inch hole!

The jobs that customers want to do have functional, social and emotional dimensions. For example, in buying a can of Coke (as opposed to another drink), I might be addressing 3 jobs:

  • Functional: “Enjoying an affordable drink, or quenching thirst”

  • Social: “Signaling social status or social inclusion”

  • Emotional: “Exercising an emotional connection with the Coke brand”

The relative split of the functional, social, and emotional dimensions helps explain how a challenger should best attack the incumbent. For example, consumer brands tend to have more of a social/emotional component to their jobs-to-be-done, while B2B products are heavier on functional needs. This means that consumer brand challengers must pay more attention to the social and emotional needs of their customers (often through heavy marketing expenses), while B2B players can afford to compete mostly on their product’s price and efficacy. It is difficult and time-consuming to fulfill the social and emotional jobs, and consumer brand challengers are often tempted to replicate the incumbents’ strategies. But, in Clay Christensen’s disruption language, this approach puts them on a “sustaining” rather than “disruptive” path. And there the incumbents almost always win.

Li-Ning stumbled because it tried to target low-end customers of Nike, and could not fulfill their social/emotional jobs better than Nike without spending more money. According to the company’s vice-president of digital operations, Craig Heisner, the company struggled after it “went right into a fiercely competitive overseas market going directly against the likes of Nike and Adidas”. Similarly Jianlibao, formerly the number one beverage in China, lost out on a frontal battle along the social/emotional dimension overseas before coming back home to compete with Coca-Cola on functionality (price and taste). Unfortunately, with its lower cost structure, Coca-Cola had the patience to see this sustaining challenge through, and ended up crushing the Chinese brand both domestically and overseas.

The better path for Chinese consumer brands seeking expansion to the West is to focus on consumers not yet in the smartphone market. Instead of targeting current customers of the incumbent (who already have sophisticated social/emotional needs associated to the product), they should target non-consumers with a compelling functional offering and help mold their social/emotional associations. For example, when Honda moved into the US motorcycles market, it found little success in targeting existing American motorcyclists — it was only after it moved to non-motorcyclists that it experienced success in creating a new subcategory. B2B businesses can afford to go directly to the low end (Japan’ steel industry and Korea’s semiconductor industry have achieved success via this route) and compete on functionality, but consumer brands should be more careful unless they have the budget for a long fight. Hence the focus on non-consumers.

Xiaomi’s Challenge

The implications for Xiaomi and Hugo Barra are clear. If Xiaomi chooses to prioritize foreign markets with low penetration of iPhones and high-end smartphones (e.g. India, African markets), the dominant entry strategy is to focus on cultivating the vast pool of non-consumers of high-end smartphones. Xiaomi’s resources should thus be directed towards converting feature-phone users to their phones, or educating a new generation of consumers without phones.

If Xiaomi decides to target markets with high penetration of high-end smartphones (e.g. USA, Western Europe), Barra should take a more patient approach. The first step should be to corner the (relatively small) market of non-smartphone users. The step after that involves seeking out non-consumption instances, e.g. selling Xiaomi software to existing Android users, as an add-on. In doing this, Xiaomi can form a “tribe” of loyal supporters with new emotional and social associations who can provide the platform for a push into the lower segment of the high-end smartphone hardware market. Only with this platform should Xiaomi pursue direct competition for low-end customers of Apple and Samsung. The strategy calls for a measured, careful approach – one that first analyzes the jobs that current non-consumers of high-end smartphones are trying to do (e.g. save money, “simplify my life”) and creates a compelling value proposition for them.

With a valuation of $10 billion after 3 years of existence, Xiaomi certainly has caught the eye of many investors. But as Barra settles into his new role, he might find that getting foreigners comfortable with Xiaomi’s name is the least of the company’s internationalization problems.

(Source: HarvardBusinessReview)

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