Why do Xiaomi price their devices so cheap in India?

Xiaomi has announced last year that it will take the profit of 5% after the tax. It means, a device that comes with the cost around INR 5000 (budget phone) after tax will give approx INR 250 as profit.

Unit sold 100,000 x 250 = 2,50,00,000 - approx two and half crores of INR for just one sale of the budget smartphones. Imagine for the next sale for the same device. Also, add other mid-range and high-end smartphones' sale and their calculation.

This 5% profit may not be included the expenses like advertisement, launch and other official expenses. The profit amount may use by them for further development.

Xiaomi is reliable brand from the day one. Most of the products' are quality, software is much better compare to its competitors, thus, they stand high despite old Electronic giants are around for almost same device in a higher price.

Plus point is, less maintenance of Xiaomi devices and their customer service is much better compare to other brands. So, young generation prefers it, have trust on that brand without fail, so, recommendation also high among.

Xiaomi has been quite popular with its smartphones. The Note series, the flagship Poco F1 and the affordable Redmi phones are quite noteworthy. The reason for such popularity that these phones get sold out within seconds is because of its affordable price. When we say its affordable, we mean better specifications at a cheaper price. Now, the question is why are these phones so cheap? Or it can be rightly put as to how do Xiaomi offer such good specifications at a low price in their smartphones?

This is an interesting question and to answer it I may need to ask you a few questions too. How many of you have seen a billboard on roadside having Xiaomi's phone advertisement? How many commercial ads are put up on the show promoting their smartphones?

I hope you got my point. Xiaomi, in the beginning, refrained from heavy promotions or any advertisement of its product. They relied more upon word of mouth promotion by improving its service and products performance. Doing so, they saved millions of dollars, if not billions, from their advertising policy. Unlike other popular brands, the phones manufactured by Xiaomi are not advertised aggressively. The savings on this domain are open for development purpose which enables them to offer better specs and maintain their brand value as well.

Not only its advertising policy, they even have a unique sales policy right from the beginning. Earlier, they did not have many MI Stores in the country and almost all their phones were sold online. This enabled them to save on retail commission and all the cost of maintaining such stores.

Some of you might think, how weird such policy is - no promotion, no offline stores? But, apart from word of mouth promotion they took good advantage of promoting it through Flipkart & Amazon. Besides, did I mention that their phones are mostly put on Flash Sales? That itself creates the hype and make their phones go out of stock within seconds.

Redmi users might have also seen ads on MIUI in the Redmi Phones. This also contributes to an alternative revenue source for the company. If compared to Samsung and other popular smartphone brands, the Xiaomi phone enjoys many advantages due to such policies.

Thus, we can easily make out from these points how the company offers their phones at cheap price and yet earns profit.

Xiaomi company when formed was bootstrapped and they managed to use the outsourced manufacturers at first. When they launched their first phone, they were not having any manufacturing hub of their own. All the casing and other parts were from different manufacturers like it is for most brands.

Xiaomi saved money on the ads by doing the flash sales with E-commerce sites like Flipkart and then later Amazon. That was cheap for them plus those e-commerce sites paid them to get listed because they wanted traffic which Xiaomi was able to give them.

Xiaomi saved money on packaging at start Redmi 1S and Mi 3 and Redmi 2 were on the boxes which were extremely cheaply made. Not even phone specs were printed on that. So a lot of money saved in this stage.

No brand ambassadors for them at the start. Even the Katrina Kaif was signed up for only two models of their phones. Yi 1 and Yi2. Which later discontinued for some reason.

Like this, they have managed to save a lot during the bootstrapped phase. So the money saved in this process they can provide better specs, better products with quality outsourced packaging. This was pre-2018.

And now since 2018, they have opened the packaging unit in India where the outsourced parts are imported and packaged in India, creating jobs for Indian citizen under make in India initiative.

All of this contributed to their pricing cheaper. However, as they are doing more promotion and also adding heavy spec, resulting in some of their products costing minimum 12K onwards since last year. Plus they have now opened the service centers and also display centers across India which will increase their phone prices eventually.