Wendell Smith introduced the theory of ‘targeted marketing’, writing in a 1956 essay: “Market segmentation involves viewing a heterogeneous market as a number of smaller homogeneous markets, in response to differing preferences, attributable to the desires of customers for more precise satisfactions of their varying wants.”
It’s not very pithy prose, but it’s still very pertinent advice: develop a portfolio of brands and sell them to different ‘segments’ in the market.
A case in point would be Volkswagen, the world’s largest carmaker, which offers workmanlike brands like Skoda and SEAT, the more luxurious Audi, and high-end marques like Porsche and Bentley.
Chinese smartphone makers are following suit, creating new brands with different identities. Examples include Huawei’s launch of Honor, Oppo’s debuting of RealMe and Xiaomi spinning off its RedMi series as a standalone range.
Vivo announced another new brand iQOO over the Chinese New Year. Translating as “loving the cool stuff” in Mandarin, it will fight it out in the upscale segment, with the brand’s debut smartphone coming with a Qualcomm Snapdragon 855 processor, 12GB RAM and 256GB of onboard storage. Its fast charging system promises a full battery in just 47 minutes, and comes with three cameras on the back.
“Given the specifications and teasers, it looks like that this could be a gaming device, and it will compete with other gaming phones like Razer phone, Nubia Red Magic, Asus ROG Phone and Xiaomi Black Shark,” wrote Digit.in, an Indian media outlet, noting that the handset could be priced at Rmb7,000 ($1,042) and up.
The saturated state of much of China’s mobile phone market is widely cited as another reason for Vivo’s eagerness to push through a sister brand. Shipments in the country tumbled 14% last year to 396 million units, the lowest since 2013, said Canalys, a research firm. Only Huawei and Vivo managed to buck the downtrend, registering 16% and 9% respectively in unit growth.
“High-end products look for a brand premium, whereas low-end products seek margin. The latter can never really be enduring,” Sun Wei, director of Tsinghua University’s Brand Marketing Centre, told Sino Foreign Management magazine.
Sun believes that budget products, or brands costing less than Rmb3,000, will see their market share dwindle, while the middle market (phones in the Rmb3,000-5,000 range) will gain ground but draw intense competition. “iQOO has to get into the more premium market or it will be marginalised,” he says. “Being viewed as a cheap brand now will lead to more marketing expense and less profitability in future.”
There are contrary views about the attractiveness of the high-end market. One is that owners of the best phones keep them longer, because of the higher prices. Sales of Apple’s premium range – smartphones like the iPhone XS and XS Max – have also been disappointing.
China’s higher-end phones tend to cost less than their global rivals. But Sun’s predictions may shed some light on why Xiaomi’s ninth iteration, released last Wednesday, comes at a higher price too. The version with a see-through back costs Rmb3,999, although the standard model is Rmb2,999. Xiaomi’s boss Lei Jun said this could be the last time that one of his flagship phones is priced below Rmb3,000, the South China Morning Post reported.
The Beijing-based company grew its local market share by one percentage point to 12% last year. In contrast, leading player Huawei saw its share jump seven points to 27%. Oppo and Vivo – both backed by Dongguan-based BBK Electronic (see WiC409 for more) – took second and third place, each taking 20% of the pie.
BBK’s boss Duan Yongping has been a pioneer of Wendell’s brand portfolio strategy, putting capital into Oppo and Vivo (whose early success depended in part on price-sensitive consumers; see WiC358) but also into OnePlus, a brand that appealed to techno hipsters in Europe and the US (see WiC290).
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