After a brief period of disruption, it’s business as usual.
Contrary to what many believe, it isn’t the Xiaomi Mi3 but the Motorola’s Moto G that emerged as the first server-crashing, 404 error thrusting online exclusive smartphone in India. It was Moto G’s unprecedented Flipkart success, or rather its success in creating a virtual stampede, that opened online route for mobile phone manufacturers in India.
Of course, Xiaomi followed with a big splash in 2014 with a measly Mi3 stock and was surprisingly well received. This further motivated Chinese competition to pour in phones with towering specs for staggeringly low prices, eventually rendering the domestic budget offerings lackluster.
This success, however, wasn’t in terms of retail volumes. Domestic brands like Micromax were selling more in a month than combined Xiaomi and Motorola sales in a year. In fact, right up until the last quarter, Micromax was pushing more than Lenovo and Xiaomi put together (Even when it’s having a relatively slow year).
If at all, it is the often ridiculed offline focused Chinese brands like Oppo, Vivo and Gionee which are challenging the incumbent players, registering meteoric growth YoY.
And it is for this very reason that all major online brands are now trying hard to make inroads offline. Which explains the opening statement.
Are online exclusive phones better?
The logistics costs and distributor margins saved allow OEMs to cram better hardware in their online offerings. It’s not just the specs, though. You can most certainly get a better deal online when it comes to smartphone purchases.
The practical experience that online smartphones offer is almost always ahead of the counter offline offerings in the same or even higher budget.
Having said that, we must say that not all online manufacturers are zealously striving to improve their after sales support infrastructure. A few have even attempted to push phones even without a single service center in place.
On the other hand, offline offerings have resorted to, what can be deemed as, extreme measures to avoid consumer complaints. For instance, since Indian consumers are very sensitive to heat, we have seen offline brands siding with mediocre performance but thermally efficient chipsets like MT6753 even for higher mid-range phones.
No brand would want to upset retailers who are on the front line when it comes to receiving consumer ire in the offline zone.
The nature of online market is very sensitive
While we are discussing how the two arenas differ, a few more defining traits need to be stated.
By its very nature, the online market is very sensitive and overly sentimental. A few bad reviews or even a new, relatively cheaper entrant could have a colossal negative impact on sales or accelerate returns.
The offline market, on the other hand, can digest even incompetent products. Quite a few gullible consumers rely on their own hands on experience or trust retailer verdict before taking the plunge. Most such users also have bare minimum needs, so perhaps they have no reason to complain even if the XYZ phone is a notch faster in the same budget.
The online consumers, on the other hand, are more likely to be influenced by the hearsay.
This important distinction between the two makes for one important reason why manufacturers are now increasingly leaning towards offline retail presence.
Consumers are willing to spend more
Besides, consumers aren’t hankering for cheap phones anymore. Smartphones are more indispensable than ever before and tormented by poor experience from high-specced phones, second-time buyers are willing to spend more for anything that actually works as it should.
The premium range has seen a healthy growth this year and that is a domain largely inaccessible by ‘online exclusive’ brands and even domestic manufacturers who haven’t had much success anywhere north of 20,000 INR mark.
Global offline brands like Vivo, Oppo and Huawei do have a significant presence in the premium space (about 40 percent) and have successfully dodged the ‘Cheap’ smartphone tag and thus are in a very good position to benefit from this growth in the premium domain.
A similar shift in China has placed Xiaomi in a tough spot. A recent article from Bloomberg elaborates the point very well.
In a country where just 34 percent of the population has Internet access, the offline market is naturally a bigger playing field. Online sales have always been a fraction of Offline revenue, so in that sense, the online market was never a competition in the first place.
However, there is a very palpable shift in online-offline dynamics.
Key players with strong offline roots, like Samsung and Lenovo, aren’t loosening their online reins but online first brands like Huawei’s Honor, LeEco, YU and even Xiaomi are actively trying to maneuver their online fame for offline presence.
All major online brands that shot to instant fame in 2014-15 have abandoned their online exclusivity. And the major offline stars like Oppo, Vivo, Panasonic, and Gionee are still not showing much online inclination.
That isn’t to say that Online sales are declining. Lenovo was able to push Micromax to the third spot in Q3 2016 and its online stronghold must have had a big role to play here.
An executive from reputed OEM revealed to Smartprix that online market share currently oscillates between 15 to 25 percent every month, peaking in festival seasons. That isn’t small by any means, but the average sales price isn’t much to write home about.
There are many factors into play and 2017 should be the decisive year where we will get a much clearer picture of where the Indian smartphone market is heading to.
What does that mean for consumers? The cut-throat competition in the affordable price bracket might slacken next year. Manufacturers aren’t very enthusiastic about playing the price game or competing at razor thin margins anymore. Online offerings have been grabbing all the headlines for the last two or more years, but against conventional wisdon, the ‘Offline’ continues to reign supreme.