Why can't Chinese cellphones be expensive?

Recently Chinese mobile phone manufacturer VIVO has launched 2 new products, the Xplay 5 and the Xplay 5 elite respectively at ¥3698 and ¥4288, which leaded to a nationalwide discussion: can Chinese brand mobile phones successfully enter the middle and high-end market?  

A new trend

From HUAWEI, LENOVO to XIAOMI and VIVO, why are Chinese brands launching new products to target the middle and high-end market?

The reason is very simple: thanks to the harmonization of standards and the development of overall solutions, the barriers of manufacture has considerably lowered, so has the profit. Apple relies on the perfect combination of software and hardware and Google takes its profit from the promotion of its system: they have given up manufacturing, because it’s no longer profitable enough.

Chinese manufacturers are also aware of it. That’s why XIAOMI wanted to profit from its service instead of from hardware at the beginning of the business. However the gap between ambition and reality is sometimes cruel. XIAOMI is still living on a limited margin multiplied by massive sales, just like many other Chinese mobile phone companies. Considering this unsustainable model of development and the fierce competition in the low-end market, going up to the middle and high-end market seems to be the only choice in order to survive in this low margin manufacturing industry. 

Chinese brands' dilemma

Unfortunately, these products are not very successful, but why?

XIAOMI is a typical example to explain this situation. XIAOMI started its business by emphasizing the performance-price ratio of its products: the best hardware capacity with a modest price which was totally unexpected to Chinese consumers. This strategy allowed XIAOMI’s business to take off in a very short space of time. However it is also because of this strategy that the image of XIAOMI is associated to “DIAOSIJI”, phones for losers in Chinese and XIAOMI has kept this strategy for a long time. Thus consumers think that the price of XIAOMI must be equal to its hardware capacity. Once the price gets a little higher, the phone will be considered unworthy.

In the communication of XIAOMI’s later middle-end products, they tried to highlight the design but the most important part was still the capacity. Since Chinese consumers were already used to its high capacity low price products, the price was perceived too high.

What the Chinese consumers want

Why would consumers pay a high price for a mobile phone?

If a consumer is willing buy an expensive mobile phone, it’s usually not the phone itself that the consumer is paying for. There must be something else to compensate the premium. It could be the brand, the service, the design, the experience or the technology. 

Knowing this, let’s take a look at the communication of VIVO’s new products. They use the high capacity of hardware to justify a mobile phone whose  price is a little bit less expensive than an iPhone. It’s totally missing the point. They are giving consumers something that they don’t need or just don’t care about at all. 

The high price of the IPhone is justified by its brand, or more specifically by the unique experience of its combination of hardware and software. Samsung relies on its position in the market and its brand, which is why the price of its new product decreases very quickly. But what does VIVO have? Who is the target market? It is not so clear. According to VIVO’s marketing manager, they are not very frustrated by the unsatisfying sales. It may mean that this new product is just a market test and they might launch other products better suited to the target market.

To conclude, an unsuccessful high price phone doesn’t mean a definite failure in entering the high-end market. It’s never easy to conquer a new market. Chinese mobile phone manufacturers need to find their own advantage distinct enough to compete with Chinese brands and more importantly, to compete with foreign brands.

LIU Yi