Online Smartphone Sales in India: Chinese OEMs Ride High On the Back of Flipkart

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As India rapidly gains in stature as the next big smartphone market, taking over from the likes of US in sheer volume of phones shipped, we find that smartphone OEMs have come up with newer business ideas to stake their claim on the Indian pie. Competing with established manufacturers like Samsung and Micromax can be tough for newcomers given that India's budget sensitive audience keeps profit margins meagre, leaving little room for offline advertisement or sales structures. This is why the Chinese entrants like Xiaomi, LeEco, Meizu, and Coolpad, to name a few, have taken to the online route.

But how successful has their online-only sales model been? Well, successful enough to have the Indian manufacturer Micromax scrambling to launch a sister company, Yu Televentures, in an attempt to beat the new entrants at their own game. So, is going online only and cutting costs enough to make one of the new entrants King of the Indian Smartphone Race ? Or will companies like Samsung who have expanded their portfolio to now cover both online and offline channels hold onto their supremacy ? While there is every chance that this battle for supremacy will be a long drawn affair, today, we have a special report from Counterpoint where we find out who has won the initial skirmishes as we set our sights at predicting the conclusion of this war!

The Influence of E-Commerce Channels on Online Smartphone Sales

While in most other markets the rise or fall of e-commerce companies wouldn't have affected the sales of any particular smartphone OEM, the tale is quite a bit different when it comes to India. Here many manufacturers choosing to go the online route, ink exclusivity deals with certain online e-commerce sites. While this helps in bearing the advertisement costs for the OEM and draws in even more potential customers for the e-commerce giants, on the flip side, the sales of the smartphones get intrinsically tied to the e-commerce companies.

In 2015, one in every three smartphones sold in India was through online channels– testimony to the rapid rise of online sales model in the mere 18 months of its existence. In this virtual land grab, there have been three main competitors who among themselves have contributed to nearly 90% of the total online smartphone sales. Flipkart with 47.5% of the total market share has raced ahead of the others. Snapdeal and Amazon find themselves a distant second and third with 22.3% and 21.5% of the market share respectively.

While Amazon and Flipkart have reaped the benefits of being early players in the Indian scenario, their position at the top of the hill is soon to come under heavy duress. With the new rules allowing 100% FDI in e-commerce spaces, along with the 25% cap on sales for inventory-led e-commerce players, both Amazon and Flipkart find themselves in a sticky spot facing an uncertain future.

Lenovo takes the lead in Online Sales, Xiaomi Languishes at Fourth

Motorola with their Moto G lineup was the first to find success in the online-only segment. Following Motorola's acquisition by Lenovo, we see that the Chinese company has followed in the footprints of Motorola releasing several phones in the sub 10k category and racking up sales numbers by dint of their value for money product. Lenovo also managed to get the most out of the flash sale ideology introduced by Xiaomi as one of their A6000 Plus sold more than a million units in a matter of seconds.

Quietly and away from all the hype, Samsung has yet again transitioned smoothly into the online sales model snagging the second spot with 17.8% of the online sales market. Close at its heels is Micromax, the Indian company that has recently been cited to be in corporate doldrums. Interestingly enough, the top three companies remain the same even if we take offline sales into consideration although Samsung then surges forward to take the top spot with 26.8% of the Indian smartphone pie in Q4 2015.

However, the most important and to an extent astonishing observation remains the fact that Xiaomi, the company that had really ignited the online smartphones sales in India finds itself in 4th position with a mere 8.9% of the market. This is troubling news indeed for Xiaomi as the company focuses only on online sales. With its home market of China, showing signs of slowing down, Xiaomi is under pressure to increase the sales of smartphones in India and has all its hoped pinned on the Mi5 and the Redmi Note 3.

With Apple and its iPhone lineup displacing Xiaomi from the throne in China, and also leapfrogging ahead of the company to the 6th spot in India's urban markets, the Chinese startup has an uphill battle if it wishes to hold onto its share of the online smartphone market. So what does this bode for the new entrants into the Indian smartphone market who are looking to make a mark in the consumers minds through the online marketplaces? We find the answer to that very question in our final segment.

Final Thoughts

Despite India being the second largest smartphone market in terms of number of users, the smartphone penetration remains quite low with only four out of every ten mobile users being equipped with a smartphone. This is all set to change in the next half a decade as India is all to set to breach the 700 million mark in smartphone users by 2020. This provides a great opportunity for all smartphone companies to grab a significant chunk of customers as India looks to emerge as the new global leader in smartphone markets.

However, while the lure of customers is quick to blind most OEMs, India is a market rife with its own pitfalls and challenges. One of the primary challenges faced by companies in India is the budget oriented mindset of the customers. This has been proven time and again by various reports where we find that the Indian smartphone buyers are most comfortable in the 100-150$ price segment. With such low margins to work off of, companies going for the online route have till now depended on the inventory-driven e-commerce sites for hefty rebates as well as for advertisement.

As Research Analyst Pavel Naiya points out, "We believe the competition will intensify in 2016 as players such as PayTM, Shopclues and others are aggressively promoting their platforms and a greater shift towards marketplace models."

So what is the way forward for Smartphone OEMs looking to establish themselves in the Indian market? We have jotted down some important factors that companies would do well to keep in mind as they advance on their next course of action to venture into the Indian smartphone arena.

Chinese OEMs have managed to capture nearly half of the online smartphone segment in India. For Indian brands to survive in this evolving marketplace, they'd have to get off their haunches and start following in the footsteps of Micromax. Yu Televentures, a subsidiary of Micromax is the only Indian manufacturer to break into the top 5 as far as online sales are concerned. Lava and Intex trail Micromax by a fair distance in this segment.

4G LTE capable smartphones have been a primary draw for many consumers with as many as 3 out of every 4 devices sold in the last quarter through online channels having been LTE capable. Going into the future, LTE devices will be driving growth for the OEMs in all segments and manufacturers must focus on getting more 4G capable devices available at budget price segments.

With the falling ASP of smartphones, it becomes harder for Tier 1 companies like Samsung to compete with the Chinese manufacturers on a price to performance ratio. This provides the perfect opportunity for companies like Xiaomi, Le Eco and even to an extent Lenovo, Oppo, and Asus to take control of the rapidly expanding budget segment. A rat race for the best spec-d device for the price is futile; companies must instead focus on developing their own UIs so that they can provide a unique experience.

There has been very little brand loyalty shown by Indian consumers when buying phones. As a result, companies selling their products will need to make keen informed decisions on choosing the best e-commerce site to partner with so that they can hit the perfect balance between reach, rebate, and reliability.

And here we find that words of Mr. Pavel Naiya to hold water again as he remarks

Thus, going forward we believe the onus will be on brands to drive promotion and sales in these marketplaces, rather than depending on the inventory-led e-commerce players for any significant sales boost.

Evolving with the situation at hand is one of the most important traits of a successful business and the OEM with the most astute reading of the situation at hand will be rewarded with the crown of the Indian online marketplace!

Source: Online Smartphone Sales in India: Chinese OEMs Ride High On the Back of Flipkart