1.3 million smartphones, nearly 4.8 million pieces of accessories, all sold out in 12 hours. At 22:00 on 8th April, 2014, Xiaomi’s total transaction amount in the latest round of “Mi Fan Festival” came to a halt at 1.5 billion yuan (USD 243.35 million), setting a new domestic record for single-day transaction amount in independent e-commerce companies. And at the same time, Xiaomi’s UV of the day hit 15 million.
Before 8th April, Xiaomi had rarely been referred to as an e-commerce company. But with this Mi-fan Festival, Xiaomi exemplified its extraordinary capability in e-commerce. The fact is, by the end of 2013, Xiaomi had already become the third largest B2C e-commerce business in China by revenue, ranking only after Tmall and JD.com. For Lei Jun, Xiaomi’s CEO and founder, the enormous sale during this year’s Mi Fan Festival signifies Xiaomi’s coming of age as an e-commerce platform. The company decided to forsake their off-line Mi Fan Festival after organizing it for consecutive 3 years, extremely focused on online promotion this time.
But Xiaomi is in many ways different from traditional e-commerce companies. Its key concepts such as peak-load sales, customization, speed delivery, social marketing and integrated eco-system are far ahead of traditional e-commerce. Xiaomi’s exceptional skills in peak-load sales allows it to launch a new promotion every week, whereas the traditional e-commerce companies’ load balancing approach drags them to a bloody battle every time a promotion season arrives; Xiaomi uses its high cost-performance smartphones as motive power to drive up the sales of peripheral products, whereas the traditional e-commerce companies still lay more emphasis on replenishing SKUs; Xiaomi brings fresh traffic flow by social marketing, whereas the traditional e-commerce companies are still discussing increased traffic cost from Taobao.
With an integration of its unique sales model, e-commerce platform and logistic system, Xiaomi demonstrated a whole new eco-system never seen before in the business. It is a whole new way of thinking that will still take time for the market to fully comprehend. Here are a few lessons Xiaomi has already taught the world of e-commerce.
Hit Product Combined with Strong Peak-Load Capacity
First, let’s look at an experiment on e-commerce in its early form Xiaomi performed back in 2011. In order to make a smooth way in the opening of their e-commerce business, Xiaomi’s co-founder Li Wanqiang and his team tried their hands first in a project dubbed “Xiaomi Snackbar”, launching an online promotion to sell coke. At first, the price for a can of coke was suggested to be set at 1 yuan. But Li’s idea was more radical: “If we do it, we do it fierce. Make it 0.1 yuan)!” Thus, the team sent out an internal mail in the company, encouraging all the employees to order a coke online at lunch time, and collected feedback on shopping experience upon delivery.
This case proved to be Xiaomi’s e-commerce model in its embryonic form. One of the principles is to bring out a hit product and sell it at a mind-blowing price. Xiaomi sold all of its half-million MI phones intended for the first round of this year’s Mi Fan Festival in less than 15 minutes. Its 69-yuan (USD 11.19) portable charger became a star peripheral product, topping 100,000 in sales volume. Another principle is to launch intense sales in specific time frames, which requires a robust system that can endure the traffic at peak-load. In this year’s Mi Fan Festival, the peak-load page view reached 1.5 million and the backstage system came out safe and sound. Comparing to system breakdowns seen in previous campaigns launched jointly with Yixun and Weibo, it’s obvious that Xiaomi’s peak-load capacity is well beyond average, a result of constant honing by its weekly promotional sale in the past two-and-half years.
A “Just In Time” Logistic System
At 13:29, 8th April, the purchase of the first order in the Mi Fan festival was delivered by a SF Express courier to a woman in Nanjing, less than 4 hours from submission of the order.
Xiaomi is growing faster as it is growing bigger. As its logistic team grows from 400 employees in the very beginning to 1500 employees at present, its inventory turnover period is shortened from 30 days to 7 days. Now Xiaomi owns 10 storage/logistic hubs in the country, which served as an infrastructural foundation for its rise as an e-commerce giant.
In fact, Xiaomi’s logistic system borrowed the “just in time” model from Toyota since the very beginning, seeking to build an agile production system with a minimum inventory. But Xiaomi’s model is unique. Its online dimension allowed it to eliminate many redundant middle channels, greatly shortened the circulation period of critical data, and thus developed a speed supply-chain. Presale orders taken one week in advance coupled with a range of indices such as the sale volume of the week and the popularity of certain topics on Weibo are used to make production plan for the next week. In this way, the output of the present week is the sales volume of the next week; products are shipped right away when they reach the storage center, keeping almost zero inventory throughout the whole process.
The Art of Social E-Commerce
In this year’s Mi Fan Festival, the single-day UV at xiaomi.com exceeded 1.5 million. What’s mind-boggling for other online businesses is that Xiaomi spent practically nothing on marketing. This result can be attributed to the marketing matrix Xiaomi has built in an array of new media including Weibo, WeChat, Xiaomi Forum, Baidu Tieba and Xiaomi Mall.
The secret of Xiaomi’s swift rise is in building up its own Mi-fan culture and encouraging users’ participation by means of a game-like interaction mechanism. For example, Xiaomi invited its users to join an interactive finger-guessing game and gave out gift coupons to winners. This program alone drew in more than 1.1 million users.
In the age of online networking, the know-how to make use of new media is certainly giving wing to Xiaomi’s growth.
The Eco-system of an Integrated Platform
Xiaomi has always adopted a marginal-cost pricing strategy. If a company sells only hardwares, it would take a long time until the profits balance off its initial expenses. But Xiaomi is an integrated service platform that incorporated both hardware and software, meaning that it will have much more possibilities as an e-commerce company. Its independently developed software products such as MIUI, Duokan Reader together with its after-sales division all joined the campaign of this year’s Mi Fan festival, providing support for MIUI theme and ebook downloads. As a result, the single-day downloads of with-charge MIUI themes surpassed 100,000, while downloads of free MIUI themes surpassed 550,000.
Peripherals are another important contributor to Xiaomi’s eco-system. Statistics published by Xiaomi indicated that of the 1.5-billion-yuan revenue reaped during the Mi Fan Festival, over 100 million yuan (USD 162,232 ) came from peripheral sales.
In addition, Xiaomi is also developing lines of life-style products targeting specific social groups. This can attract big brands to produce customized products for Mi-fans in cooperation with Xiaomi. For instance, the Swiss knife producer Wenger introduced a 399-yuan (USD 64.73) “Xiaomi-Wenger” bag, which was sold at Mi Fan Festival at only 99 yuan (USD 16.06). The reason why Wenger was willing to take up this unprofitable business was that Xiaomi has gathered a large group of Mi-fans, which might be turned into a great source of profits in the future.