XiaoMi’s New Retail Strategy

In 2016, Xiaomi embarked on an extensive drive towards new retail, committing to uniform pricing for both online and offline channels. Xiaomi’s ability to offer high-value products at unbelievable prices in the past was largely attributed to significantly lower costs in online direct sales compared to offline retail. But can they pivot to offline retail while maintaining parity with online pricing? If the cost structure offline matches that of online, doesn’t it imply that previous online prices were not as competitive as they seemed?

Increasing foot traffic equates to drawing more visitors into stores. How does Xiaomi select its locations?

Previously, Xiaomi stores were situated in office buildings, attracting only dedicated fans. Now, Xiaomi realized that its user base significantly overlaps with customers of Uniqlo, Starbucks, and Muji. Consequently, they chose locations akin to fast-fashion brands, collaborating primarily with renowned real estate developers in key commercial areas. Gradually, Xiaomi secured a foundational flow of customers.

Aligning with fast-fashion brands? But here’s the challenge: fast-fashion outlets thrive in expensive locales due to their high-frequency consumerism. However, smartphones are low-frequency purchases. Isn’t choosing such expensive locations a risky move?

What did Xiaomi do? They adopted a crucial strategy: transforming low-frequency into high-frequency. Xiaomi invested in numerous ecosystem companies, producing power banks, fitness bands, headphones, electric scooters, rice cookers, among other diverse products. Although each item individually falls under low-frequency consumption, combining these products transforms low-efficiency foot traffic—where customers enter the store without a specific purchase intent—into high-efficiency traffic that consistently makes multiple purchases.

Conversion rate refers to the percentage of people who actually make purchases upon entering the store. How does Xiaomi enhance its conversion rate?

Despite offering a wide array of products, Xiaomi focuses on only a few variants within each category. This approach allows them to dedicate more attention to individual products, enhancing their design and quality, thereby naturally boosting conversion rates and creating blockbuster products. The immense sales generated by these blockbusters inevitably lead to reduced supply chain costs, enabling Xiaomi to keep prices as affordable as possible. A high-quality product at an incredibly low price naturally results in substantial conversion rates.

Moreover, Xiaomi utilizes big data to curate the product selection in offline stores. They prioritize selling proven best-sellers online, such as the Mi 6 smartphone, fitness bands, and rice cookers. Simultaneously, they tailor selections based on the preferences of local demographics. For instance, if online data shows a significant demand for rice cookers from users in Henan province, the offline store in Henan will undoubtedly feature rice cookers. This data-driven precise product selection significantly boosts the conversion rate.

Average spending per customer refers to how to encourage customers to buy more items in a single purchase. How does Xiaomi increase this association rate?

Let me illustrate. Suppose you purchase a Xiaomi surveillance camera and find it excellent. If you buy a router next, the surveillance data can be stored on the router’s hard drive. If you then buy a television, you can monitor your office from home by simply turning on the TV. If you also own a Xiaomi phone, the photos you take while traveling can be instantly viewed by your family on the TV. And so on.

These interconnections in product technology, synergy, or even just the visual appeal, significantly enhance the association rate, compelling customers to make additional purchases.

How can you make users who’ve made purchases return repeatedly and buy more each time? How does Xiaomi increase repeat purchases and uncover the “customer lifetime value”?

Xiaomi divides its omnichannel retail into three tiers: the online Mi Store, Mi.com, and the offline Mi Home. Mi Store offers 20,000 products, functioning as a platform for crowdfunding and screening blockbuster items; Mi.com features 2,000 products, comprising Xiaomi’s own products and those of the ecosystem; and Mi Home carries around 200 products.

When a customer makes a purchase at Mi Home, staff guide them to install the Mi Store app, granting access to a broader range of categories for their next purchase via mobile. This process turns a one-time in-store visitor into a Xiaomi member, significantly contributing to an impressive rate of repeat purchases.

This is Xiaomi’s “new retail.” Its essence lies in enhancing efficiency across traffic, conversion rates, average spending per customer, and repeat purchases. Ultimately, they achieved a sales density of 270,000 RMB per square meter per year, just behind Apple’s 400,000 RMB, surpassing many other mobile phone retailers by a considerable margin. I hope you can apply the knowledge we’ve gained in this course to gain insight into the real world of business.