Micromax: Preparing for the Chinese Invasion
Founded in 1991 by Rajesh Agarwal (Rajesh), Micromax Informatics Limited (Micromax) got into handsets business only in 2008 based on suggestions from Rahul Sharma (Rahul). Rahul had joined Micromax along with two other friends and classmates, Sumeet Arora (Sumeet) and Vikas Jain (Vikas) in 1999 (as equal partners of Rajesh). Rahul had convinced his friends to get into the mobile handsets business. They had set an undated ambitious target that someday they would have a turnover of INR10 billion. They learnt early on that if they understood customers’ needs and offered what customers wanted at prices that were affordable, the customers would buy Micromax mobile phones. This philosophy had made them number one in tablets, number two in the smartphone market and number three in the overall handset category. While they had set their sights at dethroning Samsung (the Number one player) in India, the Chinese companies like Xiaomi, Huawei and Gionee had started looking at the Indian market for growth. The flash sales of Xiaomi in India have been fairly successful. Rahul was wondering what Micromax would have to do to fight the
Chinese invasion.
Introduction to Micromax
In 1991, Rajesh founded Micromax Informatics as a distributor of computer hardware. The company sold software, telecom services and computer hardware to organizations even a decade after being joined by his three friends. In 2008, they diversified into mobile handsets and they have not looked back since then. According to Counterpoint Research’s Q3 2013 Market Monitor, Micromax is the tenth largest handset supplier globally (Exhibit I)...........
Strategic Initiatives at Micromax
To help itself to scale up fast, Micromax concentrates on its core strengths – product development, design, marketing and branding. Micromax has been busy changing the rules of the game – be it in product designs or the pricing or use of cricket for branding. They virtually have a mobile at every INR100 interval...........
Product
Offering innovative products at the right price has been the essence of Micromax strategy, though it had been helped by several other factors. Micromax focused on understanding customers’ unmet needs and requirements and getting the innovative solutions manufactured at China. The task of product engineering is to find solutions for local needs at ‘value for money’ prices.
It’s a common observation that mobiles have to be recharged often. In India, many villages and towns have a very erratic electricity supply system. This insight made Micromax launch its first phone, X1i with a thirty-day battery life and priced at INR2,150, which was readily accepted in rural India............
Going to Market
Being new entrants, Micromax knew that not only would it have lower brand awareness among customers, but also lower bargaining power with the distributors and intermediaries. The industry trend was that the phone manufacturers paid low commissions to channel partners, a major cause for heart burn. According to Agarwal, Nokia gave 2 per cent of which about 1 per cent would be passed on to customers as discounts. This caused dissatisfaction to trade partners..............
Customer Service
To strengthen its after sales, Micromax invested in CRM. By automation it reduced the response time to two days (from seven days), though it targeted solving 80 per cent of the complaints the same day itself. It increased spare parts inventory instead of the previous JIT ordering system and increased the number of service centres from 436 in March 2013 to 745 in November and targeted 1250 by March 2014...........
Promotion (Communication & Branding)
Early on, Micromax decided to work on its weaknesses and strengthen its brand. Though it was considered as a maker of cheap handsets, the reality was that it did not have any model in the sub $30 range. In fact, Nokia had 80 per cent of this segment. Micromax planned to put in INR1000 million over two-year marketing spend. Its advertising agency Lowe Lintas came out with a new tagline – “Boring is out”. It roped in Akshay Kumar (Hindi movie superstar) as its brand ambassador...............
Pricing
The pricing strategy of Micromax is to offer good value to its customers in comparison with premium products of global brands. For example, if a handset of a MNC brand with an 8MP camera and super Amoled screen was priced around INR35,000 or more, Micromax offered its A90 at INR13,000. “If someone has this device, the other guy who has that expensive one wonders why am I paying so much,” says the Micromax Chief............
Indian Market
By 2010, the Indian cell phone industry was worth INR270 billion. About 80 million of the 100-120 million handsets that were sold annually were imported. By just focusing on handsets with special features, Micromax market share went up from 0.6 per cent to about 5 per cent (International Data Corporation or IDC) in a short span of two years. What also helped Micromax was its pricing strategy in addition to its integrated communication and distribution strategies. The bonus was, the straying and decline of Nokia...............
The Chinese Onslaught
The first wave saw Indian handset manufacturers using Chinese facilities to expand the smartphone market and eat share of the global players. The current wave has the Chinese companies entering the lucrative Indian market. In 2013, Indian smartphone market grew by 2.5 times over 2012. A Canalys report estimated the annual Indian smartphone market sales to be 35-40 million and growing at 129 percent while the Chinese market was nine to ten times larger at 360 million and growing at 108 percent............
Xiaomi
Xiaomi launched its first smartphone in August 2011 and in two years’ time; the Q2 2013 figures (Canalys report) show that with a market share of 5 per cent it has beaten Apple (4.8 per cent). Most of their phones look like Apples but are priced almost half. Xiaomi sold only online. It also had an interesting game plan. Based on the analysis of customer feedback, the company launchs a batch (100,000 units) of smartphones at noon (Beijing time) every Tuesday..............
Obi Mobiles
Obi Mobiles promoted by John Scully (Ex-CEO of Apple) was launched in India by Ajay Sharma a veteran who’s worked with HTC and Micromax. The handsets were manufactured and sourced from China. Obi launched Octopus S520 for INR11,990 and another five handsets priced in the INR4000 to INR8,000 range.............
Huawei
The world’s third-ranked smartphone player, Huawei has been there in the Indian market albeit a low market share of 1 to 2 per cent. To improve its image and to get a higher recall31, they partnered with IPL team, Royal Challengers Bangalore, as its main sponsor. This gave them exposure through team jerseys and other in-stadia media...............
Gionee
Gionee entered India in 2013 and is counting on maximising its value chain efficiency. This includes its critical R&D, manufacturing, and trained in-shop promoters of 3,500 multi-brand shops. While Gionee acknowledges the importance of pricing the product right, it preferred to differentiate their product on the hardware (simply better machines) and not the software add-ons.............
Exhibits
Exhibit I: Micromax – Revenues
Exhibit II: Micromax’s Product Portfolio
Exhibit III: The 100 Million Club: The Top 14 Mobile Markets by Number of Subscriptions
Exhibit IV: Mobile Phones Shipments
Exhibit V: Margins
Exhibit VI: World’s Top 5 Smartphone Vendors in Sales Units (in millions)
Exhibit VII: India’s Mobile Handset Market (Q1,2012)
Exhibit VIII: Micromax vs Xiaomi