Here's how Xiaomi keeps the prices of smartphones low

The Chinese phone maker, Xiaomi, entered the Indian market in August last year, and sold  over 1 million phones by December . The company has even managed to surpass Samsung in China and is now the world’s third largest phone maker. The Mi phones are put up for sale in a unique flash sale. By putting up a limited number of devices and making it a first-cum-first-serve basis, the company has cleared heaps of devices from its inventory without spending much on advertising and solely relying on social networks to convey its messages. Now, Xioami devices are priced typically under Rs 15,000. It’s only the new Mi Note that can be called slightly expensive with a roughly Rs 23,000 price tag and the Pro version for over 30k, which still makes them worth the money with specs almost at par with the high-end premium phones from Apple and Samsung. The Mi Note is being stacked against the Galaxy Note 4 and iPhone 6 Plus that cost over two times the price comparatively. The Mi 3 with mid-range specs was sold at approximately Rs 13,000 and the Xiaomi Note 4G costs slightly above Rs 10,000. If you look at the specs of these devices and the price tags they carry, Xiaomi’s pricing is quite aggressive and helped them make a mark in the Asian market. Hugo Barra, who is the face of Xiaomi in India, told Techcrunch  about how they manage such low prices. The big factor, he points out, is the “the combination of a small portfolio and longer average selling time per device.” Moreover, it still continues to sell older devices in spite of the new product launches. Most of Xiaomi products stay on shelf for almost 18 to 24 months, and during this time, it goes through two to three price cuts. For instance, the Redmi 1s was launched in September 2013 and continues to sell, while the Redmi 2 was launched only recently. And it is this longer run that allows the company to secure better component deals with suppliers. “The reason we do these price cuts is because we’ve managed to negotiate component cost decreases [with our suppliers] over time, which ends up leaving us with a bigger margin than we’d like to have, so we do a price cut,” Barra told Techcrunch. As a majority of the components in its devices are still the same, they continue to get discounts. It’s the small product family that helps achieve this. However, it’s not just the price cuts that help in the runway. Showing its commitment for the product for such a long span of time, it has to release timely software updates, spare parts and other services that will be required by the consumers. Some other factors contributing the cost structure are online-only marketing and a location closer to manufacturing plants in China. However, lately it has started its first trial-run to sell devices with partnership with telecom operators. In India, the company has steamed up with Airtel to sell the Mi devices and has gone beyond the usual online selling process. In India, wherein most people are on pre-paid tariffs, such partnerships are very difficult, he added. However, the company is looking at every possible way to increase its footprint here. When Xiaomi entered the Indian market in August,  Barra had told us , “India as a market has a lot of potential for smartphones, but it will probably take a couple of years for it to reach this potential. It’s like quarter of a size of China’s smartphone market or maybe even a fifth, so obviously there’s a long way to go.” The company has started looking for partnerships in Malaysia and Singapore too, and also plans to start selling its products outside of the Asian market.