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ViVo, Oppo, Xiaomi need cheaper smartphone models to grow in India in 2017

China’s LOVE brands — Lenovo, Oppo, Vivo and Xiaomi — will have to introduce cheaper models in 2017 to continue their strong growth in India, CyberMedia Research said in a report.

The reason? India’s replacement and upgrade market — Rs 10,000-13,000 — will no longer be the center of action in 2017 and to continue their growth, the Chinese brands must target the Rs 4,000-6,500 entry level segment.

The youth of the country have largely bought decent Rs 10,000-13,000 smartphones (like Redmi Note 3/4) in 2015-2016 — the first time when such models entered India — and are unlikely to immediately upgrade to their next version.

On the other hand, the entry-level market (Rs 4,000-6,000) will continue to grow as more and more people try to take advantage of new 4G services. This market has been taken care of by Indian brands such as Intex, Lava, Micromax and Karbonn. The Chinese brands, who more or less ejected Indian brands from the mid-range (Rs 10,000-20,000) over the last two years, are not present here.

However, to continue to grow in 2017, the dragon companies will not have to also focus on the entry-level market, which cannot be good news for struggling Indian names.

“2017 will be difficult for them from two fronts. One is about them being able to keep the momentum of magnitude of spend going to remain visible and impact worthy as before. The second and even important one is to strengthen in the Affordable (< ₹ 10,000) Smartphone segment.

“Chinese, especially these LOVE brands have been popular among second-time Smartphone users. These brands hit the ‘Value for Money’ segment which propelled Indian mobile users, especially the youth to upgrade or replace in this segment of ₹ 10,000 – 20,000. This is from where we saw big success for Chinese brands, primarily these LOVE brands,” it added.

While Chinese companies’ growth last year was driven by replacement and upgrade, the thrust would be on first-time smartphone users in 2017.

Out of the 270 mln (27 cr) phones expected to be sold in 2017, smartphones are expected to account for 48%, up from 43% in 2016, CMR said. But a large proportion of these sales will be to first-time users who are upgrading from feature phones, and this requires a tweaking of the business model, especially for Vivo and Oppo, which are almost exclusively available in the Rs 15,000 band right now.

To some extent, Lenovo and Xiaomi are present in the entry level market, as they have models in the Rs 7,000-8,000 price range as well. However, when it comes to the true entry-level (Rs 5,000-6,000), even these players are missing.

“This situation will open up a new set of challenge to these LOVE brands in general and Oppo and Vivo in particular where the focus has been more on above ₹ 10,000 Smartphones of ‘Value for Money’, ‘Premium’, and ‘Supremium’ segments,” said CMR.

That is not to say that the action around the Rs 10,000-17,000 band will disappear. Arguably, the Rs 10,000-13,000 band has seen most of the exciting launches of 2016 — from Lenovo K series phones to Xiaomi Redmi Note 3 and LeEco Le 2.

GOOD FOR INDIAN BRANDS?

This emerging focus on entry-level brands will be somewhat good for Indian brands like Micromax, Lava, Karbon and Intex, said CMR.

In 2016, the youth market was dominated by Chinese brands that gave them the latest technology at the most affordable prices, while Indian brands were reduced to the rural and first-time user categories.

“The Indian brands of Micromax, Intex, Lava and Karbonn, which cumulatively shipped 69% of the entire domestic brand shipments, have seen challenging situations in 2016, for not being able to connect to the youth very well.

“Youth preferred value for money by having more and the latest at less, which was not catered by the Indian brands’ portfolio. Over it, the platforms where youth are actively and intensively present for Smartphone decisions were not engagingly pursued by these brands as against their Chinese counterparts. This affected their visibility considerably taking them down the zone of consideration of any Smartphone buyer,” CMR said.

The year 2017 will see a change in the market situation, both due to the shift to new customers as well as bitter lessons learnt by the Indian brands, said CMR.

The Indian brands have “realised the wrongs of a couple of years” even as “market dynamics again favor new Smartphone market development rather than the replacement and upgrade phenomena,” CMR said.

“It is not that the opportunity will not be there for upgrade and replacement at all. However, the greater opportunity definitely lies in the new Smartphone market development in 2017.”

However, out of the four MILK brands (Micromax, Intex, Lava and Karbonn), one of them is seen going down drastically in 2017 while one will emerge stronger. CMR did not specify which companies it had in mind. For 2015 and 2016, the second spot in Indian market has been oscillating between companies like Micromax, Lava and Intex, and this will stop in 2017, it predicted.

“We expect some shake-up with these MILK brands in 2017. First, there will be a definite No 2 for the Indian mobile handset industry (after Samsung) in 2017 ending the ‘floating’ challenger phenomena of 2016. One among these MILK brands will definitely grow exponentially while at least one more brand would see steep fall in stature. The remaining two brands will be average performers with fluctuating market standings through 2017.”

“Collectively, the biggest challenge for Indian brands in general and MILK brands in particular will be to connect with youth while building strong position among the new Smartphone users,” it added.

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