The epic journey of online-only mobile brands

In the last 12 months or so, a number of mobile brands have adopted the online-only sales strategy and results indicate that consumers have taken a liking to this new approach. In India, the online-only strategy was first embraced by Motorola with its then flagship product Moto G in partnership with India’s largest e-commerce marketplace, Flipkart. When Motorola first announced this approach, few market analysts would have expected the Moto G to sell out within 15 minutes of its first opening. While this event has been eclipsed by rival brands such as Xiaomi and OnePlus, in hindsight, it will forever be remembered as the beginning of a consumer trend that nobody had previously anticipated. The reasons for its success are slowly coming to the fore.

One very plausible reason why brands such as Xiaomi and OnePlus have successfully entered the market through their online-only strategy is the reach that an online platform like Flipkart offers their product. By adopting an online-only strategy, these brands are able to reach consumers in smaller cities where the retail sector isn’t organised as well as it is in bigger cities. An online-only strategy actually allows these brands to give their products unprecedented visibility in Tier 1 and Tier 2 cities right from day one. Another reason why the online-only approach has worked is that with time, consumers have grown more comfortable with online buying.

Consumer awareness and improved online buying experiences have also led mobile brands into believing that offline buying is overrated. These days, when consumers want to buy a new phone, they resort to comparing the prices and specifications on offer from various brands before arriving at a decision. This process can be best executed online with a wide variety of brands to choose from when compared to the limited variety they might find at a retail store. Also, price and specification comparison is made simpler online thanks to price comparison websites. Consumers don’t have to visit multiple physical retail outlets to zero in on their choice.

Perhaps the most important reason why brands such as Xiaomi, OnePlus, and even new entrants such as InFocus have been using an online-only strategy is that it allows them to control the pricing strategy of their products. (This week Xiaomi announced that it is broadening distribution, including offline stores.)

Just like other consumer electronics goods, mobile brands have always had to go through the cumbersome distributor-retailer cycle to make their product accessible to the consumer. In the traditional offline model, mobile brands either build their own distribution network or strike a deal with one or more established distributors. And if you are a foreign brand looking to make inroads into a local market, this cycle gets further complicated.

In a market that changes every few months and has an incredible number of competitors, building one’s own distribution network is a bother most foreign brands would ideally want to avoid. This is mainly because this is a time-consuming process.

The other option for these brands is to opt for a national distributor. These national distributors will end up making a margin on the sale of each device, pushing the price up. Then come the regional distributors. They also need to make a margin on the sale of each device, pushing the price further up. Finally, it’s the turn of the retailers to make a margin on the sale of each device. By this time, the price of the device goes up a fair notch. If you think Xiaomi’s current flagship Mi4’s 16 GB version is a steal deal at ₹19,999, imagine adding another ₹3,000-5,000, or maybe more, to that price. Now it doesn’t sound like a steal deal anymore, does it? That’s what the distributor-retailer cycle can do to the price of a device. Xiaomi and the likes can afford to give the consumer a favourable price because the online-only strategy allows them to do so. This is also why you get to see different prices for the same devices on various e-marketplaces. Mobile brands are able to pass the benefit of price-saving to the consumer. The e-commerce brands also don’t need to save a margin from a sub-retailer. It’s a win-win situation for all parties involved.

Motorola’s online-only strategy for the various versions of Moto G and later Moto E was such a success that it ended up selling more than a million of these devices. Xiaomi followed suit and has done well with the sale of its Mi3, Mi4, and Redmi 1s devices. This strategy has paid rich dividends for Xiaomi as it is now among the top three smartphone brands in the world, third only to Apple and Samsung.

Earlier this year, the Micromax-owned Yu Televentures brand launched its first flagship product, the Yureka. It entered into a deal with Amazon for the online sale of this device.

Brands such as Lenovo and Xolo have also decided to adopt this strategy. Lenovo has already announced plans to take on the likes of Xiaomi with its online-only brand Shenqi. Brands like vivo are making a foray into the market, taking advantage of this method.

Lava International’s smartphone brand Xolo has been in the news for building its own e-commerce platform which it intends to use to reach a wider consumer base for an online-only sub-brand it is building.

While the online-only strategy may have many ups, it also offers no immediate reasons for bigger players to join the bandwagon.

Huge brands such as Apple aren’t likely to switch to this sales channel full-time anytime in the near future. They have no reason to. Apple’s sales are built upon brand value and standing in queue to buy an Apple iPhone is still very much a fan thing. Apple’s marketing makes the brand and its products desirable and that is why switching to an online-only model seems highly unlikely.

Then there is the South Korean behemoth Samsung. Samsung currently sells a large majority of its smartphones through the traditional model. It does offer select e-tailers exclusive deals where they can sell a particular Samsung mobile through their online marketplace, but by and large Samsung is a supporter of the traditional method and believes in this sales channel. Some would argue that’s only two brands to take into consideration but these two are the current flag-bearers of the mobile industry, the top two smartphone makers in the world. And as long as they, and others like them, are convinced, the offline distributor-retailer cycle is likely to remain healthy in the foreseeable future.

Other factors have also led to the success of the online sales channel. India’s internet penetration has grown to 300 million+ and is on the rise. Although e-commerce is said to account for only about 1 per cent of total retail sales, this 1 per cent accounted for sales worth $5.3 billion. As this online-only strategy by smartphone brands takes shape, these figures will see a surge in sales. Internet penetration is allowing e-commerce brands to reach a critical mass of potential customers. As more mobile brands opt for an online-only strategy, e-tailing will begin to rival traditional sales channels. Perhaps not immediately, but definitely!