Indian smartphone makers find going tough as Chinese companies go aggressive

Aggressive marketing push by recent Chinese entrants Vivo, Oppo, LeEco and Gionee has increased the cost of business sharply for Indian handset makers who are forced to try and match, thus squeezing their already wafer-thin margins.
The relatively new entrants from China that are focusing on the offline market more aggressively than online are paying higher channel commissions for pushing their products, at times even doubling to as much as 10%, industry insiders said.
“Indian players, which usually operate on 2-3% margins, are facing tough competition from Chinese players. Further, online -only Chinese players are willing to sacrifice margins, even go into negative margins,” said Counterpoint Research senior analyst Tarun Pathak.
In some cases, the brands are also paying anywhere between Rs 30,000 and Rs 31 lakh to mom-n-pop stores for redesigning their shop fronts and carrying the brand’s name.
This was earlier done free of charge. Vivo said ‘on-store’ branding can help immensely in prompting customers to make purchase decisions. “Tapping the retailers for a branding opportunity is a great idea which is proving to be effective for us,” said Vivek Zhang, chief marketing officer at Vivo India, which now has a presence across 10,000 retail outlets.
Oppo and Gionee declined to comment on specific queries. LeEco, which just started selling offline, also didn’t comment. A senior executive aware of the media buying details of some smartphone makers said rates for key brand placements in popular programmes on televisions, for instance the Indian Premier League, had risen by as much as 40% within a year, mainly due to the money flooding being done by Chinese smartphone brands.
The developments come as a double whammy for players such as Micromax, Intex, Lava and Karbonn Mobiles, that are being forced to match up, amid slowing smartphone sales in January-March quarter. They however say that the strategy used by the Chinese players is unsustainable. “We’ve always maintained that significantly high advertising spends and trade margins to gain short-term market share is unsustainable — especially true in the current scenario where overall industry margins are under pressure,” said Shubhajit Sen, chief marketing officer at Micromax Informatics, the leading Indian handset maker, second to Samsung in the local market.
Counterpoint Research said the propaganda is helping the new entrants, especially Vivo and Oppo, to increase their share of the market. As of the quarter ended March 31, Chinese players had a 22% share of smartphone sales, which is expected to increase to 25%, said analyst Pathak. Vivo, Oppo, Gionee and LeEco have doubled ad spending on-ground and on television, print and other media, this year, as they prepare to take a larger share of the world’s fastest growing smartphone market.
“We have spent about $10 million (about Rs 67 crore) on marketing online and print in the first quarter this year, and we will spend similar amounts for quarters to come,” said LeEco ‘s COO Atul Jain. Vivo said it will spend about Rs 100 crore on marketing and advertising this year, besides the spend on IPL sponsorship, double from 2015.
This category spending will also double for Gionee, to Rs 500 crore this fiscal year, and 40% of it will be spent on ground-level activities. Aggressive marketing by these Chinese companies have left their Indian counterparts with limited options — either match up and take a hit on margins or opt for selective and targeted marketing and advertising involving lower budgets.
Some players are taking the latter route, more so as even smaller levels of investment from Indian brands help as they are far more established than Chinese players and will have a longer brand recall among consumers, say analysts. “IPL was asking very high rates, that’s why we decided not to use the platform extensively for our marketing initiatives,” said Pardeep Jain, managing director at local handset firm Karbonn Mobiles.
He said the brand experienced demand for higher prices in media buying, but was choosing such investments strategically. Another strategic call was taken by Intex Technologies, as it bought a whole IPL team: Gujarat Lions.