Increase offline sales to 30% by year end

1. Smartphone market in >tier 3 cities is
largely untapped by MI due to
- Low internet penetration
- Limited availability of MI phones
- Psychological barriers w.r.t online
shopping
This market can be the major growth
driver for MI due to increasing
disposable income, value-driven price
sensitive offerings and declining market
share of feature phone sales (people
upgrading to smartphones)
Problem Statement: Gain at-least 30%market share in offline space & Become No. 1 by the 2019 end Arush Sharma 18PGPIM29
Rahul Agarwal 18PGPIM35
Team - Incognito (MDI Gurgaon)
Analysis of Existing strategy of Limited WOD | Recommendations for Expansion
Limited WOD is correct for Xiaomi considering:
❖ Lower margin (~5%) on hardware sales
❖ Pull marketing to drive sales
❖ Single level of distributors
❖ Logistics cost optimization
❖ Higher customer conversion per store
❖ Pushing of Value-added services & products
through controlled channels
❖ Limited/Controlled mass marketing spend
Limited WOD
Concentrated efforts
Lower Logistics cost
Lower potential for conflict among retailers
Higher Control & Loyalty over Sales channel
Higher bargaining power with buyers (stores)
Lower Points of Failure / Maintenance
Faster speed to market
Limited POS reach
Proper Due diligence required
Higher working capital requirement
Can lead to costly disputes
Difficult to match specific retailers and dealers
to your needs
Primary Research
Leverage power of point of sales conversion & Smart educated promoters at outlets
Distribution Channel Characteristics
Offline Target Segment
Loyal MI users
Repurchase
Price Sensitive
Value seekers
Aspirers
Feature → Smartphone
FOCUS MORE BEYOND TOP 50 CITIES
Assortment Strategy – Exclusive low end
product launches for offline medium
Older low end products will be sold only
through offline channels (push strategy)
One-size-fits-all distribution model is no
longer optimal – Increasing reach
through existing distribution channels,
however Expansion in rural areas beyond
Top 50 cities might require 2 layers of
distribution (Super Stockist -> Distributor)
since outlet density will be less
Mi Home LFR’s Mi Studio Mi PPP Mi Stores
Store size Large Medium Medium - Small
Distribution Direct Selling & Distribution Exclusive Distributor
Location Tier One / Two cities Top 50
Top 50 &
beyond
Beyond
top 50
Channel
control
High
Medium -
High
Medium Medium
Limited WOD complements Xiaomi’s strategy to increase Market Share in Tier 1 & 2 cities; However large untapped potential lies beyond Tier 2 cities
Retailer Pain Points
Sample Size 14
0
2
4
6
8
10
12
High Capex
Requirement
Sluggish
Demand
No autonomy
of Stock
Selection
Conflict with
other Mi POS
Limited Credit
Facility
Lower Margin
Channel
Conflict
No autonomy over Stock Selection
Recommendations

2. Outlets/DB CY17 CY18 Current CY19E
General Trade
MiPP 29 1200 2100 3000 5138
LFR & JVs NA 800 1200 1500 1700
Total GT 2000 3300 4500 6838
Retail
Mi Home NA 30 60 75 100
Mi Store 15 0 800 1300 4259
Mi Studios 7 0 0 80 200
Total Retail 30 860 1455 4559
Total Offline 2030 4160 5955 11397
Distributors 41 126 202 376*
Shipment/ RetailOutlet 11 9 10 14
Shipment/ GTOutlet 16 14 14 14
Optimal Target of outlets & distributors to achieve 30% market share | Additional markets for Expansion
Optimal Number of Outlets and Distributors
India Smartphone Shipments Market (Annual)
CY16 CY17 CY18 CY19E
Total Smartphone Volume 107.8 122.9 141.1 156.4
Total Online Share 35.00% 32.61% 36.42% 39.27%
Total Offline Share 65.00% 67.39% 63.58% 60.73%
Xiaomi Market Share 8.90% 20.90% 28.64% 36.44%
Xiaomi Offline Mkt Share 2.0% 13.7% 21.0% 30.0%
Xiaomi Offline Shipments 1.4 11.3 18.8 28.5
To capture 30% offline market share, total offline shipments
should be ~28.5 million units as per our analysis
GT outlets across
India
Source:
https://www.mi.com/in/
May contain some outliers
Correlation Matrix
Total Outlets
Total Outlets 1.000
Population 0.521
NSDP/Capita 0.032
Internet Penetration 0.782
Rural area -0.060
Top States to Target
according to weighted
average of parameters:
1. Uttar Pradesh
2. Bihar
3. Madhya Pradesh
4. Rajasthan
5. Odisha
*No of Mi Store outlets per Distributor will increase to ~25 in the coming
year given that the stores will be clustered geographically
We studied Correlation of existing 5038
Stores w.r.t. demographic variables &
found high correlation b/w # Stores,
Population & Internet penetration
For markets selection
within states similar
set of parameters can
be analyzed
UP, Bihar, Madhya Pradesh rank
high in terms of selected parameters
but lack optimal offline presence
Sources: Indiastat for Demographic Data, IDC &
Euromonitor for Smartphones
Analysis of Correlation and Identifying
Key States:
• Negligible Correlation in rural areas
suggest that the market is largely
untapped by Xiaomi
• A state wise ranking was done on the
basis of weights of key parameters:
Population (39%), PPP (2%), Internet
Penetration (57%)
Calculated by
comparing # of
outlets and Retails
- GT Shipments,
refer Slide 3
• Higher Population Size
• Higher Purchasing
Power Parity
• Lower Average Age
Key Cities to Target (Existing Outlets)
• Patna (16)
• Kanpur (6)
• Bhopal (7)
• Puri (2)
• Allahabad (12)
• Jodhpur (16)
• Amaravathi (2)
• Udaipur (2)

3. 2000
3300
4500
6838
30
860
1455
4559
0
2000
4000
6000
8000
10000
12000
Numberofoutlets
Offline Distribution Growth
Total GT Total Retail
Increase
traffic flow
Drive up
conversion rate
Increase sales of
related products
Encourage
repeat purchase
Locate Mi
Home/Studio near
fast fashion brands
Promotional events
to increase footfall
Focus on training
and educating
promoters
Leverage big data
analytics &
Precision marketing
Increase purchase
rate of inter-related
products
Provide better
shopping experience
Improve offline
service with more
service centers
Enhance seamless
integration of all
channels
Key Points for Offline Expansion
Geography/
Location
Product/
Service Offer
Maintain Brand Pull
Intensify Leverage relationships with
existing customers by
increasing penetration of
existing geographies
Optimize existing
offerings to better
serve existing
customers
Targeted promotions for
offline and online
customers (Ranveer Singh
endorsement will resonate
with age group of 18-30)
Extend Expand into new
geographies with similar
market characteristics
Low end products for
new customers
leading to transition
from feature phones
Increase Mi Fan Base by
Exclusive Launch events,
organizing MI community
meet ups (technology & Mi
product focused)
Diversify Expand into new
geographic markets with
different characteristics
Explore other business
sectors to create value
(digital services)
Promote using events like
gaming competitions, VR &
AR in Mi Store outlets to
attract customers
GrowthStrategy
Objectives
CY17 CY18 Current CY19E
Total Volume 122.9 141.1 78.2 156.4
Xiaomi Mkt. Share 20.9% 28.6% 36.0% 36.4%
Xiaomi Volume 25.7 40.4 28.2 57.0
Online Volume 14.34 21.58 14.25 28.49
Offline Volume 11.3 18.8 13.9 28.5
Share - GT 99.0% 86.0% 82.0% 60.0%
Share - Retail 1.0% 14.0% 18.0% 40.0%
Shipment - GT 11.2 16.2 11.4 17.1
Shipment - Retail 0.1 2.6 2.5 11.4
82%
60%
18%
40%
0% 50% 100%
Current
CY19E
% Share in Offline Shipments
OPTIMAL MIX OF
RETAIL & GT
Share - Retail Share - GT
As we’ll focus on rapid
expansion in >tier 2 cities with
MI stores our expected mix of
Retail -GT would be 40 - 60
split from 18 - 82 presently
Stores % Share
Mi PP 5138 75.14%
LFR & JVs 1700 24.86%
Total GT Stores 6838
Contribution from LFR’s and Mi PP’s
Growth Levers
Maintaining Brand Pull is crucial to attract customers to new MI Store outlets
Retail & GT Mix | Growth Levers for Offline Expansion

4. Click and Collect
1Order Online
2 Choose preferred
store for pickup
3Collect order
at chosen store
Increase traffic in offline stores. Data-driven algorithms
for store’s Assortment planning & Sales forecasting
TRY And BUY
1Order 2 Try
3 Return
Select ‘Try and
Buy’ at Checkout
in the MI App
MI Agent from nearby
MI store will help you
experience the product
3Buy
Pay for the device
that you choose
to keep
ADVANTAGES
✓ Increase Customer satisfaction + Loyalty
✓ Boosts conversion
✓ Attract new customer base
✓ Word-of-mouth marketing
✓ Competitive advantage
✓ Added value to brick & mortar stores
✓ Create a better retail journey for customers
✓ Integrated & seamless shopping experience
➢ Cash Flow Hiccups
➢ Inventory management
➢ Technological investments
➢ Organizational & Logistics challenges
➢ Change management
➢ Ensuring Consistent customer engagement
across channels
CHALLENGES
Omni - Channel Retail Order & Deliver
1Order Online
2 Source from local MI
stores to reduce cost &
increase delivery speed
3Plan and
schedule delivery
4 Order Delivery
within 12 hours
Innovative Idea to Increase Offline Market Share
ENHANCED DATA COLLECTION leading to Customized
engagement & personalized deals for customers
CONSISTENT UNIFYING BUYING EXPERIENCE resulting in
increased revenues from existing direct channels through Omni-
channel ‘multiplier’ effect, i.e. online-influenced retail sales
Gives consumers greater confidence in purchases. By
understanding customer Preferences & Behavior we can
boost Conversion rate & increase Consumer engagement