BFN 3104 CORPORATE FINANCIAL

STRATEGIES
INDIVIDUAL ASSIGNMENT #2
Product Life Cycle: XiaoMi Mi4
Dr. Chan

Law Yuying
1131119232
Section

The Product Life Cycle (PLC)

Every product in the market goes through a sequence of stages known as the Product Life
Cycle (PLC), from the beginning of launching the new product; it goes through stages of
Introduction to Growth, Maturity and then lastly Decline.

Product Discussed: Smartphone XiaoMi Mi4

XiaoMi is a private Smartphone manufacturer thats based in China. The private company
offers surprisingly affordable high-end quality Android devices, and this companys
reputation skyrocketed due to its low cost Smartphones business model strategy.
XiaoMis flagship products, Mi series has an overall life-cycle spanning 18 to 24 months
before a newer updated version is released next. The current model, Mi4 was released
August, 2014 and is entering their 13th month of Product Life Cycle.

1. Introduction Stage
Launching a new product to market is filled with uncertainties and risks. One of the main
challenges for new smartphones nowadays is to get attention from the market. Generally,
the products demand has to be formed during its development stage. The product
development stage usually takes into account the products initial presence and its
competitive substitutes in the market. Much research is needed depending on the
products complexity and to target which consumer groups. Therefore, this stage of the
cycle incurs the most cost for a company that is releasing a new product to the market.
Newly launched products are usually priced very high to recover the heavily incurred
cost from product research and marketing.
In China, where the types of Android devices in the market are so vast with little
differentiation in software or hardware, consumer recognition can be difficult with little
marketing and promotion. Marketing and advertising costs can be very high to gain
consumer recognition, and only multinational companies like Samsung and Apple can

afford to fork out enormous amount of money on brand and product marketing and
advertising. Unlike those giants smartphones companies, what XiaoMi did to create
awareness for its products was listen to what Smartphones users say. XiaoMi set up their
own MIUI mobile phone forum and lets users to decide the customizations/additional
features that will go into the next product release. One of the techniques XiaoMi does is
to have their employees go through their online forum, MIUI forum and identify potential
requirements suggested and voted by their users for the next release. Through this
process, XiaoMi achieves two key benefits: First, XiaoMi is able to build products that
their consumers actually asked for. Second, it creates awareness of its next releases. By
actively interacting with users throughout the product development life cycle, XiaoMi
created a high level of awareness and empowerment for its users, much more than what
would have been possible through any traditional marketing methods. At the same time,
the social media platform, Weibo, also as known as the Facebook of China got
increasingly popular so XiaoMi directed their marketing focus on Weibo as well, further
increasing the product awareness and attracting loyal users. (Sabrina, 2013)
XiaoMi outsmarted the traditional marketing methods by using the power of crowd
sourcing and online communities and even exclusively selling their products through
their online website, without any flagship stores or relying on 3 rd party retailers services,
they ended up saving a huge portion of cost on distribution network and sales channel.
This trick of avoiding intermediaries helps XiaoMi to build more loyal and healthy
relationships with its users and create return customers. More importantly, this dedicated
e-commerce platform gives XiaoMi a better control over the timing of market entry and
exit of each of their products.

2. Growth Stage
A successful launching of a product will lead it to go through the second stage of PLC,
Growth. The main characteristic of a product in its growth stage is the increasing rise in
its sales curve during the beginning of Stage 2. Firm seeks to build brand preference and
increase market share instead of product awareness. According to the Harvard Business
Review, on average, a manufacturer will launch a new version of their device every 265

days. This means the major players in the smartphone industries (Apple and Samsung)
usually release a new version of their smartphone series in less than a year. These major
players usually charged a higher price for their phones because of their short product life
cycle. XiaoMi products tend to remain on shelves for 18-24 months, during which they
go through three of four price cuts. (TechCrunch, 2015) XiaoMi, already having the
trademark of selling cutthroat prices of quality smartphones; they are also infamous for
having flash sales for their products. During these flash sales; XiaoMi releases only
limited quantity of the phone for sale in an even lower price online, creating a huge
online buzz. Thanks to the law of Demand and Supply and customers kiasuness
(competitive and materialistic nature), consumers are more eager to get their hands on the
XiaoMi phone. Using this strategy, XiaoMi is able to sell off the Mi4 within a few
minutes of going on sale, the same with all the previous models of their smartphones.
XiaoMi is seen to have one of the fastest growth rates of any tech company this decade.
(HBR, 2014)

3. Maturity Stage
As the product life cycle starts to mature, XiaoMi is still able to keep its prices real low
because of longer shelf life of their devices, usually 18 to 24 months. XiaoMi is able to
sell their phones so cheap (just a little higher than the total cost of all its components)

thanks to the decreasing cost of the components. By keeping the price of their phones the
same over the life cycle, their profit continuously increase while cost of producing it drop
as much as 90% in the span of 24 months. Comparing with Apple, who profited the
highest at the introduction of each new model; have to keep coming up with newer
models every few months to keep those profit margins up. XiaoMi only has two flagships
product on sale and large volumes of sales over the same product over the couple of years
helps XiaoMi to profit through economies of scale (due to higher demand) and lower
costs (reduction of component costs with time). The XiaoMi Mi4, released last August in
China, received major approvals from its huge consumer base and was sold out in their
online website within minutes. (Siddiqui, 2015)

At Maturity, sales growth peaked and start to levels off with competitions appearing with
similar products. The primary objective at Maturity stage is to defend market share while
maximizing profit. In the smartphone industry, giant companies usually release enhanced
versions of the model or offer incentives and attractive packages to encourage and
maintain consumer preference, distribution of the product are also usually more
concentrated due to companies milking all its profit while the product last till the end of
cycle. While the success of XiaoMi had been primarily in China, just last year it
expanded into other countries and proved that its business model works in a different
country too. The Mi4, who is released in August 2014 in China, is considered an old
model when it started its sales in India just this February. A product that was 7 months old
in its product life cycle, going into almost half of the cycle is considered to be in its
maturity stage. However, like a movie blockbuster where the release dates for different

countries differ by many months, XiaoMi also uses this tactic to boost sales and
maximize profit. By branching out to other countries many months later, the products
sales can be seen to increase in those particular regions while the sales curve in China
already reaches its peak and levels off. In other words, XiaoMi also makes profit by
expanding the Mi4 launches in different regions in different times to stay relevant in the
tech market. (Bloomberg, 2014)
XiaoMi favorite sales gimmick during the Growth period are flash sales but eventually,
there will be a point where the demand growth starts to decline as part of the PLC, at this
point, the supply will be sufficient to meet the declining demands, and XiaoMi finally
discontinue the flash sales and open their doors to customers with no restrictions in
purchasing their products.

4. Decline Stage
Eventually, the market for a product line will start to decline. This is due to the maximum
saturation of the market, or consumers preference has switched to a newer different
product. Once sales begin to decrease, the company has several options: 1. extension
strategies are employed to keep the product in the maturity stage such as releasing new
uses or enhanced version of the product, 2. the company can choose to discontinue the
product line and get ready to set a new product development stage in motion, 3.
harvesting the product and reducing cost, offering it to a different target market.
In the smartphones industry, companies usually will stop investing in the product line
and attempt to liquidating/sell off their remaining inventory by offering generous
promotions and creating hype over the soon-to-be released new model. In XiaoMis case,
they are already creating online buzz with the newest model, Mi5 that is expected to
launch in the last quarter of this year while selling off their current models in their
website. (XiaoMi Fanblog, 2015)

BCG Matrix

The BCG matrix method is based on the PLC theory to analyze the market share and
growth of the company. According to the BCG Matrix, there are four different categories
for a product or business unit: Cash cows, Dog, Question Mark, or Star. By placing the
product(s) in question into the Matrix, firms can determine which product to prioritize its
investment on and make accurate decisions based on the relative market share and growth
rate of a product line. (Butner, n.a)
A product line usually starts from Question Mark in the BCG matrix; the characteristics
of a Question Mark usually are high potential growth with low market share. This is
equivalent to the introduction stage of XiaoMi Mi4 as it has the potential of high growth.
Products in the Question Mark category have low returns due to low market share
because they consume great amounts of cash due to necessary heavy investment in this
stage such as marketing and advertising.
Products that receive sufficient investment and successfully dominate the real market will
turn into a Star. Products in Star generate large revenue because of their high growth and
high market share. But because the market is growing so fast they need more investment

to maintain the large market share. This corresponds to the growth stage of the Product
Life Cycle. As the XiaoMi Mi4 sale growth is rapidly increasing, XiaoMi needed to
restock frequently in order to support the further growth of demand during the online
flash sales.
Star will become a Cash Cow when its industry matures, Cash Cows need little to no
investments because their sales growth has peaked. Products in this category have high
market share with slow growth. Cash generated can be used to invest in other sections of
the firm. Reaching 13 months since August 2014 into the PLC, the XiaoMi Mi4 is
milking out the Cash Cow through economies of scale as much as possible until it turns
into a Dog at the end of the cycle.
When a product line has no more room for growth and has weak market share in a mature
industry, it turns into Dog. They do not produce or consume much cash, and is equivalent
to the Declines stage in PLC. With declining sales and downturn in the market share,
firms usually discontinue the sales of the product or sell off the remaining inventory and
invest on the next profitable thing. When XiaoMi Mi4 reaches this stage, they usually are
prepared to release the next version of the Mi phones series.

Conclusion
The theory underlying the BCG matrix usually corresponds to the Product Life Cycle,
which states the product lines goes through life-cycle phases of introduction, growth,
maturity and decline. These phases then can categorized anti clockwise in the BCG
matrix quadrants where 1. Question Mark = Introduction; 2. Star = Growth; 3. Cash
Cows = Maturity; and 4. Dog = Decline. The PLC theory is mainly applied in the product
marketing strategy while BCG matrix helps firms to determine the allocation of cash and
resources to which product line.

( Sean Butner, n.a) How to apply the BCG Matrix. Retrieved from Chron:
http://smallbusiness.chron.com/apply-bcg-matrix-61115.html
(Sabrina , 2013, Nov 27) The Secrets Of Xiaomi Marketing Success in
China. Retrieved from China Internet
Watch: http://www.chinainternetwatch.com/4850/xiaomi-marketingsuccess/#ixzz3kxWRnITF
http://productlifecyclestages.com/
http://www.bloomberg.com/news/articles/2014-04-08/china-s-xiaomiplans-to-give-the-world-iphone-cool-at-half-price
https://hbr.org/2014/10/xiaomi-not-apple-is-changing-the-smartphoneindustry/
(Tech Crunch, )http://techcrunch.com/2015/01/19/xiaomi-secret-sauce/
http://www.campaignindia.in/article/389704,xiaomi-rewriting-the-rules-ofbranding.aspx
http://www.xda-developers.com/the-curious-case-of-the-flash-sale/
http://mi5xiaomi.com/