All of you have heard of its smartphone brands, but some of you might have never heard of the company behind it. In today’s post, we try to understand how China’s BBK Electronics carved out a 45% share in India’s crowded smartphone market.
Chinese techpreneur Duan Yongping made headlines in the 1990s when his Subor gaming consoles successfully took on Japanese giant Nintendo. In 1995, he left the gaming industry and started an electronics manufacturing company called Bu Bu Gao Electronics. It operated in three divisions - educational consoles, music and video devices (MP3 and DVD players), and communication equipment (corded and cordless landline phones) However, with the popularity of its devices waning in the early 2000s, BBK pivoted to manufacturing smartphones. It hived off its music and video division as OPPO in 2004 and its communication division into Vivo in 2009. Enshrining a culture of competition between its independently operated brands (often leading to cannibalization), BBK has been able to capture 19% of the global smartphone market today, just shy of the market leader Samsung, at 20%.
With the growth in global smartphone shipments stalling, BBK entered India in 2014 with its already established Vivo and OPPO brands (which jointly account for 32% of the Chinese smartphone market in Q1 2020). Initially, it targeted the offline smartphone market in India, which accounts for 65% of all smartphone sales in India even today. To bypass the multi-tiered distribution model in the market, Vivo and OPPO created a byzantine corporate structure consisting of 40 entities registered in India acting as distributors. To fund their operations, both of these brands relied on trade credit from these distributors, leading to an abnormal amount of trade payables in the initial years. These inhouse sales focussed distributors then went on an aggressive spree to acquire last-mile retailers with terms that other brands could never match. Stores were paid a monthly rent of up to 5 lakhs for displaying Vivo or OPPO signages and trade margins of 18-20% with added incentives on their brand merchandise - compared to 8% by other brands. Retailers lapped up these offers and Vivo’s blue and OPPO’s green flooded the market, snuffing out Micromax, Karbonn, Intex and other domestic brands.
The House of Brands
The Indian smartphone market can be categorised into 3 segments: Handsets priced below Rs 10,000 account for 45% of the handsets sold, the Rs 10,000 - 25,000 segment has a 47% market share, premium phones priced above Rs 25,000 accounting for the rest. However, the premium segment is the fastest growing one with a CAGR of over 20% over the last 2 years. Consumers are also upgrading more often to costlier phones leading to a rise of 18% in Average Selling Price (ASP) of handsets. BBK took a leaf out of Luxottica’s playbook to create a house of brands to compete in every segment. While Vivo and OPPO operated in the Rs 10,000 - 25,000 segment, primarily driven by offline sales, OnePlus and Realme were introduced in 2014 and 2018 respectively to compete in the sub Rs, 10,000 and above Rs 25,000 segments. This strategy allowed BBK to maximize its consolidated market share without diluting any brand while reducing cost through economies of scale in a consolidated supply chain. And the numbers speak for themselves - Vivo, Realme, OPPO and OnePlus account for 44% of India’s smartphone market, according to shipment numbers in Q1 2020.
Interestingly, BBK is keeping its products competitive in this price-sensitive market by making them in India. OPPO has been the manufacturing partner for OnePlus and Realme, in India and abroad. Given its strategic importance for the company, OPPO recently set up a greenfield electronic manufacturing cluster in Greater Noida for manufacturing electronics and accessories locally, doubling its production capacity to 100 million units - with plans to make India an export hub for global markets. Vivo, which has invested Rs 4,000 crore in India, will invest another Rs 3,500 crore over four phases to expand its manufacturing facilities.
Mad Men Revisited
All four brands have created their unique marketing playbook to increase their market share. Vivo and OPPO are focused on an offline driven strategy, investing heavily in celebrity endorsements and sponsoring flagship sporting events. OPPO sponsored Indian Men’s Cricket Team jerseys from 2017-19 and had Ranbir Kapoor and Deepika Padukone as its brand ambassadors. Vivo wrestled OPPO to become the title sponsor for IPL in 2017, also sponsoring the Pro-Kabbadi League. Vivo has been endorsed by Amir Khan and Ranveer Singh. Realme and OnePlus have gone the opposite way of this scorched earth strategy. OnePlus understood very well that in the super-premium space, perception rules over performance. It started retailing online and created artificial scarcity in the market by restricting access of its handsets to people with invites till 2016. Its sales were primarily driven by word of mouth - spearheaded by its strong OnePlus community. While its community still plays an important part, OnePlus has started going bigger, recently organizing a music festival with leading international artists like Katy Perry and Dua Lipa. It partnered with Disney for Star Wars and Avengers and more recently with McLaren technologies for aspirational special editions phones. Realme is going for a younger crowd with aspirational local heroes - sponsoring college festivals with popular stars like Guru Randhawa and Divine as a part of Realme Sundowner. Streisand effect further consolidated Realme’s brand recall when Xiaomi CEO Manu Kumar Jain called Realme a 'copy-cat brand’ on Twitter. However, high marketing spends have weighed heavy on the balance sheets of all these brands.
Did I mention Innovation?
Even though BBK is investing a lot in marketing, all of them are portrayed as product-oriented brands with a focus on bringing innovations first to the market. With Realme 5 Pro, it beat Xiaomi to get a 64-megapixel camera in a quad-camera configuration first to the market, while OnePlus is the first brand to democratize 90Hz screens. Dash charging, an extremely popular feature, was launched in 2016 with OnePlus 3. After understanding that Android wasn’t as responsive as an OS as the iOS, R&D led to CyanogenMod in its early days and then evolved into Oxygen OS, which provides a smoother experience than stock Android. Vivo was the first brand to introduce an in-display fingerprint scanner and a truly bezel-less smartphone. Oppo is one of the first companies to demonstrate the in-display front camera in a smartphone. While the majority of their R&D happens in China, OPPO and Vivo have teams in India who look at India specific solutions focusing on 5G, camera imaging, new material and product design. Coupled with a vast network of company-owned service centres, even offering home repair in some cities, this puts the BBK brands in good stead.
Into the Crystal Ball
So what’s next for BBK? Laser-focused on being known as a product-driven company, BBK has steered clear from monetizing its devices through advertising, unlike Xiaomi. Hence better margins may be delivered by OnePlus following Apple’s strategy of increasing the average selling price of OnePlus hardware with every subsequent release. To prevent commoditization already happening at mid-tiers of the smartphone market, OPPO and Vivo have been putting in a lot of effort to come across as premium brands with smartphones being introduced at price points of over Rs 30,000. Realme and OPPO are also testing the waters in IoT, accessories, wearables, electronic appliances, and payment solutions. OnePlus and Realme are increasing their offline presence across Tier 2 cities in India. More sub-brands may also be in the offing, with gamer-oriented iQOO having already been introduced in India under Vivo in February 2020. OPPO’s move to develop its own mobile processor, may also develop into an important lever for BBK's future growth.
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About the Author: The post is written by our EZPP Partner Abhirup Roy with relevant edits from our editorial team. Abhirup is a graduate from IIM Ahmedabad and works with Zolo Stays.