What a time to be alive.
Xiaomi’s CEO, Lei Jun, recently took the stage during the Mi 6X’s announcement. There he made an announcement which no one could ever think of. He said,
Starting today, we officially promise our users that our hardware business, including smartphones, IoT and lifestyle products will have an overall after-tax net profit margin that will not exceed 5% per year. If the margin crosses 5%, then we will find a way to return the excess above 5% to our users.
If we sell our products at close to cost and return value to our users, then we can earn the long-term support of our users. Aiming for large volumes with small profit margins will still result in suitable hardware profits for us in the long term.
What he means is that Xiaomi will never increase its profit margin above 5%, for all its devices. If it does exceed 5%, they will compensate for it by adding other products with the package.
In a world dominated by the likes of Samsung and Apple, with profit margins on their phones almost half as much as the phone’s cost itself, Xiaomi is out to challenge the norm. Not only are Xiaomi’s phones premium quality, they will always cost a fraction of Samsung’s Galaxy S phones or Apple’s iPhones, thanks to this move.
Quality With an Honest Price
Lei Jun added that the best way to earn customers’ trust is to provide the quality at an honest price.
Another possible reason for maintaining low prices is also due to the fans’ trust. They expect quality from Xiaomi at an honest/low price. Going against this policy will not only mean losing fans, it will also cost Xiaomi their reputation and their position in the market.
Quality products with honest pricing are two inseparable concepts. If the product quality is not high enough, users will not enjoy it no matter how low the price is. We need to ensure that we keep within the 5% limit on hardware net profit ratio while maintaining competitiveness at the same time. To do so, we need innovative technology and outstanding design, in order to launch products that exceed our users’ expectations. Simultaneously, we need to maintain honest pricing; only then will we able to touch the hearts of our users.
Where it All Started
Going back to the Mi 6X announcement, Xiaomi’s CEO mentioned that this was a special event for him, as the venue was none other than Wuhan University, where he graduated from less than 20 years ago
This is where it all started, where he thought about making a company. He continues,
20 years ago, in my first year of university, I was in the library and read Fire in the Valley, a book that changed my life forever. After reading that book, my heart was not at peace for a long time, and I walked around the track at the sports field at Wuhan University multiple times. The fire within me was ignited, and from then on I was determined to create a great company and influence as many people as possible.
“Going back to my alma mater today, I realized the fire within me is still burning as brightly as ever.” he said.
Via MIUI Forums