Abstract

MIC Perspectives

Huawei Initiates Low-cost Product Strategy to Sharpen Brand Awareness

As regards its development strategy, Huawei has taken advantage of relatively low labor costs in China, and has been relocating its plants in China during the recent years in order to obtain the best interests through the integration of upstream, midstream, and downstream industries to strengthen its competitiveness in hardware production in order to response to market changes fast enough to push their product into the market.

In order to enter the European and US markets, Huawei would co-work with the second-tier telecom operators to jointly launch low-cost Smartphones, which happened to correspond to those operators' low-price data plan strategy. Through the alliances, Huawei can build up partnerships with telecom operators while increasing the liking of users and telecom operators for Huawei products before gradually moving closer to win the acceptance of the first-line telecom operators. In order to achieve this goal, Huawei launched mid-range models, with price tags lower than average market price by 50%, such that Huawei is able to provide users more affordable choices. Nevertheless, Huawei is afraid that its own brand will be envisaged as a low-cost brand and has been actively developing products such as tablet devices and high-end Smartphones. In addition, Huawei has followed how leading manufacturers name their own products with an aim to further enhance brand visibility and user perception.

Huawei's High-end Products to Face Market Challenges

Observing the products launched by Huawei during the period 2010-2011, it is observed that Huawei adopts a product strategy to ensure clear product segmentation for its entry-level, mid-range and high-end products. Regarding the entry-level and mid-range products, Huawei continued to establish tailor-made collaborations with telecom operators. As for its high-end product line, Huawei released the IDEOS series as the flagship model sold in the North American market. In the second half of 2011, Huawei massively launched a wide range of models such as the Honor and Glory to complete its overall product line, revealing its ambition to compete with other leading manufacturers.

Compared to other first-tier manufacturers in the past, Huawei entered the Smartphone market relatively late. Nevertheless, with relatively high cost/performance ratio, telecom operators and users tend to be less demanding on Huawei products in terms of system operational performance and system compatibility when taking the low-cost advantage into considerations.

Huawei has begun switching to the development of mid-range and high-end models since 2011, with the price tag of their products exceeding over US$300. At this price range, leading first-tier mobile phone manufacturers such as Samsung have made solid ground. Compared to other branded vendors, users still have relatively weak brand awareness toward Huawei. However, given the same price range products, users expect more of product efficiency from Huawei products than those entry-level models provided by other vendors. As a result, whether Huawei's products will be highly appealing for consumers who are interested in buying high-end products and place emphasis on system practicability and system operation smoothness will play a key factor determining whether Huawei's products will be able to be successfully made forays into Europe and the United States.

Huawei's Smartphones Gain Leading Position in the Emerging Markets

In the emerging markets, due to their low GNI (Gross National Income), the market acceptance of Smartphones in those markets is always relatively low. Recently, with emerging market telecom operators focusing on 3G network deployment and the network infrastructure in place, Huawei that has shown much favor to the low-cost strategy is seeing the emerging markets as the next market opportunities for its Smartphone products. Taking Africa as an example, with an aim to change the user perception towards Smartphones which were normally priced at over US$300 in the past, Huawei launched Smartphones priced between U$100 and US$200 and had a high degree of support from African consumers due to price competitiveness and consumer perception of Smartphones as a substitute for a PC. In addition, some Android application developers have begun developing applications suitable to tap emerging market demand and since 2010, such as an application called "M-Farm," which can help farmers to see the prices of agricultural products around the world via text message or photo uploads. There is also another application helps the planting of crops and provides related diseases query. For the emerging market users, the abovementioned applications have made a significant contribution to persuade consumers to buy low-cost Smartphone products and Huawei will also be benefited therefrom.

Meanwhile, Huawei's competitors in the emerging market are Chinese gray-market manufacturers and/or small and medium-sized local branded vendors, which however still focus on the development of feature phones. With its solid brand image worldwide, Huawei is capable of launching Smartphones with price tags that are acceptable to the emerging markets. As other leading mobile phone manufacturers are yet to place focus on the emerging markets due to cost factors, Huawei therefore secures a leading position in the emerging markets.

Appendix

Glossary of Terms

List of Companies