The meaning and significance of price It is not easy to define “Price” but whenever the price of a product is quoted, it is related to some assortment of goods and services. So, Price is what is charged for “Something”. That something is generally value of the product attributes or utilities value of the product or services.

1. Pricing Decision on Xiaomi
Marketing management
Institute of business management and research,
IPS Academy, Indore
Submitted By
Jai Kumar Pandit
Rohan Gupta
MBA “A” 2nd Sem

2. Content
Introduction
The meaning and significance of price
Pricing Objective
Concept of cost and pricing
The GPMT strategy in pricing
The Pricing strategy employed by Xiaomi
On the Chinese market and being called the 'Apple of China'
In Pricing decision in India

3. ACKNOWLEDGEMENT
We would like to express our special thanks of gratitude to our teacher
Ms. Nidhi Jhawar Ma’am, who gave us the golden opportunity to do this
wonderful Assignment of Fundamental of Marketing Management on
“Pricing decision On Xiaomi”, who also helped us in completing our
project. We came to know about so many new things we are really
thankful to them. Secondly we would also like to thank our friends who
helped us a lot infinalizing this Assignment within the limited time frame.

4. Introduction
In all business and in some non-business transaction, the product or
services offered to the users have some value for which a price is charges for the
product. Theprice will depend upon the type of productorservices offered and may
have different terminology like bus fare, air fare, tuition fees for schools and
colleges, admission fees services charges, rent, subscription, entry fee, consultancy
fees or simply Maximum Retail Price.
Price is the only element in all business transaction which creates sales revenue and
the sales revenue will determine profit or loss of any business transaction.
The meaning and significance of price
It is not easy to define “Price” but whenever the price of a
product is quoted, it is related to some assortment of goods and services. So, Price
is what is charged for“Something”. That something is generally value of the product
attributes or utilities value of the product or services.
Pricing Objective
According To J.W. Kelvini’s work, “Pricing for Results”, he has identified
short- term and long- term pricing Objective, operational pricing objectives
distinguished between short term tactical objectives and those in the long run
Short Term Pricing Objective Could be:
1. Meeting existing competition.
2. Discouraging new competition.
3. Securing key customer accounts
4. Recovering cash rapidly.

5. 5. Attracting new customer’s distributors and agents.
6. Using spare capacity
7. Trimming off overall demand.
Long Term Pricing Objective could be:
1. Profit or Contribution sales; return on assets
2. Stabilizing price and margin relationship
3. Retaining target market share
4. Strategic pricing in different markets
5. Keeping competition out of key markets
6. To discourage new entrant.
Concept of cost and pricing
Selling price = Fixed cost + Variable cost + Mark-up or profit
Selling price = Total cost + mark-up or profit
Selling Price – Total cost = mark-up or Profit
Selling price – (Fixed cost + Variable cost) = Profit
(Selling Price – Variable costs) – Fixed cost = profit
Contribution – fixed cost = Profit
1. Average total cost (ATC):
This is basically total cost per unit arrived at by dividing total cost
by the number unit sold.

6. 2. Marginal cost (MC):
This indicates change in total cost resulting from producing an
additional unit.
3. Average Revenue (AR):
This represents average revenue perunit sold calculated by dividing
total revenue by the amount of revenue sold
4. Marginal Revenue (MR):
This represents average revenue per unit sold calculated by dividing
total revenue by the number of revenue sold.
5. Price Elasticity of Demand:
This is a measure of responsiveness of the quantity sold to price
changes. Demand is elastic when total revenue increase in response to reduction in
price, demand is inelastic when total revenue decreasein responseto pricereduction.
The GPMT strategy in pricing
GPMT or Gross Profit Margin Target is what the companies usually look at when
trying to set prices. In simple terms, it is the gross profit margin that they need to
pay back their expenses and generate positive net income and cash flow.
Mathematically, GPMT = (Price of the product - Cost of the goods and services being sold) /
Price of the product

7. In a typical manufacturer-distributor-retailer model, the manufacturer aims for a
GPMT of 50%, that is it wants to sell the product at twice the cost price. The
latter two look at a GPM of 10-15% and 30-50% respectively
The Pricing strategy employed by Xiaomi
To start off with, Xiaomi sells its products online only, through ecommerce. This
ensures that it doesn'thave to worry about the costs ofwarehousing and distribution.
"We are an e-commerce company. We live on the internet. We are selling
exclusively through e-commerce. And the price there can be much lower, because
the price on e-commerce is essentially fulfillment and shipping cost," explains Hugo
Barra, VP Global, Xiaomi while exclusively speaking with YourStory.
Xiaomi also shuns traditional models of advertising and depends solely on Social
Media marketing and word-of-mouth.
We don't invest in traditional marketing. We live on the social media which is a lot
less expensive to us.
Apart from this, Xiaomi cuts cost at every stage. It sources components itself and
deals with these sellers with a different strategy. Xiaomi also bets on 'Moore's
Law'. Unlike other bigger players who discontinue their models after 6-8 months in
the market, Xiaomi sells it products forupto 18-20 months after launch. This means
that, in accordance with Moore, the price of the individual components go down
while the price of the phone remains constant throughout.

8. But the most important thing to note is that Xiaomi is a 'mobile internet
company'. It is looking to make money, not on its hardware, but by selling apps,
games and special Android themes and Internet services on top of its custom MIUI
- a pricing strategy very well-adopted by the e-commerce behemoth Amazon.
In the past too, many Chinese handset players have entered the market with low-
priced phones. But with low prices, tagged along the low quality as well, giving the
Chinese market a bad name. Xiaomi and Barra set the tone right by bringing high-
end quality at affordable prices.
On the Chinese market and being called the 'Apple of China'
Xiaomi has been time and again called the 'Apple of China'.The fact that Lei Jun
launches the phone in typical Steve Jobs-esque manner and attire doesn't help
their cause. But ask anyone from the Xiaomi team on their comparison with Apple
and they will start off with their admiration for the Cupertino-based phone maker.
"Apple is one ofthe mostextraordinary companies that the world has ever seen, and
will continue to be for a long time. On that account one would say that being
compared to Apple is a great thing," Barra starts off.
Barra goes on to differentiate Xiaomi, though.
The reality is that we are a lot more and a different kind ofcompany. You could
say that Xiaomi is like bits and pieces of Google, and Apple, and Amazon. We
have the Software engineering horsepowerofa Google, the designambitions of
an Apple and the e-commerce platform and customer service focus of an
Amazon.

9. Barra believes that the smartphone industry from China has already left a significant
legacy over the last couple of years. Talking about products from China, Barra
mentions Oppo, OnePlusOne and Huawei who have come out with world-class
products.
"Looking at these products no one can say that they are less interesting or less
appealing than products coming out of Korea, Japan or the US," he summarizes.
'Apple of China' or not, one thing is for sure that Xiaomi has made significant
strides into whichevermarket it has entered, in a relatively short period of just
four years.
In Pricing decision in India
The Chinese phone maker, Xiaomi, entered the Indian market in August last year,
and sold over 1 million phones by December. The company has even managed to
surpass Samsung in China and is now the world's third largest phone maker.
The Mi phones are put up for sale in a unique flash sale. By putting up a limited
number of devices and making it a first-cum-first-serve basis, the company has
cleared heaps of devices from its inventory without spending much on advertising
and solely relying on social networks to convey its messages.
Now, Xioami devices are priced typically under Rs 15,000. It's only the new Mi
Notethat can be called slightly expensive with a roughly Rs 23,000 price tag and
the Pro version for over 30k, which still makes them worth the money with specs
almost at par with the high-end premium phones from Apple and Samsung. The Mi
Note is being stacked against the Galaxy Note 4 and iPhone 6 Plus that cost over
two times the price comparatively. The Mi 3 with mid-range specs was sold at

10. approximately Rs 13,000 and the Xiaomi Note 4G costs slightly above Rs 10,000.
If you look at the specs of these devices and the price tags they carry, Xiaomi's
pricing is quite aggressive and helped them make a mark in the Asian market.
Hugo Barra, who is the face of Xiaomi in India, told Techcrunchabout how they
manage such low prices. The big factor, he points out, is the "the combination of a
small portfolio and longer average selling time per device." Moreover, it still
continues to sell older devices in spite of the new product launches.
Most of Xiaomi products stay on shelf for almost 18 to 24 months, and during this
time, it goes through two to three price cuts. Forinstance, the Redmi1s was launched
in September 2013 and continues to sell, while the Redmi 2 was launched only
recently.
And it is this longer run that allows the company to secure better component deals
with suppliers. “The reason we do these price cuts is because we’ve managed to
negotiate component cost decreases [with our suppliers] over time, which ends up
leaving us with a bigger margin than we’d like to have, so we do a price cut,” Barra
told Techcrunch. As a majority of the components in its devices are still the same,
they continue to get discounts. It's the small product family that helps achieve this.
However, it's notjust the price cuts that help in the runway. Showing its commitment
for the productforsucha long spanof time, it has to release timely software updates,
spare parts and other services that will be required by the consumers.
Some other factors contributing the cost structure are online-only marketing and a
location closer to manufacturing plants in China. However, lately it has started its
first trial-run to sell devices with partnership with telecom operators. In India, the
company has steamed up with Airtel to sell the Mi devices and has gone beyond the
usual online selling process.

11. In India, wherein most people are on pre-paid tariffs, such partnerships are very
difficult, he added. However, the company is looking at every possible way to
increase its footprint here. When Xiaomi entered the Indian market in August, Barra
had told us, “India as a market has a lot of potential for smartphones, but it will
probably take a couple of years for it to reach this potential. It’s like quarter of a size
of China’s smartphone market or maybe even a fifth, so obviously there’s a long
way to go.”
Xiaomi Redmi Model name Price of phone
Xiaomi Redmi Note 5 Pro ₹13,999
Xiaomi Redmi 5A ₹5,999
Xiaomi Redmi Note 5 ₹9,999
Xiaomi Mi A1 ₹13,999
Xiaomi Redmi 5A 32GB ₹6,999
Xiaomi Redmi 5 ₹7,998
Xiaomi Redmi Note 5 Pro 6GB RAM ₹16,999
Xiaomi Redmi Note 5 64GB ₹11,999
Xiaomi Redmi Y1 ₹8,999
Xiaomi Redmi 4 ₹9,486