2019: the year of the Chinese smartphone manufacturers.
Then versus now.
In March 2017 I was looking around for a new Android smartphone to replace my high-end but tired Samsung S5. After assessing all the usual suspects I had a quick look at a Huawei, but the sales assistant warned me off with gloomy mutterings about ‘bloatware’. I took note and later that week purchased a mid-range Moto G5 Plus on Amazon, swayed in part by a techie colleague’s recommendation.
Since then Huawei has transformed its fortunes with a succession of stellar smartphones. They have overtaken Apple to become the #2 phone maker globally, shipping 52 million units in Q3 2018 (vs. 39m a year earlier). This has been achieved without a presence on the US market where they have been blocked due to data security concerns.
The feeling from our research is very positive towards Huawei, with 1 in 2 smartphone owners believing it to be an up and coming brand with no real reliability concerns1.
A perfect symbiosis
Huawei is enjoying a golden period of new product development that has culminated in devices such as the P20 Pro and Mate 20 Pro that have had the tech press in raptures, the Guardian describing the latter as ‘cutting edge brilliance’.
These two are high-end, technology leading devices that give Huawei desirability and positive word of mouth. They have backed these up with some strong mid-range smartphones (along with subsidiary Honor), and it is this mid-market that is becoming ever more important as better quality supply is simultaneously meeting increasing demand.
In the past year a growing number of high performing mid-range smartphones have been hitting UK shelves at affordable prices at the same time as consumer desire for better value and greater contract flexibility has been fuelling a trend away from handset contracts and towards SIM only agreements.
Young people in particular are questioning why they should spend top dollar: in our research almost half of 18-24s said they are going to pay less for their next phone than they have in the past – the highest of any age group. If intention is translated into behaviour for a sizeable proportion of these then demand for mid-range smartphones will continue to rise.
Will pay less for next their smartphone.
Like any newer brand, but especially in the smartphone market where ‘value’ is harder to assess, Huawei is having to overcome traditional behavioural biases2 in order to get into people’s consideration set. These include the endowment effect (we place more value on our current brand merely because we own one of their products) and status quo bias (abandoning our current brand can be perceptually akin to a loss). Despite this, when we asked smartphone owners which brand they would consider next time, Huawei came in a creditable fourth after Samsung, iPhone and just behind Sony.
As a newer brand with real momentum, we would expect Huawei’s consideration figure to rise relatively quickly over the next few years as more UK consumers come into contact with them for the first time, as part of a typical evaluation phase prior to getting their next phone. These potential customers will be exposed to positive word of mouth from retail staff and will be absorbing more advertising and brand messages. Throw all these elements into the mix alongside Huawei’s current success and it will be interesting to see if Christmas activity pushes them up past Sony in consumer consideration in early 2019; look out for our next report in February.
Whilst iPhone users are understandably less likely to cross over to Android, globally Samsung is reportedly haemorrhaging top-end smartphone sales to mid-range models from Huawei and other
Chinese phone manufacturers
such as Xiaomi, Oppo & Vivo. It is responding by upping the specs in its own mid-range phones to keep customers within the brand, even if at a lower revenue per user.
iPhone is an island.
This rise in popularity of mid-range smartphones is currently an Android phenomenon – iPhone users either look on with defiance, or envy. While two-thirds of Android users we surveyed agreed that you can get a really good smartphone for a lot less money than a few years ago, this was significantly lower for iPhone users. Apple is a luxury brand and does not want or need to offer a mid-range handset, so those locked into the Apple ecosystem rightly believe that cheaper models will not be on the horizon anytime soon. Indeed, that is part of any luxury brand ethos and appeal, and it would represent a fundamental change to their DNA if Apple changed that strategy. Currently 1 in 3 iPhone owners we surveyed said they would consider an Android brand; an early warning signal of possible future migration away from Apple would be a consistent upward trend in this figure.
Word of mouth.
Since early 2017 Huawei has dramatically increased its ‘shelf share’, in particular with Three but also Carphone Warehouse and the major networks, reflecting its increased significance. Crucially, sales staff are much more supportive now, echoing the very positive reviews of phones like the P20 Pro and Mate 20 Pro with their market leading cameras. This and anecdotal word of mouth are important – in our research almost a third of smartphone users said they know someone who has a Huawei, and it’s likely that person will be making positive noises about the overall experience, the camera or the competitive price at which Huawei does what it does.
Being typically more engaged with the category, it’s understandable that three-fifths of 18-24s are happy to hear sales staff recommendation (vs. two-fifths across all ages). This is an important statistic as it highlights just how important physical retail still is among this key age group. We also know from our 2018 research around Text-to-switch that a quarter of smartphone users would only consider a network provider that has its own retail stores.
Happy to hear smartphone recommendations from staff.
Xiaomi, Oppo and Vivo.
Still little known in the UK, there are three other huge
Chinese phone makers
who are who are already shipping tens of millions of handsets worldwide – Xiaomi, Oppo and Vivo.
Xiaomi, the world’s 4th largest mobile phone company has grown handset shipments an incredible 21% from Q3 ’17 to Q3 ’18. It launched into the UK in November 2018 as Mi with the Mi 8 Pro (pictured below), a Mi Store in London’s Westfield shopping centre and agreements with Three, Carphone Warehouse, Argos, John Lewis and PC World. Mi and sub-brand Poco are set to make a big impact at a lower average price than Huawei.
Oppo and Vivo will likely follow, both having tapped into the Indian market early on with great success. Both companies make more affordable devices and have tended to promote them using celebrities that resonate with millennials. Their recent devices, Oppo’s Find X and Vivo’s NEX have majored on physical appeal, maximising screen-to-device footprint ratios such that both significantly outdo the iPhone X in that aspect.
Building a brand story.
The web-streamed launch of the Huawei Mate showed that Huawei execs are rightly enthralled by their impressive tech specs. However, building up a great product story alone is not enough to generate longer term loyalty in the churn-heavy Android market. All the
Chinese phone makers
should devote significant energies into creating a brand story to improve ‘stickiness’, an area in which Walnut can offer cutting edge approaches and expert guidance.
Whilst riding its own wave of product success, Huawei is also helping reduce attitudinal barriers to other
Chinese smartphone manufacturers.
I expect to see Huawei and Xiaomi both do well in the UK over the next 18 months, especially in the mid-range market, which will mean more pain for Samsung, Sony, LG and Motorola.
What will the future look like?
With the mid-range market becoming increasingly important perhaps Nokia, with its strong brand heritage and pure Android OS, can also make an impact. Having learnt lessons from the Microsoft era, the humble enthusiasm and start-up mentality of those at HMD Global are putting Nokia back in the frame for an increasing number of consumers, some of whom may like the idea of choosing a European brand.
Following half a decade of relative stability, the UK smartphone market is likely to undergo considerable change over the next five years. In addition to Apple I see a booming Huawei, a wounded Samsung and a growing presence from Chinese challengers Xiaomi, Oppo and Vivo; plus Nokia if they secure the investor funds to really compete. If Apple lose their nerve, maybe there could even be a mid-range iPhone by then? I wouldn’t bet on that last one, but stranger things have happened.
How Walnut can help.
Walnut have a team of telecoms and retail sector experts who are adept at helping clients understand true customer needs and purchase drivers, identifying ‘white space’ to evolve brand positioning in crowded markets and employing cutting edge techniques such as our industry leading neuroscience practise to get to the heart (or brain) of what customers really think. That’s what makes us the human understanding agency.
1: Walnut Omnibus research, October 2018. Nationally representative online survey of 1,823 smartphone owners across GB.
2: Horowitz and McConnell, 2002; Sayman and Öncülar, 2005.