Last week, I had the pleasure to attend Huawei’s Analyst Summit in Shenzhen, China. I had the chance to hear senior management talk about the company’s strategy in the different segments it operates. While I am well aware of how wide Huawei’s reach into the mobile market is, both consumer and enterprise, I am always reminded at this event – this is my 4th – of how little the consumer business contributes to the overall company. Yet, this is by far the most visible part of what Huawei does.
In 2015, according to its internal numbers, Huawei’s high-end smartphone sales grew 72%, going from 18% in 2014 to 31%. Their stated target for 2016 is aggressive: 140+ million smartphones shipped where mid-end and high-end will contribute over 55% of the revenue.
Honor: the wind beneath the wings
Doing some quick math on the numbers takes me to the conclusion that, while more than half the revenue will be coming from mid and high-tier devices, Huawei will be relying on the Honor to continue to grow in volume.
Huawei created Honor in 2014 to try and diversify its go-to-market strategy following the success Xiaomi was having in China. Honor is mostly a direct-to-consumer business sold through Huawei online stores and select online partners like Amazon that supplement the main channel. When Honor was first launched, there was also an attempt to distance the brand from Huawei in order to penetrate markets such as the US where “Made in China” was under threat from privacy and security concerns.
Over time though, Honor has become more synonymous with affordable than alternative. The Honor 5X 16GB unlocked version currently sells on Amazon for $199.99. This is the entry price for Honor that increases to $399 for its high-end models. In these segments, Honor competes with the Huawei G and Huawei Y products.
At the event last week, there seemed to have been an urge to further distance Honor from Huawei to the point that very little was said about this line other than it is a totally separate brand. Yet, as Huawei wants its name to be associated with the high-end market, we could see a clearer split in portfolio with Honor becoming the volume lifter especially in markets such as the US where online sales are growing due to the decoupling of the phone and tariff costs. What will be interesting to see is how Huawei will develop a dual vs. single brand strategy. Whether under the Huawei or Honor brand, it is clear to me the mid-tier devices will be key in driving growth and, more importantly, economies of scales the high-end can benefit from. After all, we cannot ignore the fact that, even for Samsung, non-Galaxy and Note products still represent 30% of the installed base across markets.
Huawei’s opportunity in 2016 will be coming from more price sensitive markets
Looking at public data on purchase intention, Huawei scores highest in China. 10% of the online consumers interviewed said they will definitively consider purchasing what is now the top brand in China smartphone market according to Kantar Worldpanel ComTech. This compares to 5% for Xiaomi, 14% for Samsung and 18% for Apple. In Italy, where Huawei is currently the second most sold brand, 7% of connected consumers stated they would definitely consider purchasing Huawei. Most of the other markets do not go above 5%. In the US, where Huawei has yet to make much inroads, intention reaches only 3%. Considering both the skew to pre-pay as well as the more price sensitive nature of these opportunity markets, it is sensible to expect the lower end of the Huawei portfolio to play a more important role in converting sales. Overall, Honor products represent roughy 20% of the current Huawei installed base while the Huawei G and Y lines represent 30%. Too much of an overlap between the two brands might cause Huawei to compete with itself more than capture share from competitors, so careful consideration will be needed as there is certainly price overall.
Can Huawei really be successful in the high-end?
Succeeding in the high-end of the smartphone market is not for the faint-hearted. Across markets, that saturated segment is controlled by Apple and Samsung with very little erosion inflicted by other brands. Samsung has been losing market share to other Android vendors, Huawei in particular, but it has done so in the mid-tier segment with users that either did not own a Galaxy model or have older generations.
While Huawei has been delivering higher-end devices in specs, its prices have been more of a high-mid-tier portfolio. The launch of the P9 changed that, as the Chinese vendor priced the new flagship right where Samsung and Apple’s high-end products are positioned. Yet, while brand awareness is growing, consumers do not consider Huawei to be at the same level. The UK market is a very good example of that struggle. With almost half of the UK smartphones sales falling in the high-end, Huawei has been unable to grow share as significantly as in markets such as Italy, Spain and, more recently, Germany.
In the past, other brands that started as a value play struggled to change consumer perception. LG is a very good example of that inability where, even after the success of its Nexus 5, LG G4 and LG G5, it is not considered quite at the same level as homegrown competitor Samsung.
Huawei is certainly spending a lot of money and effort in strengthening its brand through brand ambassadors such as actress Scarlett Johansson, actor Henry Cavill, and soccer player Lionel Messi. CMO Glory Cheung also walked us through changes to the logo design that will be used more fluidly, depending on the channel and campaign. All of this is certainly helpful and shows how serious Huawei is at being a global player but sadly, it is not always a guaranteed recipe for success.
Huawei is certainly aware of the challenges it faces to reposition its brand and, with the new MateBook, it made the conscious decision to enter at a higher price point so the brand in the new segment can be associated more with design and higher spec than good value for money. The difficulty here is the lack of experience in the PC market as well as lack of enterprise credibility when it comes to channel strategy, device management, and customer support.
The key to success is to turn “Made in China” to a must have
Appealing to high-end buyers takes a mix of aspirational brand, good design, reliable and quality hardware and software. I have already discussed the effort on brand. There is no doubt Huawei’s design is strong and its smartphones have improved in quality and reliability. Software however, is not a strong point for the Chinese brand and, within the Android ecosystem where consumers have a wide selection of brands to choose from, software can make a difference. This is particularly true if software gets in the way of user experience.
Huawei has been successful at making “Made in China” appealing to its home market that historically has preferred foreign brands. Over the years, the tech hub has been moving from Japan to Korea and on to China. Yet, while for Japan and Korea there was a recognition there was value add in what came out from local vendors, China does not seem to have achieved the same status. This certainly has to do with the perception consumers have from other industries and the start of the smartphone market that China is not about talent but about cheap labor. Xiaomi and Huawei have shown this is no longer the case but, while Xiaomi’s business model is hard to replicate abroad, Huawei has the skills to take their success in China to other markets around the world. This effort however, will take time and a considerable amount of resources.
Interesting, thank you.
It seems Huawei is using all the tools of the trade with a deep effort that smacks of long-term brand building. They’ve set up a design studio in France and are giving PR tours like there’s no tomorrow. I’m sure they have an engineering studio in Germany, a financial engineering outpost in the UK.. ;-p They’re also doing a very strong push in the retail channels w/ frequent rep visits, incentives, perma-sales à la Samsung… Their marketing push is not just pretty faces on ads. They’re also blanketing the press with loaners and presentations.
In France, the mere name is an issue though. It is utterly foreign, in a way Apple and Samsung aren’t, unpronouncable to us, and when it is pronounced, it doesn’t sound like “it should”, so those of us that looked it up don’t even articulate the same sounds as the DIY-pronouncing types. It’s a very silly and superficial branding problem to have, but quite real. Not sure how it works out for them in other Western countries.
The devices are unremarkable, which is fine now that they all look nice and the insides are OK for almost all. Pricing has made the 5X the default midranger this year. That’s bad at the high end though, half the raison d’être of high end phones is to be noticed.
I think the Android landscape is turning into a long-term industrial+marketing power play: branding or features breakthrough are unlikely at this stage, though Samsung did pull off a nice one by making their Edge line instantly recognizable even from afar. I’m guessing Huawei will be good at that long game, especially with their most likely competitor Lenovo so slow to assert… anything.
Thanks for sharing your thoughts. Agree on the name – people still cannot pronounce Nokia properly in the US and that is much easier than Huawei 🙂 Huawei is deaf in this for the long run and they will take their time to get it right and of course they have the advantage to have a business large enough that can afford to do this more than say an HTC could
I remember when the Acura brand first hit the market. Almost all of the first year’s advertising was focused on pronunciation.
Joe
Luckily no consumer should ever need to pronounce Nokia ever again. 😉
RIP
Well, Hyundai seems to do fine despite its name. They were smart enough to use (invent, really) a pronunciation for the international market that is different from the authentic Korean and easier for Westerners.
I am ever the skeptic that a significant market for a high-end computing device can be established around a basically generic OS. It couldn’t be done with Windows PCs, why anyone thinks it can be done with Android phones escapes me. You can’t just wish race-to-the-bottom market dynamics away.
I think that’s only partly true: sure, having devices running the exact same apps at a fraction of the cost forces one to frontally tackle the issue of whether better materials/camera/performance/features… are really worth the extra cost. But, OEMs are getting better at making the case for premium devices (and, incidentally, at making premium devices ^^). Even in the Wintel world, which is a lot less consumer-oriented than Mobile, we’re now seeing life at the fancy end, not just at the high-performance end.
A lot is made about falling ASPs, but that’s mostly a function of much lower costs driving all prices down. If we define Premium as, say, 2x ASP instead of as a fixed number (and now that Apple has released the se which is below $500 in both memory sizes, I’m sure we’ll start doing just that ^^, alternatively, we could look at margins but that’s complicated), I’m not sure Premium’s share is faring that bad even on the Android side.
I didn’t say premium generic is impossible, just niche. And Android manufacturers are trying to differentiate by creating their own ecosystems which they hope helps insulate them from the race to the bottom. But then they are in complete cross purposes with Google, or Alphabet, or whatever is the proper corporate entity that Android now falls under.
Mind you, it’s not enough to be able to differentiate. They need to offer a quality differentiated product to succeed in breaking out of the race to the bottom.
But:
1- It’s not “premium generic”, it’s “premium”. It just depends on your definition of Premium. For you it’s “is Apple”. For others it’s best camera, best screen, best looks, most expensive… That has little to do with OS/Ecosystem. Things don’t have to be incompatible to be premium.
2- Android OEMs have mostly given up on creating their own ecosystems, at most they have a custom UI and a sprinkling of apps, if that. They’ve been going for looks and camera those last 2 years, mostly.
3- I love the forced, snide, fake naming fumble ;-p
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