In the ever-evolving mobile phone industry, a new wave of challenges and reflections is sweeping through manufacturers. At the 360 Mobile Conference on January 14, Chairman Zhou Hongyi expressed his concerns about the effectiveness of cost-performance strategies. He pointed out that focusing solely on price-to-performance ratios risks driving down product quality and failing to meet the goals of consumer upgrades. He questioned the real value of budget phones in a market where even a small price difference can significantly impact sales.
More importantly, a lack of competitive edge and brand loyalty limits the premium potential of mobile devices, making it hard to support genuine innovation. Industry experts note that once product homogenization becomes evident, it often leads to cutthroat competition and eventual decline. This slowdown in growth is seen as part of the industry's natural self-regulation based on supply and demand. However, for companies within the ecosystem, this phase can be extremely harsh and intense.
The risk of price wars has become a growing concern. When Zhou Hongyi entered the highly saturated mobile phone market, some critics believed he had arrived too late. However, it now seems he may have avoided the worst of the competition. Early entrants in the domestic market, who focused on high cost-performance ratios five years ago, have since fallen into a trap of low-end pricing, struggling to break free.
This round of Qiku series releases targets the high-end market, with prices set at 2,499 and 2,999 yuan. Zhou Hongyi’s vision is to enhance both software and hardware under certain cost constraints, developing more user-friendly and detailed features to keep customers engaged, such as fingerprint dialing, call recording, and secure private spaces.
Publicly, 360 has not disclosed the overall sales figures of its Qi Cool Mobile last year. According to Zhu Fanghao, president of 360 Mobile, Zhou Hongyi has shifted his approach, no longer setting specific sales targets for the team. However, 360 is not alone in downplaying sales expectations. As the year progresses, many manufacturers are reevaluating their strategies around price-performance and sales volume.
At Xiaomi’s annual meeting in mid-January, Lei Jun admitted that selling 70 million units was not satisfactory. He noted that the company faced issues like chaotic product rhythm and inconsistent performance. Under the pressure of an initial sales target of 80 million, Xiaomi’s operations became misaligned. Similarly, Meizu founder Huang Zhang has scaled back ambitions, aiming for only a 5 million unit increase in 2016, highlighting the risks associated with pricing strategies.
Experts suggest that while these moves may seem cautious, they reflect a strategic approach to managing market risks. In the context of profit margins, many internet-based brands rely on low-cost models that require continuous financing. These thousand-yuan phones typically operate on minimal profit margins, aiming to scale up in the future.
In 2015, manufacturers pushed the boundaries of hardware and marketing, but as configurations became increasingly similar, the focus shifted to design elements like curved screens, metal bodies, and narrow bezels. Some companies released new models with minor updates, leading to little room for meaningful hardware competition. Instead, R&D efforts were often directed toward non-essential features, yielding limited results.
Zhou Hongyi emphasized that real product innovation remains rare in China, prompting manufacturers to focus on marketing and business model innovations instead. Long-term success in the mobile phone industry depends heavily on capital support. The development of high-quality devices requires significant investment, and with capital markets tightening, few manufacturers are willing to commit to long-term R&D.
Luo Yonghao stands out as one of the few who insists on building premium products despite criticism. In an era dominated by cost-effective concepts, creating a high-end device is seen as a risky move. However, many believe Luo’s approach is valid, as seen in the case of Meizu, which recently adjusted its strategy to return to the mid-to-high-end market after a period of low-volume sales.
Analysts suggest that the shift towards high-end markets is inevitable, as seen in Huawei’s journey. After years of effort, Huawei established itself in the premium segment with the Mate 7, which exceeded initial sales expectations. This transformation required significant R&D investment and financial backing from the parent company.
For smaller manufacturers, however, the path to high-end is far more challenging. While companies like OPPO and VIVO have benefited from channel expansion in lower-tier markets, they still face competition from OEMs offering high-profit margin products. These OEMs, though lacking brand recognition, thrive in local markets due to their strong relationships with regional distributors.
Despite these challenges, the future of the mobile phone industry looks promising. With the rise of consumption upgrades, the thousand-yuan segment may eventually fade, much like how 360 once outcompeted smaller players. However, the transition will take time, requiring substantial investments in retail channels and operational costs.
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