Reviewing the gains and losses of the sea of phones strategy.

Written by Zhou Tao

Edited by Wan Tiannan

At 1:00 am Beijing time on September 10, Apple held a new product launch event, officially unveiling four models in the iPhone 16 series, starting at a price of 5,999 yuan.

However, the highly anticipated Apple Intelligence feature made a "discounted" debut - launched in batches and implemented in phases.

On the same day, Huawei chose to go head-to-head, unveiling the world's first "triple-folding" flagship - the Huawei MATE XT Extraordinary Master , with a starting price of 19,999 yuan.

After the launch event, the number of reservations on Huawei's official mall exceeded 4 million - in the high-end market, domestic manufacturers can finally compete with Apple on an equal footing.

Compared to Huawei's rapid advancement in the high-end mobile phone market in recent years, Apple has struggled somewhat in the Chinese market recently: According to data released by analysis firm Canalys, Apple's market share in China's smartphone market fell to 14% in the second quarter of 2024, dropping to sixth place and becoming "other" in statistical charts. The top five market shares were captured by vivo, OPPO, Honor, Huawei, and Xiaomi.

While domestic manufacturers have outperformed in shipments, Apple's dominant position in the high-end market remains firm - in the Chinese high-end smartphone market in the second quarter of 2024, Apple's market share remained at the top despite a year-over-year decrease of 7%, reaching 52%.

Why does Apple hold a firm grip on the high-end market?

On September 11, 2024, according to inquiries on the official malls of various mobile phone manufacturers, Apple had 11 models on sale, with the lowest price point at 3,499 yuan. In contrast, domestic manufacturers had a relatively large number of models on sale, covering various price segments from low to high-end.

Compared to Apple, domestic manufacturers' strategy of launching a large number of models to achieve full coverage from entry-level to high-end products is known as the sea of phones tactic.

However, as the mobile phone market shifts from incremental to stock, it's time to reassess the sea of phones tactic.

Sea of phones tactic, an early necessity

From the "Zhonghua Kulian" of a decade ago to today's "Huawei, Xiaomi, OPPO, and Vivo," manufacturers have spared no effort in launching new models through different configurations and features.

The sea of phones tactic flourished in the domestic mobile phone market, peaking in 2016.

According to monthly reports on the domestic mobile phone market published by the China Academy of Information and Communications Technology (CAICT), in 2016, 1,446 new smartphone models were launched in China's market, with nearly four new models released daily. In contrast, in 2023, only 441 new smartphone models were launched.

"Everyone is desperately increasing configurations and features, as if whoever launches a product fastest wins," recalled Cao Jingsheng, then-vice president of Coolpad, to Tencent Tech in 2014.

It can be said that the sea of phones tactic was almost a necessity for manufacturers to seize market share early on, and abundant supply helped China become the largest mobile phone market in the world.

IDC data shows that in 2023, China's smartphone market shipped 271 million units, accounting for 23% of the global market of 1.17 billion units, making it the largest market in the world. Meanwhile, in the second quarter of 2024, China's smartphone shipments accounted for 28%, 36%, 10%, and 26% of the market shares in the price segments below $200, $200-400, $400-600, and above $600, respectively.

China's vast smartphone consumer base ensures that users at all price points are significant in number. Facing such a diverse market, manufacturers use the sea of phones tactic to launch models covering various price segments from low to high-end, better reaching various consumers and occupying more market share.

According to data from iResearch on the Chinese smartphone user survey in 2024, Chinese consumers pay considerable attention to factors such as RAM, storage capacity, battery life, and charging speed when purchasing smartphones. By launching multiple models with different configurations and features, manufacturers can accurately target specific user groups and meet consumers' individual needs, such as gaming performance, photography capabilities, battery life, and slim designs, thereby tapping into market potential.

At an offline vivo official experience store, Finance Story Hub found that the price ranges of the vivo S19 Pro and its sub-brand IQOO Neo9S Pro+ almost overlap, with the former priced at 2,999-3,799 yuan and the latter at 2,899-3,999 yuan. A vivo staff member explained, "The vivo S19 Pro features a 50MP front-facing camera with autofocus, dual 50MP rear cameras, and an ultra-thin curved screen, making it suitable for female users. The IQOO model is powerful and great for gaming, popular among young people."

When asked about the "niche requirement" for small-screen flagship phones, the staff member replied, "You can wait for the X200 launch in October. It's targeting the iPhone 16 this time."

The sea of phones tactic is also a marketing tool: In the fiercely competitive domestic smartphone market, frequent launches and a deluge of new products can help manufacturers maintain market attention. Each new product attracts a wave of interest and sales.

Looking back at the history of China's smartphone development, the sea of phones tactic has been a common approach among manufacturers other than Apple to seize market share.

However, as the mobile phone market shifts to stock, "high-end" has become a common option. Is the sea of phones tactic still effective?

High-end transformation, sea of phones fails

Today, the mobile phone market is no longer an incremental one.

IDC data shows that China's smartphone shipments in 2023 were 271 million units, a year-over-year decrease of 5.0% and the lowest record in a decade, accounting for only 58.3% of the peak shipment volume in 2016.

At the same time, consumers' replacement cycles are lengthening. According to market research firm TechInsights, the global smartphone replacement cycle reached 51 months in 2023, the longest in history.

Meanwhile, the high-end market is growing.

IDC's 2023 data on price segment trends in China's smartphone market indicates that the market share of high-end phones priced above $600 reached 27.4%, an increase of 3.7 percentage points year-over-year. While high-end consumers maintain their purchasing power, more mid-range users are upgrading to flagship products.

Against this backdrop, manufacturers must focus on high-end products and use higher pricing to offset lower sales volumes.

However, the sea of phones tactic, prevalent as it is, undoubtedly hinders brand high-end transformation.

Frequent product updates under the sea of phones tactic lead to overlapping product lines and inevitable product homogenization, making it difficult for consumers to focus on high-end products and blurring brand positioning.

A staff member at an officially authorized Samsung experience store told Finance Story Hub, "Samsung currently focuses primarily on high-end products. Customers mainly inquire about Samsung's high-end offerings when they visit the store. We have mid- and low-end product lines, but we don't recommend them. For mid- and low-end products, we even recommend domestic brands to customers."

The sea of phones tactic also negatively impacts product focus and technological innovation.

Under the sea of phones tactic, manufacturers must distribute resources across multiple product lines, from design and development, procurement and supply chain management, assembly lines, to after-sales service, requiring immense effort and compromising product quality and user experience.

In a 2023 interview with 36Kr, Realme founder Li Bingzhong discussed the sea of phones tactic: "More new products may lead to short-term growth and help early brand building and reputation. However, in the long run, I believe it's difficult to achieve success. Another of our current strategies is to focus more and use resources more intensively."

Some users also poke fun at manufacturers' "technology based on changing shells" and "all clones," essentially expressing dissatisfaction with the sea of phones tactic.

Offline dealers also have something to say about the sea of phones tactic.

"Having many product SKUs indeed means covering more consumers, but it increases the difficulty of managing inventory and ties up significant funds. From an after-sales perspective, the number of materials required for after-sales service is several times that of mobile phones. Once a phone malfunctions, if it's not a recent popular model, it's essentially impossible to repair on the spot and needs to be returned to the factory, resulting in a poor after-sales experience," an offline OPPO dealer told Finance Story Hub.

The dealer also mentioned that the sea of phones tactic often means manufacturers offer a large number of mid- and low-end SKUs, limiting profit margins: "Manufacturers need to launch more high-end premium products for dealers to have greater profit margins."

It can be said that while the sea of phones tactic may bring short-term gains in market share and sales for mobile phone manufacturers, it is not a panacea, especially from a long-term and high-end brand perspective.

Looking globally, brands that have truly achieved high-end transformation have not relied on the sea of phones tactic.

From "sea of phones" to "high-end," manufacturers share the same path but face different destinies

Advancing towards the mid-to-high end has become a common choice for Chinese mobile phone manufacturers.

Canalys data shows that in China's high-end market in the second quarter of 2024, Xiaomi's market share surged by 50%, ranking third with a 4% market share. Although there is a significant gap compared to Apple and Huawei, Xiaomi's high-end transformation is underway.

Currently, Xiaomi's official website lists over 40 models, but according to Finance Story Hub's statistics, as of September 10, Xiaomi had only launched seven models in 2024.

In contrast, the number of models launched by other manufacturers during the same period were: vivo (including IQOO) 25 models, Honor 16 models, Huawei 16 models, OPPO (including OnePlus) 15 models, and Apple 4 models.

Of the seven models Xiaomi launched this year, excluding the Redmi brand, only four are under the Xiaomi brand. Among them, the Xiaomi Civi4 Pro, aimed at the female market, starts at a relatively low price of 2,799 yuan, while the other three products start at 5,999 yuan.

It is evident that Xiaomi has thoroughly reassessed the sea of phones tactic.

However, Xiaomi also faces challenges in its high-end transformation.

As is well known, Xiaomi mobile phones have always been renowned for their cost-effectiveness, even earning the nickname "diaosi phones" (slang for low-end or cheap phones).

How can Xiaomi balance brand high-end positioning while meeting diverse demands? Xiaomi's answer lies in establishing sub-brands.

In 2019, Xiaomi announced the official independence of the Redmi brand. Lei Jun explained at the event that Xiaomi would focus on the high-end market to provide users with an ultimate experience, while Redmi would continue to prioritize cost-effectiveness.

Finance Story Hub queried Xiaomi's official mall and found that of the 14 Xiaomi-branded models currently on sale, all but three Civi series models priced in the 2,000 yuan range are priced between 3,999 and 19,999 yuan. The price range below 3,999 yuan has been handed over to Redmi.

Meanwhile, streamlining product lines and focusing on a few premium models is another key strategy in Xiaomi's high-end transformation.

As early as 2018, Lei Jun stated in an interview with Yang Lan, "You only have a chance to do better by doing fewer things. We are constantly struggling against greed."

In 2019, Lei Jun announced on his personal Weibo that Xiaomi had initially sorted out its product lines, determining three major series for the Xiaomi brand: Xiaomi MIX, Xiaomi Digital, and Xiaomi Civi. The Xiaomi Note and Xiaomi Max series were discontinued. In February 2020, Lei Jun formally proposed high-end transformation at the Xiaomi 10 launch event.

Over the four years since the high-end strategy was proposed, Xiaomi's focus on key models has indeed enhanced product capabilities, yielding several hits:

The Xiaomi 13 and Xiaomi 14 capitalized on the lack of small-screen flagship phones in the Android camp, positioning themselves as "small and beautiful" as a core selling point.

The Xiaomi 14 Ultra focuses on photography, launching a photography kit with an external camera grip, attracting photography enthusiasts.

The newly launched Xiaomi MIX Flip, with its outstanding appearance, introduced an instant photo kit bundled with the Mijia photo printer, attracting female users.

Of course, Xiaomi's journey towards high-end positioning faces obstacles.

For Xiaomi, which relies heavily on supply chains and chip manufacturers, a premium strategy means betting on only a few products. If the core products fail, there are no other offerings to absorb the downward pressure.

The annual flagship Xiaomi 11, launched at the end of 2020, suffered from severe overheating of the Snapdragon 888 CPU and numerous bugs in MIUI 12, damaging its reputation.

Lei Jun recalled in his 2023 annual speech, "Xiaomi 11 encountered significant setbacks. We worked hard on Xiaomi 12 but still fell short of expectations. No one expected high-end positioning to be so difficult and costly, and frustration spread throughout the company."

To this day, in the comments section of Xiaomi's official Bilibili account's video of Lei Jun's 2023 annual speech, you can still see messages like, "The Snapdragon 888 is a killer!"

However, the "sea of phones" tactic and "high-end positioning" are not mutually exclusive but rather represent phased alternatives.

"Rome wasn't built in a day." Even Huawei employed the sea of phones tactic early in its mobile phone business development to cover a broader market and consumer base. After years of technological accumulation, Huawei gradually implemented a high-end strategy, launching high-end flagship phones and establishing its current brand and technological image.

Domestic manufacturers won't forever settle for cost-effectiveness and low-to-mid-end positioning. They aspire to break through to the high end from the "sea of phones."