[Abstract] According to insiders, vivo has planned a subsidy of 5 billion yuan this year to implement its high-end strategy, which will mainly be used for product price subsidies, supply reserves, and dealer concessions. Notably, this subsidy scale is comparable to vivo's excess profits compared to its sister companies within the system in 2023.

The high-end positioning of mobile phone brands is essentially a process of establishing brand premium. When a mobile phone brand successfully creates a high-end hit product for three consecutive years, it can be considered that this high-end path has been successful.

The ultimate goal of vivo's 5 billion yuan investment is to build upon the success of the X100 high-end series. By maintaining good relationships with dealers and establishing a high-end brand image, vivo aims to increase product gross margins and sales volume in the medium to long term.

For companies that are establishing a high-end strategy after Huawei and Apple, courage, determination, and precise direction are all crucial at this time.

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Chinese local mobile phone manufacturers are accelerating their competition for high-end markets.

Huawei's Mate series and P series, OPPO's Find X series, vivo's X series, and Xiaomi's digital series are all typical representatives of high-end mobile phones.

However, there is a slight difference between high-end positioning and high-end products. The former encompasses the latter but is not completely equivalent. The high-end positioning of mobile phone brands is essentially a process of establishing brand premium, with the fundamental logic lying in high product gross margins. Achieving high gross margins for mobile phones priced in the RMB 3,000-4,000 range is also a crucial aspect of manufacturers' high-end strategies.

An important current trend is that manufacturers hope to use their flagship high-end brands to drive sales and high gross margins in the mid-to-low price segments, thereby achieving high-end positioning.

01

vivo spends 5 billion yuan this year to pursue high-end positioning

A simple criterion for evaluating whether a mobile phone brand's high-end positioning strategy is successful is whether it can continuously create high-end hit products for three years.

The X100 high-end series, launched in November 2023 and achieving over 1 billion yuan in initial sales, became vivo's first truly successful high-end product and marked the beginning of vivo's subsequent high-end strategy.

According to insiders, vivo formulated plans at the beginning of this year to allocate 5 billion yuan specifically for subsidizing its high-end strategy while also supporting the development of other mobile phone products. Notably, this 5 billion yuan subsidy is roughly equivalent to vivo's excess profits compared to its sister companies in 2023.

vivo's ability to allocate 5 billion yuan for subsidies also indicates its relatively healthy financial position. According to various data rankings from IDC, Canalys, Counterpoint, and others, vivo topped the Chinese smartphone market in shipments in the second quarter of 2024. Driven by the popularity of multiple new products, including the X100, vivo ranked first in market share in multiple price segments, including RMB 1,000-2,000, RMB 3,000-4,000, and RMB 4,000-5,000.

It is reported that the 5 billion yuan subsidy will primarily be used for product price subsidies, inventory replenishment, and dealer concessions.

In terms of product pricing, the X100's price range of RMB 3,000+ is already considered a cost-effective interval for flagship models that consumers are highly receptive to.

Stable supply and high profits are the core concerns of all channel dealers.

vivo's 5 billion yuan subsidy is tailored to dealers' preferences.

According to dealers, the current inventory of the X100 series is stable and supply is relatively consistent, indicating vivo's significant investment in replenishing inventory for the X100. Additionally, dealers earn a profit margin of approximately RMB 800-900 (including the portion allocated to sales personnel) for each vivo X100 series phone sold, providing ample profit space. Consequently, downstream dealers are more motivated to promote sales of the X100 and other vivo products.

Furthermore, Cheng Gang, vivo's Vice President and President of China Region, personally assembled a marketing team to oversee and manage the marketing efforts for the X100 series. As a trusted lieutenant of vivo's founder Shen Wei, Cheng Gang wields significant influence and can effectively stabilize the team, providing better execution and leadership to promote the high-end strategy.

Since vivo has set a goal of investing 5 billion yuan, it is prepared to bear the corresponding consequences, which will be reflected in subsequent financial reports.

However, the key to this strategic layout lies in ensuring a worthwhile investment: by maintaining good relationships with dealers who are content with modest profits, expanding shipment volumes, and establishing a high-end brand image, vivo aims to increase gross margins and sales volumes of high-end products in the medium to long term while also expanding the overall sales scale of its mobile phone business segment.

02

Progress of competitors' high-end strategies

As both a competitor and ally, OPPO's progress in high-end positioning needs improvement.

Firstly, due to inventory pressure, OPPO's high-end positioning progress has been relatively stagnant. Amid rising storage prices at the end of last year, OPPO accumulated a certain amount of inventory, which it subsequently liquidated overseas in the first few months of this year. In the first half of the year, OPPO consecutively launched low-priced, high-volume products such as the Reno12, A3, and K12x.

On the other hand, OPPO has undergone several radical reforms in its organizational structure and distribution channels in recent years, which have disrupted the pace and determination of implementing its high-end strategy on the product side to some extent.

In contrast, vivo's internal system reforms have been relatively moderate, largely ensuring the implementation of the group's strategy.

Furthermore, vivo has been slow in personnel changes. According to insiders, vivo has a tradition of experienced employees mentoring newcomers and new projects, with most new product developments overseen by experienced staff. This fosters a relatively prudent approach and consistency in vivo's mobile phone products and brand image over time, with many series lasting for over a decade.

According to insiders, OPPO has gradually prioritized gross margin since the beginning of this year, requiring its brands (including the youth-oriented and low-priced Realme sub-brand) to maintain a gross margin of approximately 25% before production and sales can commence.

In comparison, vivo's target gross margin for its products is lower.

Xiaomi has taken an early lead in high-end positioning. The Xiaomi 13 and 14 high-end models have been consecutively successful, and Xiaomi is now poised to solidify its foothold in the high-end market and meet the evaluation criteria of establishing a three-year reputation, with the only remaining task being to refine its next high-end product, the Xiaomi 15.

Moreover, Xiaomi has leveraged its high-priced flagship products to drive high gross margins for its mid-range offerings. For instance, the Xiaomi Civi, a mid-range product priced between RMB 2,000 and RMB 3,000, shares a similar design with the Xiaomi 14, enabling it to reuse components and share R&D expenses with the high-end Xiaomi 14. Consequently, the Xiaomi Civi has enhanced its high-end attributes and correspondingly achieved high gross margins.

However, unlike Oppo and vivo, Xiaomi's automobile sales have also contributed to establishing the brand image of its mobile phones to a certain extent.

03

vivo dealers' unique approach

Dealer channels, which are closest to consumers, are essential for the success of the mobile phone industry. vivo's commitment to integrity and long-termism has fostered a group of well-established dealer relationships, and the effectiveness of this approach differs from that of OPPO.

When vivo first ventured into mobile phones in 2004, Shen Wei, vivo's founder, established a channel policy that prioritized profits for retailers, followed by internal agents in each province, and finally vivo headquarters.

Today, most of vivo's dealers are relatively small in scale and aim for modest profits. Based on their past successful cooperation, dealers have developed trust and recognition in vivo's stable system. These dealers help vivo quickly clear inventory and create hit products.

In contrast, other companies, such as a certain company that exerts significant influence over its dealers, often adopt a three-year rotational system for regional managers, who tend to have a "professional manager" mindset. They employ aggressive tactics to achieve performance during their tenure, leading to practices such as pressuring dealers to prepay for inventory to boost revenue and even collecting fines to offset performance targets. OPPO also briefly emulated some of these dealer management practices during its recent reforms.

In comparison, a notable characteristic of vivo's dealers is that they tend to have fewer complaints.

04

Conclusion

In the race for high-end positioning, Huawei and Apple have already established brand perceptions, while the remaining companies are each leveraging their unique strengths.

For vivo and OPPO, which share a heritage rooted in the "BBK Electronics" group, the participants and strategic cycles to consider in this high-end positioning race may be more complex.

Courage, determination, and precise direction are all crucial at this juncture. However, time is limited for brands to establish high-end perceptions, and seizing the pace may determine their subsequent rankings.