The Indian smartphone market is as sensitive to prices as ever. With options now available for just about every price range, competing brands will have to play hard to enjoy the same success they are currently enjoying in an environment of rising costs. If the Rupee continues to depreciate more in the next few weeks, consider raising your budget for the upcoming holiday season.
The upcoming holiday season in India might be spoiled by the depreciating value of Rupee in the foreign exchange market. As of today, the Rupee fell again by 81 paise and stayed at Rs 72.65 against the US Dollar. As a result of a poorly-performing Rupee, smartphone vendors could be looking at jacking up prices ahead of the holiday season.
At the launch of the Xiaomi Redmi 6, Redmi 6A and the Redmi 6 Pro, Xiaomi publicly announced that if the value of Rupee continues to fall for the next two-three months, the company may have to re-evaluate the prices of the newly launched phones. Back when the government announced a higher import duty on PCBAs, Xiaomi was forced to raise the prices of the 55-inch Mi TV 4 by Rs 5,000 and the Redmi Note 5 Pro by Rs 1,000. The company is once again facing the pressure of rising costs thanks to the depreciating Rupee.
In a statement to Digit, a Xiaomi spokesperson said, “If the rupee continues to depreciate at this rate, we will have to re-evaluate the prices of Xiaomi smartphones towards the end of this year, especially for newly launched products such as Redmi 6A and Redmi 6.”
The publicly-traded Chinese company claims to be India’s largest smartphone brand. One of the reasons for its popularity in India is the value for money Xiaomi products offer. The company’s co-founder and CEO Lei Jun announced at the launch of the Redmi 6X in China that Xiaomi will cap its net profit margins by 5 percent for its entire hardware business. Maintaining that promise in an environment of rising costs could become problematic for the company and its future products.
And it’s not just Xiaomi. Most brands are facing the pinch. “The Rupee has depreciated significantly in the last few months, which is building up a lot of pressure for all brands in the country,” Xiaomi’s spokesperson commented.
The sentiment was echoed by Realme CEO Madhav Seth. “We are facing some problems because of the rising Rupee-Dollar exchange rate. We already keep a low margin on our products and being a customer-centric company, it’s getting difficult for us to maintain the lucrative pricing.”
The newly formed brand has taken the budget segment by storm with the launch of the Realme 1 (review) that offered a high-end MediaTek chipset coupled with up to 6GB RAM and 128GB storage for as low as Rs 13,990. Based on the success of the Realme 1 and the newly launched Realme 2, the company claims to have a market share of 4 percent already, within just five months of existence.
However, Realme promised to keep the prices of its products constant. There will neither be a hike nor a slash in prices of the Realme 1 and the Realme 2. Madhav claimed the company keeps a low margin of profit and on some SKUs, profit is even on the negative, which is how it is able to maintain such high value for money. Even for the upcoming Realme 2 Pro, that is scheduled to launched on September 27, the company said the price was already decided a month back and it will remain competitive.
We also reached out to OnePlus, Honor, and Asus for their take on the depreciating Rupee, but didn't get a response by the time the story went to press.
The pressure on the brands gets compounded when you consider the upcoming holiday season. Analyst for Counterpoint Research, Tarun Pathak said, “one-third or 35-40 percent of the yearly sales happen during the holiday period. They (smartphone brands) have to be very careful since this is when the bulk of their sales happen. In any case, the handset industry is working on razer-thin margins, and if there’s an additional rise in costs, they need to pass it on to the consumer.”
However, it’s unlikely that most companies will jack up the prices of older products.
“Normally, the shelf life of a smartphone in India is around 6-7 months. If the prices of older phones are increased, it will get really difficult for brands to clear inventories, which makes the situation even more complex,” Pathak added. “Although, companies like OnePlus and Xiaomi, that tend to keep their devices on the shelves for longer might have to look into raising the prices of products.”
It will be the new launches that will absorb the additional rise in costs. IDC analyst Jaipal Singh said companies usually procure components and units three to four months in advance. In that case, the current stocks available in the market will be sold at the current prices. At that time, the brands may not have accounted for the fluctuations in the value of Rupee, but going forward, new shipments might be imported at the existing exchange rate, which indicates there could be a rise in prices of the upcoming devices.
Not all vendors, however, will have to raise prices. “Some vendors carry a thin margin, but some vendors still carry a big margin in India. So vendors that keep low margins will definitely have no choice but to increase their prices. However, vendors that hold good margins (on their products) might want to observe for some time,” Singh added.
In case there is indeed a rise in price, the analyst from Counterpoint believes it will be very minimal. “Lot of companies will be launching new devices and that’s where the companies could recover the extra costs. It might not be more. It could be a couple of hundred rupees and I’m sure they are going to do that,” he said.
The Indian smartphone market is as sensitive to prices as ever. With options now available for just about every price range, competing brands will have to play hard to enjoy the same success it is currently enjoying in an environment of rising costs. If the Rupee continues to depreciate more in the next few weeks, consider raising your budget for the upcoming holiday season.
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Subhrojit Mallick
Eats smartphones for breakfast. View Full Profile
