More phones that buck traditional pricing models are hitting the market. Xiaomi, Motorola, and OnePlus are all aiming to give more people access to a level of technology that would have been out of their reach in the past. This is, of course, a wonderful thing.
However, limited availability has been plaguing the release of these devices. Posts where people vent their anger for not being able to purchase the phone they wanted are a familiar sight following their launch events.
Xiaomi’s recent launch in Malaysia is just the most recent example. The company sold out the Mi 3 in just 17 minutes, prompting some to hit forums and social media to vent their disappointment (at times, in rather colorful ways). The same thing happened during Xiaomi’s launch in Singapore just a couple of months earlier. Back then, the first batch of Redmi phones was sold out in just under ten minutes.
Xiaomi is hardly the only one facing this issue. In India, Motorola’s recent phones are currently only available through online retailer Flipkart. The site ran out of the first batch of Motorola’s latest affordable wonder, the Moto E, in less than 24 hours. According to The Economic Times, Flipkart costumers are expected to wait at least ten days for fresh stocks to arrive. It was the same with the Moto G launch in February.
But Indian consumers are still among the lucky ones. Millions of potential new smartphone buyers in Southeast Asia’s largest market, Indonesia, currently have no chance of buying Motorola phones unless they go through gray market dealers.
Of course, we can’t talk about scarcity without mentioning OnePlus, whose invitation-based purchasing system required a number of consecutive explanations to get people to understand it.
What’s so hard about giving people the devices that they want?
It doesn’t take rocket science to predict that demand for smartphones with high performance-to-price ratio, particularly in emerging markets, would be stratospheric. It seems that the most logical question to ask is, why can’t these manufacturers prepare enough units in stock before hand?
Why risk upsetting or, as is often the case, infuriating fans by quickly running out of the thing that they want to have? Most of them have already screamed ”take my money” anyway.
The thing is, it’s not that simple.
Thin margins require a creative business model
First of all, we need to understand that coming up with ingenious ways to minimize costs without sacrificing quality is imperative for these companies to be able to offer their products.
One way to keep costs low is strict inventory management. By keeping inventory just below expected demand, manufacturers can ensure that every unit is quickly sold to consumers. This way, they will be able to minimize costs associated with maintaining a large stock and reduce the risk of unwanted inventory build-up.
Simply put, thin margins allow little to no room for unplanned inventory surplus.
Underdogs have a hard time ramping up production
“<em>There's no infinite supply of components and production capacity”</em>
When asked by CNET’s Alexius Low about Xiaomi’s practice of offering devices in limited batches that tend to sell out rapidly, Xiaomi’s Hugo Barra said, “We’re not [purposefully doing that]. It astonishes me that people don’t understand some very basic things about supply chain. Just consider the fact that there are a dozen of companies, including a handful that are very, very big, all competing for the same components, the same production capacity… there’s no infinite supply of any of those.”
This is the answer to our question. The supply of components and production capacity are both limited. The challenge facing underdog companies basically lies in convincing a limited pool of suppliers to shift more of their available (and finite) capacity to them instead of catering to market behemoths.
This is bit of a chicken and egg situation. You need market share to convince suppliers to devote more of their capacity to you, but you need to ramp up production first in order to grow your market share.
Patience is still a virtue
So the next time you see people complain over how hard it is to get one of these great value smartphones, consider the challenges these companies are facing to bring their wonderful devices to the masses.
When it comes to getting great bang for the buck devices, patience, it seems, is indeed a virtue.