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Why are Samsung phones costly than Xiaomi?

If you compare two phones with similar specs, one from Samsung and one from Xiaomi, you will see that Xiaomi phones are cheaper than Samsung. There are various complicated reasons. 

However, the short answer is Samsung phones cost more than Xiaomi because Samsung spends billions of dollars on their R&D, they manufacture their phone in South Korea or Vietnam, uses better quality hardware, spends a lot of money on advertisement, sells their phone through commission-based dealers, and has higher profit margin per phone. 

Let’s elaborate on each of these points.

Samsung spends billions on R&D:

Samsung has dozens of Research and Development(R&D) centers worldwide, including India, Israel, and the USA. They employ tens of thousands of high paying hardware and software engineers at these R&D centers. Samsung needs to dedicate the same amount of engineering resources regardless of phone models. It takes the same amount of energy, time, and dedication to bring out a Flagship phone or a budget phone. Year-round, Samsung spends billions of dollars at these R&D centers.

Xiaomi, on the other hand, spends almost nothing on the Research and Development(R&D) for their product. They blatantly copy product designs from Apple and Samsung. Even their software design is a blatant copy of iOS —  the iPhones operating system. Furthermore, they also copy product names from other manufacturers. For example, Mi Note 10 name is a copy of Samsung’s Note series, RedmiBook name is a copy of Apple’s MacBook,  Mi Notebook Air is a copy of Apple’s MacBook Air, MiPad name is a copy of Apple’s iPad. 

You can see that while Samsung spends billions of dollars on R&D, Xiaomi spends almost nothing but only copy software, hardware, and names from other manufacturers. It is the first reason why Samsung phones cost more than Xiaomi.

Xiaomi manufactures its phone in China:

When all the R&D, prototyping, and testing phase is complete, Samsung needs to mass-produce these phones. Samsung has mobile manufacturing facilities in South Korea and Vietnam. But the phone production in South Korea and Vietnam is not as cheap as in China. 

Xiaomi is a Chinese company. All their manufacturing happens in China, and they take the leverage of Chinese manufacturing. As a result, Xiaomi’s cost of phone production is less than Samsung’s. It is the second reason why Samsung phones are costly than Xiaomi.

Samsung phone’s hardware quality is better:

Two phones can have the same HD display. But the vividness, brightness, color accuracy of these screens can vary widely. Two phones can have a 20MP camera. But it does not mean pictures taken by these cameras will be the same.  Moreover, two phones can have 128GB storage, but the read and write speed of these phones can vary depending on the SD card storage quality. Historically we found that Samsung makes their phone with good quality hardware compared to Xiaomi.

Many people say that if we compare two phones from Samsung and Xiaomi having identical specs, Xiaomi phones show a better benchmark score than Samsung phones. But the benchmark score does not matter because it does not indicate whether a phone would perform consistently good over the long term. From real-world results, we found that Samsung phones last longer than Xiaomi phones.

So, we can see that Samsung phones have better quality hardware compared to Xiaomi. It makes the Samsung phone expensive than the Xiaomi phone. It is the third reason why Samsung phones are costly than Xiaomi.

Xiaomi does not advertise its product:

When a product is ready for the market, Samsung spends hundreds of millions of dollars on advertisements. Online, billboard, magazine, TV, sponsorship you name it. Samsung advertises everywhere. Xiaomi, on the contrary, does not spend a dime on ads. They rely entirely on its customer’s word of mouth advertisement, where their customers ask their friends and family to buy a Xiaomi product. According to Xiaomi, they got this advertisement strategy from Tesla. 

Moreover, Xiaomi sends many sample products to YouTube influencers and newspaper reviewers. Who reviews their phones and make videos or write an article. It also gives Xiaomi free publicity. 

As we can see that Samsung spends a lot of money on advertisement whereas Xiaomi does not. It is another reason why Samsung phones are costly compared to Xiaomi phones.

Xiaomi sells its phone online only:

Samsung sells its phone in three ways. Online, Samsung Store, and Third-party dealer store. Samsung has hundreds of Samsung stores and thousands of third-party dealer stores. These physical brick and mortar stores cost a lot of money. Moreover, when Samsung sells their phone through a dealer, they need to give them a commission. All these things cost money.

However, Xiaomi sells its phone only online. They don’t sell their phone through any dealer. So, they can cut out all the middle man. This way, they save money and pass these savings to consumers in the form of a lower-priced phone. It is another reason why the Xiaomi phone is cheaper than a Samsung phone.

Xiaomi keeps its profit margin less than 5%:

According to Xiaomi CEO’s admission, their phone’s profit margin is less than 5%. They keep their profit margin minimal to keep their phones price lower compared to their competitor. This way, they can sell a lot of phones. Their strategy is similar to Walmart. They sell a lot of product at a low price but attracts a large number of customers.

On the other hand, Samsung has many overhead costs. Such as R&D, advertisement, physical store, etc. So, they can’t take a lower profit margin. As a result, they sell their phone at a significant markup price than Xiaomi. 

Xiaomi phone has a longer product lifespan:

Samsung iterates its phone yearly. Each year, they release a new version of their phone with the latest and most excellent hardware. In electronics, a newly released tech such as processor, RAM, camera module always costs more. The price of these modules drops only after a few years. On the other hand, Xiaomi does not release its phone with the latest hardware. Even if they do, they continue to use the same hardware for 24 to 36 months. So, over time those hardware module price drops, and Xiaomi takes advantage of this aspect. They buy their hardware in bulk at low prices and make phones with that hardware for 24 to 36 months. This way, Xiaomi can keep their phone price lower compared to Samsung.

However, Samsung can’t do it. If they use older hardware in their phones, the media would go crazy and accuse them of not innovating enough.

Xiaomi collects user data:

Don’t be surprised to read that Xiaomi shows ads on their OS. All the system apps show ads. This way, they earn some money. Moreover, Xiaomi collects user data and monetize it in other ways. There’s a saying that if a product is free, then you are the product. Xiaomi sells its phone at a low price but turned their customer into a product — user data generator.  Xiaomi can sell their phone at a lower price because they know they can generate profit off their user later. On the contrary, Samsung does not collect user data, let alone showing ads on OS. It is another reason why the Xiaomi phone is cheap.

Samsung has lots of service centers:

Worldwide, Samsung has thousand of service centers. Though we have questions regarding the quality of those centers, at least they are here to serve customers. Samsung spends a lot to keep these service centers open. On the other hand, Xiaomi’s customer service is not that great and has a limited number of service centers worldwide. It is another reason why Samsung phones are costly compared to Xiaomi.

Conclusion:

In short, we can see that Xiaomi has a different business strategy than Samsung. It does not matter whatever Samsung does; it won’t be able to sell phones at a lower price than Xiaomi.