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For China’s Hottest Phone Maker, the Old Ways Work
Upstart brands Oppo and Vivo surge in popularity in China—aided by old-school brick-and-mortar stores
By EVA DOU
Updated Aug. 10, 2016 6:25 a.m. ET
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ZHENGZHOU, China—Everywhere Li Dong looks these days, he sees two four-letter words: “Oppo” and “Vivo.”
On billboards and bus stops, and on TV and social media, the two smartphone companies—which share an owner—are engaged in the kind of advertising blitz rarely seen in China’s mobile sector.
“The ads are all over town, with the Oppo catchphrase, ‘Charge your phone for five minutes, talk for two hours,’” said Mr. Li, a 25-year-old factory worker in this central Chinese city.
The brands’ owner, BBK Electronics Co., is a Guangdong manufacturer little known outside of China. Oppo sells high-end smartphones with advanced cameras and luxe metal bodies in colors like gold and rose gold. Vivo sells lower-priced devices aimed at young consumers.
As sales of Apple Inc.’s pricey iPhone falter here, both upstart brands are surging in popularity—aided by old-school brick-and-mortar stores and that relentless advertising. Oppo and Vivo are No. 2 and No. 3, respectively, in China’s smartphone market, based on second-quarter shipments to vendors, according to Strategy Analytics. They trail Huawei Technologies Co.
Their success poses more challenges for Apple, which is expected to launch its next-generation iPhone in September. China used to be Apple’s fastest-growing market, but its share last quarter slipped below 7%, according to Strategy Analytics.
“Apple is fighting for the middle class in China, where buyers are getting more sophisticated and looking toward value, not just the brand,” said Canalys China Research Director Nicole Peng. “It is a challenging market for Apple.”
Of the two brands, Oppo has more directly targeted the consumer who would buy an iPhone. Its phones offer many of the same features for less: At 3,299 yuan (495 dollars), its most expensive model, the R9 Plus with 128 gigabytes of memory, is a price match for Apple’s least-expensive, the 3,288 yuan iPhone SE with 16 GB.
Lu Luma, Oppo’s technology-planning director, says his company has focused on building out its own retail channels over the past few years, while most other brands pursued sales through telecom operators and e-commerce platforms.
“Our strategy is like how you play the Chinese board game Go,” said Mr. Lu. “We have focused on laying out our pieces on our side of the board without worrying what the opponent is doing elsewhere.”
Those opponents include Huawei, which built its base by selling its phones through mobile-service providers, and Xiaomi Corp., which pioneered direct sales to consumers on the internet.
Oppo and Vivo instead set up retail stores with exclusive distribution deals.
“It is like a franchise model,” said Ms. Peng, of Canalys. “This makes the distributors highly motivated to help them sell phones.”
The two started off in smaller cities, where many people were more accustomed to shopping the old-fashioned way. Like KFC or McDonald’s, the stores have spread to every corner of these cities, making Oppo and Vivo phones the default choices for many of the country’s consumers.
‘Our strategy is like how you play the Chinese board game Go.’
—Lu Luma, Oppo’s technology-planning director
“Vivo and Oppo stores are everywhere, so they are convenient to buy,” said Mr. Li, the factory worker, who recently bought a Vivo X7 for 2,598 yuan (391 dollars).
Oppo has doubled its market share in China over the past year, according to Strategy Analytics, to 14%. Over the same time, Vivo has taken 12% of the market, up from 7.4%, based on shipments to vendors. Huawei is still No. 1 with an 18% market share, but Apple and Xiaomi have both seen a drop in their percentage of the market.
The two brands’ strategy is so effective that both Huawei and Xiaomi are embracing it. Both companies plan to open more retail stores, and Xiaomi—which used to rely almost exclusively on social-media advertising—launched a major billboard ad campaign last month with Chinese celebrities and the patriotic slogan, “Made-in-China Smartphones.”
Xiaomi first came to prominence by offering high technology for low prices, which delighted consumers and made the company China’s most valuable startup. But it is getting harder to please the country’s increasingly savvy consumers.
A telling illustration: When Xiaomi Chief Executive Lei Jun last year held a public event to unveil a new warranty plan to cover accidents—similar to iPhone’s AppleCare+—he thought that everyone would be thrilled when he revealed the price was 29 yuan (4.37 dollars), a fraction of the 79 dollars or 99 dollars that Apple charges. Instead, he heard from a few in the crowd who had expected an even better deal.
“I heard some people shout ‘Free!’ just now,” Mr. Lei said at the event. “That would be too brutal for Xiaomi if it were free…Come on, 29 yuan is not too expensive.”
The success of offline-sales brands like Oppo and Vivo also demonstrates the resilience of brick-and-mortar stores, said William Lu, chief executive of rival Chinese smartphone maker Gionee Communications Equipment Co.
At Xiaomi’s market-share peak two years ago, e-commerce bulls argued that more than half of all smartphones might be sold online in the future.
“There was panic in China at the time that traditional retailers would become extinct,” Mr. Lu said. “But can you imagine a world like that? With everyone at home, there would be no one on the street except delivery people. It’s of course impossible because humans are a social animal.”
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