The crowdfunding phenomenon – how does it work for Xiaomi?

Crowdfunding is catching up in India in a big way. In recent times, Xiaomi’s marketing manager Sandeep Sarma starred in an ad for the company’s running shoes. Upon some exploration, we found that the shoes are a product of the company’s crowdfunding effort.

On the Xiaomi website, there is a separate section that houses past and upcoming crowdfunding products. Although Xiaomi is a tech company at its core, the crowdfunded products it has created go beyond that definition. Some of these products include T-shirts, running shoes, power banks, screwdrivers, and smart home solutions.

It’s not uncommon for a company to use crowdfunding to raise funds to research and create a new product. Paytm has also used crowdfunding the past to raise money for charitable organisations and good causes. But what stands out in Xiaomi’s case is the range of product diversification the crowdfunding has resulted in.

In a way, the company uses it to gauge user interest in a product and asks people to pay an amount of money upfront in order to avail a discount on the product. In the event of the product not being created, the money will be refunded to the customers. But in that sense, the customer has to put his money down on an idea that they support – to buy a product they feel they would need, which hasn’t been created yet.

Apart from Xiaomi, other websites in India act as platforms to help people and companies raise capital through crowdfunding. The money is used to either help the underprivileged, or fund ideas and product prototypes. This includes websites like Fuel A Dream, Fundable, Ketto, Catapoolt, ImpactGuru, Wishberry, and more.

Shubhajit Sen, founding partner, A Priori Consultants (former CMO of Micromax), points out that Xiaomi, as a brand, is deeply connected to the community it has built around its products.

“Mi fans have been an integral part of the Xiaomi brand story since Day 1. The fans are the ones who helped improve the phones UI. They built a community of fans who’d give constant feedback on how to improve the operating system. This led to an incredible amount of engagement and loyalty towards the brand.”

Sen explains that every Xiaomi phone that was launched, took into account the feedback that was given by the fans – that’s been their journey since inception.

“The fan base that Xiaomi has right now in India may not be best suited to give feedback on how to improve product categories Xiaomi may consider launching. In that sense, crowdfunding keeps the engagement going so that the Mi fans feel involved in the process of co-creating and developing the product.”

Sen argues that other brands that may not have a strong connection with its users – who don’t have this level of loyalty – may not be able to pull off a crowdfunding venture.

He recalls that during Xiaomi launch conferences, users would come in wearing Mi shirts. “Mi has among the most loyal fanbase out there and they feel responsible for developing the products.”

He explains the phenomenon from a business point of view – Xiaomi has always had this ever expanding envelope of products. “It started as a software company, moved into smartphones, then it moved into the next adjacent categories such as TVs, wearables, and so on. In China, Xiaomi is even present in other categories – this includes everything from bicycles to umbrellas to fridges, and so on.”

He likens it to brands like Harley-Davidson having its own apparel line, or Royal Enfield making products like leather jackets. “Crowdfunding can’t work unless you have an engaged and loyal fan base. For people to fund a project on Kickstarter or any other website, they need to either be engaged with the brand or with the issue.”

Sen says that unfortunately, in India, there’s a major trust deficit with crowdfunding. “Even if consumers think a product is a good idea, but isn’t familiar with the company, they may hesitate to put money into a product that hasn’t been created yet.”

He adds that with all the changes happening in the ecosystem, more people should experiment with this style of getting funding for products as simultaneously building engagement and advocacy.

"Xiaomi comes with a startup mindset – the company tries different mediums to connect with its audience. It doesn't need funding to develop new products, but it uses it as a way of connecting with its consumers and creating buzz around the brand," says Mukund Olety, chief creative officer at VMLY&R India.

Olety, who has lived and worked in China, informs us that the brand has a much wider product range in its home country. “In China, people are hungry for new innovations. It’s an economy that’s growing fast and people have access to a disposable income. They’re open to experimenting and trying new products.”

When a person buys something on Kickstarter, it takes 3-6 months to get the product in their hands. Essentially, the companies are asking consumers money to build the product from scratch.

“People need to adopt a more open mindset – where they realise that they have to wait a certain period of time to get the product and the quality may not be what they expected. I’m not sure if Indians are in that space just yet.”

Olety points out that platforms like JD.com and Alibaba exist in China, where a person can access crowdfunded products on a shopping website.

“But in India, I need to get on to a different platform to get the products. This is not in sync with my buying behaviour in that sense. This could be why crowdfunding has picked up on a consumer level in China.”

Olety recalls a campaign that he had worked on during his time in China for Snickers. The company uploaded random illogical products to crowdfunding websites and even those products generated interest. When users clicked on this product, they would be offered an ad for Snickers – asking people not to crowdfund ideas and products when they’re hungry.

"A lot more traditional brands need to find different ways of reaching out to their consumers, and even heritage brands can use crowdfunding as a way of interacting with their consumers," he concludes.