Xiaomi’s inexpensive but powerful Android smartphones have been a big hit with Chinese users over the last couple of years. But the company’s sales tactics have also raised questions, especially among cynics, about whether the company’s brief-and-limited sales of the phones reflect real scarcity or whether the company is creating artificial scarcity and using it to drive hype and sales. Yesterday, Xiaomi CEO Lei Jun took to his Sina Weibo account to address the company’s sales tactics:

A reporter asked me: is Xiaomi intentionally [creating] scarcity for the purpose of sales? My response at the time: That is an [abstract] concept, but the reality the supply of Xiaomi phones doesn’t meet the demand. We are constantly working to optimize our supply chain, and this year our goal is doubling our production capacity to 15 million units! But high-end [powerful] smartphones are like seafood: not every factory can handle them, and you don’t dare store them up without selling them! I hope our media friends and Xiaomi fans will understand this.

Personally, I think Mr. Lei’s seafood metaphor is pretty apt. Smartphones may not go bad as fast as seafood does, but he’s right to suggest that with smartphones getting more powerful every day, a modern phone is losing value every minute that it hasn’t been sold. Producing only what you can sell certainly makes sense from a business standpoint. And Xiaomi may well be producing as many of the phones as its suppliers are able to.

At the same time, though, from a consumer perspective that may not matter. Xiaomi’s flash-sales were a good way to drum up interest and the scarcity greatly increased the phones’ cool factor, but at some point, consumers are likely to stop seeing Xiaomi as a quirky startup and start seeing it as an established mobile company. When that happens, Xiaomi will need to have worked out its supply chain issues and be producing phones on a level commensurate with any other major handset maker. It has already had almost two years to optimize its supply chain; I wonder how much longer Xiaomi fans will be willing to put up with the constant supply shortages.

If the comments section on Lei Jun’s weibo feed are any indication, some fans are already questioning the narrative of limited production capacity, and complaining that Xiaomi’s sales tactics play right into the hands of scalpers, who buy the phones and then resell them to Xiaomi fans at higher prices than Xiaomi itself charges. “It’s virtually impossible to buy a phone from the official website; they’re available on the market [via scalpers] but they’re hundreds of RMB more expensive,” one user wrote. “I hope that when the Mi 3 comes out, it will be possible to buy it at the advertised price.”

For more on Lei Jun and Xiaomi, check out our exclusive interview with him from this past fall.

(via Sina Weibo)

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