Xiaomi Redmi Note 4

When Xiaomi burst onto the scene in 2012, it did so with little fanfare and zero reliance on advertising. The company was the first to understand the potential of online-only sales, and in the following four years, it would grow to dominate this field.

However, Xiaomi's competition has similarly latched onto online sales, and while the company still controls a majority of the mindshare in China and India — its two largest markets — it has seen its market share and sales numbers erode in 2016.

According to the latest IDC figures, Xiaomi managed to sell just 41.5 million smartphones in 2016 in China, a 36% decrease from the 64.9 million it sold in 2015. As a result, the company's market share in China went down from 15.1% in 2015 to 8.9% at the end of 2016.

Here's what the company needs to address this year to turn the tide.

Go offline

Mi store

Most of Xiaomi's fallacies in 2016 had nothing to do with the products it launched, but with the way it distributed them. While the company continued to excel at online sales, manufacturers like OPPO and Vivo focused their attention on the far more lucrative offline segment, resulting in both brands effectively doubling their sales from 2015 to 2016.

Xiaomi CEO Lei Jun admitted as much in a letter to employees at the end of last year, stating that the company needs to "upgrade" its retail strategy.

Jun outlined a vision wherein Xiaomi would launch over 1,000 retail stores in China over the course of the next three years, with the first 200 stores set to open this year. Although Xiaomi has a few stores in select locations in the country — particularly in urban centers — the brand needs to turn its attention to tier 2 and tier 3 cities, areas that are dominated by OPPO and Vivo.

Xiaomi needs to convert mindshare into market share.

Xiaomi won't be able to set up an offline distribution network right away, and doing so doesn't line up with the way the company functions. But by focusing on a few strategic locations and establishing a retail presence there would go a long way in securing new customers.

It needs to undertake the same strategy in India as well. While e-commerce is on the rise in the subcontinent, a majority of sales are conducted through offline stores. There's no dearth of mindshare when it comes to the handset segment in India for Xiaomi, and by reaching out to consumers through offline stores, it will be able to translate that into market share.

Better after-sales service

Mi Note 2

The biggest issue that Xiaomi faces in India is after-sales service, or lack thereof. The company's social media pages and forums are littered with complaints of unreliable customer service.

After-sales support is often a deciding factor for most buyers when picking up a phone in India, and for good reason. The recent influx of Chinese manufacturers and the e-commerce boom has made it easier to buy phones, but a severe lack of after-sales infrastructure and inadequate availability of spare parts has led to consumers being wary of new-age brands.

That's one of the main reasons why Samsung is able to sell millions of Galaxy J devices in India despite the fact that most of the South Korean manufacturer's entry-level handsets are utter garbage. There's a lot of consumer trust in Samsung, and with the Note 7 never making its way to India, that trust is still intact.

Xiaomi, for its part, announced last month that it was partnering with customer care provider B2X to expand its service network in India. Xiaomi customers will be able to walk into 31 service centers across India for any assistance with either their phones or Mi-branded accessories.

Launch Mi Ecosystem everywhere

Mi Robot

With sales in the smartphone segment plateauing, Xiaomi is looking to its Mi Ecosystem platform to be the growth driver in the future. With the ecosystem model, Xiaomi collaborates with hardware startups, providing them with financing and getting them in touch with its supply chain partners, and in return putting up the finished product for sale on its own portal.

For instance, the $15 Mi Band and its successor, the Mi Band 2, were made by Huami, and marketed by Xiaomi. Similarly, the $250 Mi Robot vacuum cleaner is made by Rockrobo and then sold on Xiaomi's website in China.

We need more Mi Ecosystem products in other countries.

The ecosystem model offers Xiaomi new avenues of growth without having to dedicate its in-house resources on building new categories. The main issue with the ecosystem products is their availability. Over the course of 2016, Xiaomi introduced a smart rice cooker, the aforementioned robot vacuum, LED lighting for your home, and so much more. During the launch of the rice cooker, Xiaomi mentioned that in the 28 brands it has partnered with for the ecosystem model, two have crossed $1 billion in sales, with seven crossing $100 million.

While that's a considerable figure, Xiaomi needs to bring its Mi Ecosystem products to other markets. Instead of launching all of its products at once, Xiaomi said that it would evaluate the feasibility on a per-product basis, ultimately making the decision based on whether that particular product would sell well in the country.

Xiaomi is already off to a great start in 2017 thanks to the Redmi Note 4, but for the brand to build momentum and attract new customers, it needs to target where the majority of the buyers are. And that means offline stores and the introduction of new product categories.