To have a better understanding of the Chinese phone brand Huawei, and their existing business model, the Business model canvas analysis is used, as an internal analysis on the firm. Creating this analysis gives a better understanding of how the firm operates, and creates value to its end consumers. The model also helps understand the internal functions of the firm, and how they can expand in the future.
Value Propositions of Huawei:
The value proposition shows which core values Huawei wishes to deliver to its customers, satisfying their needs and wants.
One of the ways in which Huawei creates value to its customers is through its manufacturing. As previously mentioned India is the fastest growing smartphone market, and a key market for the companies future growth. Huawei is setting themselves up for long run success by focusing on creating local manufacturing within the country. In the future 90% of Huawei smartphones in India will be manufactured locally. Huawei is very focused on this local manufacturing as it will give them a key presence on the Indian smartphone market, which as mentioned is a fast growing market with large future potential. Furthermore manufacturing locally means that the firm can avoid the 20% duty tax on imported devices, by producing locally, thereby investing these resources elsewhere, such as into R&D (Research and development), creating long term value for the consumers.
Research and development is a key activity for Huawei, and one of the ways in which the firm is able to create value for its customers through constant innovation “We are committed to translating leading technologies into better and more competitive products and solutions that help our customers succeed”. Currently 45% of Huawei’s workforce, approximately 80,000 people are dedicated to R&D. Huawei plans to invest $10-20 billion dollars annually on R&D, which accounts for approximately 15% of the companies sales revenue, this puts Huawei as the third largest spender on R&D research, behind Google and Amazon.
Examples of Huawei using R&D to fulfill consumer needs, is its partnership with Leica, launching 5G smartphones, and its creation of the world’s first 7nm processor. Huawei have created a joint R&D center with Leica to create better phone camera technology (GO MORE IN DETAIL ABOUT THIS IN THE PARTNERSHIP SECTION regarding p9 and p20), this benefits the end product and fulfills consumer needs regarding cameras.
Huawei is heavily invested into 5G technology, working with the technology for over 10 years and investing $800 million into 5G R&D.
“5G technology will enable flexible, reliable, and secure wireless networks to connect people with all applications, services, and things, thus leading human race into the era of “Everything on Mobile”. This will heavily impact consumers in terms of faster speeds, as well as the ability for companies to develop new technologies using this 5G technology. Huawei’s heavy focus on 5G has led the company to announce that they will be releasing a 5G smartphone with a foldable screen in 2019. Huawei’s focus on improving their products, with the use of 5G technology, and innovating with foldable screen technology is what drives value to their products for the consumers, this also insures Huawei stays competitive, as competitors Samsung, Oneplus and Apple are all rumoured to also be working on launching a 5G phone in 2019.
Through its R&D department Huawei has been able to develop better components for its processor “the kirin 980”, this new product quality can be viewed in the figure below;
Furthermore Huawei has developed its own chipset to run on the companies servers which also brings value to its consumers, the reason behind the decision to make these chips is Huawei fears it cannot expand into the US, because of rumours surrounding chinese espionage. By creating its own chips Huawei can replace competitors
components, and be in full control of their products
Channels:
Huawei uses multiple different channels to reach its customer segments and distribute its products.
Huawei has its own website, which it uses to inform its customers about Huawei’s position in the industry, as well as showcasing its various products. Huawei does not use this channel to sell its products directly, this channel is purely for the customers to read about the products, and when the customer clicks to buy a smartphone they are shown and redirected to which stores they can purchase the product from.
Huawei sells its phones through the online channel by using third party sellers, such as Amazon, and on the Indian market Flipkart. This online channel became a focus for Huawei in recent years due to the competitive pricing, and having to compete with other chinese brands such as Xiaomi using the online channel to lower their prices. As mentioned previously this was the main idea behind Huawei’s sub brand ‘Honor’.
Of equal importance as the online channel is Huawei’s use of physical stores. Huawei sells its products through its own physical retailers, which are important for markets such as China and India. According to Huawei’s annual report 2017 the company has more than 45,000 retail stores worldwide, through these physical retailers Huawei is able to showcase its products and create a brand image, while having direct contact with its consumers. In addition to its own physical retail stores, Huawei sells its products through carriers on various markets, and in third party retail stores.
The carrier channel is incredibly important for the sale of smartphones, this is clearly showcased in Huawei’s success in Europe through its strong carrier relationships. The company spent years developing relationships with carriers in countries such as France and Finland through building telecommunication, Huawei could then use these relationships to enter the european market, using these carriers as a primary channel to sell their products. On the contrary Huawei does not have this carrier channel on the American market, and it shows in their market share, capturing less than 0.4% in America. Carriers as a channel have a large influence on the sale of smartphones and this is clearly shown in Huawei’s success in Europe with Carriers, and its failure to enter the US, due to a lack of relationships.
Huawei Customer Relationships:
Huawei has created a strong relationship with its customers through various channels. Huawei have a community website, where the users can share photos and exchange ideas on different topics. Huawei also has various social media channels, where they can interact directly with their customers, these include Weibo, Twitter, Facebook and more. Huawei have realized it’s incredibly important to be active on social media, as the customers are having the conversations regardless of the companies presence, but by being active Huawei can create a better relationship with its customers, and help solve any problems raised “For companies with a focus on customer service, social media has become an important communication channel that cannot be ignored.”
Huawei offers its customers help regarding their products through various channels. The customer can search support pages to find a fix to their issues, they are also able to contact huawei directly through either email or hotline support. Through Huawei’s website the customer is also able to find the nearest service center, where they can get direct help from Huawei personal. This online service is available in more than 100 countries and helps the customer get help faster and more efficiently.
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Huawei has direct contact with its customers through its more than 45,000 retail stores that can be found around the world. These stores are important for Huawei’s customer relationship, as these are the main way in which the company can showcase its brand and create an identity towards its consumers. Huawei’s retail stores are also the main way in which the company has direct contact to its customers and can create a positive relationship.
Huawei employees representatives that go into third party physical stores and its carrier stores to help them understand the huawei brand and its products.
Huawei also builds its customer relationships by creating exhibitions, and conferences showcasing its products and technology to the consumers and the press. During these conferences customers and the press have the opportunity to ask Huawei representatives questions regarding the company and its products. During these events Huawei also reveals important information about the firm’s future products such as 5G technology announced at Huawei’s Global Analyst Summit, and further discussed at the World Economic Forum.
Customer Segments of Huawei:
Huawei’s customer segments show for whom the company is creating value, how Huawei should approach these customers, and create customer relationships. Huawei can use the customer segments to identify who their most important customers are, as a certain type of customer, on a specific market can be of higher value to the company. An upper-class smartphone users on the Chinese home market can be of more value to the company, as they are able to afford more expensive premium phones, which sell at a higher profit margin, whereas a customer of lower social class may only be able to afford a cheaper phone e.g. an Honor phone, which sells at a lower profit margin for the company. Therefore, it is important for Huawei to know its customer segments as some customers can be viewed as more important in terms of the profit, they bring the company.
Huawei’s customers can primarily be segmented by price, as well as the different geographical markets, as consumers on different markets have different needs, and are able to afford different price levels. Thereafter the consumers on the different markets can be segmented into more niche groups according to their needs, wants and purchasing habits.
The first and most important customer segment for Huawei is as discussed previously in detail, the Chinese market. The Chinese market is the world’s largest market, and Huawei’s largest market with a market share of 26%. The market is as previously discussed viewed as an emerging market, where the increase in economic well being has caused customers to want more expensive, premium quality products.
Huawei has achieved premium brand status, and therefore generally the customer segment Huawei are trying to attract are those of higher economic well being (???), in markets such as China, Europe, and in recent years India, where the company is working on the high-end segment, working to become the primary seller of premium smartphones in India. To capture multiple customer segments, while keeping its image of a premium brand, Huawei as previously mentioned has the sub brand Honor. This is especially effective in an emerging market such as India, where Huawei is using the Honor sub brand to capture the mid to lower customer segment in the below 250 euros
category, while simultaneously selling its premium smartphones to the high-end segment. Therefore, Huawei’s customer segments can be viewed as high-end segment which is primarily in Europe, parts of China, and in the coming future India will according to Huawei themselves become an important high-end market. Their second customer segment is the low to mid-range customer segment which is primarily in developing markets such as India, parts of China, and eastern Europe, where the Honor brand is used to capture these consumers looking for value-for-money smartphones
After defining the two main customer segments based on low-mid end and high-end price/devices, it is possible to further segment the customers into smaller groups based on their needs and wants for a smartphone. Huawei has done this themselves creating their idea of smartphone user customer segments. Huawei analyzed 3000 survey results, and grouped their customer segments into six groups: The Business-focused segment, value-chaser, family-focused, Entertainer, Socializer and the Heavy User segment.. (THIS MIGHT BE TOO MUCH ABOUT NETWORKS AND NOT FOR HUAWEI, PLEASE READ)
- Business-focused segment: customer segment which primarily uses its smartphone for business, needs a reliable network, especially for phone calls.
- Value-chaser: this segment is focused on price and value-for-money, wants the best product at the best price.
- Family-focused: this segment uses their smartphone to stay in touch with their family members.
- Entertainer: this segment uses the smartphone as an entertainment device, playing games, watching videos and listening to music. Fast data speeds are important for the ability to watch videos and play games without affecting performance.
- Socializer: this segment mainly uses their smartphone for social media apps such as facebook, whatsapp, and twitter.
- Heavy User: this segment uses large amounts of data and as implied are heavy smartphone users, therefore needing fast speeds and large amounts of data.
Key Activities & Key Resources of Huawei:
Key activities and key resources are the activities and resources required for Huawei’s Value proposition, Channels, and Customer relationships to function, therefore some of these topics have already been discussed in the above sections.
Huawei’s arguably most important key activity is as discussed its R&D departments, the company has the resources in terms of technology, and partnerships with other strong technology companies such as Leica, to be able to create high quality products with new innovative technology, such as the previously mentioned 7nm processor chip, and Leica dual camera in the P20. As previously mentioned, in 2017 Huawei employed 80,000 employees involved in their R&D department, totalling 45% of their workforce. Huawei’s employees focused on research and development are seen as a key resource for the company and its innovation.
Huawei is as mentioned investing heavily into R&D with plans of investing $10-20 billion dollars annually, this requires financial capital, which is a key resource Huawei possesses. According to Huawei’s annual report 2017 the company’s total revenue reached 603 billion yuan (77 billion euros), which resulted in a year on year growth of 15.7%, with its net profit growing by 28.1%. This can be seen as a result of Huawei’s successful product launches with the P20 and Mate 10 series, as well as the companies sales of network equipment which accounts for 49.3% of revenue at 297 billion yuan (37.9 billion euros). These are the primary areas that create financial capital for Huawei, which is vital for the company to be able to continue investing into its key activity R&D, as well as marketing, “Profit is important,” “Without it, we can’t invest in R&D, which we do more than any other smartphone vendor right now.” said Huawei Business Chief Richard Yu.
Marketing is a very important key activity for Huawei, as this is what creates their brand and differentiates them from their competitors, giving them competitive advantage. Huawei believes that “…As a brand our purpose is to create a better connected world…that’s about bringing people together…because we truly believe that when you do that, that’s when amazing things happen, that’s when you get incredible innovation…” said Andrew Garrihy, Chief Marketing Officer for Huawei. Huawei’s way of thinking of themselves as a brand affects the way they choose to market themselves to their consumers “it guides the way we go to market…a big part of what we do is partnerships and collaborations, and yes we do some big brand advertising, but first and foremost at the center of what we do is partnerships, and that really differentiates us from those big competitors”.
Huawei’s use of partnerships has been briefly discussed previously (maybe refer to where???), Huawei as mentioned has a partnership with Leica, not only has this partnership benefited Huawei in terms of technological advancement, and improvement in product quality, as seen in their P20 series, the partnership with Leica is also important for the company’s marketing and brand image. Leica’s brand is over 100 years old, and is very respected in the photography community both for its technological capabilities, and its innovation , therefore when the companies work together on a product photography enthusiasts will favour Huawei’s products based on their knowledge and respect of the Leica brand. Similarly Huawei’s partnership with fashion brand Swarovski can help the company have its brand discovered by new customer segments,in this case targeting fashionable women, and increasing the companies brand value. Huawei themselves present discoverability as a big challenge for their brand, so by engaging in these partnerships with well established and respected brands, the company is able to market itself to new consumers.
Huawei’s marketing has consisted heavily of traditional advertising in the form of billboards, posters, banners and more, this was especially prevalent in Europe, when the firm first began entering the market, and making its presence known. The company uses celebrities to advertise, and endorse its brand, in the past collaborating with Scarlett Johansson and Henry Cavill. Huawei also sponsors celebrity actors, and singers to be brand ambassadors, as well as sponsoring football clubs such as Arsenal and Paris Saint-Germain. All these different methods of marketing have been able to propel Huawei to the premium brand it is today.
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