OPPO and Vivo Face Backlash From Indian Distributors after Trade Margin Cuts

OPPO and Vivo, both of which are among the top five smartphone brands in the world, have started 2018 at a disadvantage. The two companies which are both owned by BBK Electronics, have taken a bold step to slash trade margins by over 40% in India, leading to a huge backlash from distributors and retail shops in the country.

OPPO and Vivo cut trade margins offered to large chains from 23-25% to 14-15%. For standalone stores, the margins were reduced to 5-6% from 15-16%.

The two companies have a combined market share of 17% in India, which isn’t small considering India is the second largest smartphone market in the world, have lost about 10,000 sales outlets each. According to India Economic Times, OPPO and Vivo had about 70,000 outlets each in the country before the margin cuts and the number of stores selling their phones may fall further.

India Economic Times reports that retail chains including Sangeetha Mobiles, Big C, Lot Mobiles, Poorvika, Mobiliti World, and Hotspot, which have a combined network of over 1,300 outlets, have stopped selling the two brands or reduced focus on them.

According to OPPO, this move was necessary, “Every market has a different policy and the margin is decided basis market dynamics… These adjustments are being done across markets by different smartphone industry players… All these decisions have been taken keeping in mind health of the company. We believe the company will now be healthier and efficient,” said an OPPO India Spokesman.

Vivo on the other hand, claims that its retail networks have not reduced and that the company actually plans to add more stores in India. “Last year, we witnessed good response from the market which contributed towards an increase in revenue and market share. As per Counterpoint Research, Vivo V7+ commanded 40% share in the Rs 20,000-25,000 segment in November 2017. We plan to further build on the growth momentum this year,” said a Vivo executive.

However, retailers in India think that the two companies have been forced to reduce the margins because they are under pressure to become profitable. “They are replicating the strategy adopted in China of slowing down the high investment after reaching a certain scale. But India is a different market and their share is already coming down.”

According to CounterPoint, a Hong Kong-based firm that tracks device shipments, OPPO and Vivo were among the fastest-growing smartphone brands in the third quarter of 2017. However, market analysts think that 2018 will be a tough year for these two companies if retail chains in India continue to snub the brands due to the margin cuts.