In Europe as in China, Honor-brand handsets will be distributed direct to consumers, similar to Xiaomi's model. Both European launch handsets will be available exclusively through online sales channels.
Operating independently from the main Huawei handset business, with little mention of parent Huawei at the launch, Honor has announced two handsets for Europe:
- The Honor 6 features a 5 inch 1080p display, 3GB of RAM, LTE Cat6 connectivity, and Huawei’s octacore Kirin 920 system on a chip (SoC). Price €299.
- The Honor 3C features a 5 inch 720p display, 2GB of RAM and a quad core MediaTek processor. Price €139.
Huawei are setting up Honor as a separate brand with the stated aim of appealing to the “digital native” segment. This means both selling the handsets through online channels and a focus on engaging with users on social media channels. Additionally, Honor intends to offer frequent monthly software updates often featuring user suggested features.
This is a bold brand strategy for Huawei because it risks spreading itself too thin on marketing spend and also risks its strong established operator relationships.
Honor’s business model aims to supply quality handsets at relatively cheap prices. Honor will not offer any bundled content or services at launch and instead is focused on running a highly cost-efficient business in order to turn a profit. Operating exclusively online is a major part of the model because it reduces the cost and complexity of distribution. Also, it enables Honor to tightly manage its marketing spend.
The move comes at an unusual time for parent Huawei as it is investing heavily in building a visible brand in Europe simultaneously with the Honor strategy. Huawei recently announced partnerships with football clubs such as Arsenal, Paris St. Germain and the Spanish league, La Liga.
Honor’s online marketing efforts may be low cost, but nonetheless splits Huawei's resources in a hyper-competitive and often very low margin smartphone market.
Using different brands to appeal to different segments has not been a major characteristic of the smartphone market to date. But this family brand strategy is a growing trend in the market and Chinese manufacturers have the most experience with the approach:
And, even Xiaomi is rebranding itself to simply Mi as it begins to grow its international ambitions.
This strategy of offering low priced, high-end smartphones through online only channels backed up by regular software updates featuring user suggestions has been Xiaomi’s strategy since its inception in 2010.
Xiaomi has ridden this innovative structure to become one of the top four largest smartphone manufacturers in the world, surpassing Huawei in Q3 2014. But the bulk of Xiaomi's shipments have been in China and the company has made no formal launch in Europe yet. By launching Honor now, Huawei has the opportunity to grab share and establish itself with a European direct to consumer model before Xiaomi.
The success or failure of Huawei's approach for Honor will rest on its ability to build a community of users to input software update ideas and conduct word-of-mouth marketing. This is a risky process but Huawei has given Honor sufficient freedom to be proactive in this regard.
The strategy also ignores arguably Huawei smartphones’ greatest strategic asset: Huawei’s relationships with operators from its networking business. Honor is sacrificing this route to market in order to push out monthly updates without needing to pass through carrier approval processes. Using the Honor brand rather than Huawei's main brand is smart, because it minimizes the potential for this strategy to damage existing operator relationships.
Also, by supplying Honor handsets direct to consumers, the company is able to use chipsets which are rarely used in the operator channel but offer good value for money such as Mediatek or Huawei's own Kirin SoC. Handsets distributed direct to consumer do not need to pass the more rigorous operator testing regime common with operator-supplied handsets.
Huawei is keenly aware that its continued growth is dependent on international sales, which is why it is willing to take this risk. While it is making inroads in several European markets, Huawei handsets are seen by consumers and operators as a fall-back option for when consumers cannot afford an iPhone or Samsung Galaxy. With the Honor brand, Huawei is attempting to sidestep this issue, and build a new brand that is desired and sought after.