Xiaomi's sales strategy is largely responsible for the decline, having grown indistinguishable from that of many other Chinese manufacturers, according to Hong Kong-based cell-phone market journalist Yasuhiro Yamane. When the company first arrived on the scene in 2011 and 2012, its products were sold online by reservation only, building an air of exclusivity(排外)and lending the brand a high image. This strengthened the appeal of the smart phones, which resembled Apple's iPhones.

    But starting in 2013, Xiaomi began concentrating on high-volume sales, allowing many more resellers to carry its phones—a critical turning point in the company's fortunes. While sales increased, Xiaomi's products became viewed less as premium items and more as widely available, mass-market phones, according to Yamane.

    To keep consumers from losing interest, Xiaomi introduced a lower-end brand, Redmi, in July 2013. Phones in that family sell for 1000 yuan($150) or less, around half the price of products from the flagship Mi series.

    When China's economy began to skid at the end of 2014, the company leaned harder on the Redmi brand to hold on to market share in the following year—a grave mistake. Though it had some effect, the strategy ultimately “drove home the image of Xiaomi as a low-cost phone maker,” Yamane said.

    This should serve as a warning to other makers in China, where companies tend to emerge and quickly disappear due to their focus on short-term gains over long-term planning. “There is still a chance that Xiaomi could right itself and regain its old appeal,” Yamane said.