How SofaCompany Validated Market Potential in China Using Digital Experiments and Market Analysis

Introduction

During the pandemic, SofaCompany experienced increased sales in its home market through its eCommerce channels. This success urged the company to explore opportunities for international expansion, with China and the US as two key options. SofaCompany faced a strategic choice: should they invest in China or the United States? They turned to Chaoly to conduct a feasibility study and validate their product-market fit in China before making an informed decision.

The Challenge

SofaCompany wanted to understand whether entering the Chinese market would yield a favorable return on investment or if resources would be better focused on the US market. The core question was to determine the market potential for their products in China, especially considering the large and competitive furniture market and the logistical challenges posed by their bulky products.

The Objective

The objective was to create a comprehensive business case for SofaCompany, focusing on the following key goals:

• Assess market potential and find a growing yet unsaturated category.
• Identify competitive landscape and opportunities within Tmall.
• Validate product-market fit using digital experiments before making a major investment.
• Provide financial forecasting, including a detailed P&L, cash flow, and break-even analysis.

The Solution: Market Entry Services, Marketing-Mix Optimization, and Financial Forecasting

Chaoly’s approach included a comprehensive set of services to provide actionable insights for SofaCompany.

Market Entry Services

The initial phase involved extensive desk research to analyze the Chinese market, competitors, consumer preferences, and sales channels. This desk research helped SofaCompany understand the current eCommerce landscape on Tmall and identify a promising sub-category.

Marketing-Mix Optimization

Using Chaoly’s online store on Tmall, SofaCompany conducted digital experiments to validate their product-market fit. These tests focused on hero product selection, USP validation, slogan testing, and pricing insights. The experiments helped gather real-time feedback from Chinese consumers without the need for a full market launch, mitigating the risks of market entry.

Financial Forecasting

In addition to digital experimentation, Chaoly created a comprehensive financial forecast for SofaCompany, covering a 24-month P&L, cash flow, and break-even analysis. This provided a clear understanding of the potential revenue, costs, and profitability, allowing SofaCompany to make a data-backed investment decision.

Implementation and Results

Chaoly’s structured approach delivered a detailed feasibility report, which included the following key components:

• Market Feasibility Analysis: A comprehensive study of market potential, identifying a growing sub-category with promising opportunities.
• Marketing-Mix Optimization: Real-time consumer insights on hero product selection, core USP, and the slogan that resonated best with Chinese consumers.
• Financial Forecasting: A detailed financial overview covering P&L, cash flow, and break-even analysis, allowing SofaCompany to make a well-informed investment decision.
• Roadmap to Success: Beyond the report, Chaoly provided a clear roadmap that included recommendations for local partners, platform selection, and suggested product range.

Quantifiable Success

Informed Decision-Making: SofaCompany used the feasibility report and digital experimentation results to make a data-driven decision on market entry.

Financial Clarity: The comprehensive financial forecast provided a clear picture of potential investment returns, helping SofaCompany allocate resources strategically.

Consumer Insights: Digital experiments offered valuable insights into Chinese consumer preferences, helping SofaCompany optimize their product offerings and marketing strategies.

Strategic Roadmap: Chaoly’s roadmap offered a step-by-step plan for SofaCompany, reducing uncertainty and providing clear next steps for their market entry.

Conclusion

SofaCompany’s partnership with Chaoly highlights the importance of thorough market analysis, financial forecasting, and marketing-mix optimization in making well-informed investment decisions. By leveraging data-driven insights, SofaCompany was able to validate its product-market fit in China, laying the foundation for a strategic market entry plan.