A business partner worked with Explorium to understand the China market and to localize their value proposition and product. They wanted to prototype the overall business model for market entry into China.
China is the world’s fastest-growing major retail market – soon to overtake the United States by sales volume. However, China’s unique social and cultural characteristics challenge any international brand looking to break into this important market. Seeking successful market entry, our partner worked with the Fung Group’s Explorium, a retail lab in Shanghai, to develop its market entry strategy through retail, product and marketing experiments.
Our partner is in the customizable soft toys business. Its business is experiential: children can design, personalize and make their own stuffed animals in the store. Many of our partner’s international stores operate under a franchise model with local partners. In Asia, operations already exist in Taiwan, Singapore and Japan, so their goal at that time was to open a flagship store at the Shanghai Disney Resort by the middle of 2016.
Our partner worked with Explorium to understand the market, localize their value proposition and product, and create a prototype of the overall business model for market entry into China.
With the help of the Explorium team, the retail space was set up and ready to open in less than two months, even before they had established a legal entity in China.
The journey started with our partner setting-up a themed store inside Explorium in the fall of 2015. Explorium helped to source local designers to ensure the store’s brand specifications were locally consistent.
Procuring our partner’s customizing machine, an integral part of the company’s intellectual property, was a difficult challenge to solve. The company debated between importing the machine from Japan or the US, and sourcing it locally in China. Because sourcing the machine from China had its own set of intellectual property related risks, the Explorium team found a local supplier to manufacture a similar machine for 25 percent less of its current cost, enabling the company to add a second machine.
The addition of the second machine increased the in-store production capacity and helped fill customer demands more quickly. The locally produced in-store machines were monitored for ways to improve while an identical machine was concurrently sent to the US for further testing and design changes. Based on initial observations, our partner saw that the machine was a big, in-store attraction in China and decided to keep perfecting its design and function.
With the help of the Explorium team, the retail space was set up and ready to open in less than two months, even before our partner had established a legal entity in China.
Gaining real experience with Chinese Consumers
In September 2015, the prototype store opened. Explorium’s weekly members (about 1,000 weekly visitors, largely urban Chinese families) were able to experience the partner’s prototype store and given the opportunity to engage with the product. Tools and technology like iBeacons tracked different consumer behavior including dwelling time. Our partner was able to use this collected data to improve the store layout and design.
During the first two months, our partner gathered a baseline read on their consumers and the existing store design. Gathered information included:
- Basic conversion rate
- Demographic spread
- Popular product categories and styles
- Dwell time by area and type
While customers were drawn to the soft toy-customizing machine and other in-store activities, data revealed that customers were only buying the soft toys and not the outfits for these soft toys. Based on customer feedback, our partner learned that this behavior was caused by the perceived price increase of purchasing two separate products (soft toy and outfit). To counter this price aversion, our partner designed a sales bundle that combined the soft toy and outfit at a discounted price. Not only was this strategy successful, but it also revealed new insights into their target market.
Quantifying the Qualitative
Our partner continued to track and observe customer preferences as the number of accessories (like outfits) became available and analyzed these insights into meaningful data. For example, numbers from the sales bundle confirmed that customers preferred patterns over plain designs and avoided certain colors at all cost. In addition, characters with media exposure (e.g. Spiderman and Minions) went up in sales as media exposure of these characters increased.
By studying sales data with the number of customers in the store, Explorium also discovered the breaking point for customer service vs. customer quantity: The iBeacons placed in the store tracked the number of customers in the store. When the store reached a certain number of customers, the figures showed a significant decline in sales. This information, combined with the data on dwell-time by area, revealed that servicing customers one-to-one was causing a bottleneck in consumer flow, and therefore causing customers to leave. Our partner responded to these insights by preparing a sales contingency plan for staff based on the number of customers in the store.
Learning through their presence at the Explorium, our partner was able to enter the China market with confidence and ease, addressing the preferences and challenges of the local market.
Explorium successfully provided a safe testing ground for the partner to experiment with its product, pricing and marketing so that their China execution was strategic and seamless.
Our partner made a bold decision to formally enter the China market with an initial expansion of 30 stores in first and second-tier cities. Without this partnership with Explorium, our partner’s usual market-entry strategy and operations could have severely compromised the company’s intellectual property.
Our partner continued to work with Explorium, using it as a research and training lab to prepare for the next expansion plan.
The Fung Academy is excited to have inspired this story through the Innovation and Experimentation initiatives at Explorium. The team continues to collaborate with Explorium to sustain the Fung Academy’s mission to foster a cutting-edge organization.