Reaching The Customer, From Advertising To Delivery

MTMoscow authorities now restrict billboard advertising.

On one level, advertising in Russia is no different to any other country: Brand identity specialists adapt, or fine-tune, the product to the flavor or attitude of the population. Advertisers play to the strengths of individual media channels.

"Television and Internet is growing fast and print is declining," said Vladimir Tkachev Chairman and CEO, Leo Burnett Group Russia & Eastern Europe. "Outdoor used to be unique. It was much bigger in Russia than in some other countries but recently regulations have been introduced to diminish the number of sites, and billboards are now in line with global markets".

The content of advertising still reflects a less mature market. "The consumer is inexperienced. He wants to play and be entertained. In a mature market like the U.S. and U.K. the consumer is harder to surprise," said Tkachev. But that also depends on finance and as the level of investment in commercials increases, so will the quality.

Online advertising is catching up with traditional media. The Russian Association of Communication Agencies, AKAR, reported that total online advertising spending rose 27 percent in the third quarter.

Sometimes we work off a brand book. Other products are Russian-made with a message or strategy behind them.

In comparison, Russia's main independent media company, CTC Media, which runs three television networks, said its advertising revenues climbed 8 percent over the same period. It promptly announced it plans to diversify into online services and e-commerce over the next five years.

Television accounts for about half the Russian advertising market, or about three times the value of Internet advertising. Spending on television commercials reached  143.2 billion rubles in 2012, though it was stable in dollar terms at $4.3 billion.

Since 2011, when Russian advertising once again exceeded pre-2008 crisis levels, the market has diversified. International carmakers have joined the traditional global advertisers from the food and personal care industries. They're keen to support their factories in places like St. Petersburg and Kaluga, which produce Russian manufactured or locally assembled automobiles. However they still account for only a small proportion of Russian advertisers, unlike in the west, where cars and financial services are major advertisers.

Online ad spending is catching up. Advertising revenues at Russian search engine Yandex equaled those of Pervyi Telekanal, or Russia's First Channel, last year, just shy of $900 million. The bulk of online advertising is display or banners and contextual. Both of these segments are growing fast but context is growing much faster than display and accounted for the vast majority of Yandex's revenues. Social media remains the great hope, but has so far proved something of a disappointment. "Russia is lagging in the conversion of social media advertising into e-commerce sales," said Tkachev.

Russian advertising also has its quirks, like the prominence of Qiwi, the ubiquitous payment terminals, which offer interactive advertising and streaming video. There are twice as many payment terminals as ATMs in Russia, with an estimated 60 million customers. They began as convenient ways to pay for utilities and cell phones (at a commission of 0.6 to 0.8 percent) and since have expanded into mobile payment platforms. Qiwi this year was the first Russian company to list American Depository Receipts (ADRs) on the NASDAQ stock exchange.

The company claims on its website to beat radio and Internet in communicating to customers, ranking behind television, outdoor and transport advertising. Qiwi is also trying to overcome one of the obstacles to the growth of ecommerce, namely the state-run postal system. Last year it launched a pilot project to test Qiwi Post terminals allowing customers to collect packages, for a fee, from convenient locations like shopping centers and train stations. Most online sales, 75 percent, occur in Moscow and St. Petersburg. The project could deliveries to rural areas.

An estimated 33 million Russians already buy goods online, according to consultants A.T. Kearney. Yet no single player has more than 4 percent of the market for multichannel or online sales. It's a market already valued at $10 billion in annual sales, even though it has so far reached less than half the country's Internet users, estimated to be Europe's largest such group, at 70 million. A.T. Kearney's global retail e-commerce index, published in November, ranked Russia 13th out of 30 mature and developing markets. It assessed the current online market size, along with consumer behavior, growth potential and infrastructure.

A Branding Industry In Search Of Products

ID Fabrika

Brian Erickson, General Director & Designer, ID Fabrika

How have packaging, branding and the look of consumer products changed in Russia?
The branding industry does what it does anywhere: adapting the product to the flavor or attitude of the people. Sometimes we work off a brand book, as with Stella, and some other products are more Russian oriented or locally made with a strategy and a message behind them.
We rode the dairy wave for years, with Danone, Lebedyansky and others: the whole drinkable, spoonable yoghurt market opened up and then was segmented.
It was milk in a glass jar when I arrived and a really regional, rough domestic product and that's all changed. The market as a whole has blossomed as it should, although Russia still has to develop its agriculture and invest in the cattle industry, and there's no reason why it shouldn't succeed.
But where is the Russian bicycle, where is the manufacturing and craftsmanship and technology? When will all that come together, the middle manufacturing segment?

Has there ever been a product where you really had to scratch your head to make it work?
Practically every one. It's part of the process. We're working on a payment card with a discount for groceries. It is meant to be for fashionable single people so it has to be trendy but it has to be geared towards purchasing of groceries. Eggs, bread and potatoes are not really that attractive. You are trying to find a solution in the centre that addresses groceries and fashion in a debit card.
With Fruktoviy Sad we went through two or three rounds of presenting, but our colleagues Tetrapak said, 'your product looks more premium than our premium product when it should look comfortable on the end of a dacha table'.
You could have criticised us for being western, too contemporary, too smart. I really had to tone down the language and my play was to use the product as the image: if its grape its green, if banana its yellow then we went really simple about the outer skin of the product, without a lot of info or typography to explain it. As for the graphic I was struggling. I was at an outdoor market near Belorusskaya where the sellers had their crates, one had peaches with individual stickers on them, and that was the idea for Fruktoviy Sad.

How does Moscow compare with other former communist markets?
I would have put Poland and Moscow on par until the mid 2000s. All of a sudden Poland just shot out, from the quality of its outdoor media on the trams, metros and kiosks. It's really smart, well directed messaging. I ride the metro in Moscow intentionally, to look at the advertising, and it is just so poor, except for a few brands including Beeline and some of the restaurants like Rosinter. The execution is not there.
On the other hand, I'd pay a compliment to Moscow for doing some things right. The new parking system, where you pay by mobile phone, and it credits you for unused minutes — that works like an elegant design.  When they do reconstructions, they no longer wrap buildings in a huge advert for a car or a mobile phone, which stays there for 18 months until you are sick of it and you swear never to buy it. Now it's an image of what the building is going to look like.

What could be the next step for branding and marketing in Russia?
They could put an information booth on the metro platforms, like the one with the map and emergency telephone: a larger interactive unit to tell you what is in the area in the way of food, entertainment, toy shops or whatever.
The next level is to make the advertising real time. If a restaurant is having a promotion offer two-for-one deals or holiday specials. Give out the coupon code that earns the discount. That becomes your advertising but its tailored and real time.

Russia - USA 2013
Russia - USA 2013
Russia and the U.S. have one of the fastest-growing business relationships. The Moscow Times first special report on Russian-US trade, in association with the American Chamber of Commerce in Russia, gives an insight into key issues affecting trade: Building relations with government, localizing your production and distribution, and complying with anti-corruption laws. It also takes a look at branding, the advertising market and the small but growing feature of Russian investment in the U.S.
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