Alexander Simanovsky, CEO of Artics Internet Solutions, talks about the specific nature of the Russian market, as well as the things that are most important to consider when launching a product on the Russian market.
Russia is currently a very promising market — it’s very large and growing quickly. According to data from J’son & Partners Consulting, in 2015 the market for e-commerce was 730 billion rubles (about $11.3 billion). When compared to China ($672 billion according to eMarketer’s data) or the US ($349 billion), this isn’t much. Russia’s e-commerce market is growing steadily — between 2010 and 2014, the market grew at an average rate of 40.2% per year, and by the end of 2014 it was 683 billion rubles ($10.5 billion). During 2015, a year of crisis for Russia, the market also showed a slight growth of 7% (factoring in cross-border commerce). The market is expected to continue to grow in 2016. Based on the size of the audience, the Russian market for e-commerce is the greatest in Europe, but the average bill and mid-year online expenses of Russian citizens are lower than in EU countries. According to research by Ipsos, 73% of internet users in Russia made online purchases over the course of the year — that’s 10% more than the previous year. By way of comparison, in China these purchases increased by just 1%.
The Russian market differs from the European market in its high threshold for customs fees (€1,000 per month per person), which opens doors for cross-border commerce. The threshold for importing goods into the EU without paying customs fees is set at €22. According to Data Insight’s evaluation, the volume of the cross-border segment in 2015 was 160 billion rubles ($2.5 billion). The percentage of online purchases in foreign online stores increased from 24% in 2014 to 34% in 2015. According to research by Ipsos, Russian citizens order products from foreign online stores more than people living in European countries. By way of comparison, cross-border purchases dropped by 3-12% in almost all European countries. Russia is one of the three largest foreign purchasers of products from China, one of the fifth largest purchasers of products from Europe (one of the top three from Germany and the top ten from the UK), and one of the ten largest purchasers of products from the US.
So let’s try to figure out what you need to keep in mind when entering the Russian market to make sure you have the best possible launch.
Russia is special
From the perspective of running ad campaigns, the tools are essentially the same: search engines, social networks, RTB, etc. But there are a lot of special factors — so many that China might be the only country with more of them. Here are just a few key distinctions.
About the daily audience leader Yandex
Recently, Google has been picking up pace, according to TNS. Google has become the most popular internet service in Russia (taking into account all devices). Google websites and applications are used by 20.5 million Russians per month. Yandex performs slightly less – 20.4 million, Mail.ru – 19.3 million. However, Yandex is the daily audience leader with 12.3 million uses, while Google is 3rd place with 11 million.
Facebook is only in third place
According to the latest data from TNS, there are over 82 million active internet users in Russia, of which 67 million have social network accounts. The most popular network is VK (VKontakte), which has an audience of 46.6 million, and second place is Odnoklassniki with 31.5 million. Facebook is only in third place. As of December 2015, its audience was 21.7 million.
In terms of the mobile market, Russia is currently lagging behind the global market
The mobile advertising market in Russia is growing quickly — according to data from eMarketer, in 2015 its growth increased by 120% to total $430 million. The numbers are impressive and totally predictable — of the 82 million internet users in Russia, 50 million are mobile internet users, and 11.8 million only go online from their mobile devices (10% of the country’s population and 14% of Runet users).
Despite these impressive statistics, the mobile advertising market in Russia is lagging behind the global market: as of the end of 2015, global investments in mobile online marketing totaled $50 billion, and by 2018 they will reach $114 billion and make up 50.2% of all investments in online marketing (according to data from ZenithOptimedia).
Pre-launch is mandatory
When entering a new market, including the Russian market, every company determines whether to launch their business in full (a full selection of products, all options/full suite of services) or piecemeal (only certain products/services). Both options have their risks. In the first case, there is a high risk of being out-of-date even at launch, since bringing a business to a new market is a very lengthy process, and in the second there is a high risk of seeming like a small business and failing to signify your ambitions to the market, although this problem can be solved by capable PR.
When entering the Russian market we usually recommend using a pre-launch — as mentioned earlier, the Russian market is very different from those you’ve worked with in the past. The behavior and preferences of Russian consumers differ from those of European, Asian, and American consumers, which means you need to be extremely attentive and careful and make preliminary test flights. This will enable you to obtain real analysis so you can understand what you will be up against during launch and what you need to do to make your launch as successful as possible. Moreover, a pre-launch will allow you to generate consumer interest, attract more active consumers, and guarantee your first sales immediately after launch.
Agile, and just agile
As a performance marketing agency, we advocate a flexible approach, and, as a matter of fact, all our processes for managing ad campaigns are absolutely agile. This approach made its way into online marketing from software development and suggests working in brief iterations with the goal of increasing a project’s manageability and reducing risk.
So why is the agile approach so important when launching on a new market? Keeping your processes flexible at product launch allows you to react to a situation proactively, make corrections to your strategy, and approach the project via multiple channels depending on immediate results. This doesn’t mean that you should avoid long-term strategies, but you do need to approach them flexibly.
Flexibility is also necessary in order to react to the actions of your competitors. You should always keep in mind that local competitors won’t be happy to see you. They are experienced, they’ve accumulated a loyal customer base, and they don’t intend to give up their positions. This happened to us once: we were working on a sales launch, and everything was kept secret, but in just 12 hours our competitor rolled out a similar offer at a lower price. We ended up getting the client to agree to make a change to advertising communication, and we were also able to make the offer more enticing.
Local agency or internal marketing department?
When entering a new market, it is important to thoroughly think through your launch strategy, but it is no less important to plan marketing management and business processes in such a way that obtaining the desired result is possible.
A few questions come up right away:
1.Will your business cultivate expertise internally and develop its own marketing department, or will you work with a local agency?
2.If you’re going to work with an agency, which functions will the agency fulfill? Will it only run advertising campaigns, or will it fulfill the function of a marketing department operating in a new territory?
3.Will you choose an agency with narrow specializations or a partner that can provide you with an entire digital marketing suite?
There are no simple answers to these questions. The solution depends on your business’s internal resources and qualifications. In our opinion, there has to be a manager with serious local expertise on the client side. Obviously, at launch, where having maximum concentration and synergy of channels is crucial, the activity of a single contractor is going to be more efficient than the actions of a group of independent contractors. Needless to say, a necessary condition is going to be experience implementing similar projects. That being said, as business is established, some of the expertise can be transferred to separate specialized agencies or moved in-house (managing SMM or CRM marketing, for example).
There are a lot of examples of companies who have launched successfully in various markets but were unable to win the trust and affection of Russian consumers despite well-planned, prepared marketing campaigns. You need to factor in the unique qualities of the Russian audience. Let’s talk more about this.
Russians are choosy
According to Nielson’s research, Russian internet users of any age want more accessible products, while brand familiarity is more important for the older generation. Younger consumers always want the newest and best and are ready to overpay if the advantages are worth it.
Russian citizens have become choosier — the portion of people who return products to stores is 63%, according to research from Yandex Marketing and GfK. About 30% of consumers will stop ordering from a store if they receive something other than what they had ordered, i.e. if what they received doesn’t match the description on the website. Moreover, online shoppers have become less trusting of the information on the pages of online stores. Interest in overviews on video portals and blogs is growing.
The most popular purchasing categories in online stores among Russian citizens are: clothing, footwear and accessories: 57% (by way of comparison, the global statistic is 49%); home electronics: 39% vs. 32%; toys and hobbies: 35%, while the worldwide average is 26%.
The percentage of people who have made unplanned purchases at least once per year (i.e. ordered products that they happened to notice online) has risen from 54% to 63%. Discount policies have also played a role: according to data from Yandex Marketing and GfK, half of all respondents noted that their last purchase was for something that was on sale.
Russian citizens have become more demanding in regard to the speed and quality of shipping. Whereas users previously expected to wait a month (or more) for a product ordered from a foreign online store, nowadays the situation is gradually changing. Companies that have come to Russia are investing in shipping logistics, building warehouses and distribution centers all over Russia. Shipping time is thus approaching that of Russian online stores. For example, JD.com, the largest Chinese retailer, has already opened a logistics center in Finland. The launch was set for a Singles Day sale running from November 9-13. Shipping time was reduced from 20-30 days to just 3-7.
Moreover, when developing shipping options it is important to make sure the user has the ability to choose between paid shipping with various time frames and free shipping with an average time frame, as well as between delivery via courier and delivery to a pickup point. Then, no matter what shipping method they choose, it is important to meet the deadline and inform the user about the status of their order (text message, email). The user wants to know that everything is okay with their order.
Nowadays the Russian express shipping market is showing stable growth. According to an evaluation by experts from J’son & Partners Consulting, in 2015 the market grew by 5%; in 2011-2015 the CAGR was 15.6%.
The largest portion of the Russian express shipping market belongs to the company DHL. According to the same evaluation, other notable players are B3B, Pony Express, EMS Mail of Russia, and Major Express. The other players have 35% of the market. There are also certain players in the Russian express shipping market that are developing networks of automated package terminals with automated spaces for storing and picking up goods. According to J’son & Partners Consulting, the Russian market for automated package terminals can expect a boom in the near future.
Research from Yandex Marketing and GfK show the following numbers: 59% of Russian citizens independently collect their orders at self-pickup points, 38% of which are automated package terminals.
Habitual payment methods
About 70% of Russian citizens prefer to pay via C.O.D., while in the US and European countries this method of payment is essentially dead and all transactions are done online. This situation is expected to change in Russia in the near future. Even now, over 30% of transactions are paid via card, although just a few years ago Russian citizens almost never paid with a card. It is important to provide Russian citizens with convenient payment methods using familiar tools. The leaders in the Russian market are Yandex.Money, Webmoney, PayPal, and Qiwi.
Local customer service
Over 80% of Russian citizens do not know a single foreign language, so if you don’t have Russian localization for your translations and support you will be very likely to lose this portion of the audience. According to research data from Ipsos, 66% of Russian citizens feel uncomfortable making purchases on websites in foreign languages. Moreover, 43% of Russian citizens polled wanted to at least have customer support in their language on a website, and almost half want the website to be available in Russian or at least translated.
Working with negative feedback
It is important to understand that any problem at launch can lead to enormous growth in negative feedback. Even if 99% of customers are happy with you, having 1% of your customers be unhappy can create the impression of a disaster. Information spreads very quickly online, so a single unsatisfied customer can mean hundreds of lost potential customers. Working with negative feedback is an important core component of a successful business. Practice has shown that Russian citizens, as well as customers from other countries, care about having people talk to them, explaining the situation, calming them down, and apologizing. They also want this to be done proactively.
There are a large number of ways to monitor online references to a brand, including special systems. For example, IQBuzz, YouScan, and BrandSpotter can all be used to monitor social media. SemanticForce allows you to capture all varieties of online media, and it also features Klout integration, which can be used to see the degree of influence an author has and evaluate the importance of a reference. This way you can avoid having to work with every single reference and focus on those that can cause real harm to your business. It’s a good idea to know the major bloggers in your segment by name and study their behavior in order to understand what to expect from them. You can also use the free tool Google Alert to monitor and look for reviews in search engine results.
A reputation-control strategy should be a mandatory part of the launch strategy for a new market. How should you respond, and under which circumstances? You’re better off asking yourself these questions beforehand and being ready to enter a dialog with your audience.
Have you planned a fantastic pre-launch, and now you’re thinking about whether or not your infrastructure can support it? Will your website run fast enough during the critical moment when your audience flocks to it?
In major Russian cities with developed infrastructure, most online shoppers are used to high speeds on their mobile devices and PCs. The quality and speed of internet connections in more remote Russian regions tend to be poor. In both cases a website that loads slowly can be an annoyance factor that can cause a user to leave the website. Connecting to local CDN (Content Delivery Network or Content Distribution Network) allows you to solve this problem. Delivering content from a server near the user substantially speeds up loading times on the user’s device, which increases loyalty to the resource and reduces rejection statistics.
CDN is an important usability factor for any e-commerce project. However, if your online store is hosted outside of Russia, connecting to content-delivery networks is especially relevant because it gives you a substantial boost to your website’s speed, since it significantly reduces the distance between the server providing the content and the user (local CDNs provide comprehensive coverage of the entire Russian Federation). Moreover, certain Russian providers distribute the load to the content-delivery network, factoring in not just the distance, but also the connection quality of each user, which significantly increases service quality.
Instead of a conclusion
So, in summary, I’d like to emphasize again that entering a new market entails certain risks. The Russian market is different from the European, Asian, and American markets both from the perspective of business behavior and the launch of advertising campaigns and from the perspective of user preferences. To make sure your launch is as successful as possible, in addition to a launch strategy, thoughtful marketing, and a high-quality offer, you need to offer payment methods that are familiar in Russia and local service, carefully think through shipping logistics, and be ready for negative feedback and responses from your competitors.