What you need to know about the premium products market in Russia

Recently, Russian Search Marketing covered the rise of discount culture in Russia and recommended some marketing alternatives that don’t involve price-slashing. Here, we continue that discussion with a look at the premium products market in Russia and what drives purchasing decisions for such products.

The following data is taken from a worldwide Changing Consumer Prosperity study that was conducted by the market research company Nielsen. The goal was to measure consumer opinion regarding the state of national economies, as well as study how consumer habits have changed. More than 30,000 online consumers from 64 countries participated in the online survey.

Changes in spending since 2014

Of the Russian participants in the study, 34% stated that their financial situation had improved over the past five years, whereas 38% believed it had worsened. Only 3% of respondents said that they were completely free of financial concerns. Meanwhile, 34% describe their financial situation as “comfortable” and 63% claim to only have money for essentials. In comparison, the percentage of those who answered with these responses worldwide was 15%, 53%, and 32% respectively.

Top 5 categories of increased spending

Sixty-four percent of research participants said that they began spending more on food in 2014 and 70% said that their bills for utilities/communal services had gone up over the last 5 years. (Editor’s note: the ruble experienced a sharp devaluation beginning in 2014).

Other categories that Russians claim to be spending more on include non-food FMCG products (48%), electronics and communication-related products/services (36%) and clothing (35%). Meanwhile, Russian consumers have been spending less on entertainment (28%) and restaurants (27%).

Top 3 categories spent less on

Despite the decline in real incomes and in the consumer confidence index, the market continues to grow and consumer tastes continue to develop. Today’s buyer is more concerned with product quality, socially-responsible consumption, and how environmentally friendly the products they purchase are. They are constantly searching for convenience, speed, and the right balance of price and quality. Increasingly this is all happening online and retailers are feeling and reacting to this trend. Over the last few years, big players have opened new online stores. Some have launched Amazon Prime-style delivery services by subscription, others have announced new online platforms, and still others have carved out new niches for themselves. The retail landscape is noticeably changing, and it has happened primarily in response to the fact that consumer habits and demands have changed rapidly,” says Marina Volkova, director of analytics and consulting at Nielsen Russia.

Categories that command premium prices

There are a lot of social-economic factors that influence how consumers feel about their financial position. These include changes in average wages, income distribution, disposable income, and level of inflation. However, none of these factors is able to completely explain changes in consumer sentiment and purchasing behavior.

Consumers own assessment of their financial position bears a significant influence on the whole retail landscape. For example, in countries where a high percentage of people are only able to purchase the most basic goods, discounts are very successful marketing tools.

It’s important to be aware of changes in consumer behavior when putting together your pricing strategies, product assortments, and promotions. If you understand what categories of goods fall into the premium products market in Russia, you can manage your offers more effectively.

Top 5 categories willing to spend more onDespite the fact that buyers are sensitive to any price increases, some categories of products offer more opportunities to maneuver than others. A significant minority of Russian consumers are willing to spend more than average prices on clothing (34%), small electronics (32%), meat and seafood (28%), and coffee and tea (27%). For categories like soft drinks, frozen food, and water, however, only 4%, 3% and 7% respectively are willing to pay a premium. Furthermore, 72% of respondents prefer to purchase premium items in physical stores. This is primarily due to the fact that consumers want to ensure that the items are of high quality and see what materials they are made of before purchasing them. Only one-third (35%) of Russian consumers prefer to purchase premium items in online stores, and 16% look to foreign online stores for such items.

Factors motivating consumer behavior

Across the world, consumers associate high-quality items with certain properties, ingredients, or materials.

Motivators for spending moreIn Russia, 82% of research participants said that they were definitely or probably willing to pay more for an item if it meets high quality or safety standards. Likewise, 67% and 77% respectively said that they would pay more for items produced by companies that support social-responsibility or environmental-sustainability initiatives.

On a similar note, 79% said they would pay a premium for organic or natural products. By comparison, only 75% of European respondents that said they would pay more.

Consumers are getting to be more well-informed and spend more time studying product details. When selecting premium products, 56% of Russian participants indicated that they study the product’s features and characteristics and decide whether to buy based on that. Worldwide, only 36% of respondents based their decision primarily on this factor. In line with this finding, it’s important for marketers to supply consumers with product overviews and comparisons and customer reviews.

In Russia, 44% of respondents admitted that emotions play an important role in their decision to purchase premium products and that these purchases are impulsive. Nearly one-third (29%) listen to the recommendations of friends and family members. Only 3% said that they consider outdoor advertising or radio ads when deciding whether to buy a premium item (this figure was 6% for TV ads).

Versatile strategy

Of course, consumers and businesses are significantly affected by political, social, and even environmental factors that are often difficult to predict. However, these are only a few of the elements that determine consumer habits and preferences regarding the premium products market in Russia. Sales strategies must also take consumers’ financial position and purchasing intentions into account. Here are 7 principles that can help you assess these factors:

  1. Factor in consumer sentiment when determining product positioning.
  2. Figure out what categories of premium items consumers are willing to pay more for and create a product portfolio based on your findings.
  3. Define the quality standard that will allow you to position an item as premium.
  4. Determine how a store’s exact location in relation to consumers’ homes and workplaces influences sales.
  5. Analyze price elasticity parameters to determine your price and promotion strategies.
  6. Use all relevant platforms to tell your audience about the premium features of your product.
  7. Develop a long-term strategy that takes potential changes in consumers’ financial position into account.

Businesses that analyze these factors and implement their findings will be in a much better position to weather future economic storms and form lasting relationships with Russian consumers.