Russia

Turning point as consumers seek brands, not institutions

The deep sense of Russian identity that permeates most aspects of life in this country now extends to brands.

Having learned about brands from the West, copying is no longer sufficient. Russian companies are beginning to introduce new brands and reenergize old ones, infusing them with Russian identity and global best practices.

Changing consumer attitudes influence this trend, which is especially evident in retail. With increasing prosperity, brands are more important to consumers. And, more experienced with brands, Russian consumers are becoming practical and sophisticated shoppers, less impressed with a brand simply because it’s Western and more determined to find the right price/quality balance.

At least three constituencies also drive this effort to create world-class Russian brands: first, well-traveled Russian consumers whose exposure to the West raised expectations; second, Russian entrepreneurs who aspire to create products that meet or exceed Western standards; and third, the government. Several years ago, reacting to the explosion of Western goods available in Russia, President Vladimir Putin challenged the nation’s businesses to develop strong Russian brands.

Transforming from institutions to brands

This combination of individuality and national pride is most evident in the transformation of many heritage names that historically succeeded as national institutions rather than as brands competing for customer loyalty. This trend is clearly articulated in the rebranding of Sberbank, the nation’s largest bank. Established 170 years ago, the bank’s history includes its formation in czarist Russia and adaptation to the Soviet bureaucracy.

Today, Sberbank is deeply involved in a retail redesign project to better identify and serve segments of the consumer market. The bank is upgrading its 22,000 branches to one of eight different designations that include flagship locations, VIP centers, business centers, 24-hour selfservice lobbies and kiosks for performing transactions including bill paying. Most importantly, the change is not simply cosmetic. It suggests an organization that has turned its face to the consumer both in visual effects and attitude.

The Sberbank example reflects an emerging interest by many Russian brands to segment their audiences and create targeted offerings. Other venerable institutions engaged in significant rebranding efforts include: Aeroflot, established in 1923, and the Russian Railways. The descendant of Russia’s Department of Railways, formed in 1842, and completion of the Trans-Siberian Railway in 1905, Russian Railways rebranded to abandon its staid image and emphasize the future, technical competence and customer focus.

Growing the private sector

The more contemporary Alpha-Bank, connected its twentieth anniversary with a birthday celebration for Moscow. The outdoor extravaganza included a dramatic laser show projected on the façade of the landmark Moscow State University building, and a sky filled with fireworks and thousands of balloons. The bank intended the production to support its brand-building drive and highlight its association with innovation and leadership in banking technology.

This proclivity for proactive brand building beyond simple advertising is especially pronounced in retail. Savage, a fashion brand, captured the spirit of the times with the theme “be true to yourself.” Centro, a mass-market shoe brand shifted its emphasis to affordable fashion from price alone. To differentiate from the competition, and establish itself as a brand rather than a multi-brand emporium, the consumer electronics retailer Eldorado refurbished its stores to project the brand promise to make life easier through products, shopping experience and technical support. M-Video, another electronics retail leader, focuses intently on understanding its customers.

The Russian government has accelerated this emphasis on brands with a privatization program that touches many categories of products and services and has resulted in many Initial Public Offerings (IPOs). Russia’s second largest bank, state-owned VTB, completed an IPO in May 2011. Rosneft, the oil and gas giant, completed an IPO a year earlier.

Facing Western-type brand challenges

Becoming a brand means facing brand challenges. As in the West, Russia’s three leading telecommunications brands—MTS, MegaFon and Beeline struggle to differentiate and defend their leading positions. Competitively, they’re squeezed between state-owned Rostelecom and two relatively new privately owned operators, Tele2 and Yota. To increase consumer appeal in this competitive environment brands increasingly offer bundled services. Merger and acquisition activity has increased.

Russia’s beer brands are preparing for regulations that will prohibit television advertising as of July 2012. In a unique effort to leverage the brand, and reach various segments of the market, Russia’s leading beer, Baltika, offers 13 variations of Baltika, each numbered and branded with the Baltika name. Baltika 3, for example, is a popular lager, while Baltika 7 is a premium brand. Other numbers are assigned to light beers, ales and other parts of the range. The brewer continuously identifies groups that are underserved and creates an appropriate beer. Owned by Denmark’s Carlsberg Group, Baltika is exported worldwide.

Expanding internationally

As Russian brands gain national recognition, they increasingly seek international expansion opportunities. Some fashion brands have opened stores in Eastern Europe. Yandex, the marketleading search engine, serves many of the nations of the Former Soviet Union and has wider expansion aspirations, having launched operations in Turkey in 2011.

The brand enjoys a reputation for strong performance coupled with aggressive marketing. It was the first Internet brand in Russia to advertise on TV. Along with a search facility that enjoys over 62 percent market share in Russia, Yandex also offers a menu of online services including a shopping mall and YandexMoney, a payment system. It’s noted for maps that include a traffic jam monitoring tool. Also in the technology category, the Russian-owned multi-national computer security company Kaspersky Lab enjoys a strong B2B reputation. It operates in roughly 30 countries.

Russia’s energy giants, like Gazprom, Rosneft and Lukoil, operate across national boarders. Gazprom has acquired companies in Central and Western Europe to serve the natural gas needs of consumers in those markers. Overseas offices enable the companies to navigate regulatory issues, which tend to be stricter in Europe and North America compared with Russia. Lukoil is focused on renewal energy and has established a presence at the pump in the US.

Recent large acquisitions also reflect confidence in the Russian market and in Russian brands. PepsiCo acquired Wimm- Bill-Dann, one of Russia’s two major dairy producers. Groupe Danone SA, the French company, formed a joint venture with the country’s other major dairy brand, Unimilk. Late in 2011, Unilever bought a majority stake in Kalina, Russia’s leader in personal care and beauty.

Fundamentals for brand building in Russia

  1. Know your customer
    If you are selling dreams, status or conspicuous consumption, you’ll find plenty of buyers, especially in Moscow and increasingly St. Petersburg and other metropolitan areas. For products or services to meet everyday consumer needs, however, Russians are driven by quality and will no longer pay more just for a foreign brand.
  2. Expect the unexpected
    Russia offers tremendous opportunity for brands. But the rules of the game—the decisionmaking process, business priorities and consumer preferences—can be different than in the West. Schedules constantly change and everything takes longer than expected, so be flexible.
  3. Do the research
    Russia is one place that often disproves the “branding is global” approach. One size rarely fits all in this huge country, especially when the brand originates in the Americas. The right research can save bundles in time and money.
  4. Show respect and appreciation for the Russian culture
    Russians are proud of their country. Even when they criticize it themselves, they may not appreciate having others join in. Russians take great pride in their cultural heritage and expect the rest of the world to admire it as well.
  5. Be prepared to spend time
    At the end of the day business gets done, but expect a long period of socializing and getting-to-knowyou conversation before business is discussed. When Russians get down to business, they tend to be more direct in their response and open criticism is socially accepted, so feedback often starts with “No.”

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