Russian Brands Improve in Quality, Communication

WTO entry, Sochi Olympics add urgency

For two weeks next February, during the 2014 Winter Olympics, audiences worldwide will focus attention on Sochi, a Black Sea resort—and potentially on Russian brands. They should be surprised and impressed.

Russian are becoming more sophisticated brand marketers, integrating traditional and online communication to develop brand experience beyond simply a logo. They're applying these advances across both consumer and business categories.

Russian consumers often prefer local brands and, because of an increase in quality and range, they usually can find them in almost any category. The government encourages the growth of Russian brands to enhance the country's stature and help differentiate it from the West.

This brand evolution is urgent. Russia's entrance into the World Trade Organization (WTO) in 2012, after 18 years of negotiations, will over time lower tariffs on imported goods and make global brands more competitive with Russian brands.

These developments come at a time when the Russian economy, growing at 4-to-5 percent annually, has so far managed to avoid the recessionary pressures felt by its European neighbors. Russian disposable income continues to grow and consumers prefer to spend rather than save. Increased branding sophistication The response to WTO membership has been most noticeable among the business-to-business organizations that had not focused attention on branding until now.

Not only are the largest B2B companies investing in their brands, but so are some of the small-and medium-sized Russian brands as well. The Russian brand Chemline had dominated Russia's industrial cleaning products industry, for example. The market entrance of two major US brands forced Chemline to refresh its brand.

On the consumer side, an innovative mobile device brand called Yotaphone drew media attention. Launched at the Consumer Electronics Show in Las Vegas in December 2012, the two-sided Android phone is expected to be widely available by the end of 2013. The combined smartphone and e-reader has an LCD, liquid crystal display, on one side and an EPD, electronic paper display on the reverse.

Another development that happened late in 2012 also should influence the Russian evolution of brand and, specifically, online retailing: Apple launched its online iTunes store in Russia, amid rumors that a full line online Apple store soon would follow.

Improving online presence

Brands in most consumer categories, especially retail, focused attention on improving their online presence.

Svyaznoy, an electricals retailer with over 3,000 outlets, reported a 162 percent increase in online sales to 9.2 billion roubles ($300 million), a rapidly growing—but limited proportion—of total revenue.

DIY retailing drove a lot of online activity on retailer websites and in social media. Some Russian brands were active along with many of the international players, including Leroy Merlin from France; Castorama, owned by the UK's Kingfisher, and Germany's Obi.

Retailers also understood that competing effectively often requires operating more than one branded format. Many complemented their big box stores with smaller outlets more appropriate for particular locations.

Eldorado, which operates about 700 consumer electronics and home appliance superstores, opened smaller formats and offered online ordering with click and collect or home delivery options.

Enter, a new retail brand from Svyaznoy, introduced a type of catalog showroom, similar to the UK's catalog merchant Argos. Consumers can order goods in store and online and retrieve the merchandise from pick-up locations or have it delivered to their homes.

Branding and innovation

Last year Russia placed 14th in Bloomberg's Global Innovation Index Top 50. This reputation for high tech innovation and entrepreneurship is partially due to the Skolkovo Innovation Center, a research campus, located outside of Moscow.

Russia's Silicon Valley, Skolkovo is devoted to technological research and development in IT, energy, biomedicine and other areas. The government provided strong support for Skolkovo to encourage growth of science and technology companies in Russia.

The center has attracted both venture capitalists and major technology brands interested in encouraging and commercializing the work of Russian scientists. Partners include both Russian technology companies and many of the technology leaders ranked in the BrandZ™ Top 100 Most Valuable Global Brands, such as Cisco, GE, IBM, SAP and Siemens.

Government regulations banning beer advertising on TV drove a different kind of innovation. Until July 2012, the government permitted beer advertising on TV after 10 pm. Now it's banned entirely. The prohibition follows similar limits aimed at alcohol and tobacco.

The beer advertising restriction forced companies to think creatively about building brands differently. Russia's leading beer brand, Baltika promoted its non-alcoholic version called Baltika 0. The name follows Baltika's numerical branding style—Baltika 3 is a lager, for example.

The product and communications solutions that beer brands devise to compensate for the TV ad ban will influence other categories to evolve their brand building. Emphasis should shift from a focus on advertising, design and packaging to improving brand experience overall and increasing social media activity.

Establishing brands abroad

Russia's three largest telecoms—MTS, Megafon and Beeline—raised their brand profiles as they expanded abroad to the Commonwealth of Independent States (CIS), Turkey and fast growing Asian markets.

As the telecoms grew through acquisition, Megafon and MTS usually subsumed new entities under their masterbrands. Beeline's parent Vympelcom tends to leverage the equity of the local brand. Meanwhile, MTS has developed other revenue streams, in financial services and from monetizing its customer data.

Russia's fourth largest telecommunications player grew by collecting regional telecoms and operating an intercity fixed line business under a conglomeration of names. The company recently unified these entities under a single brand, Rostelecom.

Rosneft, Russia's largest oil and gas brand, has become a global brand, having recently entered in partnership with ExxonMobil and other global players desiring access to natural resources reserves in the Arctic and Siberia. Whether the state-owned Rosneft will devote attention to brand building, as two major state-owned banks have, is another question.

The two banks, Sberbank and VTB, are actively branding both in Russia and abroad. Sberbank recently completed several overseas acquisitions to build global stature. These follow a comprehensive rebranding program that transformed the bank from an austere Soviet-era institution to a consumerfocused business. The remodeled branches and their online banking services are sophisticated and user-friendly.

VTB is working to strengthen its brand as part of an aggressive expansion of commercial and corporate banking in Russia, Europe, Africa and Asia. The bank recently branded its retail business VTB 24. VTB launched a stand-alone brand called Leto, which means summer in Russian. The bank developed Leto to provide lending services to the sub-prime market. It felt it would be imprudent to reach this audience with its core brand. VTB intends to open 1,000 Leto branches over the next five years.

Yandex, Russia's competitor to Google, has expanded to Turkey and is eyeing other markets. Kaspersky's Labs antivirus has become one of the strongest software brands in the world.

In a high profile international brand building initiative, several brands are sponsors of Sochi 2014, including Sberbank and Megafon, which recently completed an IPO.

BrandZ Top 100 2013

BrandZ Global 2013 Report Top 100 Report

Top 100 Chart

2013 BrandZ Top 100 Infographic

BrandZ 2013 Infographic

Methodology and valuation by Kantar Millward Brown

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