grand brand


The Russian consumer appears to be becoming more and more interested in brand. Is the OP industry ready to take advantage?

For anybody in Moscow just over six years ago, it is extremely difficult to imagine the transformation wrought in the country in the interim.

When the Russian rouble collapsed 17 August 1998, the impact on the Russian consumer was devastating. Many lost savings as the banking system collapsed and overnight, the value of the rouble sank to virtually nothing as Yeltsin’s government defaulted on its international debts. In a bitter battle for survival, the last thing on anybody’s mind was the importance of brand.


A study conducted by F-Squared Market research and Consulting for the American Chamber of Commerce in 1999 was typical. It found that "the Russian consumer does not really understand what constitutes a brand. Brand recognition is secondary".

How that has changed. Numerous studies demonstrate that Russian brand awareness is on the up. For example, a Bisnis study in 2003 pinpointed the emergence of a group of consumers labelled ‘innovators’ which jumped from eight per cent in 2001 to 15 per cent the following year. Moreover, the size of the group in Moscow was more than double that.

Author Polina Belkina says: "The group of consumers called innovators deserves to be the focus of a supplier’s attention. These are the people whose consumer potential is significantly higher than the average."

There is also evidence to suggest that brand awareness is slowly starting to infiltrate wider parts of the country and not just the main urban centres. Moreover, there is a confidence among consumers that the mistakes of 1998 are unlikely to be repeated. There are good reasons for that, says Sergei Voloboev, Russia analyst at CSFB. "The 1998 crisis was caused by a combination of weak government, loose fiscal policy, inappropriate exchange rate policy and low oil prices – none of these components are in place at the moment."

Of course that begs the question as to whether a drop in oil prices – currently heading towards the $50 mark again – might lead Russia into murky financial waters.

Voloboyev does not think so. "Oil prices are likely to come down over the next few years, thus making it more difficult for Russia to keep growth rates at current levels," he says. "However, we are reasonably confident that a deterioration of external conditions would be met with adequate policy responses by the government."

And with the strong oil price leading to GDP growth rates of approximately seven per cent year-on-year, the impact on consumer confidence – terrorist attacks aside – he says, has helped "keep domestic demand very strong".

For OP companies, it is a welcome trend. Office products manufacturer GBC has been doing business in Russia for 20 years but Europe marketing director of communications Mike Wright has noticed the difference in brand awareness in tandem with the growth of consumer confidence.

He says: "The Russian consumer is very perceptive of brands and is perfectly capable of understanding their relative values. However, one should not have the view that just because you have a product that carries a well known brand, it is a license to ignore market dynamics.

"It also makes sense that brand awareness is more refined where it is more obvious in cities such as Moscow and St Petersburg. I’m not sure that many brands have scratched the surface in the broader context of the Russian consumer."

For GBC that has meant embarking on a distributor type relationship with Moscow-based OP reseller Smistar in order to position its brands more effectively.


Wright says: "To approach the retail channel directly throws up the same issues as in any standard European relationship in that they need JIT deliveries and rapid response. There are also language issues and local warranty problems and these are very difficult to manage at such a distance without professional local support."

Smistar deputy general director Alexander Smirnov has also spotted the transformation. He says: "The value of brands has been recognised in Russia since the start of the 1990s but that was mostly by the industry players. However, rising wealth is definitely increasing interest in brands."

Russian customers are savvy however, as Smirnov explains. "The Russian OP market has definitely become a Far East products market. Why would people buy a western brand if they can buy the product made in the same Chinese factory under a Russian trademark at approximately 40 per cent cheaper-

It is then clearly not just a case of establishing your office in Moscow and simply waiting for the dollar to roll in. Smirnov says: "As far as international brands are concerned, they have quite often made life difficult for themselves. They thought that if they were global, then they will automatically establish their brand in Russia without going to any particularly special efforts.

"As a result, you see the likes of Esselte have missed out and to catch up on the likes of Durable, Canon and Sharp, it has to invest a lot to grab even one per cent of the calculators market which is dominated in Russia by Citizen. Another is Mitsubishi – it is still practically unknown in Russia in spite of all its investments."

The debate on developing a marketing and product range that appeals to Russians has also intensified. The Russification issue has played on the minds of many of the leading minds within the marketing departments of the global western global brands and some have been more successful than others.

Wright adds: "Our experience in emerging markets has shown us that we need to approach it from a Russian perspective and not necessarily from what we have learnt elsewhere. As a global player, we are much more interested in a long term solid market position rather than an ‘in one day, out the next’ type approach."

There are still significant problems in Russia. Foreign direct investment – excepting one or two spectacular deals such as BP’s $6 billion investment in the Sakhalin oilfields – remains criminally low with many central and east European countries attracting significantly more.

But the 150 million strong market in Russia is developing. And for western OP firms, the trick over the next ten years may well be how to position their brand as the ordinary Russian becomes obsessed with quality.