MARKETING CONSUMER PRODUCTS IN RUSSIA

**Note: This is a draft of an article to appear in the next issue of BISNIS Bulletin. I welcome editorial comments. -- William Raisner RAISNER@USITA.GOV

MARKETING CONSUMER PRODUCTS IN RUSSIA

by Bill Raisner

Reflecting on his company's 1988 entry into the Russian market, a Vice President for the parent company of Dunkin Donuts and Baskin Robbins commented that the high level of economic and political risk in Russia was an attraction because it "tends to keep out competition and allows us to get a head start." For U.S. companies now considering a venture in Russia's lucrative consumer products market, lower risk makes a head start harder to find. Freed from worries of impending coups and the return of Soviet rule, consumer product companies must now adapt to an increasingly competitive environment. In particular, U.S. companies should consider new methods of distribution, a broader range of financing options and greater attention to advertising.

No More Kiosks

One indication of change in Russia's consumer products market is the gradual appearance of Western-style retail outlets in place of the dingy kiosks that were once the mainstay of the Russian shopper. The Polaroid Corporation made Russia its second largest export destination by using a network of kiosks, on the assumption that the street vendors "were the only people who knew anything." Lately, small retail shops are gaining ground, displacing nearly 7,000 kiosks in Moscow last year. Importers can now choose between domestic distributors, franchises, or company-owned brand shops as means of reaching the public.

Image-oriented retailers such as Estee Lauder and Benetton rely on high-quality brand shops to boost awareness of their products. In contrast, Masterfoods, a Russian subsidiary of Mars Inc., has established a broad network of domestic distributors which has been very effective in mass marketing Mars candy bars and pet foods. In general, these advances in distribution have opened markets in Siberia and other far-flung regions, fueling an influx of importers outside of the hotly contested urban markets of Moscow and St. Petersburg.

Financing Options

Recent surveys conducted by the Commercial Service of the United States and the U.S. Department of Agriculture indicate that U.S. companies demanding 100 percent prepayment for their products often lose out to European and East Asian importers offering more agressive financing terms. Shipping delays put distant U.S. suppliers at an added disadvantage, given high interest rates faced by Russian importers. Companies which are not overly risk averse can counteract this situation by offering credits or consignment sales. Franchises, joint ventures and exclusive distributorships can offer a higher degree of security, though these arrangements are often complex and time consuming. In the case of larger U.S. corporations, European subsidiaries and their associated warehousing facilities provide yet another option. Ultimately, domestic production facilities bypassing many of these distribution obstacles in addition to avoiding import duties are increasingly attractive as companies establish stable markets for their products. The domestic production option is most advanced with respect to consumer-ready food producers, though purveyors of personal hygiene products such as Gillette and Tambrands are beginning to take the plunge, as well.

Madison Avenue Meets Nevsky Prospekt

A final ingredient in marketing U.S. consumer products in Russia is advertising. Television plays an increasingly important role in Russian advertising. The growing demand for Russian air time boosted the cost of a minute of prime-time television from $15,000 in January 1994 to over $45,000 in March. Nonetheless, this still puts the cost of reaching 1 percent of the Russian population one time at a mere $530. While not exhibiting the growth rate of television, print media have also become increasingly consumer oriented. The Russian language version of Cosmopolitan, a prime source for the fashion-conscious shopper, is now the second largest edition of the magazine.

U.S. companies should bear in mind the still novel character of the Russian consumer experience. Consumer education in the form of taste testings, preparation tips and special labeling, for example, will continue to be important as Russian shoppers unfamiliar with Western products are exposed to an ever wider range of choices. By acknowledging these and other new marketing possibilities, U.S. companies can take advantage of existing consumer perceptions about the superiority of American products to secure a solid customer base in Russia.