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Russia

Consumers adjust

shopping strategies

 

Russian brands benefit from frugal behavior

 

Russian consumers adjusted to the impact of low oil prices and Western sanctions with survival strategies learned during prior economic downturns. Many managed their finances by limiting purchasing mostly to necessities and shopping on price. But the troubled economy did not affect consumers equally. While few were immune to the country’s economic difficulty, consumers’ behavior depended on their income, aspirations, and other socioeconomic factors.

 

In an extensive research survey, Mediacom divided Russian consumers into three classifications: Tier 1, wealthier people, driven by the need for self-realization, who can afford premium products and even overseas travel; Tier 2, solidly middle-class people, who spend money pragmatically and can afford some durable goods and an annual vacation within Russia; and Tier 3, people with limited budgets, who spend frugally and worry about unforeseen expenses.

 

Middle-class and less wealthy consumers shopped more often at discount stores and were disciplined in how they spent their money, often using coupons and making shopping lists to limit impulse purchasing. They also shopped for bargains online, both on Russian sites and on AliExpress, the business-to-consumer site that makes Chinese products available abroad.

 

As consumers spent on fast-moving consumer goods (FMCG) and other basic merchandise, Russian brands continued to develop, serving customers at all income levels and even offering some premium brands. Because consumers deferred major purchases, real estate prices declined and car sales weakened.

 

To stimulate spending, retailers priced aggressively and devised various special offers, marking down certain merchandise for a limited time. The promiscuous price shopping stimulated by these deals motivated retailers to strengthen their loyalty programs.

 

Russian brands benefit

Some Russian brands benefited from the changes in consumer demand and other conditions that followed the imposition of sanctions. As consumers, particularly in Tiers 2 and 3, limited their shopping to basic products, they often found more Russian brands because, following the imposition of sanctions, grocery shelves filled with Russian-branded food commodities like sugar, bread, milk, cooking oil, tea, and coffee.

 

Russian brands found opportunities even at the premium level, where they serve the needs of Tier 1 consumers. Two Russian meat brands, Miratorg and Primebeef, expanded over the last few years, replacing some of the imported beef supplied mostly by Germany and Poland prior to sanctions.

 

Imported beef from Brazil and Mexico also entered the Russian market after sanctions, but not enough to fully satisfy demand. Similarly, Russian brands now supply more fish, which prior to sanctions came mostly from Nordic and Mediterranean countries.

 

Food safety concerns about chemicals used in agriculture mitigated demand for less expensive food imported from China, including fruits and vegetables. The Tier 1 and 2 consumers spend more time reading product ingredients to choose the best product and the fairest prices.

 

The difficult economy also produced opportunities for Russian brands in non-food categories like apparel. Middle-class consumers who wanted to maintain their quality of life while spending less money found the products of Russian designers promoted on social media sites like Instagram.

 

Affordability and luxury

Affordable apparel was available online at WildBerries, a large Russian multi-brand apparel e-commerce market, or at Lamoda, an online fashion retailer. In addition, major shopping malls created temporary marketplaces where small vendors sold a variety of merchandise, including clothing, accessories, and custom jewelry. The marketplaces provided the malls with additional rent and offered consumers less expensive alternatives to multinational brands.

 

In Russia’s price-driven telecom provider category, a challenger brand, Tele2, disrupted the Moscow telecom provider market, adding further pressure on the three majors—MTS, Beeline, and MegaFon—and instigating a price war. Compounding the pressure, a recent national security law changed the rules about customer data retention and government access to data, which increased expenses and squeezed profits.

 

The ultra-wealthy still had money to spend. Although car sales sagged for mass-market models, sales grew for Western (usually German) luxury brands. The weakened ruble made cars a less expensive purchase and a worthwhile investment. The ruble also drew international shoppers to Moscow in search of luxury “bargains.”


Brand Building Action Points

1.          Cultivate love

Especially in today’s difficult economy, it is important for brands to be in dialogue with their customers. The brand offering must go beyond the product to include services that can help improve the customer’s life. When so many purchase decisions are price-driven, this kind of interaction can help build loyalty.

 

2.          Be online

Being online is another way to build loyalty. But online presence requires more than selling products. All brands, regardless of size, need to be online, and the most successful will engage in conversation with consumers.

 

3.          Share values

It is important to share the customer’s values and to communicate about those shared values. A personal care brand, for example, can provide beauty services that improve quality of life and make the customer feel closer to the brand.

 

4.          Show insight

Communicate messages that resonate locally. Create locally relevant events. Russian brands understand the market and can express themselves in ways that demonstrate deep customer insight.