In the 90s it was China, now in the 'noughties' it is Russia that electrifies the imaginations of marketers as a new frontier with dramatic size and growth potential.
Direct marketing in Russia is advancing rapidly as the whole business of marketing develops. How is the reality today?
Expenditure on television advertising is an estimated $900m (拢575m) in 2003, press $600m, promotions $500m and direct marketing a significant $170m. We established Wunderman in Moscow this year. The Russian Association of Direct Marketing is an excellent professional association, and I thank them for much of this background and guide.
Although the internet and interactive marketing are growing rapidly, it is from a low base with estimated spend of only $11m in 2002. Direct mail will be the primary DM channel for some years. Direct and in particular mail order marketing is an important driver of change in the quality of the postal services.
Between 75% and 95% of ordinary mail reaches its destination. It takes a week to reach an address in Moscow and up to two weeks across Russia, with a service to trace registered mail and parcels en route available for up to 80% of all destinations. Cash on delivery is the norm. 'Postage Paid' is available as a service to DM clients who wish to cover postal costs for their respondents for Moscow postal authorities only at this point.
The control and safe handling of correspondence are improving. To overcome problems, however, specialist DM agencies are considering alliances with post offices to provide their clients tight control over mailings and databases. The Russian Post is a network of 36,000 post offices broken down into 89 local administrations, to be centralised and privatised soon under government control and participation.
Mailing lists are in their infancy. There are an estimated 30m medium- to high-income consumers representing the target for most direct marketers. True business-to-consumer lists are rare. Many of the sources available are best characterised as 'grey or 'semi-legal' -- either from official sources (a mix of the road police, various electorates, business and residence registration authorities) and commercial (other organisations' mail activity, consumer promotions, mail-order operations).
Apart from any legal or ethical considerations most of these lists are highly inaccurate and can not be used for personalised mailing.
The onus is on marketers to harness a growing trend for direct response advertising and targeted promotions to build their own databases. DRTV is growing rapidly. It is estimated that almost 200,000 airtime minutes have been bought for DRTV-shopping programmes across most of the TV channels in 2002.
Response rates to direct response advertising can be significantly higher than experienced in more developed markets. Anecdotally, the returns can be on a scale undreamt of by western marketers for years, subject always to qualification of offer and respondent.
Because of the poor state of database mail response rates are low: in the range of 0.1%-3%. Incentives and promotions, however, can generate between 25%-30% and must also be the key to database building.
The internet is naturally growing rapidly, but not yet exponentially. There are over 25m online visits to Russian websites (Runet) a month, 58% domestic, 12% from the former Soviet states.
Regular interactive users are perhaps the prime target audience: 10m, at least two-thirds under 35, the majority with higher education qualifications and employment as professionals or managers. Most visits to Runet originate from office and home computers (80%) with other 20% coming from schools and universities and internet cafes (there are over 1,500 in Moscow alone).
The concentration of traffic is high -- 48% of all domestic visits originate in Moscow and 12% in St. Petersburg. Online shopping is growing with over 10,000 sites and 700 actually working online shopping facilities.
The barriers to growth start with inadequate regulation. Most laws regulating privacy are outdated. There is consumer rights protection applicable to DM, and a number of new legislative documents have been drawn up to regulate DM and consumer privacy for database regulation, prize-draws and lotteries, copyright for DM scenarios and mechanics.
The professional services sector operates a degree of self-regulation, including the major DM agencies. Although there is a lack of reliable databases and limited experienced DM agencies, some companies (eg Samsung, and Ford with other car manufacturers are embarking on CRM strategies and programmes).
The focus for marketers should first and foremost be targeted database building. The target audience will be centered on internet users, and there are a wealth of sites for targeted interactive advertising and content that can generate response. This may represent one so far largely untapped opportunity.
Beyond the internet, direct response advertising off the page and on television generate promising returns. Promotions in retail and through the mail can combine demand stimulation with database building. Marketers must expect to build their own databases.
Russia is a rapidly maturing market, and one in which direct and interactive marketing will play a fast-growing role.
Please write to Stewart Pearson with feedback and opinion here