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MARKET RESEARCH IN RUSSIA

By Tatiana Matyushina for Russia Business Watch, summer-fall 2007

Every so often American entrepreneurs and managers express the view that “there is no full-fledged marketing and, as a result, no competent and reliable market research in Russia.”

It is true that marketing came to Russia only in 1991; however, this new industry has really taken root. For almost 10 years, the development of marketing and market research industry in Russia has been rather marginal, advanced mainly through the efforts of large foreign companies entering Russia's consumer market. In 1996, for instance, the share of custom-tailored research services purchased by multinational corporations in Russia accounted for 85 percent of the total research sector sales, and the total value of the sector was approximately only $20 million.

Only five years ago, there was virtually no demand for market research services from Russian companies and only a few cases existed where modern marketing tools were applied successfully. Still less than ideal, marketing and research capabilities and practices are rapidly improving. Marketing texts, albeit not always of good quality, crowd the shelves of Russian bookstores. Every year, over 1,500 students graduate from Russian universities with undergraduate degrees and another 600 with MBAs in marketing. Not only large, but also medium and small-sized Russian companies today establish internal marketing services or departments. More than 10 professional marketing journals are currently in circulation in Russia. Over 50 marketing conferences take place annually in Moscow alone.

In the span of 16 years, Russian market research specialists have managed to master the entire modern European and American marketing experience, both in theory and practice. The progressive Western approach to market research planning, implementation and methodology came to Russia through three main channels:
  • Transfer of experience. Global market research and consulting firms that came early to the Russian market and trained thousands of Russian experts, who came through their '"technological crucible." These experts were later employed by Russian companies, including Russian consulting agencies, where they successfully assimilated the acquired experience.
  • Requirements of market research service contracts with Western companies. Most leading Western companies adhere to stringent international standards with respect to research tools, procedures, and presentation of findings. This is why, for many years, foreign industrial and commercial companies have chosen Russian offices of the top Western firms to serve their market research needs. Eventually, Western competition forced the leading Russian researchers (COMCON, ROMIR, Business Analytica, Magram, Validate, etc.) to reform their business practices in order to achieve "convergence" with their Western counterparts in terms of market research quality standards, while maintaining a price advantage, which enabled them to capture a greater share of sector's market.
  • Western education. According to conservative estimates, over 5,000 marketing specialists and managers with MBAs from leading Western marketing schools have returned to Russia over the last 10 years.
Today, Russian marketing and market research specialists have completely incorporated Western experience into their everyday work. New methods that appear abroad are adopted almost immediately and the standards of research findings submission (reports, presentations, etc.) are now identical to Western ones, resulting in a fully-formed modern market for custom-tailored research in Russia.

Russia in the Global Market
Five countries account for two-thirds of global market research expenditures: the United States ($7.7 billion), Great Britain ($2.4 billion), France ($2.2 billion), Germany ($2.1 billion), and Japan ($1.35 billion). Russia currently ranks 20th in terms of the global market share (as reported by the European Society for Opinion and Marketing Research [ESOMAR]), but is a close second after Turkey in terms of market growth rate. The Russian market research sector has been expanding by 15 percent annually in 2005-6, according to the Guild of Experts in Marketing, and by 30 percent in 2005 and 20 percent in 2006, according to the ESOMAR estimates.

The growth trend in Russia's market research sector has been truly impressive over the last six years (see Table 1). Moreover, the sector has a substantial growth potential. Statistically, Russia accounts for roughly 2 percent of the global population, 2.5 percent of global GDP, almost 4 percent of total car sales, but just 0.8 percent of the global market research share. Considering these figures, as well as the current volume of the global market research industry (over $23 billion annually), the Russian market research sector has a growth potential of 1-3 percent or at least $500 million a year. Given the "normal" average labor costs of $20-25 per person per year, annual market research expenditures in the Russian Federation are likely to reach $2.8-3.5 billion.

Table 1

Table 1

Source: Guild of Experts in Marketing.

Furthermore, given an average annual growth rate of 15-20 percent, the active development phase of the market research sector is expected to end approximately in 2020. However, the sector's market value may double in the next three to four years, especially since the share of market research in the Russian marketing industry is still only 2 percent (see Table 2). Some experts point to a decline in the sector's market share in 2006 compared to 2005, which signifies a temporary stagnation in the research segment.

Table2

                                        Table 2

Source: Guild of Experts in Marketing.

Experts offer three principal explanations for this temporary stagnation. First, in many sectors of the economy the market is saturated to such an extent that the risks of new marketing projects are minimal, meaning less research is necessary. For example, if a developer gains access to a parcel of land in a densely populated area near a highway with heavy traffic, it is unlikely to carry out market research. The developer will simply build an "average" shopping and recreational center and will see profits for at least the next five years.

Second, many companies conduct market research using internal resources. According to a survey by WorkLine Research in 2006, about 90 percent of large companies in St. Petersburg carry out at least part of their market research in-house. As a rule, these studies are uncomplicated and do not require special knowledge or significant marketing experience. Fifty one percent of these in-house studies analyze prices and merchandize selection, 25 percent compile potential client or competitor databases. Some large and medium-size firms, however, dare to independently conduct studies using methods that are considered in the realm of market research specialists, such as focus groups —13 percent, in-depth interviews — 11 percent and "mystery shopping" — 9 percent.

Finally, many Russian business owners and top-managers still share the belief that market research is an inefficient marketing investment. Compared to other features of a modern competitive market (such as product quality, selection, pricing, distribution, promotion, etc.), managers tend to view market research as the least important. Some manufacturers still exhibit serious concerns about the quality of their products and understand the importance of advertising and branding, but fail to even consider market research.

Components of Market Research
Fast-moving consumer goods manufacturers (FMCG) account for at least 45 percent of market research firms' clients. FMCG companies were and are key customers in the Russian market - these companies order the most expensive market research products, such as fieldwork projects, covering regions or Russia as a whole. Corporate clientele-oriented companies (the B2B sector) still account for about 21 percent of all custom-tailored research expenditures (approximately $40 million). The share of research ordered by B2B customers has shown a significant growth over the last five years — from 15 percent in 2001 up to 45 percent in 2006 — as companies operating in the B2В sector, especially manufacturers, joined in the "marketing wars" much later than the companies operating in B2C markets and are only now starting to devote resources to this effort. Demand for industry-specific research has led to the creation of specialized firms dealing with only B2B market research. In 2000, no such firms existed, but today, there are more than 20.

The growth rates of industry and sector research are substantially higher than that of the B2C market, with 35 percent growth per year over the last several years. Market research experts forecast that in a few years research for the B2B sector will account for at least 40 percent of the overall market research sales.

The other rapidly developing segment is the so called "ready-made" research report market. Such research reports can cost from $400 up to $4,000 (the average price is $800), and are selling like hot cakes. At present, these products quite often turn out to be of low quality. Marketing surveys and interviews with marketing specialists indicate a 70 percent dissatisfaction rate on the part of companies that bought a "ready-made" marketing report. As a result, this research product accounts for less than two percent of total market research sales. Nevertheless, if the quality improves, the market value of the ready-made products will increase as well, and, according to some forecasts, can reach over $10 million by 2010.

Of course, the main reason for the market research sales increase - both custom-tailored and ready-made - is the positive dynamic of consumer activity in Russia. Living standards in the country are increasing rapidly and manufacturers are steadily launching new products and services, which leads to additional market research expenditures - first on B2C markets and then on the B2B markets connected to them.

Foreign companies that are interested in the Russian market but as yet do not have representative offices in the country are also driving the rapid increase in market research. The value of orders placed by transnational clients comprises nearly 60 percent of total market research expenditures in Russia, while domestic players provide for the remaining 40 percent. In Turkey, for instance, the opposite is true — 20 and 80 percent respectively.

Market Growth
From 2002 to 2005, the number of companies that conducted market research in Russia steadily declined - mainly due to the failure of many of the small regional companies that could not secure clients. However, as the market research segment continues to grow, the number of market entrants has begun to increase (see Table 3).

Table 3

                                 Image

Source: Guild of Experts in Marketing.

Today, second-tier Western companies are actively entering the Russian market: some of them are opening offices, others are buying operators or just establishing partner relations on franchising terms. New Russian research companies are often founded by former employees of one of the existing operators. For example, Ipsos alumni created MarketSense and the experts from IMCA opened such agencies as Bojole and The Russian Field & Tab Company.

Ninety percent of the well-known large and medium-sized research companies are located in Moscow. The annual revenue of the largest research companies exceeds $4 million a year. All top foreign brands are present on the Russian market today. The largest Russian research companies are forming partner franchisee networks that are working under a single brand in the regions. For instance, ROMTR-Monitoring, VCIOM and COMCON have 24, 12 and 9 branches respectively.

Current Pricing Trends
Research pricing in Russia is substantially lower than in the EU or the United States. The prices for market research vary considerably depending on the research methods (desk research is usually 2-3 times cheaper than field research), number of field research participants (respondents) and their accessibility, research geography and time-frame, the proficiency of a research company's senior experts, and its brand awareness, etc. However, approximate rates do exist. For example, a city survey of 600-800 easy-accessible respondents with a questionnaire including 40-50 questions costs §7,000-10,000 for a Moscow company with high brand awareness and about $5,000 for a regional company. One standard focus group will cost about $1,200-1,600. Sector experts forecast that soon Russian prices will be in equilibrium with those of other countries - by the year 2012 market research in Russia will be as expensive as in the European Union.

 
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