Unique products seldom appear on the Russian consumer market because of Russian managers’ limited creativity and poor knowledge of demand.

Lilia Moskalenko

In the West, companies occupying specific market niches account for 15-20% of the total consumer market. In Russia, their share is less than 1%, although our consumer market, experts argue, is extremely close to saturation at present. Creating unique products is one of the most efficient ways to compete successfully and keep profits high in a saturated market.
Until 2002, the companies on the consumer market didn’t bother to think about this issue. Turnovers had been growing by 50-100% on a surge of the market demand. The situation changed early last year. There is currently a clear slowdown in consumer market growth. According to KOMKON, growth rates have declined 1.5-2 times on average over the last two years and don’t exceed 10-12% a year at present. In some markets – candy and baked goods, beer, footwear and pasta– they are just 5-8%. To compete in such circumstances, it’s not enough already to do the same old thing, such as product design improvement or technology development. New strategic decisions based on a unique idea are required. Only ideas will open doors to new segments without competitors, and, hence, with higher profits.
Demand for unique products has already been formed in Russia. As their incomes grow, consumers want increasingly to satisfy individual demands. Unique demand-oriented companies are seeing their revenues increase just like in the old good days, by 50-100% a year, while growth rates for the consumer market as a whole have decreased by half. Primarily international companies – Glenfield, Columbia, Ecco and Danone –work this way. They have extensive experience in creating a unique supply in a variety of countries and clearly defined positioning methods.
The Russian companies are also aware of the unique product concept. It initially emerged in the retail business, well-known for responding to changes in market conditions the fastest. In the mid-1990s, “unique” retailers appeared in Russia: Kenguru, or Kangaroo (a chain of clothing shops for children and mothers-to-be); Tri Tolstyaka, or Three Fat Guys (a chain of clothing shops for larger sizes) and Doctor Outdoor (footwear shops for “progressive” youth).
In the late 90s, Russian producers, too, started creating unique products. For the most part, they emerged in markets where competition is highest, in particular the food market – for example, Tinkoff (beer) or A.Korkunov (candy). A bit later, unique products appeared in other markets as well, such as textiles (Chaikovsky Tekstil), books (the “Ironic Detective Story” series from Fantom-press), or apparel (manufacturers of special uniforms and gear for Orthodox believers). Nevertheless, there are only about a dozen Russian companies with unique products. The majority of Russian players are still targeting a “fuzzy” general consumer, though they realize that with only existing demand, they won’t go too far.

According to experts, for a unique product to bring a market advantage and increase profits, it has to pass three stages: creating an innovative idea that opens a promising market niche, applying original technologies, and unusual marketing.
The first and the most important stage is to come up with a unique idea. Thanks to a unique idea, little-known, local companies like Glenfield, Columbia, Ecco, Nike, and Adidas turned into global players 30-40 years ago. “A unique idea made for Ecco’s success in Russia, because it determined a new direction in the world footwear market where quality is a decisive factor,” says Anatoli Yaroshenko, Director of Ecco Retail Sales in Russia. The idea was a revolutionary one: at that time, design was considered the main thing in footwear. No one thought about comfort. In order to ensure absolute comfort, Ecco began to design shoes in strict compliance with the foot’s anatomy. Mr. Tusbi had intuitively “hit the trend” and sales of Ecco footwear began to increase at unprecedented rates.
In the 1920s, a unique idea came to a Spanish businessman Isaac Carasso, an owner of a yogurt company. He learned that Russian scientist Ilya Mechnikov had discovered bacteria capable of curing bacterial overgrowth and intestinal infections. Far-sighted Carasso decided to mix yogurt cultures with healing bacteria. In Spain, where intestinal infections were rampant at the time, the medicinal yogurt became popular immediately.
As a rule, the first stage is where Russian companies get stuck, since it requires creative thinking on the part of managers. The difficulty lies in their ability to identify individual consumer needs or specific features to base their future brand on. The Russian companies that have succeeded in creating their own individual image (A. Korkunov, Tinkoff, Russian Chocolate, and others) had managers at the helm who were capable of thinking originally.

In Russia, ideas for unique positioning can still be found by simply carrying out competent market analysis and identifying still unoccupied niches. “When we conducted market research five years ago, we found that aerated chocolate was practically unavailable in the market,” recounts Tatiana Sivakova, PR Manager at Russian Chocolate. “Russian factories were producing it in very small, basically non-commercial amounts. Our survey of consumers showed that this type of chocolate was in greatest demand.”
Another example is Chaikovsky Tekstil. “We analyzed the situation in the textile market and came to realize that in Russia, the potential demand for high-quality professional gear is very high. Large Russian companies like Gazprom and LUKoil were actively expanding. Medium-sized business – restaurants and service providers – were growing as well,” recounts Olga Khrenova, Head of the Marketing Department at Chaikovsky Textil. “We decided to make professional gear out of our fabrics.”
Some companies found their segments intuitively rather than via thorough research. “Our task was to make a product of as high quality as possible. We didn’t think we would be founders of the `gift chocolate’ market,” says Ivan Alipov, Deputy General Director responsible for Corporate Development at the A.Korkunov Company.

The second step is to use unique technologies. According to Euromonitoring, international companies with unique products spend about a quarter of their budget on innovation. For example, Ecco invests millions of dollars every year in developing materials for their shoes.
Among Russian companies, Andrei Korkunov, owner of the A. Korkunov Company, approached the production process most thoroughly. In interviews, he confessed that imported candies never tasted right to him. He found them all too sweet. Searching for the appropriate taste, Korkunov had familiarized himself over several years with various chocolate recipes throughout Europe. Based on this research, Korkunov invented his own recipe for chocolate fundamentally different from those at Russian factories.
However, original technology remains the weak link for most domestic producers. Many experts state that the quality of some products in the “unique” category simply isn’t high enough.

Most Western companies, which have created unique products, have also mastered the slogan invented by Gertruda Boyle, owner of Columbia Sportswear: a unique product requires an uncommon approach in marketing. To this end, the company thought out an unprecedented advertising campaign, where top executives Gertruda Boyle and her son Tim acted as the main characters. Comical situations and expressive slogans (almost always with sex as an underlying basis) amused young, active customers. Soon Columbia Sportswear became a leader in the market for sports and active leisure gear and footwear in the US and later across the globe.
There are very few examples of a bright marketing strategy among Russian manufacturers and good marketing is often borrowed from foreign counterparts.
Domestic manufacturers are far from showering Russian consumers with “unique” ads. Their marketing strategies are still at the initial stages of development. Besides, there is no competition whatsoever in the unique niches and seemingly no incentive to actively promote oneself on the market.

Many Russian companies refuse to create unique products at all, since they are not confident in steady demand. They say the consumer group is too limited. According to experts, the unique market has strong potential thanks to the conspicuously expanding middle class, the main consumers of such products. According to those producers who have ventured to make “unique” products, demand is at least three times greater than supply, and they are now busy expanding their production capacity and their business.
It turns out that middle-class Russians are especially loyal to Russian producers, and if the market offers enough quality products to suit their needs, they will go Russian.
Despite the good outlook for unique positioning, Russian producers and retailers have a cool attitude towards this idea and behave passively in the market. So, middle-class Russians will most likely heed the call of foreign producers, as they increase their activity with each year in specific segments of the Russian consumer market.

More in Russian >> www.expert.ru