Online retailing in Russia.

Social media marketing

Methodology:

In October 2009, at the request of PricewaterhouseCoopers an online survey of over two thousand Internet users
was carried out by Romir agency in cities of over 1 million people (Moscow, St Petersburg, Ekaterinburg, Kazan,
Nizhny Novgorod, Novosibirsk, Omsk, Rostov-on-Don, Samara, Ufa).

Almost 40% of respondents are aged between 26 and 35. Respondents with a monthly income over RUB 25,000
account for 30%.

Based on this survey, we performed an analysis of the following categories among different age and social groups:
• E-commerce penetration among Internet users
• Key advantages of online retailing
• Factors inhibiting e-commerce development
• Audience attitudes toward various types of Internet advertising
• User behaviour on the Internet
• Influence of others’ opinions and online advertising on consumers
• Users’ loyalty to social media as a source of information about products and services

Acknowledgements:
We would like to thank companies’ representatives who answered our questions for their contribution to the survey,
for taking the time to share their viewpoints with our team.

About PricewaterhouseCoopers:
PricewaterhouseCoopers (www.pwc.ru) provides industry-focused assurance, tax and advisory services to build
public trust and enhance value for our clients and their stakeholders. More than 163,000 people in 151 countries
across our network share their thinking, experience and solutions to develop fresh perspectives and practical advice.
PricewaterhouseCoopers first appeared in Russia in 1913 and re-established its presence here in 1989. Since
then, PricewaterhouseCoopers has grown to become the largest professional services provider in Russia.
According to the annual rating prepared by independent rating agency Expert RA, published in Expert magazine,
PricewaterhouseCoopers is the leader in audit and consulting services in Russia by revenue (Expert, 2000-2009).
Introduction

Globally, online retailing is a growing industry.
Increasing penetration of broadband internet connectivity
in emerging markets, such as the BRIC (Brazil, Russia,
India and China) countries is opening up completely new
markets for retailers. The internet also provides a shorter
learning curve for emerging market consumers when
it comes to researching products. Consumers can
quickly research a potential product through the internet
and identify if the merchandise that local retailers
are offering is of inferior quality. The internet
and online retail can be a blessing and a curse.
The online retailing market in Russia is less mature
than those in Western Europe or North America.
In order to understand and provide some clarity
on this over RUR 100 billion per year market,
PricewaterhouseCoopers (PwC) performed a survey
of more than 2,000 internet users in major cities across
Russia. The survey provided some very interesting
results.
• 80% of respondents to our survey have experience
of purchasing online;
• Cash on delivery is still a very popular payment
method although e-payment is growing
in popularity;
• Lack of confidence in the retailer and the delivery
services is a major negative that holds back
a number of potential online shoppers;
• Social media is playing a greater part in the buying
decision of internet users. Members of a social
network place greater significance in the opinion
of other members about products and companies
than they do on advertising.
It is increasingly important for major companies
to adopt an online strategy. This does not mean
that they need to have an online retail site.
Companies should be aware of the internet as a tool
for communication with customers. Social networks can
be helpful in developing a brand or can destroy a brand
in a very short time period. Investing in communication
with your customers is an important part of the overall
strategy. There are a number of recent instances where
global brands have experienced significant negative
press as a result of not listening to customer feedback
and not properly managing their communication
channels. The internet is an overwhelming source
of data and noise. Retail companies should include
in their strategy ways to filter information out
of the internet and manage the communication process.
Traditional “bricks and mortar” retailers have
the advantage when it comes to brand recognition
on the internet. But a lack of attention to this expanding
distribution and communication channel could have
a negative impact on the future growth potential
of existing businesses.

Dale Clark
Partner
Retail & Consumer Industry Leader
PricewaterhouseCoopers in Russia

PricewaterhouseCoopers 3
 Changing consumer
behaviour

4 Online retailing in Russia. Social media marketing

There is no doubt that the global economic recession Reduced consumer spending affected all retail
has radically changed consumers’ approach to their and consumer market players to one extent or another.
cost planning, savings, borrowings and long-term Retail turnover in 2009 dropped 5.5% year on year;
investments. Experience from previous recessions such a slump had not occurred since 2000.
shows that it was sustained consumer demand
in particular, that pulls the economy out of a depression. Despite a growing consumer confidence index in the
third and fourth quarters of 2009 according to Rosstat data,
In 2009, decreasing real disposable income in Russia the index weight still remains negative. The survey results
triggered a shift in consumer behaviour. Without access also show Russian consumers’ willingness to increase
to credit facilities, people have to consume less and save their spending in the next 12 months remains low.
more. Unemployment, higher prices for imported
materials and the slow labour market recovery are key
problems. In early autumn 2008, the Russian Federal
State Statistics Service (Rosstat) reported 4.7m
Most Russian consumers’
unemployed, by the end of autumn 2009, 6.1m people, willingness to increase
accounting for 8.1% of the workforce, had lost their jobs.
Over the course of 2008, the volume of bank loans spending in 2010 remains low
issued increased to reach RUB 4 trillion as at 1 January
2009, by 1 September 2009, this amount had decreased
by 8.9%, to RUB 3.6 trillion.
In 2009, even those people who were not affected
by the crisis reduced their consumption. Amid fears
of losing their jobs or negative changes in their personal
finances and overall economic uncertainty, many
consumers not only decided to forego various
purchases, but changed their preferences in favour
of cheaper products.

PricewaterhouseCoopers 5
 1 How do you expect your spending will change in the next 12 months, %

Category Stay the same Decrease Increase

Groceries 65 7 26
Cosmetics and beauty care 59 14 23
Books, periodicals, cd/dvd 57 19 20
Consumer electronics 48 25 21
Computer hardware/software 47 22 23
Apparel & footwear 46 13 39
Entertainment (cinema, theatre, concerts, restaurants) 43 33 17
Home improvements 34 20 42
Travel 30 38 18

Based on the survey findings, most consumers consider
travel and leisure to be a discretionary spend and an area
in which to economise during the coming year. Thirty eight
per cent of respondents are planning to reduce their travel
expenses. It turned out that consumers are most uncertain
about estimating their future holiday costs. The “Travel”
category had the highest rate of respondents having
difficulties making a decision on their spending plans –
14% no answer.
Thirty-three per cent of respondents intend to spend less
on out-of-home entertainment such as cinema, theatre,
concerts and restaurants. Among all age groups,
respondents aged between 36 and 45 intend to cut their
entertainment expenses most, response rate amounted
42%. And only 10% of those respondents to increase
their spending on out-of-home entertainment in 2010.
The percentage of Omsk respondents willing to save
on entertainment is 13 points above average. In Kazan
and Ufa, the percentage of respondents intending
to spend more is 12 and 9 percentage points above
average, respectively.
These findings are similar to trends seen in the US,
where consumers have been foregoing paid services,
preferring to cook at home, make renovations themselves
and spend holidays in their home town since the crisis
broke out.
A large share of retail sales in the consumer electronics
market were financed by consumer credit. Shrinking real
incomes and tougher lending policies by banks, created
a perfect storm in the consumer electronics sector.
According to estimates by retailers and research
companies, in 2009 the market contracted by at least 30%
in value. A quarter of respondents expect a further
decrease in spending on consumer electronics during
the next year. Almost half of the respondents will keep
their spending at the same level.
In spite of being considered recession-proof, the grocery
sector could not have been insulated from the economic
slowdown. According to Rosstat, food retail turnover
showed a negative trend y-o-y in 2009. According
to the survey, 65% of respondents intend to keep food
spending at the same level in 2010. The fact that a quarter

6 Online retailing in Russia. Social media marketing

of respondents intend to spend more may be considered Twenty-three per cent of respondents intend to spend
a sign of improvement in the market. Recently, some more on computers and software (men: 30%, women:
major food retailers in Russia published revenue results 17%).
that showed a 5-10% increase in rouble revenues during
the 4th quarter of 2009. However, in US Dollar terms, Of all age groups, respondents aged 18 to 25 are planning
this is still about a 15-20% decline in revenue. the biggest increases in spending. In particular, they
are willing to spend greater than other survey participants
Apart from food, over half of the respondents were ready on such product categories as:
to maintain the same level of spending on such product
• Cosmetics and perfumes;
categories as cosmetics and perfumes (59%) and books,
periodicals, audio and video discs (57%). • Books, periodicals, and audio and video disks;
• Apparel and footwear;
In 2009, the demand for DIY goods dropped significantly.
However, despite the crisis, the largest global construction • Entertainment (cinema, theatres, concerts,
material manufacturers are investing in the creation restaurants).
of production facilities in Russia. Several leading DIY
retail chains declared intentions to expand their business
in 2010. Our survey showed that 42% of respondents
are willing to increase home improvement expenses
in the next 12 months. In Kazan the percentage
of respondents intending to invest in home improvement
is 14 points above average.
Thirty-nine per cent of respondents want to increase
spending on apparel and footwear. In Chelyabinsk
and Ekaterinburg, the results were 14 and 10 points
above average, respectively. In the 36 to 45 age group,
56% of respondents are going to maintain the same level
of spending; only 28% of that group want to increase
their expenditure.

PricewaterhouseCoopers 7
 Online retailing

8 Online retailing in Russia. Social media marketing

The recession triggered the growth of online retailing
worldwide. Traditional retail and consumer business
is suffering at a time of unprecedented economic
uncertainty. On the other hand, online divisions of retail
chains are attracting the attention of both consumers
looking for a better deal and managers seeking to cut
costs.
E-shop maintenance costs are much lower than those
of a traditional retail outlet, as a virtual store saves labor
and rental of premises costs. Advantages of the web
as a distribution channel have become obvious
to large Russian retail chains as well. In the past year,
electronics retail chains have focused on expanding
their online retail segment.
Advantages of retail chains online
divisions
Traditional consumer electronics stores report
a significant decrease in sales. According to various
estimates, the market shrank by 25% to 40% in 2009.
However, revenues of online divisions of the largest retail
chains grew by 40% to 80%. Having reduced their costs,
they had an opportunity to set more attractive prices
and thus increase sales. Even retail chains which
position themselves as discounters are unable
to compete on prices with e-shops. However, online
trade generated no more than 2% to 3% of traditional
retailers’ total revenue as of 2009. As for now, these
projects are more for the sake of boosting a retailer’s
image, being additional sales channel and reflecting
retail chains’ desire to avoid missing opportunities
in the developing and promising online market.
Consumers have always sought the best deals.
Price competition is growing, and a 15% to 35%
price difference is a weighty argument. This results
in consumers shifting from large retailers’ online arms
to smaller, purely virtual e-shops. As the recession
continues, it may be expected that consumers, in search
of better deals, will turn to small, specialised e-shops
more often.
Nevertheless, it is clear that the online arms of large
retailers will retain leadership in the online retailing
market in the future. And this is not only thanks
to the streamlined business processes and well-
developed logistics and order processing systems
available at traditional stores. Certain functions may
be outsourced, but to compete successfully an e-shop
needs to have its own warehouse, call-centre, courier
service and customer pick-up points, which requires
significant investment. Moreover, developed
infrastructure in regions is the benefit of largest
traditional retail chains.
An undeniable advantage to any online arm of a large
retailer is a well-known brand. Retail chains’ reputation
in the regions, which has been growing for years,
guarantees good quality and service and the possibility
to return or exchange goods, which is especially
important for online customers. Companies need
to focus on educating consumers and mass promotion
of their services to do away with widespread negative
stereotypes about online retailing.
Another advantage of large retailers’ online stores
is the opportunity to buy goods from the same
product category in one place, rather than expend
time in searching.
PricewaterhouseCoopers 9
 Features of Russian online retail
market
The survey findings confirm that Russian consumers
already appreciate the advantages of online retailing,
confirmed by the fact that 80% of respondents have
made at least one purchase online. Of respondents
earning over RUB 25 thousand a month, 90% have
made an online purchase.
2 Have you ever made a purchase over the internet, %
No; 20
Yes; 80
Moscow’s online retail market remains the largest
in the country. Online retail penetration in Moscow and
St Petersburg has reached 87% and 79%, respectively.
Our survey in Novosibirsk, Omsk, Rostov-on-Don and
* “Internet Development in Russia’s Regions”, April 2009
10 Online retailing in Russia. Social media marketing
Samara showed that the percentage of consumers
with online purchase experience is below average level
by 8 to 17 percentage points, which is broadly explained
by the different levels of penetration and Internet
accessibility in the capital and the regions. According
to research conducted by Yandex*, the prevailing
average Internet speed in 21 large Russian cities
(excluding Moscow and St Petersburg) is around
410 Kbit/sec, while in Moscow and St Petersburg
it approximates 7,000 Kbit/sec. The Internet is cheaper
in Moscow and St Petersburg than in other large
Russian cities by 93% and 91%, respectively.
Seventy-four per cent of respondents who have made
an online purchase, have bought something online
in the past three months.
Have you purchased over the internet in the past 3
3
months, %
No; 26
Yes; 74
In the US and Western Europe, the percentage of those
who have online purchase experience exceeds 90%, Books and consumer
but e-commerce is a natural continuation of catalogue
retailing in these markets.
electronics are the most
In the West, remote retailing has been developing
popular types of goods
since the late 1940s. Several generations have grown for online shopping
up on mail orders. The logistics of mail order processing
and delivery had already been streamlined; as new
technologies appeared, the principles of catalogue
retailing were just transferred to the Internet. Tax benefits
are another explanation for the rapid growth of online
retailing in the US, as e-sales between a seller
and a buyer in different states were not taxed.

4 What items have you purchased over the internet, %

Books 46
Consumer electronics 40
Computer hardware/software 35
Cosmetics 31
Home improvements 25
Tours/hotel/airline tickets 24
Event tickets 23
Apparel & footware 23
Baby products, toys 23
Music 20
Video DVD’s 20
Groceries 15
Medicines 15
Sporting goods 10
Other 10

0 10 20 30 40

PricewaterhouseCoopers 11
 According to the survey, respondents buy more books Most food retailers still benefit from consumers coming
than anything else online, which is in line with global to their traditional stores to shop because it increases
trends. (Only in the US are books not the most popular the chance of impulse buying. However, since mid 2009,
category of online trade. More than anything else, in addition to Seventh Continent, another Moscow
American consumers buy apparel and footwear online.) supermarket chain, Azbuka Vkusa, has begun actively
developing its online food retailing. The only player
It is harder to make a mistake, choosing a book. They
for whom online food retailing is a core business
have less technical characteristics, and no risk to buy
is Utkonos, which receives over 70% of all orders
a book of the wrong size or colour. Book stores
online. Based on the survey findings, the percentage
are among the oldest e-commerce projects in the B2C
of respondents who order food online in Moscow
(business-to-customers) market in Russia. This fact
is 10% above average.
and significant volume of investments in IT and logistics
allowed book stores to form loyal audience.
Talking of most successful Russian e-commerce
projects we should bear in mind several years lag Among the respondents
in Russian online retail market development comparing
to mature markets. Online book store OZON.ru opened
earning over RUB 25
in 1998 and was among the first wide-scale e-commerce thousand a month, the share
projects in the B2C segment in Russia. While
in the US in 1999, Amazon.com had already utilized of those who buy goods
Web 2.0 technologies, e.g. introduced a “wish list”
function, enabling customers to put together public lists
in each category online is on
of purchases they need to make or things they want. average 5 percentage points
Other categories which respondents often buy online
include consumer electronics (40%), computer hardware
higher than the general level
and software (35%), and cosmetics (31%).

12 Online retailing in Russia. Social media marketing

 5 What method of payment for online retailing do you prefer, %

Cash
on delivery; 59
Online money
transfer; 49

Credit/debit card; 20

Postal transfer; 16

Bank transfer; 11

Other; 2

0 10 20 30 40 50 60

In 2008, over 60% of Internet users globally preferred Weaknesses and benefits of online
to pay for their purchases using credit/debit cards,
and every fourth person used e-payment systems. shopping
According to the survey, 59% of respondents in Russia Russian consumers appreciated the convenience
pay cash to a courier upon delivery. In Moscow, this and benefits of online shopping. These include round-the-
number reaches 74%. Only 20% of respondents pay clock access, avoidance of crowds, a wide product range
by credit/debit card, as compared to 49% of those, and the ability to use shopping comparison systems.
who use e-payment systems, which can be explained
by insufficient credit/debit card penetration in the
regions. In the meantime due to regulatory problems
and the opaqueness of the e-payment market, Saving time and home
the largest consumer electronics chains do not accept
virtual money as means of payment in the regions.
delivery are generally
In all the cities took part in survey, except for Moscow, acknowledged benefits
electronic money and, to a lesser degree, mail transfers
are popular. This is concerned with inability to pay of online shopping
a courier upon delivery (share of respondents who pay
in cash is 15 to 40 percentage points below Moscow
level).

PricewaterhouseCoopers 13
 6 Which of the following for you are the benefits associated with making purchases online, %

Saving time 74

Home-delivery service 65

Avoiding offline shops sales staff and crowds 61

Shopping anytime/24 hours 58

Find something not available in offline shops 55

Accessing detailed product information 53

Getting a lower price 52

Find something not available locally 43

Usability benchmarking brands/products 42

Reading other consumers reviews 32

Remaining anonymous 22

Other 2

0 10 20 30 40 50 60 70

In cities other than Moscow and St Petersburg, most

respondents (50% to 70%) considered the opportunity The lack of a touch
to buy products otherwise unavailable in their region
as one of the key advantages of online retailing.
and feel environment, return
The overall survey findings showed that three quarters policy problems and lack
of users admitted that the key advantage was saving
time, while 65% believed that it was home delivery. of confidence on condition
Slightly over half of respondents recognised economic of goods on delivery are
benefit as another key advantage to online shopping.
On average, Russian consumers have become much
the major drawbacks
more selective. Even when looking for better deals, of online buying
they are ready to pay for quality and a high level
of service. In the US and Western Europe, with more
developed e-commerce markets and higher level of price In Europe and the US, buyers are more concerned
competition between e-shops, additional services with their personal and financial data security when
and free delivery (besides lower prices) have become purchasing online. For foreign consumers, this factor
the key advantages in the fight for consumers during is even more important than the need to see something
the recession. before buying it and the problem of delivery.

14 Online retailing in Russia. Social media marketing

 7 Which of the following for you are the problems associated with making purchases online, %

Prefer to examine (e.g. touch or feel) items in person 59

I don’t trust that the products will be delivered in a good condition 58

Difficult to return 50
It takes too long to receive goods 36
Delivery costs are too high 31

Low security level of the site 21

Low usability of website 20
Insufficient description of products 19
I don’t want to share my personal financial information over the Internet 18
My country/city not in the list 18
Not enough wide range of goods 11
The stores I prefer to shop from do not offer online purchasing 11
I don’t have a credit or debit card 9
It’s too complicated 5
Other 3

0 10 20 30 40 50 60

In Russia, this problem has yet to manifest itself,
and it is likely that the Russian e-commerce market
will be able to avoid it. By the time Internet penetration,
user technical literacy and retail chain infrastructure
development reach the level required for large-scale
online retail; Russian consumers’ security will be better
ensured both technically and legally. Some steps
have been made towards that goal, including current
law under debate on personal data protection
and e-payment market regulation.
Based on the survey findings, the key constraint
for Russian users is the need to see and feel
an item before purchasing it. This puts almost 60%
of respondents off online shopping.
A lack of focus on winning customers’ trust
and improving logistics is threatening e-shops
with irreversible loss of customers and potential
clients. Uncertainty about the condition of goods
delivered and problems with returns were named
by more than half of respondents as reasons
preventing them from shopping online. Thirty-six percent
of respondents are concerned that they would have
to wait too long for delivery. In the regions, this result
is 8 to 17 percentage points above the average.
The share of respondents who consider delivery
charges to be excessive, exceeded 30%.
Most respondents are satisfied with site navigation
systems and the completeness of product descriptions
at this stage; only 20% of respondents named them
as disincentives. However, even large retail chains
are not always able to avoid delays in updating lists
of goods available at the warehouse and status of orders/
deliveries, due to IT underinvestment. This problem
is especially vital for companies delivering goods
from their store rather than from a general warehouse.
Often goods listed in the catalogue turn out to be out
of stock in the store.

PricewaterhouseCoopers 15
 8 Which type of ordering you’d prefer, % As for those consumers who have never made
a purchase online, the main deterrent is that they
80
do not trust that products will be delivered in good
60 condition: 72% of respondents, versus 58%
of respondents with past experience of purchasing
40 84
online. In addition, among consumers who have never
20 made purchases online the share of respondents
16 that believe the online purchase process is too
0 complicated is 8 percentage points greater than
Internet form Phone call in the second category. The same proportion goes
for those respondents who mentioned lack
of a credit/debit card as a deterrent.
Only 5% of respondents find online purchasing
too complicated from a technical point of view. According
to the survey results, having already chosen goods
in an online store, most people prefer an internet order
form. Only in Moscow nearly a quarter of respondents
prefer to call an online store operator. In 9 out of 11 cities
with a population of over 1 million people, the proportion
of respondents relying on internet order forms is in
excess of 90%, which can generally be explained
by an underdeveloped call-centre system (except for
major retail chains).

Which of the following for you are the problems associated with making purchases online, %
9
(From the perspective of consumers with no online shopping inexperience)

I don’t trust that the products will be delivered in a good condition 72

Prefer to examine (e.g. touch or feel) items in person 69

Difficult to return 46

It takes too long to receive goods 32

Delivery costs are too high 27

I don’t want to share my personal financial information over the Internet 25

Low security level of the site 20

Insufficient description of products 19

I don’t have a credit or debit card 17

It’s too complicated 13

My country/city not in the list 11

The stores I prefer to shop from do not offer online purchasing 7

Not enough wide range of goods 7

Low usability of website 4
Other 4

0 10 20 30 40 50 60 70

16 Online retailing in Russia. Social media marketing

Winning consumer confidence
in the Internet
When deciding on an online purchase, ever increasing
numbers of Russian consumers are tapping internet
resources in search of information about products
and manufacturers.
But for many of them, experience with electronic
commerce ends here: having chosen a specific model,
- How often do consumers visit the Yandex.Market
service?
According to TNS data for January 2010, Yandex.Market
is visited by 6.4 million Russian users every month. `
Of this, Moscow accounts for approximately 2 million
visitors, and St Petersburg accounts for just over
600 thousand. During the past year, Yandex.Market’s
traffic has risen by 42%.
- What is the most frequently used approach to
benchmarking goods? Is it by price, brand or
consumer reviews?
Certainly, each of these parameters is important
for the buyer. However, in most cases it’s clear that
the consumers would prefer to buy goods from
a specific manufacturer. They would further be looking
for a suitable product model, for which purpose they
can compare goods, read reviews. Having chosen
a specific product, the consumer can find a suitable
offer by comparing stores in terms of prices, rating
and feedback. The functionality of monitoring price
fluctuations enables the user to decide whether
it is reasonable to buy a product now or give it a wait.
they prefer to make the purchase in a traditional bricks-
and-mortar store. In light of growing high-speed internet
penetration and accessibility in the regions, growing
technical proficiency of users and growing standards
of living and accessibility of PCs, gaining consumer trust
will become one of the key challenges for the successful
development of e-stores. The process of carrying
existing reputations from the traditional to the internet
business will take a few years even for the largest retail
chains.
However, as yet, very few Yandex.Market visitors take
advantage of this functionality.
- Could you provide any statistics regarding users’
switching over to other stores that they like more?
Due to a general decline in the purchasing power
and activity of consumers, in 2009, we observed
a decrease on the Yandex.Market home page of clicks
on links to other online stores: Yandex.Market website
traffic increased 42%, while the number of people
clicking on external links to other online stores increased
by only 30%. On average, every fourth Yandex.Market
visitor switches over to another store’s website.
- How fast is the number of stores registered
with Yandex.Market growing?
At the beginning of 2009, the growth of new stores
slowed down considerably, but it resumed in March
and April. As a result, 2009 witnessed a 40% growth
in the number of Russian stores on Yandex.Market
as compared to 2008. As of today, Yandex.Market
hosts approximately 4,000 Russian stores.
Aleksey Avdey, Head of Yandex.Market service
PricewaterhouseCoopers 17
 Social media
marketing

18 Online retailing in Russia. Social media marketing

Given the current economic uncertainty, consumers When choosing a store for online shopping, 59%
are looking for the best possible deals, and the time taken of Russians polled rely on personal recommendations
to make a purchase decision has increased significantly. from people they know; 42% trusted consumer opinions
The Internet has become the world’s best research tool, posted online. Search engine results affect the store choice
and consumers hardly buy anything anymore without first for 45% of respondents. In the 36 to 55 age group, search
reviewing products and companies online. Using search engine results are considered to be more reliable than
engines, shopping comparison systems or social networks, personal recommendations. In addition, the popularity
they consult product reviews or consumer ratings online of shopping comparison systems in this age group
before making a purchase. Another recent shift is that is 7 percentage points above average.
consumers are doing more and more research for
For respondents with income over RUB 25 thousand
commodity products. Statistics show the same number
per month, online recommendations from other consumers
of search engine queries for big-ticket items such
are second in terms of importance following personal
as cars and real estate as for pet food and shampoo.
recommendations.
According to the survey results, Russian consumers’
Internet as the main decision-making is affected the least by online advertising,
with only 18% of respondents naming it as an influence.
information resource Nearly 40% of respondents say that shopping comparison
websites bias their opinion.
in making purchase decisions
In view of economic downturn, consumers will be spending
even more time perusing sites with coupons and deals,
comparing prices and reading reviews in the near future.
In broad terms, the Internet is a social community,
and consumers are increasingly relying on the opinion
of other members, even people they’ve never met.
As in real life, on the Web people trust one another
more than they do advertisers.
According to PwC survey results, in addition to following
personal recommendations, Russian consumers
are increasingly relying on the Internet as the main
information resource in making decisions on buying goods.

PricewaterhouseCoopers 19
 10 What affects your choice of site to use for online shopping, %
Online advertising; 18
Other; 6
0 10 20 30
The influence of social media
on consumers
Aggressive development of social networking sites
and services in recent years has had a deep impact
on how millions of consumers worldwide interact with
each other, what products they purchase, and how
they view brands.
Social networking sites, blogs and micro-blogs have
attracted an audience of millions. The world’s largest
companies, including retail and consumer market leaders,
are actively employing the web in their marketing strategy,
since a large portion of their target audience is online.
Social media have become an effective vehicle
for researching consumers’ perceptions of companies’
brands. They enable companies to address consumers
directly and receive feedback on existing products and how
they can be improved. Implementing the idea of economical
and effective focus-groups of a new generation, Web 2.0
20 Online retailing in Russia. Social media marketing
Personal recommendation; 59
Search engine; 45
Online recommendations; 42
Shopping comparison website; 38
40 50 60
services make it possible to attract loyal consumers
and potential buyers and join forces with them
to develop new products.
Integrating micro-blogging capabilities in client service
is a best practice of corporate use of social media.
Micro-blogging enables companies to receive
and respond to feedback on their work promptly.
Attracting loyal consumers to their online communities,
companies come up with advertising campaigns, valid
offers, special events and discounts for subscribers.
In Russia such practices are still hindered by the lack
of a system to prevent fraud on the part of a company’s
operations department staff.
As for the effectiveness of marketing on the web –
and in particular, the virus-like dissemination of information
in social media – it is important to bear in mind that word
of mouth is equally if not more effective when it comes
to negative information. The market response to negative
information on a product or retailer will be received faster.

Nearly three-quarters
of respondents usually get
online for social networking
In the US, where social networks’ main audience was
initially students, the biggest inflow of new users has come
from the 36 to 55 age group, becoming the fastest-growing
age category in 2009. In today’s Russia, social networks
are most popular with respondents in the 18 to 25 age
group; respondents aged 36 to 55 tend to give less time
and attention to social networking.
Last year, Russia witnessed a qualitative shift
in the development of social media. Web surfers
are demanding more sophisticated technical functionality
for information exchange. The survey results show
that social networking has beaten instant messaging
among most popular online activities in Russia; nearly
three-quarters (73%) of respondents said they usually
get online to spend time on social networking sites.
Females spend more time social networking and blogging
than males. Blogging was somewhat more attractive
to web surfers with a monthly income of RUB 20,000
to RUB 25,000, with a 6 percentage points above average
result. Respondents’ answers indicate that online games
are more popular with Russian Internet users
than blogging.

11 What for do you usually access the internet, %

E-mail 97

Search for information 97

Social networking 73

Instant Messaging 64

Online games 33

Reading blogs 24

Maintaining blogs 14

Other 11

0 20 40 60 80

PricewaterhouseCoopers 21
 Nearly 20% of people surveyed are ready
for advertisements in social networks, whether
Contextual ad does not it be contextual ad or banners.

irritate users: it could be In general, Internet users have a negative attitude

to any advertising. According to survey results, respondents
considered another search were most tolerant to advertising in the form of contextual
announcements within search engine results (42%)
engine result or in e-mails (40%). Less of all Internet-users accept
pop-up advertising; while every fourth respondent
prefers banner advertising.

12 Which type of online ad is most effective for you, %

Contextuals; 42

E-mail marketing; 40

Banner ads; 26

Social networks; 19

Video ad; 18

Don't know; 13

Pop-up ad; 6

0 5 10 15 20 25 30 35 40

22 Online retailing in Russia. Social media marketing

- Why are contextual ads more attractive for users?
The main reason is that contextual ads do not annoy
users – these ads could be considered another
search engine result. When users search about goods
or services they are interested in, advertisers help them
by showing what they have to offer in their ads.
This is why contextual ads are more often viewed
as additional useful information. For advertisers, this
is a very effective way of reaching their target audience.
– What kind of companies generally order contextual
ads? (in terms of business size and industry)
It is already difficult to classify our clients that buy
contextual ads. Initially small and medium businesses
were the main buyers of contextual ads. As larger
businesses began to see how effective contextual ads
were, they started jumping on the bandwagon. Today
there are a number of types of businesses in the
market: industrial products manufacturers and suppliers
(B2B segment), construction, automotive, insurance
and financial companies. In addition, a significant share
of market turnover comes from sellers of consumer
electronics, business services, tourism, real estate, etc.
– How did this situation change during the crisis?
The crisis has emphasised the problem with traditional
advertising tools, namely, their non-transparency
for advertisers. According to the Russian Association
of Communication Agencies, in 2009 the Internet was
the only media where advertising expenses did not fall
– in fact, they increased. Since advertisers didn’t have
the funds to spend on every possible advertising
channel, they had to focus on the most effective
and transparent ones. Contextual ads not only enable
communicating individually with each client, but can
be measured reliably. Furthermore, this type
of advertising aims at immediate sales.
This was the main reason why more major brands
became our clients in 2009. But the main increase
was due to small and medium businesses. As a result,
in 2009, Yandex.Direct’s growth in new clients was
nearly 55%.
Also, during the crisis advertisers started paying
closer attention to the effectiveness of their campaigns.
The number of Yandex users who installed our Yandex.
Metrics analytical tool increased last year by more
than five times.
– Are there any specifics in Russia’s contextual
advertising market?
Yes, there are some specifics. First of all, the share
of contextual advertising in Russia’s advertising
market is less than in that of the EU or US. Secondly,
our market is very capital-oriented. The majority
of the advertising budget originates in Moscow
and is allocated for the Moscow target audience.
So in Moscow, the contextual advertising market
already resembles those of developed countries,
while in the regions this process has only just begun.
Thirdly, our advertisers have not yet got used to looking
closely at their cash flows. In developed markets,
advertisers first take into optimising account ROI (return
on investment) into the ads when setting the click price,
whereas our clients are mostly trying to ensure that their
ads occupy the required position on a search results
page.
Anton Popov, Head of Yandex Sales Marketing
Department
PricewaterhouseCoopers 23
 Internet and social media for customer
relationship management
If we look at users’ attitude towards marketing campaigns
in social media, only 17% of respondents would rather
not receive announcements on valid offers, special events
and discounts from companies, neither by e-mail nor
on social networks. Men spend less time on social media
and adopt a slightly more negative attitude to online
marketing. Among those surveyed, 20% of men and
no more than 15% of women prefer not to receive info
from companies at all. Of those who would like to receive
such announcements, 28% are ready for social media
to become a marketing communication channel.
However, social media should not be viewed as a direct
sales channel. It is aimed at facilitating communication,
not sales. Users of social networks want to keep in touch
with friends and colleagues and are looking to socialise
first and foremost.
Would you like to get announcements on valid offers, special events and discounts from retailers/producers
13
on an ongoing basis, %
E-mail; 66
Social networks; 26
No; 17
0 10 20
24 Online retailing in Russia. Social media marketing
No doubt, movie reviews by several “friends” on a social
network can be more influential than film reviewers’
opinions. But consumers join a company’s community
to find out about products and value deals; they
demonstrate brand loyalty and expect that marketers
will listen to and consider their ideas. Social media should
be used to communicate with consumers, investigate their
preferences, and tell them about a product or a brand –
but not to sell. Attempts at direct sales may destroy
the target audience’s trust, whereas the right dialogue
will enhance brand awareness and increase sales through
other channels.
Social media marketing should not be considered a tool
for solving business problems. However Web 2.0 platforms
can serve as an effective means of supporting dialogue
with consumers, increasing brand awareness and brand
loyalty. It is necessary to decide to what extent social media
should be included in a company’s marketing strategy
in Russia at this point.
30 40 50 60
 For the time being, M.Video decided to use Facebook
and Twitter under social media marketing strategy.
We had to hold back from a number of social networks
because of their limited functionality, due to their
administrative policy or technical reasons. But our
primary target audience uses these media as well.
We have been monitoring the blogosphere on a daily
basis for some months already. We have dedicated
resources in the marketing and client support
departments to deal with social media and maintain
a forum on M.Video’s website.
In 2010, M.Video’s online department will focus
on brand support, service improvement and regional
development. We are planning to launch sales
Social media marketing strategy
• Contrary to popular opinion, promotion in social media
requires expenditures
Attracting traffic, providing community information
support, collecting feedback from consumers –
all of this requires time, people and money.
• How exactly are you going to attract users?
It is extremely difficult to attract Internet users to new
communities, all the more so to generate user activity
around a company’s corporate website or blog.
To maintain an audience, you need to have a constant
supply of information, post interesting and relevant
materials about the product or brand. If the company’s
representatives do not respond in real time
to subscribers’ questions and queries, they will
lose the audience.
in St Petersburg, Rostov-on-Don and Kazan, as well
as create infrastructure enabling delivery from
warehouses that are closer than Moscow so as
to ensure next-day delivery and the service quality
provided by an M.Video in Moscow.
Our brand has got a good reputation. A customer
visiting M.Video’s brick-and-mortar store has certain
expectations. The customer is sure about the quality,
delivery and returns that we guarantee. These
expectations are the same in Moscow and other
regions. So why should they differ for our online store?
We should use the scale effect on the Internet as well.
Maxim Zakhir, E-Commerce Director M.Video
• You don’t necessarily have to build your community
from scratch. Find your audience.
Developing your social media marketing strategy, you
need to identify the target audience first. Collect social
and demographic information about them, research
their habits and behaviour and sites where they spend
most of their time. Sometimes working with the
existing community’s audience might be the wisest
decision. By creating an account on a social network,
you can save expenditures on Web technologies
development, and the social network’s administration
will monitor compliance with rules and regulations. But
the functionality of each platform is limited, and social
networks set their own rules of usage for legal entities.
• Is it necessary to appear in all the largest social
media?
Global research agencies say that users actively
participate in no more that three social networks.
If you know your target audience and users’ online
behaviour, you will have to decide about the platform
based on the compatibility of a social network’s
rules and specifications with your company’s goals.
PricewaterhouseCoopers 25
 Key findings
• 80% of respondents to our survey have experience
of purchasing online.
• Most attractive sectors in the context of consumer
spending in 2010: home improvements, apparel
and footwear, groceries.
• High engagement of Russian consumers in social
networking: third most popular online activity.
• More than a quarter of respondents accept social
media as a marketing channel of communication.
• Only 20% of respondents use credit/debit cards
for online shopping, compared to the 49% who
prefer e-payment systems.
26 Online retailing in Russia. Social media marketing
• In choosing an online store, consumers rely most
on personal recommendations from people they
know – 59%. Search engine results affect the store
choice for 45% of respondents, 42% trusted
consumer opinions posted online.
• In the cities except Moscow and St Petersburg,
finding something not available locally was recognised
as one of the key benefits of online retailing, while
overall top benefits are time savings and home
delivery.
• Necessity to examine goods in person is the key
problem associated with making purchases online.
Return policy problems and lack of confidence
on condition of goods on delivery are also major
drawbacks of online shopping.
To have a deeper conversation about
this subject, please contact:

Dale Clark
Partner
Retail and Consumer Industry Leader
Tel.: +7 495 967 6048
dale.clark@ru.pwc.com

Natalia Yakovleva
Partner
Entertainment & Media Industry Leader
Tel.: +7 495 967 6133
natalia.yakovleva@ru.pwc.com

Svetlana Denissova
Senior manager
Consulting
Strategy and Operations
Tel.: +7 495 223 5121
svetlana.denissova@ru.pwc.com

Tel: +7 495 967 6000

Fax: +7 495 967 6001

We would like to acknowledge the contribution of Tatiana Gudilina, Marketing Research Assistant Manager,
to the materials preparation.

PricewaterhouseCoopers 27
www.pwc.ru

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