|                                                                                                                                                             |  | REGIONAL MARKETS GROW IN IMPORTANCE FOR CONSUMER PRODUCTS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 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|**BISNISHome PageSearchBISNISEmbassyReportsCountryReportsIndustryReportsPublicationsSourcesof FinanceLeadsand EventsExchangeRatesState ExportsOtherSources** |  | June 1997by James WhitmanRussia's many regions present tremendous opportunities for consumer products firms to create 
strong market positions at relatively low cost.  They offer a large population base with growing
levels of both disposable income and unsatisfied demand.  Although their markets are becoming
increasingly competitive, low entry costs and the absence of well-established brands present a
unique opportunity for small companies to compete for market share with larger manufacturers. 
With realistic expectations, a clear game plan, and a consistent approach, most firms will not only
be able to sell product but capture large shares of growing markets, as well.Superior quality gives U.S. and other Western-branded goods a strong advantage in regional
markets.  Western goods are respected for their quality, and it will be several years before Russian
products can compete on this basis.  In the meantime, Western companies have a tremendous
opportunity to build powerful brands which will continue to command premium prices.  If a
Western company can get its product to market on a regular basis and establish it as a well known
brand, then "ownership" of a product category is within its reach.More Structured Distribution
More structured, Western-style distribution channels are growing rapidly in Russia's regions,
alongside ad hoc solutions like the ubiquitous "shuttle trade" with neighboring countries such as
Turkey and China.  This change has been driven by a variety of developments.  Local firms are
gaining experience, major Western firms demand more professional distribution, and benchmark
distribution systems built by such large firms like Mars and Procter & Gamble provide a strong
example for others.To successfully establish sales and distribution in the regions, U.S. companies operating in Russia
need to apply the same dogged persistence required in Moscow and St. Petersburg.  While
regional markets do have their own specific characteristics, misperceptions about them frequently
lead Western firms to operate very differently once they leave the big city.  At the American
Business Center-Novosibirsk we have seen many companies arrive with the belief that market
conditions were extremely primitive--which is not so--and seize on the first reasonable local firm
they met, often compromising their own corporate standards in the process.It is important to follow your own company procedures for selecting distributors.  Use reliable
and trustworthy local advice and assistance in locating, screening, and choosing local business
partners.  Remember that because regional consumer markets are so young, there are only a few
firms in most product areas.  In many instances one firm dominates, further limit ing choice. 
Nevertheless,  screen your distributor candidates like you would anywhere else.  Establish
minimum requirements for choosing a distributor and hold yourself to them.  If no one fits the bill
in a given town, move on to the next.Relationships
Most Russians are unwilling to enter a business transaction without meeting their counterpart
face-to-face.  Personal relationships will be more important than any sales contract that you sign
(see BISNIS Bulletin September 1995, Page 7).  Additionally, there is a great deal of information
about your partners and the local market which you will only be able to gain first hand.  Travel to
the regions is a prerequisite for developing these relationships.Once you have chosen a distributor it is crucial to work at your relationship.  Virtually all Russian
distributors, regardless of their sophistication, will need assistance in marketing your product. 
Regular correspondence will go a long way to strengthening the relationship and assuring that a
regional company truly becomes a distributor, and not merely a Russian company which once
bought a container of your product.  Be sympathetic to Russian firms' lack of experience in
selling Western products and provide reassurance that there is still a solid personal tie between the
companies.Building the Brand: Advertising
Building a brand in the regions presents a unique opportunity because of low advertising costs and
the lack of well-established brands.  Advertising costs rose steadily in Russia between 1993 and
1995, but have leveled off over the last 18 months.  Advertising is relatively inexpensive in the
regions, and good values remain in radio, print, television, and at local exhibitions and trade fairs. 
Major buyers have considerable clout in negotiating discounts.While the costs are relatively low, investments must be made to capture these markets.  A few
low-cost ads are not going to distinguish your product from the competition, but many firms have
found that a relatively modest $200,000 media budget can go a long way in a regional center. 
Make sure that your agency has a local affiliate and that they listen to its input, since commercials
which work in cosmopolitan Moscow may not appeal to consumers in Yekaterinburg or Omsk. 
Local Russian media and advertising companies realize the role they can play, which the best of
them perform creatively and aggressively.  Look for  professionalism and transparent and
consistent pricing when choosing an ad agency.  For more information on Russian regional
markets, visit BISNIS Online at www.mac.doc.gov/bisnis/country/rusfed.htm.  For more
information on the American Business Centers, visit BISNIS Online at
www.mac.doc.gov/bisnis/abc/abc.htm.James Whitman is Marketing Director for the American Business Center-Novosibirsk.This report is provided courtesy of the Business Information Service for the Newly
Independent States (BISNIS)