|                                                                                                                                                             |  | DIRECT MAIL MARKETING IN RUSSIA                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       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|**BISNISHome PageSearchBISNISEmbassyReportsCountryReportsIndustryReportsPublicationsSourcesof FinanceLeadsand EventsExchangeRatesState ExportsOtherSources** |  | February 1998by Brent De JongThe direct-mail market in Russia is still very young, but a number of domestic and foreign
companies are pioneering the use of this important marketing technique.  Overall, high local prices
on quality consumer goods, absence of cutthroat competition, and relative increase in credit card
circulation make catalog business a promising market niche.  Periodicals, catalog showrooms, and
true direct-mail operations are all areas where Russian and foreign firms are taking strong
positions.Before 1990 there was only one direct mail operator in the Russian market, Kniga Service, which
only sold books.  Today, the Russian direct mail market can be divided into sectors according to
sales method:1) periodical subscriptions;
2) sale of goods by catalogs;
3) sale of goods by television advertising; and
4) sale of goods by newspaper advertising.Competitive Prices
Steep prices on many goods in regular Russian shops--which, unlike catalog operators' prices, 
include the high cost of  wholesale and retail distribution in Russia--allow catalog businesses to
mark up goods as much as 30 percent over listed catalog prices, and still remain very competitive. 
Discount catalogs are especially successful, since their prices on certain goods (i.e. shoes,
clothing, household appliances) may be three or four times lower than prices for similar items in
Russian stores. Overall, the selection of currently offered goods is limited: books, compact disks,
audio and video tapes, clothing, shoes, perfumes, and small gift items.Since the market is so young, the number of repeat order customers is still relatively small.  The
lack of reliable market research data makes it difficult to evaluate the real rate of the growth of
this market.  Judging from the limited data available, however, the true rate of growth is probably
quite high.  Some Western direct-marketing firms report that they mail as much as 100,000 pieces
of mail weekly, at a cost of $1 per piece, with response rates of 10 to 20 percent (compared with
3 to 4 percent in the United States).  Reader's Digest already makes extensive use of direct mail
in Russia.  In cooperation with its Russian direct mail partner Omni Service, Reader's Digest
now has 500,000 Russian subscribers, giving it the widest circulation of any magazine in
Russia.In addition to periodicals, there are presently two other types of direct marketing businesses
operating in Russia.  The first type is the catalog showroom featuring products.  Some examples
of this type of business are: Otto Katalog Shop, (Germany), Freeman's of London (UK), and 3
Suisses (Switzerland).  These businesses operate salons in the larger cities, usually with a small
assortment of goods on hand for display and the ability to place orders with the parent company
abroad.  However, this has not yet developed into a independent direct marketing system since
customers must go to the showrooms themselves to place their orders.  Catalog showroom
operators are likely to expand their operations geographically in the future, as they establish closer
cooperation with the Russian Postal Service.The second type of direct marketing business is a true, homegrown, direct mail marketing
operation.  Usually these are Russian "bargain basement" operations which offer a very limited
selection of goods.  Some of these companies include Post-Shop, Euro-Shop, and Pokupki na
domu.  Generally, these companies offer a limited selection of lower-quality goods.  In the near
future it is likely that companies of this type will expand their offerings to meet consumer
demands for greater selection and higher quality.  These companies will also have to complete
parcel insurance agreements with the postal authorities in order to ship more valuable
merchandise.Payment Terms and Service
Frequently, catalog business operators find it too risky to ship goods without prepayment, since
Russia remains predominantly a cash economy.  Most customers can make a prepayment only in
person, which alters the original idea of a "shop-from-home" catalog business.  This arrangement
appeals to many clients, however, who prefer to ensure the legitimacy of a company by visiting its
offices and talking to a sales representative.  Also, most customers of Moscow-based catalog
businesses pick up their orders themselves, saving delivery costs.  Home delivery is usually
offered for a fee.In addition to direct mailing operations, information retrieval and processing companies are
emerging to perform these essential services.  In this area, both direct mail companies and
information servicing suppliers work together.  Most companies specialize in either one or the
other and have formed cooperative ventures to service their accounts.  Information processors
offer complete services in the direct mail market including, address lists, sorting and data entry,
and perform such services as their core business.  There appears to be a growing awareness of the
importance of protecting their reputation by maintaining the confidentiality of their client's
information.  BISNIS contractor Lana Simkina contributed to this article.  For contact
information on Russian direct mail marketing companies, visit BISNIS Online at
www.mac.doc.gov/bisnis/country/9802mail.htm.Brent De Jong is a consultant on the Russian retail sector.  Lana Simkina works for BISNIS in
Washington, D.C.This report is provided courtesy of the Business Information Service for the Newly
Independent States (BISNIS)