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Mobile Communications

Russians Go Mobile as E-Commerce Tests Broadband Capacity

In an email interview, IDG Connect asked Anton Levchuk, general director – Russia for e-commerce specialist Digital River, about the challenges and opportunities of selling online in his country

 

What’s the opportunity for Russia and e-commerce?

Russia is a huge country with a population that is not only affluent but also technologically aware.  This means that it has significant e-commerce potential and, as consumers seek more convenient ways to browse and buy, online sales are seeing dramatic and sustained growth.

What’s distinct about Russia as a market?

Like many emerging markets, Russia is dealing with a limited broadband infrastructure but this is combined with brand-savvy, active consumers who are willing to spend online. The surge in online demand is taxing the capacity of more traditional regional e-commerce infrastructures, and this is sending more and more shoppers to mobile channels to make their purchases. The level of access to the internet via a mobile, compared to more traditional PCs, is a particularly distinctive trait of the Russian market.

What are the cultural anomalies that affect Russia? Are there certain quirks that appear distinctive about Russians as buyers?

Generally, Russian consumers share more characteristics with their Western counterparts than with shoppers from other emerging online markets. They are highly educated, technically experienced and brand-savvy. When they start the shopping experience, they are typically familiar with the brand and the product that they want to purchase, and therefore tend to be price-agnostic – even more so than typical Western shoppers. Their purchase priorities focus on convenience and service over price. Brand-savvy, they are more likely to order online and make on-the-go purchases via a mobile device without having to see a product in a local retail outlet first – a characteristic that sets them apart from shoppers in other emerging online markets who are often less familiar with brands and prefer to see and touch a product before buying it. While Russian shoppers initially turned to the internet for price transparency, they are now relying on their mobile devices for real-time information about products and availability.

Russia is a huge country both in terms of population and geographic scale. How is broadband penetration and how does that affect the challenge of selling to Russian citizens?

While some of the strongest e-commerce growth in Russia has been in the key urban markets of Moscow and St. Petersburg, both of these cities combined only account for approximately 60% of the total e-commerce market. Consumers in second- and third-tier cities represent a significant portion of e-commerce revenue in Russia. But reaching these consumers presents a challenge since broadband access is not yet available in many rural areas.

Mobile devices offer an alternative to traditional internet access, but smartphone device prices can be cost-prohibitive at an average cost of US$350. The good news is that the internet service rates are in line or lower in Russia than rates in other BRIC markets. But, for the foreseeable future, the growth potential of both mobile commerce (m-commerce) and e-commerce in Russia will be limited to urban centres.

Obviously, mobile commerce is very much on the up. Will Russian buyers jump straight to that platform?

Russian consumers are opting for mobile technology more and more frequently. Connecting the smartphone owner in Russia to the m-commerce opportunity will be crucial to the continued growth of this emerging market.
The reach and capacity of mobile networks, however, present fundamental challenges for m-commerce. Networks are more readily available in urban centres and at times Russian mobile operators are heavily loaded – and even overloaded – with mobile internet traffic. Often, in crowded areas or at peak times, mobile phones are unable to connect to the internet. This frustrates consumers demanding access, creates a trust issue when they are asked to provide personal data over an unstable network, disrupts transactions when mobile networks are blocked or data transmission times out, and ultimately keeps marketers from investing in advertisements in this channel. Mobile adoption will, therefore, depend on companies building m-commerce stores that address the speed issues.

Furthermore, the majority of mobile sites are available only in English, a significant lost opportunity in a market where only 5% of the population speaks English. Companies must localise their m-commerce channel and marketing promotions and provide payment options that Russians prefer, to broaden m-commerce adoption.

Platforms like AliBaba have changed China and there are other similar cases all round the world. Do you see a new market entrant or current company doing something similar in Russia?

AliBaba has certainly driven change in the Chinese e-commerce market, especially in the areas of payments, logistics and online services. In many ways, they haven’t driven change through innovation but rather through the ability to implement practical solutions on a large scale across the country to encourage and capture consumers’ online behaviour.

Russia has its own set of game-changing market leaders. For example, OZON.ru, the largest online marketplace in Russia, recognised early on that while Russians are technologically savvy, they were relatively inexperienced with online shopping. To address this and gain customer confidence, the company was among the first to implement 24/7 customer service in Russia, as well as prominently place FAQ and Customer Support links on their store. OZON.ru also identified that the existing logistics infrastructure in Russia was too fragmented and unreliable to support their growth ambitions. To address those challenges, the company set up its own warehousing and logistics infrastructure in tier-one and tier-two markets allowing for more rapid growth, as well as the ability to extend this service to other aspiring online resellers. With cash-on-delivery (COD) being a prominent payment method in Russia, having its own delivery workforce has enabled OZON.ru to more securely and cost effectively offer this payment method, reducing the risk of theft and product loss, while eliminating the costs of paying an additional partner in the supply chain.

While none of these solutions are particularly innovative, the commitment to introduce and implement them across the market shows leadership, creates added efficiency, and positively impacts the bottom line through added revenue channels and reduced costs. This commitment and leadership opens up the company to invest in truly innovative solutions.

What about security? Are transaction and other information secure and is the legal framework fit for purpose?

Consistent with other geographies, consumers are concerned that their personal and payment data is secure when they provide it to stores. However, there is an additional set of concerns for Russian consumers. They have concerns regarding the quality and authenticity of the products they purchase, as well as the dependability of the store’s ability to deliver the products. These types of security concerns have not impacted whether or not a shopper buys online, but rather how they shop online. For example, shoppers will opt to pay cash-on-delivery rather than pre-pay for a product online to ensure that the correct and authentic product is delivered. It also keeps the money in the consumers’ pockets rather than the retailers’ pocket in case the product is not delivered due to logistics issues, which could often be the case in tier-two and tier-three cities. 

Where do you see e-commerce going in Russia. Will there be sweeping changes that transform the situation we’ve discussed here today?

As we’ve noted today, mobile commerce will only become more popular and pervasive. We also believe that traditional online commerce will see continued growth. There currently is proposed legislation that will impose import taxes on items that cost more than US$150. If this legislation is enacted, we believe that more and more companies or stores will establish onshore presences, further developing the Russian online commerce market.

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Martin Veitch

Martin Veitch is Contributing Editor for IDG Connect

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