The growing list of ‘back and forth’ economic sanctions between the West and Russia has brought into popular focus just what a key market this has become for some of the world’s largest commercial brands.
What is often lost in this conversation however, is the growth and development of the surrounding CIS (Commonwealth of Independent States) region as an online marketplace.
The region is often known for its complex geo-political relationships but in fact, these countries share a lot of cultural and linguistic patterns that are particularly visible in online search.
The CIS comprises Russia, Belarus, Armenia, Azerbaijan, Kazakhstan, Kyrgyzstan, Moldova, Tajikistan, Uzbekistan, Ukraine and Turkmenistan suffers from a common misconception that ecommerce is of little importance and still in the early stages of development.
While it is fair to say that Russia outshines the rest of the group in terms of current ecommerce performance for retailers, the others are catching up fast, piggy-backing on Russia’s well-developed online social and search platforms.
Yandex, the most popular Russian search engine, has consistently demonstrated a deep understanding of local search preferences, while VKontakte (VK) and Odnoklassniki are key players in the region’s social space.
The CIS has a population of 277m, with over 110m of these people active online. The largest contribution is predictably from Russia, which has an internet penetration rate of approximately 55%.
The other countries in the group have significantly lower penetration rates at around 20% to 30%, but their growth rates are considerably faster.
Ecommerce revenue from Russia alone is expected to grow from $12bn in 2014 to $72bn by 2020, driven by a burgeoning middle class.
The top eight things to watch out for:
1. The dominant position of Yandex
Digital marketing in the whole region is characterized by a number of local platforms. Yandex is the clear leader in search marketing with 61% market share in Russia and increasing popularity in the rest of the CIS.
Between 2013 and 2014 at our agency we’ve seen a 20% uplift in revenue from other CIS countries on Yandex from the campaigns that we’ve been running for clients.
2. Unique algorithms and semantic features
The primary challenge with Yandex is understanding its unique algorithms and semantic features, which are the key factors in impacting SEM performance.
One example is the high frequency of CPC fluctuations across different types of PPC positions, such as guaranteed (right column) and premium (central/main) placements, which can be difficult to anticipate and optimize for.
3. The crucial role of SEO with Yandex
While on-site content optimisation is important for SEO on Google, on Yandex it has become the most crucial factor directly affecting rankings.
Fully optimized on-site content and meta content, full integration with Yandex webmaster tools and alignment with Yandex’s specific data structuring requirements are all required to achieve optimal organic ranking.
4. The importance of local social platforms
Users in the CIS region are heavily driven by social media, which is why this channel has become crucial to digital marketing success.
There is a strong overall preference for local platforms such as VKontakte (the second largest social media network in Europe after Facebook) or Odnoklassniki, but Facebook and Twitter are also experiencing strong growth, particularly in the large Russian cities of Moscow and St Petersburg.
Social media activities can have a strong impact on assisted sales across other digital marketing channels. In particular, PPC sometimes sees over 50% assisted revenue from this channel from the data we’ve collected.
5. Delivery options and reliability
Shipping and delivery issues are a common fear for international ecommerce businesses when considering expanding to the whole CIS region.
Local and international delivery options face contrasting issues. Local services are relatively cheap, but lack reliability, whereas international delivery services are fast and reliable, but have high costs and often only ship to certain parts of the region.
The only effective solution for full regional coverage is to establish collaborations with both an international (e.g. DHL, Fedex, UPS) and local delivery service (e.g. SPSR, Pony Express, Russian Post, EMS Russian Post).
6. The increasing impact of import tax fluctuations
Import tax is a growing concern for international online retailers. Russia is expected to introduce a 30% import duty tax for all goods with a declared value of €150 or more from international online shops, with a final decision being made by the end of 2014.
This will mark a dramatic shift from the current €1,000 boundary. The Russian Federal Customs Service and the Russian National Association of Distance Selling are claiming that 80% or more of both purchases and buyers will be unaffected due to the Russian average basket value being around €40.
The scale of implications for sellers of high value items though is unclear.
There has not been a clarification over whether the €150 level will apply per individual purchase or as a total threshold for all purchases made that month.
One strategy for retailers will be to display all inclusive prices for their products on the site. For luxury brands, even after including the extra 30% on to the final price, the cost will likely still be lower than in local offline stores for the same products.
7. Russian currency devaluation
The Russian Ruble has seen a devaluation of around 20% between August 2013 and August 2014.
This has not impacted Russian consumers’ desire to shop online, with conversions rates remaining unaffected but it has predictably lessened overall purchasing power, with average basket values falling by a comparable amount.
In terms of overall revenue generation however, this is counteracted by the rapid growth of internet penetration and the growing number of connected consumers.
Use of the English language throughout the region remains low, standing at between 6%-8% of the total population.
This requires online retailers to prepare a full localisation strategy for marketing as well as website content.
It is fair to say that the CIS region is not always a top priority for international retailers when expanding internationally, but this is mainly due to a misunderstanding of the challenges and factors that will impact on an expansion strategy.
Even with a devalued Russian Ruble, the scale of the online population and the rapid growth of internet penetration in the region means that the CIS offers huge commercial opportunities for brands or retailers looking to enter these markets.
The similarities in cultural, linguistic and online behaviours also means that well-structured social and search campaigns can prove particularly effective in reaching multiple markets.
For more on this topic, download Econsultancy’s Russian Digital Landscape Report.