Rapid DM Growth Predicted as Russian Economy Turns Corner

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BRUSSELS - The Russian economy turned a crucial corner last year that will make solid growth of direct marketing possible and open this nation of 149 million people to American DM merchandising.

Speaking to a session on direct marketing in Eastern Europe at last month's Federation of European Direct Marketing (FEDMA) forum here, Russia Direct CEO Mikhail Simonov said 1997 saw growth move into positive terrain.

Since 1990, he noted, Russian GDP had plunged 50 percent, and it fell by more than 7 percent in 1996. Last year it eked out a tiny gain of 0.4 percent - but still a turnaround of almost 8 percent in just one year.

The 1997 inflation rate was 12 percent, down from 20.4 percent in 1993. Industrial production was up for the first time since 1990, rising by 1.9 percent, the head of Russia's leading DM agency and chair of Russia's DMA, said.

Russia now has 5,000 stable businesses that employ more than 500 workers each. Some 80,000 small businesses, out of a total of 95,000, have been privatized. Russia has 2,173 banks and 2,300 insurance companies.

Overall, 123,000 enterprises have been privatized, comprising 53 percent of all Russian businesses. The service sector has shown robust growth. As a result, private enterprise produces almost two thirds of Russia's GDP.

After decades of shortages, the country's demand for basic consumer goods has been met with the price mechanism determined by supply and demand of goods and services.

Most major western brands have established themselves on the Russian market. Competition is fierce. Launching new brands is difficult. Conventional advertising is having a tough go and that has helped trigger DM growth.

Simonov said a direct marketing community began to take root in Russia about five years ago but that a recent growth spurt has pushed up DM activities by as much as 300 percent. He did not - a common custom in Eastern Europe - cite exact figures.

"DM in Russia is expanding much faster than mainstream advertising. There are 82 companies that provide some direct marketing services and many can be defined as full-service agencies."

Direct mail is effective with average mail pieces read by five to six people and almost all questionnaires sent in the mail are filled out and returned. "So you don't need to spend money on incentives to make them open envelopes."

Data is cheap because in the past it was seen as having no commercial value. Indeed, few Russians understand what data can be worth and even multinationals throw coupons into the trash.

"So in Russia you can get data anywhere for almost nothing. You only need to know where to search for it - and don't forget to check the trash containers," he said.

Russian law regulates advertising but does not consider DM as part of the advertising business, "so you can do whatever you like and even create your own law." Even tobacco and alcohol, banned from mainstream advertising, can be promoted through DM.

On the negative end of the scale lies fear of crime that makes door-to-door canvassing almost impossible. Russians don't open doors to strangers. Security equipment is widely used to keep people out - everything from simple locks to intercom systems.

Geographic classifications in large cities don't make much sense because gentrification of poor areas has put the rich you want to target next door to the poor you don't.

They literally live next door to each other if not in the same houses. That makes unaddressed mail almost useless as a DM tool and even addressed mailings won't reach their target because gentrifiers no longer register their abodes.

Direct marketing beyond Moscow and St. Petersburg is complicated by independent regional postal services which require DMers to make separate agreements with all 88 of them - doable but costly in terms of time and money.

Finally, Russia lacks a DM language. Success on the Russian market means invention of a Russian DM language which even DM agencies have not developed as yet.

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