Baltic Rim Economies - Baltic Port List

Expert article 899 Baltic Rim Economies, 21.12.2011 Quarterly Review 5�2011
Implementing a luxury strategy in Russia
By Esa Rautalinko
Finland’s strong export tradition to Russia has been considered as
an advantage. Growing Russian GDP has created increasing
export possibilities and the proximity of the two countries enables
efficient logistics to the biggest cities and their surroundings.
However, the market has changed dramatically in the past two
decades and will continue to do so in the foreseeable future.
Unfortunately a large number of Finnish exporters have neglected
their homework. Old assumptions and traditional “facts” are not
today’s realities and relying on those might be fatal.
Domestic Russian production has increased significantly in
virtually all product categories and existing gaps in offerings have
already been filled. Surely regulative actions have speeded the
development, as in all emerging economies. But it would be shortsighted
not to take into account the massive work done in Russia
in the areas of R&D, marketing and production. A lot of this has
naturally been enabled by foreign capital and corporations, but
increasingly by Russian players.
The old Finnish “good enough for us, good enough to be
exported” thinking is a sure way to a shrinking business. Because
of this old way of thinking, Finnish exports to Russia has been
sales focused, especially in consumer goods. Strategic marketing
thinking has not been a priority and in many cases even the most
trivial background work has not been done. And yet Russia gives
almost endless possibilities for a true marketer because of the
markets diversity.
Honkarakenne is the world leader in log homes focusing on
luxury and premium customer segments offering individually
designed houses and high-end service. Research data shows, that
throughout the world there are strong trends supporting the chosen
strategy.
1. Increasing wealth
The global financial crisis has naturally dented individual
customers and created challenges, but the clear trend is that as an
average people are getting wealthier. At the same time increasing
differences in wealth distribution are creating social challenges.
But still, there is a growing number of wealthy people in all major
markets.
2. Individuality
The need for self expression rises together with wealth. Tailormade
solutions are vital in order to satisfy demanding customers
and the solutions need to be integrated into a highly sophisticated
way of service.
3. Urbanization
Even countries with a declining population, like Russia, verify this
trend. Consumers are not willing to make compromises with a
working infrastructure and expectations even in remote vacation
locations are high, often higher than in cities. Because of this,
large development projects are both popular and economical.
4. Ecology
Energy efficiency and CO2 footprint have been popular buzzwords
for quite some time. However, ecology is not the primary selection
criteria for most of the consumers. But real competitive advantages
can be created and on the other hand, authorities are going to
ensure by regulation that a positive development takes place.
These global trends need to be interpreted from a target
market perspective, not from a Finnish one. Finns have a
complicated, if not a traumatic tradition dealing with wealth and
individuality when comparing us to emerging economies. Research
data shows that Russians are more willing than Finns to invest in
durables. When the needed funding is available, Russians put a lot
of effort in acquiring a house fulfilling individual family needs. And
very typically a substantial investment is allocated to elaborate
interior detailing and decoration. So Russia, better than any other
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market Honkarakenne is working with, is living true the
abovementioned trends.
Another myth Finns still somewhat believe in is that product
quality is everything. There is no denying the importance of
traditional quality thinking. But instead of a competitive advantage
it has become a hygiene factor, an entry ticket to attend the game.
Thinking has to be widened to non-tangible service models, or
“semi-tangibles”, which as a term probably better describes the
challenge. Most companies have defined service processes and
have also put performance indicators into place (preferably in a
multi-million CRM system…) but are still facing challenges and
unpredicted customer behavior.
Sadly it is very rare that truly meaningful customer insights can
be extracted from this expensively collected data. Service
processes are always experienced individually and therefore
beforehand decided KPIs have a challenge describing the
customer experience. Some typical KPI data is naturally valuable,
but having a constant multi-faceted dialogue with the customer
from the first contact throughout the purchasing process is vital.
And it is essential to recognize that the dialogue has to continue
for the length of the whole life cycle until the next cycle begins.
This is the only way to ensure a vital luxury strategy.
So what are the key learnings implementing a luxury strategy
in Russia?
1. Do not use Finland as a benchmark
Russian customers have a different interpretation of luxury than
Finns. In houses this means bigger average sizes, bold
architecture, attention to detail and thorough interior styling.
2. Improve you speed
Russians are fast decision makers and expect the same from you.
Finns have an excellent reputation of being precise and on time,
but at the same time we are often considered to be hopelessly
slow.
3. Be ready for changes
Especially luxury segment customers expect agility. Define your
capability to make even last minute changes and which are the
details where changes can be made and where not. Otherwise you
end up selling nothing or selling with a poor margin.
4. Personalize your service
Service models for masses are for mass products. Luxury products
need to be sold through a customized model in a flexible manner.
This means that the work is resource consuming and you have to
deal with it.
5. Product quality is not good enough
Relying on product quality as a sole competitive edge means
failure. Quality can be copied in an increasing speed but
experiences not. Also, it is harder to put a price ticket on
experience than it is on quality.
6. It’s not over
Luxury segment customers do not expect a project but a
relationship. The relationship needs to be nurtured throughout the
years even if there is no sales in perspective. You have to
recognize the effects of both positive and negative grapevine.
Luxury is created through experience.
Esa Rautalinko
President and CEO
Honkarakenne Oyj
Finland
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