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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 58 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 � Pan-European Institute � To receive a free copy please register at www.tse.fi/pei �
Expert article 900 Baltic Rim Economies, 21.12.2011 Quarterly Review 5�2011 Sanitary ware market differences in the Baltic Sea region By Pekka Kuusniemi Recent crises have further differentiated sanitary ware markets in Finland and Sweden compared to the Baltic countries and Poland. Traditionally, the Nordic markets have a strong network of installers who purchase sanitary ware from technical wholesalers to be installed in their customer’s premises. That has guaranteed a certain quality level for these products, which have a very central role in people’s everyday life. In the newer market economies, purchasing power is naturally still on a lower level and therefore consumers are tend to look after cheaper products and install products by themselves. Very often the channel to the market is so called “big boxes”, Do-It- Yourself –shops, when the price is the driver number one and professional advice is lacking. New buildings like block of flats are mostly built and sold unaccomplished in the Baltics and Poland. That fact leads to totally different challenges when all consumers must be reached one-by-one. Each consumer make most of their decisions regarding to interior furniture, even fast furniture like kitchen fitments and bathroom equipment after purchased walls and ceiling. In the Nordics you are more often offered alternatives considering the level how flats are equipped but always constructors build houses till turn-keycompletion. Price sensitivity still leading Whether we talk about higher or lower purchasing power markets, it is surprising how price sensitive product category sanitary ware has become. It is up to all market actors, but something can be considered to be done wrongly when there are e.g. washbasin faucets at a price level of ten euros. Still, we have to keep in mind that these durable goods are including a huge risk if they are faulty. Therefore, the potential to develop the sanitary ware market is huge if market actors would succeed to guide consumers better in these questions. If you would invest fifty percent of a price of a new pair of jeans or at a price of 59 a junior’s ice hockey stick, you would have pleasant moments ten years ahead with your high quality faucet. The difference between these investments is the duration. You don’t risk anything if buying a pair of jeans but having a water tower behind your low quality sanitary ware that creates a major water damage risk in addition to less good user-friendliness. Towards water saving sanitary fittings Water and energy saving is growing in importance also in the newer market economies. However, if we compare e.g. Swedish and Polish consumers in this respect there is a clear difference. Both markets give value to modern solutions with which you are able to use water in a userfriendly way. But, while Swedes are thinking more of saving world’s water resources and using less energy to warm up the shower water, Polish consumers are interested more in their own wallet than ecology. Both are good reasons to think twice when making a choice for the next ten to twenty years. The payback time for a water saving solution is surprisingly short. If that could be added to the easy to usefeatures it would be a great benefit for the Baltic consumers to enjoy water and save energy in long term. Pekka Kuusniemi President and CEO Oras Group Finland � Pan-European Institute � To receive a free copy please register at www.tse.fi/pei �
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