Editor’s Note: This article was also posted on VentureBeat.
Russia is home to one of the world’s largest economies and continues to be an attractive option for e-commerce ventures. The question at this point is whether Russia is the right choice for your next e-commerce frontier.
In 2012, Russia’s base of Internet users surged to about 70 million people — overtaking both Germany and the United Kingdom. This is particularly impressive considering that in 2003, less than 10 percent of the Russian population was online and today more than 50 percent are active users. Russia now boasts the most Internet users of any country in Europe and, with another 20 million Russians expected to log on for the first time during the next two years, it will approach both Japan and Brazil in web population by 2015.
In terms of economic activity, research shows Russian web users are much more than just window shoppers. Online purchasing among Russian e-commerce customers is expected to grow 27 percent annually through 2015 and reach $25 billion by 2014, according to McKinsey & Company. What’s more, annual revenues per shopper will likely more than double to $1,272 in the next two years — edging ahead of France, Brazil, and South Korea.
The development of Russian e-commerce will soon position it alongside many of the world’s top contenders. Although shoppers in other developed markets like the United Kingdom and Germany currently spend far more their Russian counterparts, their total purchases are expected to actually decrease on an annual basis during that same period, primarily due to economic factors. And while China and India will continue to outpace Russia due to sheer population numbers, the growth in the Russian market will make it among the most valuable in the world in just a few short years.
There is no doubt that current online trends in Russia present a strong business case for any company interested in growing their global e-commerce footprint. Yet, like any international market, the Russian e-commerce market presents its own set of unique challenges.
Here are some of the most pressing factors to consider before expanding your online business into Russia:
Cash is king: As much as 80 percent of Russia’s 89 million online purchases in 2011 were paid for with cash on delivery (COD). However, shopper preferences in Russia are expected to change as credit and debit card use grows and consumer trust increases. In the meantime, merchants should make absolutely clear on websites what their COD policies are in order to minimize non-payments or order rejections.
Keep it simple: While Moscow and St. Petersburg are known as the economic centers of Russia, e-commerce activity is following a different trend. Seventy-five percent of online orders are made from smaller cities where economic strength is growing but consumers are still evolving in their online shopping expertise. That is why it is vitally important to take some extra steps to facilitate the shopping experience and create a credible and trustworthy site. For example, prominently display recognized brands on your home page. Present your content in the Russian language. And make links to customer support and FAQs easy to find.
Physical trumps digital: Many Russians have opted to purchase physical software over digital software due to trust, security, and fraud concerns as well as the preference to pay in cash. Although online shopper trust is increasing and payment preferences are evolving, an e-commerce strategy should address both channels to maximize effectiveness in the marketplace.
Keep connected: Social media is another hot topic in Russia. While the opportunity of social commerce is debated in established markets, 93 percent of online users use social media at least once a month and 23 percent are regular content contributors. This is significantly higher than the global average of 70 percent and shows the desire for Russian consumers to stay connected. So keeping a social media as part of your local communication and commerce strategy is key.
Accept uncertainty: The Russian market is growing fast and evolving faster. And while the potential is exciting, the lack of historical market data requires that companies conducting e-commerce in Russia be flexible in their financial planning. Other uncertainties exist as well, such as the lack of carriers providing full nationwide delivery and the overall difficulty in doing business. (The World Bank currently ranks Russia at No. 120.) To take advantage of Russia’s revenue potential, seek partners that are highly experienced in local logistics and payment methods.
With a population of more than 140 million highly educated, increasingly tech-savvy people, Russia is a country ready to assume its place in the global e-commerce economy. By building a Web presence with high quality branded products, competitive pricing, good language translation, customer convenience, and strong payment/logistics options, it’s possible to take a commanding position in one of the strongest developing markets in the world.