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According to the experts’ evaluation almost one third of the whole perfumery and cosmetics market of Russia falls on the sector of direct sales. Ferenc Der, General director of Avon Cosmetics in Russia and Kazakhstan, told about the specific character of the Russian market.
- What is the peculiarity of the Russian market and the segment of direct sales in your opinion? Do you correct the global strategy of Avon in accordance with local specific?
- Russian market of perfumery and cosmetics is one of the most fast-growing markets in the world. The market growth in Europe is about 6% a year, whereas it is possibly a two-digit figure of the market growth rate in Russia. According to Euromonitor these figures were 15% in 2004 and 12% in 2006. Industry watchers estimate potential capacity of the local market $15-18 bln a year. This value is expected to be reached in ten years. The current market volume is $7 bln. We also see the industry of direct sales in Russia to be extremely promising. The segment showed unbelievable rates of growth: sales increased by 380% within 2002 -2004. Therefore this situation opens great possibilities for the business development of the company in Russia.
- How did the amendments to the Russian law concerning alcohol turnover affect the operation of the Moscow office? Has the company adjusted itself to the new legal norms?
- Many companies faced sufficient challenges when certain provisions of the federal law “Of the state control of manufacture and turnover of ethyl alcohol, alcohol and alcohol-containing products” took effect. As per the law all Russian manufacturers and vendors of perfumery and cosmetics must have purchased licenses for manufacture and realization of alcohol-containing products and installed and launched the control system of Integrated State Automated Information System. We were one of the first to obtain all the necessary licenses and we work successfully under the new conditions.
- Avon began to spend much more on marketing and advertising, the marketing budget grew by 50% in 2005 as compared to 2004. Was this trend retained in 2006? What was the amount of the marketing budget last year and what is the share of Russia in it?
- The global advertising expenses of Avon in 2006 grew by 50% as compared to 2005. Avon also stated in the reformation plan published last year an increase in the advertising expenses in the key markets in particular.
- Is Avon determined to increase the advertising expenses in the future?
- Yes, next year the investments in advertising on the corporation scale will be increased almost twofold comparing to 2005. Avon projects investing $ 340 mln in the global rebranding in 2007 what is by 35% more than the advertising expenses in 2006.
- What is the essence of the global rebranding? Will Avon change the name?
- Avon does not change the name, the style is changed. The new image of Avon emphasizes our aspiration for fashion, beauty and modernity. The global concept “Hello Tomorrow – Smile At The New Day!” will cover all the communication channels of Avon including the advertising, catalogues, website and the recruiting and reference sources for those cooperating with the company. We want to show that Avon opens new opportunities in everything, from the advantage of business with Avon and the innovative products to our new initiatives in charity that will set an example for many companies in Russia, I am sure.
- Is the marketing strategy of Avon corrected for each country? Does the company manufacture any products specifically for Russia?
- We pursue a constant research of needs of women all over the world including Russia, we try to foresee their needs manufacturing new products. About 30 thousand new concepts of products are developed globally in the category of decorative cosmetics alone, whereas there were 10-12 thousand previously. We can state boldly that we have been considering the opinion of Russian women for a long time. Our research did not discover needs of any specific products on the part of Russian women yet. But if this necessity arises we have all the potential to respond to emergent demand.
- Swedish Oriflame faced certain difficulties when opening an inhouse plant in Russia, whereas Avon worked in Russia since 2004. Did the company have a chance to use the advantage to break away from the competitor and increase the market share?
- Avon started manufacturing in Russia before other international companies specializing in direct sales. Thanks to that we had an opportunity to satisfy the demand of Russian customers faster and more efficiently. Besides, logistics, as well as marketing are a field of competitive struggle and not in the market of perfumery and cosmetics alone. More than two years ago Avon opened a plant in Naro-Fominsk that manufactured our products for the markets of Russia, Ukraine, Kazakhstan and Kirghizia. Thus, opening manufacture in Russia solved problems related to extra costs of the import of products from abroad.
- Do you plan to build another plant? Or is the existing facility enough?
- It is projected to double the production volume within five years. According to the long-term development strategy the Avon plant in Russia will increase the production volume by a factor of four up to 500 mln. product units a year.
- What are your principal competitors in Russia - Oriflame and Faberlic using direct sales or players in traditional retail forms?
- All over the world direct sales companies develop faster than retail trade companies but we compete with all major players of the perfumery and cosmetic market, whether they are direct sales or retail companies. Avon is the leading company in Russian cosmetic market regarding decorative cosmetics, skin care products and some other categories. Certainly it was not always like this, it took us long to achieve this result. We respect all our competitors and we are pleased to see new players of the direct sales industry coming into the Russian market because they stimulate the interest in our method. And if global players come to Russia that means the direct sales industry grows at a fast rate.
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