Standardization and Adaptation (Localization) of Advertising in Different Regions of the World – Russia

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University of Nicosia

Strategic Marketing

Semester Assessed Work

Re: Standardization and Adaptation (Localization) of Advertising in Different Regions of the World - Russia

Spring 2011

1. Introduction (Ms. Petronella Charalambidou)

2. Up to Date General Literature Review on Standardization and Adaptation of Advertising (Ms. Petronella Charalambidou)

2.1 The main objectives of standardization in the USSR

2.2 Advantages of Standardization

2.3 Disadvantages of Standardization

2.4 Advantages of Adaptation

2.5 Disadvantages of Adaptation

3. Trends in Consumer Behavior in Russia (Ms. Gyuzel Zarieva)

4. Advertising Industry of Russia (Mr. Anton Yakovyschenko)

4.1 Brief History

4.2 Current Advertising Industry

4.3 Biggest product categories ( mln. rubles) 2008

4.4 Distribution of Media Advertising Budgets

4.5 The Biggest Advertisers in 2009

4.6 Russian Largest Advertising Groups

5. What are the major laws and regulations affecting Advertising and Promotion in Russia (Ms. Marina Nasedkina)

5.1 Introduction to Russian Advertising Law

5.2 Basic Principle of Federal Law "On Advertising"

5.3 Regulatory control over Advertising activity

6. Which current US or global trends have an impact on the advertising Industry of Russia (Ms. Gyuzel Zarieva)

7. Practical Case of IKEA doing Advertising in Russia (Ms. Marina Nasedkina)

7.1 Brief History of the Company

7.2 Expansion on Russian Market

7.3 Standardized Adaptation of IKEA in Russia

8. Recommendations and Conclusion (Ms. Olga Vasilyeva)

References

1. Introduction

Standardization is an establishment and application of the rules in order to streamline activities in a certain area for the benefit and participation of all stakeholders, in particular, to achieve overall optimal cost functional subject to the conditions and safety requirements.

The objects of standardization are specific products, standards, requirements, methods, terminology, symbols, with the prospect of multiple applications that are used in science, engineering, industrial and agricultural production, construction, transport, culture, health and other sectors of the national economy, as well as in international trade.

Standardization affects the pace of development and production level. Based on the latest developments in science, technology and practical experience, standardization largely not only determines the current level of production, but is one of the drivers of progress in science and technology.

Standardization is one of the most important organizational and technical foundations of substantive and technological specialization and industrial cooperation at the local, regional, national and international levels.

Adaptation - an adaptation of an organism and its structures to the changing external environment. Adaptation ensures the preservation of homeostasis and prevents damage in terms of environmental factors. Localization is a part of the integration-local responsiveness debate. The integration or global integration strategy is based on achieving efficiency and synergy by coordinating, integrating, and standardizing operations and products across foreign markets. Therefore, companies pursuing the global integration strategy expect to increase their performance capitalizing on coordination and integration. However, the local responsiveness or localization strategy (also called multidomestic or multilocal strategy) argues that markets differ and products should be localized rather than standardized to better serve local consumers and meet the local demand.

2. Up to Date General Literature Review on Standardization and Adaptation of Advertising

2.1 The main objectives of standardization in the USSR

Establishing requirements for the technical level and quality of products, raw materials, intermediate products and components, as well as rules, requirements and methods of design and production, allowing for optimum quality and to eliminate inefficient variety of types, brands and sizes;

Development of standardization and aggregation of industrial production as a key condition of specialization of production, complex mechanization and automation of production processes, improve interoperability, efficiency, operation and maintenance of products;

Ensuring the unity and reliability of measurements in the country, the creation and improvement of national standards of units of physical quantities, as well as methods and tools for high-precision measurements;

Establishment of standardized systems of documentation, classification and coding of technical and economic information;

Establishment of common terms and symbols in the critical areas of science, technology, sectors of the economy;

Establishment of a system of safety standards.

2.2 Advantages of Standardization

Economies on the scale of design, creation of advertising, and production of advertisements (and therefore lowering the fees of the agency);

Faster set up time for advertising campaigns and a more rapid penetration of markets due to good international co-ordination. This characteristic is particularly useful when launching a product simultaneously in several countries;

Reinforces the image of the product or company as a consequence of the international co-ordination resulting from an international campaign;

Single coherent global image. An identical advertising standpoint in many markets allows the product, company and brand to possess a uniform image. This limits confusions as the consumer is internationally mobile and there are possible overlaps in the media (cable television enables consumers to watch foreign television programmers).

2.3 Disadvantages of Standardization

Possible loss of advertising effectiveness. Communication, based on the lowest common denominator of the target markets is rather poor. But standardization can prove to be unadoptable if it holds on to local specifications. It can create negative reactions on the part of the consumers as it does not cater to them, which risks them turning to local competitors. It can result in losses in important shares of the market, and damage to the image of the product in the long term;

Lack of motivation for local agencies. As the personnel at the company and the agencies have no connection with the development of the communication they can consider this campaign as being irrelevant to them. And often they will not be effectively committed to its production and establishment.

2.4 Advantages of Adaptation

Respect for local specifications and expectations. A company which uses the concept of systematic adaptation increases its chances of better responding to the expectations of local consumers and legislation;

Excellent local image due to the company catering for the specific needs of the local market;

Motivation for local agencies. They become more responsible as they participate in the construction of the communication policy;

Flexibility and strong reactivity to the actions of local competitors.

2.5 Disadvantages of adaptation

Higher costs. Adapting the strategy to each target market does not allow cost cutting measures to be made;

Risk of disparity, of the company's image in international markets. The global policy of the company can suffer;

Difficulties in controlling advertising;

No synergy of actions between markets. The differences between communication policies do not allow undertakings to be aligned, even in markets which are close geographically.

3. Trends in Consumer Behavior

As many Eastern European countries, Russia had chocking changes at the begin of 90's. Until the mid 80's Russia being one of world's leaders superpower countries, but at the end of 80'crashed by Perestroika and reduced Iron Curtain after Cold War, empowered after losing control over Eastern European countries, as well as with separation of many soviet republics, which proclaimed their independence - all this changes was influenced for all aspects of people's lives.

One of the earliest influences of process of changing political and economic system from communism to capitalism was Identification Crisis of nation, as well as each human entity. The process of reassessment of national history events, especially Soviet period's event became harmful, because most of beliefs were destroyed.

Sociological studies show that pragmatism process of life values, sharply increasing role of material and monetary factor in modern life is start happening. Health, family and material values took first three places in the value orientations of the Russians in the mid-90's. Thus, if previously (Soviet period) social and public life was higher than personal values, now contrary, growing number of Russians is choosing personal values.

In recent years, sociologists have noted that there is a process of growth of the value consensus. This means that the increasing numbers of people endorsed the following set of core values: life, freedom, work, security, dialogue, equality of opportunity. Despite of financial difficulties most people of those who surveyed chose freedom over the material welfare. However, studies show that the basic values of Russian nation like statehood believes, unity, national dignity, and others still retain their significance. But in the other hand there is increasing number of population characterized by deep distrust to government (political corruption, too much concentrated powers in the hands of limited people, as well as the great money (oligarchs) on their hands, etc). Post-Soviet society has become less politicized, and people are disappointed that they are empowered to do anything. (School Tutorial "History and Culturology", http://maxbooks.ru/kultur/index.htm)

Considering the monetary relations as backbone for society it will fail to understand of role in changing the consciousness and behavior. In modern society, money has not only economic but also social and cultural functions. Usually they used to obtain other values, but sometimes people's mind in Russia can misinterpret money as final target.

In modern Russia the attitude to money developed under the influence of four opposite trends:

1) Traditional economic consciousness associated with religious, community, leveling, perception of money as an abstract value, and where is inconvenient even to speak about it;

2) Soviet mentality which considers money as a means of exploitation and inequalities that have destroyed;

3) The influence of Western economy which puts the monetary relations in the center of social networks, social relations and priorities;

4) The crisis nature of the economy, lack of understanding of the mechanisms of monetary circulation, low level of knowledge of the market laws and, consequently, fear of dependence on money.

The interaction of these trends, defines a special type of monetary culture in Russia. Of course the values and views are depend by social characteristics of mentality of individual - by age, belonging to particular generation, education, economic stability, belonging to rural or urban group (S.B. Abramova, "Money as social value: generation problem", SoCis, № 7. 2000. p. 38-41).

Within the years, especially at the end of 2000's consumers have become more competent and motivated, with high expectations with respect to the total value of purchase. (Tatiana Komissarova & Natalia Bagenova, 2001, "Experience of Marketing Research. Consumer Behavior in the services market (business-education on the standard MBA)", Journal "Management today", №5

4. Advertising Industry of Russia

4.1 Brief History

In 1914 the growth rate of Russian economy was higher than that of the United States. Russian industrialists and merchants were a good match to their foreign counterparts. And the Russian advertising of the day was fairly advanced. Browsing through the yellow pages of old Russian newspapers and magazines one comes across some fantastic specimens. The Russian trade literature of the period carried good editorials on various aspects of commerce and advertising.

After the Bolshevik revolution there was a short-lived renaissance of market economy in the 1920s, remembered by advertising historians for Vladimir Mayakovsky's poster doggerels in his ragged style unreadable by barely literate post-revolutionary public.

Some advertising lingered on for a while: then it vanished from Russian life for decades, to be regarded as one of the "villainies" of capitalism.

The only advertising agency in those days was Vneshtorgreklama (a Russian abbreviation for "foreign trade advertising"), an unwieldy and amateurish institution under the Ministry of Foreign Trade, which produced ads in foreign languages for the constellation of foreign-trade organizations.

In 1966, when I began freelancing there as English-language copywriter, there were no literature on advertising, no courses, no contacts with Western advertising communities, no nothing. Those were the days of the Iron Curtain.

4.2 Current Advertising Industry

The Russian advertising market is one of the most dynamic emerging advertising markets in the world. According to the News Outdoor Analytical Center, the value of the advertising market was $8 billion in 2007.

Substantial increases in the advertising market's share of Russia's GDP point to continued dynamic growth in the future. In developed markets, advertising contributes 1% or more to the GDP. It will take some time for advertising to reach the same level in Russia. If the present rate of GDP growth is sustained, the advertising market has the potential to grow substantially in the coming years and further contribute to the country's GDP.

Total amount of Media Spending in the dissemination (segment ATL-services), including VAT, amounted to 250 billion rubles. A 16% increase over the same period last year, though still less than in the pre-crisis 2008. Experts from RACA (Russian Association of Communication Agencies) and the frame at the joint meeting to assess the volume segment of marketing services in 2010 to 65 billion rubles, including VAT, an increase of 26%. The volume of marketing communications in Russia in 2010 is equal to 315 billion rubles (10.5 $ billion) according to Russian Association of Communication Agencies.

Currently in Russia there are about 6,000 advertising agencies (according to the RARA), which employs up to 70,000 employees.

The structure of the advertising costs today occupies the largest share of national advertising, although there is a tendency to an increase in regional advertising, because of growing number of local advertisers with local brands. Before the crisis, many producers can afford to cover the whole of Russia, regardless of whether the goods covered by the entire country or only a few key cities, but today the situation has changed. Advertising budgets have declined, and producers have become more discriminating in the geography of their campaigns, depending on availability of distribution of their goods in a particular geographic region.

4.3 Biggest product categories ( mln. rubles) 2008

("Communication Market of Russia yesterday, today and tomorrow"):

Product category	TV	RADIO	PRESS	Outdoor Advertising	Total
Cosmetics and perfumery	14 253	27	3995	475	18 749
Cars and parts	8 223	604	3261	2216	14 306
Mobile phone services	6 713	267	760	2496	10 138
Medicines	7 102	890	1856	69	9 899
Chocolate/ Coffee/ Tea Financial services Retail trade Beer Household chemicals Soft drinks Mobile Phones	7 125 1 678 3 806 4351 5075 3725 1278	9 673 228 23 49 323 38	207 1987 788 190 139 106 273	167 7554 2208 1354 6 247 582	7 534 7 318 6 518 5937 5270 4401 2170

4.4 Distribution of Media Advertising Budgets

("Communication Market of Russia yesterday, today and tomorrow", http://www.akarussia.ru/knowledge/research):

MEDIA	%
TV	51
Press	22
Outdoor Advertising	17
Radio	5
Internet	3
Others	2

4.5 The Biggest Advertisers in 2009

Company	Mln. Rub
Procter & Gamble	5594
L'Oreal	5285
Mobile Tele Systems (MTS)	3583
Uniliver	3558
Wimm-Bill-Dann	3496
Henkel Group	3402
Mars-Russia	3388
Nestle	3337
Megafon	3042

4.6 Russian Largest Advertising Groups

("Financial Records of Advertising Agencies, http://www.akarussia.ru/knowledge/research):

№	Advertising group	Turnover in 2008 Billions of RUB	Turnover in 2009 Billions of RUB
1	Group M	1.544	1.52
2	Vivaki	1.43	1.37
3	Omnicom Media Group	1.14	1.37
4	ADV	0.97	0.87
5	Aegis Media	0.66	0.79

5. What are the major laws and regulations affecting Advertising and Promotion in general in Russia

5.1 Introduction to Russian Advertising Law

Until mid-1995 legislation of the Russian Federation rather fragmentary regulated relations connected with the production, deployment and distribution of advertising (mainly in administrative and civil law).

Due to expanding advertising market of Russia, there was a need to create a single regulatory mechanism, which could close the existing gapes in the legislation. This served as the main reason for the adoption of the Federal Law "On Advertising" on 13.03.2006 N 38. This Law saved some requirements for advertising and promotion activities, as contained in the previously published normative legal acts, but also stabilizing relations in the field of advertising.

5.2 Basic Principles of Federal Law "On Advertising"

Part 1 of Article 1 of Federal Law "On Advertising" (http://www.zakon-o-reklame.ru/) states that "the goals of this law is the development of markets for goods, works and services based on the principles of fair competition, to ensure unity in the Russian economic space, the right of consumers to receive fair and accurate advertising, prevent the violation of Russian legislation on advertising, as well as the suppression of evidence of improper advertising" (translated by the author).

First of all, regulation is faced mainly to commercial advertising being treated as advertising directed primarily to an increase in profits from the sale of goods and services. Political advertising that is free expression of certain political views and campaigning for them is excluded from the Advertising Law (Part 2, Article 2 of the Federal Law "On Advertising").

Secondly, the legal regulation of advertising should be carried out exclusively by the state for approval and implementation of constitutional rights and liberties, state security, maintaining the nation's health (summary of Part 3 of Federal Law "On Advertising"). Therefore, if the consumption of alcoholic beverages and tobacco products is widespread that one can seriously fear the degradation of the population, the State may restrict the advertising of these products to protect basic human right to health protection.

Thirdly, depending on how the advertisement is distributed (print, video, audio, electronic, radio, telephone etc), there are articles regulating it. There is a significant difference between advertising in print and electronic media; mainly restrictions relating to television. It is connected with great creative potential of television advertising. The example of restrictions can be the volume of advertisement within one hour of broadcast time, rules of interrupting the television program, repetition of the same clip, etc.

5.3 Regulatory Control over Advertising activity

State regulation of promotional activities can be divided into normative and institutional. Normative control is implemented through the establishment of acts of the competent state bodies of the rules of advertising and penalties for violations of these rules.

Institutional regulation is carried out by competent authorities, among which should first call the Federal Antimonopoly Service (FAS). The powers of the antimonopoly authority in this field are defined in Article 33 of the Law "On Advertising" and Regulation of the FAS. In particular, the competition authority: "carries within its power state control over compliance with Russian legislation on advertising, including: prevent, detect and repress violations by persons or entities of Russian legislation on advertising; initiates and reviews cases for violation of Russian legislation on advertising" (translated by the author).

6. Which current US or global trends have an impact on the Advertising Industry in the region/Country?

Russia has own development of market in it's economy, but still many of Global or US trends are applicable to Russian people as well. By the negative way it calls "Americanization", even though it's not always true.

Let's highlight... some of usual trends:

On-line purchases (number of on-line transactions increasing with yeah year - many advertisements now oriented for on-line people and post ads to web-pages, forums, social networks)

Health, sport style, good life (most food products now oriented to this trend, because it's very popular to be healthy and sporty, as well as having "bio" food with no preservatives, tetra pack packs. Many sports stars and Olympic champions are actually involved in the advertisements and this is good index of trend)

Being part of Global world, cosmopolite, integrated, open-minded - Russians travel more, getting foreign education, people go out of Russia for jobs, experience - this is good trend of Global orientation of consumers.

IT, Innovations, high-tech -is very popular trend in the world, and Russia is not in the exception. The indicator of high attention to technologies also that country leaders (like Medvedev) love technology (Apple products, internet) and try develop it in Russia - creation of innovation centre Skolkovo in Moscow region.

Another part of global trends which are having great attention are "global problems", and the most popular of them are following two:

Nature and planet problems like Global warming, pollution problems are in the attention of Russian consumers as well, even though it is oil and gas producer country. More people becoming green, advertisements are started being oriented to "green consumers" and they advertise that they are green. There is also interest in alternative energy.

Health problems, early death, AIDs, poverty problems (internal and external) are subject to many advertisements (including social ads). Number of companies are making donations from sales of their products to poor people and\or animals, kids in Africa and to many non-profit organizations. Many stars, especially singers and movie actors are participating in that kinds of advertisements and make propaganda of donations.

standardization advertising promotion consumer

7. Practical Case of Multinational Company doing Advertising in Russia - IKEA

7.1 Brief History of the Company

1926 In southern Sweden, Smaland village, was born IKEA founder Ingvar Kamprad. 1943 Kamprad registered the IKEA, which is traded pencils, wallets and other small items.

1945 The local newspaper had the first IKEA store advertising. 1947 The assortment of IKEA appeared the first pieces of furniture. 1951 Published its first printed catalog IKEA, containing mainly furniture products.

1958

Opened the first IKEA store in Elmhult, Sweden. The company has 100 employees.

1963

First shop to be open abroad in Norway.

1969 - 1999

IKEA has more than 53,000 employees in 29 countries on 4 continents. Number of stores exceeds 150.

2000-2010

IKEA opens 12 shops in different parts of Russia including two pending projects in Samara and Ufa to launch in 2011-2012.

It is believed that the apartment of every Western household has at least one thing with the logo of IKEA. This is not necessarily the furniture, any accessories, toys, clothes - anything from IKEA. At one time, the spread of IKEA in Europe, was called an epidemic. Since opening the first stores in Russia, the epidemic has conquered and in this country.

7.2 Expansion in Russian Market

To say the least the expansion of Sweden brand in Russia had numerous bumps on the road. The first IKEA store in Russia opened March 22, 2000. For IKEA, it was the third attempt to enter the Russian market. In 1988, the founder of IKEA Ignvar Kamprad met with Chairman of the Council of Ministers Nikolai Ryzhkov. During this meeting, agreement was reached on opening IKEA stores in Russian cities with population over 1 million people. But the events in the early 90's prevented this. In October 1993, at the second attempt, and again created a complex and dangerous obstacles. The third attempt coincided with the economic crisis, but this time, IKEA has decided to stay (Sergey Golubitckiu, 2009, "Ingvar Kamprad", Evotrade forex, http://evotrade.ru/best/ingvar-kamprad/).

7.3 Standardized Adaptation of IKEA in Russia

IKEA is a company that has long become a separate corporate identity and values. During the long years of IKEA in the market this style was passed in the minds of consumers and became recognizable by almost everyone, so when entering other national markets IKEA tries to change a little as possible, for instance in Russia IKEA has specially designed interiors for apartments with the area less than thirty square meters but using the same materials.

With regards expansions of IKEA to overseas markets and the handling of the business such as production and delivery, it follows a very standardized way to minimize the costs. IKEA has built a brand around of idea of giving the middle class comfortable, low cost, quality and attractive products, which are the same in any shop of IKEA all over the world. When IKEA opens new markets its first store always opens in the largest cities, but not in the city center but suburbs to save money for rental of land, but close to suppliers. Then the company begins to move to the regions. In Russia, this strategy is more effective because people living in the regions for the most part are not the innovators and not open to drastically change the interior of the apartment and the lifestyle, they tend to be more massive furniture headsets, made of real wood with elements of the old decor, etc., so they need time to adapt to modernity.

The only difference in strategy between countries the IKEA goes is marketing communications, due to variation in laws on advertising and culture and needs of the native population. Before opening the first IKEA shop in Russia, the advertising campaign made sure that it explained every Moscow citizen why IKEA is best for them by claiming "Have Idea. Have IKEA". In 2005 due to poor performance of IKEA the management put in place 22 video advertisements on television to support opened shops, which literally flooded the Russian broadcast and resulted in boomed sales bringing IKEA in Russia to profit. In recent years IKEA together with "Renaissance Credit" Bank launched a family member card, which allows getting credit on purchases in IKEA shops as well as special discounts, entry to events and other benefits. Also customers can purchase gift cards of different value.

The main disadvantage of such standardization and focus on minimization of cost plus good results of profits in Russia lead to interest of competitors to enter the market as well. For instance, Wal Mart is planning on coming to Moscow to get its piece of the market by offering maybe slitter higher prices but more attractive quality and design.

It can be said that IKEA is now far more known brand all over the world than any other furniture company, the strategy it uses to pass the brand overseas is working in most cases and unless the world will run out of middle-class, the IKEA will always have its customer.

8. Recommendation and Conclusion

"In real life Standardization and Adaptation coexist. International adaptation and global standardization of marketing tactics do take place. Both processes coexist and neither total adaptation nor complete standardization represents business responses. The choice concerning these two polarized position is matter of degree. The process of deciding AdaptStandardisation is called the Vrontis AdaptStand Process.. It is defined as the process of integrating Adaptation and Standardization in international marketing tactics." (Demetris Vrontis, 2003, "Integrating Adaptation and Standardisation in International Marketing", Journal of Marketing Managament, 283-305)

Russian market has been expanding only during last 20 years and there are still a lot of things to cover. Russian market is quite young for Multinational companies, which are willing to exchange experience and invest in Russia. It has been understood by many companies that the main problems with expansion to Russia are:

Price of the land and generally the process of purchasing and transferring land on the your name;

Difference of law system;

Corruption within the government bodies;

Different Consumer Behavior;

Different Audit and Accounting rules;

Centralization of population around big cities.

Despite the fact that international companies may think "they know it all", they cannot be sure about Russia. It has been proven that companies that focus on middle-class needs have huge potential of surviving in Russia (eg. IKEA, OBI, Auchan, McDonalds). But there are those (eg. Carrefour, Wal Mart, Debenhams), who are still trying to enter but are facing various problems.

There can be suggested for every company to prepare for unexpected expenses and decide on the following:

To rent or buy the land? Prepare for electricity and building permits difficulties;

To make research how many % they have in Russian market, how many % of population covered by current media advertising (from group 1 to the last);

To prepare business plan, including unexpected expenses;

To cover more territory and to cover more consumer inside of the country;

To move media advertising inside of the country and to study the consumer reaction on various types of advertising;

To increase the percent of radio, internet media, direct mail and others

To adapt them to local conditions (religion, culture, language, level of education, level of living and standard of living);

To increase online sale because of specific conditions (big territory, long distance between cities and villages).

Reference

Marketing Teacher Portal, http://marketingteacher.com/lesson-store/lesson-international-marketing-product.html

Andrea Troestler & Hsin Ping Lee, 2007, "Adaptation and Standardization on websites of international companies", http://202.198.141.77/upload/soft/0-article/+00000001/066.pdf

S.B. Abramova, 2000, "Money as social value: generation problem", Journal "SoCis", № 7, p. 38-41

Tatiana Komissarova & Natalia Bagenova, 2001, "Experience of Marketing Research. Consumer Behavior in the services market (business-education on the standard MBA)", Journal "Management today", №5

Alexandra Kramskay, 2006, Interview of Alex Yuzhanov CEO of RA "Media Int." "We have always focused on local advertisers", Journal "AdLife", http://www.advertology.ru/article25992.html

Alexander Repiev, 2008, "A glimpse of Russia's advertising and marketing",

Federal Law "On Advertising", http://www.zakon-o-reklame.ru/)

Victoria Gracheva, 2006, "IKEA: strategy and philosophy of the brand", Journal "General Director", http://www.management.com.ua/cases/case055.html

History of IKEA, http://www.ikea.com/ms/en_US/about_ikea/the_ikea_way/history/index.html

Sergey Golubitckiu, 2009, "Ingvar Kamprad", Evotrade forex, http://evotrade.ru/best/ingvar-kamprad/

Demetris Vrontis, 2003, "Integrating Adaptation and Standardisation in International Marketing", Journal of Marketing Managament, 283-305

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