eCommerce in Russia

Dr. Carl F. Fey

Associate Dean of Research

Stockholm School of Economics in Saint Petersburg

and

IIB, Stockholm School of Economics

Research Purpose:

To investigate the current state of eCommerce in Russia and its

prospects for future growth To understand which eCommerce business models are most

successful in Russia To determine the extent that eCommerce can help Russia increase

its international competitiveness

Research Sample: Based on interviews with managers from 20 firms (dot.coms and brick and mortar firms) using eCommerce in Russia

Internet Use is Growing Fast in Russia About 4 Million people have access to internet (some sources suggest up

to 9 million people). 1.35 Million PCs were sold in 2000 is growing at 20%/year. In some Russian regions (e.g.,St. Petersburg) the PC penetration is 33%. 42% of Russians access the internet from work.

The number of Internet users in Russia, millions:

0,40,75

1,362

3,2

4,3

5,8

0

1

2

3

4

5

6

7

1996 1997 1998 1999 2000 2001F 2002F

(Source: Exportrådet, 2001, US Commercial Service 2000)

eCommerce has Arrived in Russia 500 on line shops are registered in Russia, about 50% of

these are active and generate about .7 million USD/month in revenue.

About 30,000 retail transactions are carried out per month by approximately 20,000 physical persons = 5-10% of internet users.

Boradband will become more available in Russia soon (e.g. webplus and Peterstar in St. Petersburg)

The number of e-shops in Russia:

120

250

350

500

0

100

200

300

400

500

600

11/1999 02/2000 05/2000 09/2000

(Source: Exportrodet, 2001)

Challenges to eCommerce Development in Russia

Few people have credit cards in Russia (about 4% of population and 18% of internet users)

Poor infrastructure (telecommunications, transportation, etc.)

Need to keep high stock levels The Russian postal service is not very reliable Lack of a clear law dealing with electronic signatures Internet security Lack of trust Development of a functional judicial system

eCommerce has Good Potential in Russia

High transaction costs of conducting traditional business, thus potential to increase effectiveness and efficiency of commerce

Large market size Large number of ISPs emerging The need for remote ordering/delivery due to weather,

geography, and security issues Russia has many good programmers The Russian population is technically-interested and thus

interested in computers and eCommerce

Choose a Target Segment

Degree of fit with existing channels Segments can be:

– Demographic segments (e.g., 50+)– Benefit segments (fresh vegetables and

convenience)– Combination

Focus on Key Customer Benefits

Best service Widest assortment Lowest prices Best experience Most personalized

Be sure focal customer benefits are clearly communicated to potential customers

9

Consumers Care About More than Low Prices On-line

19

22

23

24

24

45

49

49

58

65

0 10 20 30 40 50 60 70

Product Price

Product Selection

Web Site Navigation & Locks

Product Information

Ease of Ordering

Privacy Policies

Product Content

Product Shipping & Handling

On-time Delivery

Customer Support

PERCENTAGE OF CUSTOMERS WHO CARE ABOUT ATTRIBUTE

AT

TR

IBU

TE

Source: JP Morgan Report: etailing and the five Cs

Models to Deliver Customer BenefitsAlternative

Models Best Service

Widest Assortment

Lowest Prices Best

Experience Most

Personalized

Description

Good service in a timely manner, high value-added information

Widest assort-ment within the category

Lowest prices within category

Highest quality merchandise and ease/convenience of purchase

Highest level of customization

Examples

Lira.ru? XXL.ru Books.ru Ozone.ru Formoza.ru

Value Source

Premium pricing based on percep-tion of best in-formation

Selective pre-mium pricing

Unclear Level of Luxury Premium drives

prices

Level of customi-zation drives premium pricing

Key Success Factors

Timeliness of in-formation and help

Perceived quality and quantity of information

Reduce uncer-tainty in offering

Quality of infor-mation and value-added ser-vices

Operational ex-cellence

Supply-chain management

Convenience Much information Good organization High quality

Deep Customer Knowledge

Ability to adjust what customer sees for individ-ual customers

Key Threat Factors

Customers do not perceive suffi-cient gap with generic offerings

Competitors match market leaders

Cost of “fresh-ness” becomes prohibitive

Specialization within the cate-gory

Emergence of dominant brands

Shopbots Lack of profit im-

perative Shifting investor

confidence Re-engineer total

process not price Niche markets

Subniche markets emerge by cate-gory

Symbolic brand loses appeal

Technology ad-vanced lead to “me-to” products

Revenue Models

Advertizing Sales of good or service Transaction Subscription

 

Computers and Internet

 

Value

 

Uniqueness

Comple-mentarit

y

 

Efficiency

 

Lock-in

Ease of Use

 

Product/Service

Availability Ease of

Search

Computer Progamming

Financial Resources

Telecommunications 

Trust

Information Security

Customs and Delivery

Legal and Regulation

Support Institutions

Payment Systems  

             

Formoza (www.formoza.ru)

Russia’s largest producer of computers Based in Moscow Sells to the region via a network of stores in the regions. Computers with web access to Formoza in each store to

provide information on full product range, delivery times, prices, and facilitate orders. Store-specific modification.

“We decreased expensies using eBuisness without increasing the costs too much….The result is that we can enlarge the network of partners we work with to smaller stores”—Serge Polansky, Manager of Commercial Department

Books.Ru Organized on August 30, 1996 - spun-off of a publishing co. Focuses on books about computers, the economy, and

finance, but also has a general collection Has 28, 636 books in stock and 3985 CDs Targets individuals (programmers) and retailers Has 2 different sites for each client group: Books.ru and

Opt.books.ru Has systems for payments and distribution Includes delivery charges into purchase price Has a next day delivery service Sells to Russians at home and abroad - 25% of all orders

come from abroad

I am absolutely sure we are the only online profitable book shop. Alexander Galunov, Books.Ru

-

Payment Systems

– Only 4% of Russians have credit cards and thus there is a high need for other payment solutions.

– Most goods ordered through the internet are now paid for in cash - more than 80%

– There are about 15 different Internet based payment systems offering financial services in Russia:

- Digital money - Smart cards- Scratch cards- eBanking

Key Findings and Conclusions eCommerce offers Russians a possibility to increase efficiency and

effectiveness. Russia’s vast size and lack of products in the regions offers good

possibilities for eCommerce Reach is limited by the low technological sophistication of partners,

an absence of laws and trust, and the high costs of Internet security. Demand is limited by limited access, low incomes, and distrust Government involvement should be limited to the following

activities: • Improving infrastructure (e.g., telecoms, roads)

• Implementation of laws on electronic money and signatures

• Education

• Promotion of Russia as an attractive place for eBusiness