I’m very excited to publish this interview on Russian Search Tips. Leighton Peter Prabhu is a partner in Interstice Consulting LLP and head of the Russian office. He has been living in Moscow for 7 years, and since 2008 has been helping foreign companies to establish their e-commerce operations in Russia. Coming originally from Canada, Peter created a successful business in Russia and feels right at home in Moscow.
In this interview Peter shares his experiences and knowledge about Russian e-commerce and gives some great pieces of advice to companies and entrepreneurs who are considering entering the Russian market.
So, Peter, why did you come to Russia?
I came to Moscow on a business trip roughly 9 years ago and found the environment really different and energetic. I was living in New York at the time. I knew from the start that I wanted to live in Moscow. It was only after this personal decision that I started to think about what kind of business or job to undertake.
Love from the first sight then! :) What do you do today? Tell me a bit about your company.
We work with innovative e-commerce brands to adapt their businesses to the Russian market. We’re not only offering consulting, but also offer operational services. We manage customer service, order flow, payments, PR, events and marketing. We essentially operate as their outsourced Russian branch. Our industry focus is in fashion / soft goods and our clients come from a range of countries including Australia, Canada, Singapore and USA.
We also offer consulting advice to financial investors in the Russian tech sector, as well as to larger e-commerce companies on specific aspects of Russian localization.
Interesting! What was your first project in Russia? What did you find most challenging, and what was most fun?
My first e-commerce project was selling children’s clothing. It involved the complete operation — designing the site, sourcing suppliers, clearing the goods through Russian customs, taking product photos, running advertising campaigns, taking customer calls, deploying couriers and processing cash payments.
Dealing with Russian customs was the biggest headache because the process is not within one’s control.
I remember the first day that the site went live and we received 10 orders just during the morning. It was very exciting, until I found out it was because we were over-bidding on Yandex for keywords and had spent nearly our whole monthly budget in 1 day!
What trends do you see today in Russian e-commerce development?
There’s a much greater international awareness of Russian e-commerce.
US companies are going global earlier, as they realize that emerging markets will account for the majority of future customers. They’ve also seen that the earlier generation of companies which were slow to enter Russia have not been able to supplant their local rivals. VK wouldn’t be where it is today if Facebook had focused on Russia sooner. Google would also have a stronger market presence, but it’s far from clear that it could be #1 over Yandex, as Yandex pre-dates Google and generally out-innovates them in the Russian context.
Russian e-commerce is also a focus area from the East, as companies such as Taobao, Alibaba and Rakuten are active in the market.
Investors are also increasingly focusing on Russia, for similar reasons. Russia has the largest Internet user base in Europe and will soon have the largest consumer market.
In general, a lot of capital is being deployed in Russia. People are seeing that the market is at an inflection point and, as in other markets, there is a huge advantage to being the market leader.
And still a lot of companies see Russia as a difficult market. What are the biggest challenges in Russian e-commerce today in your opinion?
While a lot of money has been raised by the largest e-commerce companies in Russia, it’s unlikely that any of them are currently profitable once the costs of customer acquisition and, especially, product fulfillment are taken into account. Delivering goods to customers across a huge country like Russia, particularly without the benefit of a reliable national postal system, involves significant costs and time.
The issue with cash payments is also important and somewhat related to the lack of a reliable nationwide public postal system. People would be more willing to pay online if they had confidence in being able to return products.
From your experience, what are the most common mistakes that foreign retailers make when entering the Russian market?
Customer acquisition in Russia is different from other markets.
Russians expect a lot more touch points with businesses even if they order over the Internet. Foreign retailers usually design their processes to avoid personal contact with customers, opting for full automation wherever possible. This just doesn’t work in Russia.
They also need to appreciate that the economics of e-commerce are different in Russia. Conversion rates are lower because of the less mature consumer market, but so are customer acquisitions costs, at least in terms of PPC advertising click costs. On the plus side, Russian customers are less price sensitive and the overall retail market is less competitive, so price levels are generally higher in Russia than in the foreign retailer’s home market.
Analytics and attribution of sales to specific campaigns are also more complicated because of the significant offline interactions. So, in general, the metrics they use to measure business success should be adapted for Russia.
Finally, most companies also over-estimate the value of their existing brand goodwill. Unless they are as big as eBay, ASOS or Amazon, they basically are starting from scratch with Russian consumers and need to invest in establishing their local reputation.
If you were to give one tip to a foreign retailer preparing to enter the Russian market, what would it be?
Russia is a lucrative but challenging market. Newcomers need to understand that they face significant competition and must be prepared to invest in building their brands. They need a specific strategy for Russia and must adapt to the market practices and spend time to understand the differences between their existing online marketing and the major Russian platforms like Yandex and VK (or outsource it to local experts). From the other side, Russian consumers are also selective and have a lot more choice than 10-15 years ago when the country was just opening up.