Russia Jumps on the Brand Wagon

RAPAPORT... As Russia becomes a more consumer-oriented country, jewelers are trying to create brand identities for their products.

In Soviet times, Russian cities had few jewelry stores and the ones that did exist were usually marked by long queues of shoppers and limited product choice. Now jewelry stores are a more common presence in shopping areas in Moscow and throughout Russia. Along with clothing and cell phone merchants, jewelry dealers are reaping the benefits of the Russian consumption boom. Jewelry sales are growing at around 20 percent a year and have reached $3 billion annually, according to industry estimates.

But industry observers say jewelry sales would grow even faster if Russian companies could create strong jewelry brands, brand names and brand identities. Currently, jewelry customers don’t even have opinions on whether they prefer one brand over another. Many times, they don’t even know the name of the company behind the jewelry they purchase. Russian jewelers are concerned that unless they can create strong brand identities, they will lose sales to foreign producers marketing strong, established international brands.
 

BRAND VERSUS DESIGN
According to RusJewellerExpert research, fewer than 2 percent of Russians consider a brand’s name when they buy jewelry, while 33 percent — the highest percentage figure in the survey — are driven by design preferences in their jewelry purchases.

“The Russian jewelry market is nascent; it is still being formed. There is not yet a jewelry culture and people often don’t know what they want,” says Nikolai Afanasiev, deputy director of Smolensk-based Kristall. For jewelers, the lack of brand identity hinders their marketing efforts with buyers and increases the risk of losing sales to branded competitors. So they are fighting hard to come up with new names and brands that will resonate with customers.

Companies in the low-end jewelry segment are following the example of retail chains by opening up to 30 small shops a month and wooing customers with discounts. Moscow-based Yashma Zoloto, one of the country’s three top companies in number of shops, has pledged to open a store by every subway station in Moscow. “An extended network of shops is the best way of getting our name to the customer because people don’t trust advertisements much these days,” says Dmitry Zavrazhnov, a branding expert from Moscow-based New Angle marketing strategists. He says although discounts are a good way of attracting customers because they play well to consumers’ craving for a bargain, it’s hard to form a brand name with loyal customers when accenting low prices.


ELECTRONICS PREFERRED
Slogans like “diamonds at a 50 percent discount” provoke many raised eyebrows in the industry, as some jewelers say this places rings and chains in the same category as clothes and cell phones. According to research by the Russian Jewelers Guild, only 4.2 percent of Russians choose jewelry as a present, compared to 40 percent who buy cell phones and 26 percent who prefer cosmetics.

“People are not brainwashed from the [television] screens that they need to buy jewelry even though jewelry is a good and precious present,” says Pavel Sidorenko, marketing director of Moscow-based Adamas. Adamas is one of those companies that prefers to build its reputation on the idea that “jewelry is something of value.”

Russian manufacturers say the current consumer spending boom is not enough to secure stable future growth because they face increasing competition from imported goods, which are produced at less cost and sold at lower prices.

The possible entrance of Russia into the World Trade Organization (WTO) would make the situation even tougher. “If there is no brand [for our products], then anyone can come from abroad and get a market share by offering lower prices,” says Sidorenko.


THE CHALLENGE
Creating a brand name that will have loyal customers — assuming they also get expected quality, design and service in a store — is nothing new to the jewelry world. However, implementing this idea in Russia faces a number of challenges peculiar to the country.

Before Russian companies can convince consumers that their brands deliver good quality, they have to convince them that quality jewelry actually can be made inside the country. “What is a stereotype of Russia? It is caviar and vodka; diamonds are De Beers and South Africa,” says Sidorenko. “Russians have an established idea that everything foreign is good; we need to change that,” says Dmitry Gavrilenko from Moscow-based Estet, a jewelry manufacturer that is trying to make a name in the premium segment of the market.

In the luxury segment, this stereotyping of Russian goods as lower quality is probably even stronger than in other product segments. Tiffany, Chopard and Cartier were the three most preferred brands named by the guests at Russian Fashion Week, a first-class event especially designed for Russia’s rich and affluent. According to a poll at the event by Russian-based ROMIR Monitoring, those three international brands were recognized by 10 precent or more of Fashion Week guests, while the Russian brands, like Adamas and Almaz-Holding, had less than 3 percent recognition. However, 43 percent of the guests couldn’t name any preferred brand.

For many Russians, “foreign” is the equivalent of high quality. Jewelers say part of the reason is that Russian consumers don’t know much about stones and their characteristics. In response, Kristall has launched a public education campaign about diamonds and diamond quality. “We see our mission as showing people that all diamonds are different and they should pay attention to their characteristics to get real value for their money,” says Afanasiev. The company also has published a series of leaflets to be distributed at exhibitions that explain the 4Cs of diamonds and it published a special informational feature on diamonds in a recent issue of the Russian edition of GQ. Smolensk Kristall, which exports most of its product, started expanding domestically several years ago. With domestic sales now growing at 20 percent a year, the company is working to get its brand — known around the world — recognized at home in Russia.

Jewelers say creating a mechanism to certify and guarantee diamond quality also would help build trust between companies and consumers and help to build brand loyalty. Russia’s Assay Chamber regulates the quality of gold, but not the quality of stones. “In Soviet times, the state guaranteed the quality of jewelry items,” says Valery Radashevich, the director general of the Russian Jewelers Guild. “We want to introduce a similar system.” The guild is considering a voluntary rating system — something of a Zagat for jewelry stores. Another idea is to introduce industry-wide stone certification. The Smolensk Gemological Center (SGC) has been issuing certificates for the past two years. Expanding certification “will increase the cost of goods, but it will be a guarantee to consumers,” says Radashevich. It appears that both customers and producers are willing to incur greater expenses for the sake of quality control. “If all big jewelers start providing certificates, customers will demand them everywhere,” says Sidorenko.

If all these measures are implemented, the “made in Russia” label may become a strong selling feature in the future. “We emphasize that our jewelry and stones are produced in Russia and that we put our soul into their creation,” says Estet’s Gavrilenko.

Russian jewelers, however, are concerned their individual voices are not enough to put the message out fast enough. There has been talk about creating a syndicated advertisement for at least the past two years, but that discussion has not yet produced any tangible results. There have also been many requests to ALROSA, the world’s second-largest diamond miner, to start advertising diamonds under its own brand name, the way DeBeers did decades ago.

ALROSA representative Andrei Polyakov says the company is different from DeBeers in that it is mainly focused on mining. “Our current priority is shifting to underground exploitation. We may think about coming up with a brand when implementing our new supply strategy,” says Polyakov.

Although the names of some Russian jewelry companies are becoming more familiar every day, they are still not recognized enough to qualify as brands. “It’s hard to say now who will really create the first jewelry brand — a supermarket-like chain or a premium segment boutique,” says Zavrazhnov. “But this only means that the opportunity is out there in the market.”

Article from the Rapaport Magazine - March 2008. To subscribe click here.