Russian Crisis: What Will Happen to the Online Market?
Rouble turmoil has shaken ecommerce and the online advertisement market. Key market players, such as Apple and Mediamarkt, shut down their online stores for a few days and raised prices overnight by more than 30%. The currency collapse will certainly affect purchasing power, bringing new challenges for online retailers. Nevertheless, in a long-term prospective the crisis might be an emerging opportunity for online market players.
iPhone 6 slogan 'Bigger than bigger' appears to be a perfect match for the Russian market: the price for the latest iPhone has almost doubled since its release in September.
Despite increasing panic, online retailing has a much better chance of surviving the recession without losses than offline. During the financial crisis in 2008, when a similar decrease in oil prices triggered recession, online sales and advertising demonstrated growth despite of macroeconomic destabilisation.
Russians recognise online shopping as value for money and in general are less likely to cut their spending on clothing and entertainment than European customers. While in most countries people tend to 'save for a rainy day', in Russia customers prefer to 'spend for a rainy day' since purchases of any kind are considered to be an investment due to high inflation rate.
Strong demand and the growing internet audience will keep e-commerce afloat, however the structure of the online marketplace will certainly change and introduce new trends in digital. Companies and agencies that are able to adapt to the new paradigm will become future market leaders.
Companies will become more cautious about their budgets, therefore there will be a significant rise in demand for new advertisement formats that can ensure effective cost management. Businesses will be looking for new technological solutions in order to reach marketing goals at a lower price. For agencies it will mean deeper integration to deliver an effective marketing mix. Clients are looking for a complex approach based on a combination of creativity and data analysis.
A shift towards performance marketing will most likely be paired with changes in usage of pricing models. The development of affiliate marketing has increased popularity of CPA model, which is also being introduced in mobile display advertising.
PPC is growing faster than all other channels of advertising: in 2014 it gained 28%, whilst offline media stagnated. The trend will continue in 2015, since contextual advertising is an affordable and effective marketing channel suitable for both large and small companies. Even with a limited budget, which will probably be the case for most companies during the recession, PPC in search engines can help ensure high quality traffic and sales due to its flexibility and accountability.
In addition, new market players expand to Russia showing confidence in the potential of the market. As a part of international expansion strategy, Twitter has just launched ad selling activities in Russia. High social media engagement rates open an opportunity for diversification of PPC campaigns in social platforms.
From luxury to low-cost brands
Russians are well known for their conspicuous consumption and purchasing goods that highlight social status. Economic uncertainty will change this pattern in consumer behavior to a great extend: only a small proportion of consumers will continue buying luxury goods during a recession. The vast majority of customers will switch to less expensive substitutes and will be more likely to search for better deals online. Price aggregators, multi brand online retailers, cheap booking services and marketplaces will be in great demand and will expand their market share, whilst foreign luxury retailers might have to leave the market.
Despite pessimistic macroeconomic forecasts and currency fluctuations, the Russian online market is least likely to be affected. Consumers switching from offline shopping to online will ensure the substantial and stable demand for ecommerce. Online retailers will have to manage their budget more rationally and adjust assortment to new consumer preferences, while advertising agencies will have to develop new solutions based on performance marketing approach.