[MUSIC] The decision on price lies between charging a premium or low price. It may be based on two approaches, market skimming price strategy and penetration price strategy. The first approach is typical for the introduction of new products, such as consumer electronics by Apple, Samsung, luxury brands like Louis Vuitton, Prada, Dior, or Chanel, etc. In this case, the companies are going to reach a market segment that is willing and able to pay a premium price for a particular brand or a unique product. This is just to mention that sales of luxury products are not strongly dependent on our crisis in Russia. And the wealth of the richest layer of the population in the country does not shrink. The second approach is a penetration price strategy, aimed to gain a big market share as soon as possible, or to maintain a market position. Some brands of fast moving consumer goods, such as home care products, packaged food, could be introduced at low price. This category frequently said by foreign companies that have cost leadership benefits. Foreign companies' price policy development should be based on a factors analysis. Price policy factors are divided into two groups, internal and external. Internal factors include the company's objectives with regard to the Russian market, for example, high revenues in the short run, or higher market share and postponed target revenues in the long run. The foreign companies' fixed and variable costs of production, price escalation, including possible extra costs of market research and new product developments or adjustments, customs, duties, etc. And how the market makes decisions like product position strategy, type of distribution channels, promotional tools, etc. External factors are the following, the target market demand and the revenues. For example, for price policy development, a company should have in mind the income differences of ration consumer groups. Product lines could include items whose high, middle, and low prices aimed at different segments. The perception of the brand, for example, international well-known brands, their associations with status, etc, are in favor of high price. Competition, a main competitor's price policy and price level, the reaction on particular foreign company price decisions, and etc. In addition, foreign companies should pay attention to the situation in the Russian economy. The level and dynamics of inflation, fluctuations in the currency exchange rates, consumer purchasing power, access to loans, government policies and regulations, etc. Talking on distribution decisions in Russia, let us consider a consumer market as an example. Today, one of the most important layers in the distribution channel of consumer goods is a retailer. Russia's retail sector includes different formats. It has been also showing considerable changes over the last several years. On the one hand, one could observe the development of large-scale retail formats like shopping malls, hypermarkets, and supermarkets. On the other hand, today, we could underline the increasing role of convenience stores, retail format, and discounters. They are gaining popularity with the advantages of location and often product categories to meet daily essentials. And there are specialty stores that are still important for some branded products, such as health and beauty, leisure, and personal goods. Another trend is the penetration of foreign retailers into Russia. They used to start their business in Moscow and St. Petersburg, and gradually moved to other large cities in remote regions. As a result, foreign companies have options to include local as well as foreign retailers in their distribution channels in Russia, or develop corporate stores. In high-end luxury goods segments, mainly major films have decided to develop independently through their own stores. Gucci, Prada, Chanel, Louis Vuitton are among them. Now, let us look on decisions on distributions for foreign companies interested in grocery market in Russia. It's one of the most attractive and promising in Europe. Today, the market leaders in grocery retailing are local retail chain stores adopted to Western way of retailing. They are X5 Group, Magnit, Linda, and Dixy. Among the top five large retail chains Russia, there is only one foreign company, it is the French retailer Auchan. Such companies as Metro, Ikea, Leroy, and Merlin have large-scale business in the Russian market as well. Some goods of Russian producers as well as foreign ones are sold under the private label of the retailers. Large retail chains launched their own brands to satisfy the consumer demand for high-quality products at affordable prices. Today, the importance of private brands is increasing. While Russia's share of private labeled products is not so high as in some Western countries, one should not underestimate the importance for its branding and promotional decisions. E-commerce is increasing its role in distribution in Russia. Today, one could observe the omni-channel business model development. In this case, most retailers are operating both offline and online. They seek for integration of their physical and virtual stores. Foreign companies have an option to combine sales online through their own Internet shops or famous marketplaces, local or foreign, with traditional channels of distribution. The fast development of Internet retail in Russia could be illustrated by the fact that it showed a threefold growth over last five years. The prospects for e-commerce development in Russia, are connected with the large number of Internet users. It reached 93 million people into 2019, and the penetration level of 76% of Russian adults. Mobile users equal to 67 million, the penetration level stands at 61%, and it is among the highest in the world. Taking into account the shift to mobile online purchases, we could recommend foreign companies to adjust their website to mobile format. At the same time, the level of online retail turnover in Russia is considerably less compared to some Western countries. Thus, e-commerce accounts only for 4% of total retail turnover in Russia in 2018. Consumer demand for more convenient and cheaper shopping, saving time and money are among the drivers for online sales growth in the future. The most online sales occur in Moscow, St. Petersburg, and other big cities. However, there is a potential for future e-commerce growth in other regions, in small cities and rural areas. Currently, the most popular products of Russian Internet shops are clothing and footwear, children's goods, bath products, groceries, household appliances, mobile devices and accessories, and leisure items. There is a list of products and services banned in Russia for online sales by the legislation, for example, alcoholic beverages. Across-border trade accounts for 28% of online retail in Russia. And it could be seen as one of the most promising distribution channels. AliExpress, Amazon, eBay, and many other marketplaces could be used as channel for Russian market penetration of foreign company goods.
