RUSSIAN LOYALTY MARKET: BEAR HAS WOKEN UP
The history of Russian loyalty market started not so long ago. In 1998 it consisted of just three programs – 2 air companies (Transaero and Aeroflot) and a restaurant chain Rosinter with its “Honored guest” program. Today no one knows exactly how many loyalty programs exist in Russia, but the right answer is “many”.
The boom
The recovery from the economy turbulence of 2008-2009 caused the unseen interest of Russian business owners in customer loyalty followed by thousands of new loyalty programs launched in the next couple of years. Now almost every B2C and many B2B companies have some kind of customer incentive program.
The quantitative growth of the market is still not finished. In the last six months the Russian Railways’ loyalty program was launched. The program from the largest telecommunications company Rostelecom and the second largest bank VTB24's program "Collection" have also been announced. Additionally, the federal postal operator Russian Post announced the federal roll-out of its point collecting program.
Obviously Russia demonstrates impressive figures for the invasion of loyalty cards into customer wallets. According to the results of a poll of Russian middle class women in the age of 24-37, carried out by E&A Loyalty Ltd., the average amount of cards in the wallet is 7, one family holds more than 30 cards, and 17% customers use their loyalty cards every day.
During the last few years Russia is the focus of attention of many large international players such as industry leaders Microsoft, with their product MS Dynamics, Oracle (Siebel), SAP and Comarch, already represented there. Short-term loyalty program operators such as ‘The Continuity Company’ and ‘Brand Loyalty’ are competing for the Russian retail chains business. In 2012 Italian operator Seri Group also entered the Russian market.
Information coverage is also improving. There are two well-developed Russian Internet portals focused on customer loyalty issues and one professional magazine published bimonthly. The professional community is also developing. Thus, a stable pool of well-known customer relationship experts/opinion leaders including Konstantin Gontmaher, Konstantin Harskiy, Maxim Mozgovoj etc. has been formed. During the last few years three large professional annual events were held in the market , two of which are organized by large international companies such as Terrapinn and BlueBusinessMedia.
However, until recently Russian loyalty market has lacked a number of vital elements of the developed market.
1. Lack of information
First of all, despite the obvious rapid growth of loyalty programs, the Russian loyalty market is still one of the least evaluated amongst the CIS countries. The main characteristics of the market are still unknown, as no one has ever measured them. Since the loyalty boom had started, just a few studies have been conducted. Unfortunately, none of them answered the question about the current market volume. There is no practice of market participant’s surveys, so most professionals cannot rely on aggregate indicators and are forced to find their own way in the project development, or focus on foreign practices.
2. Technology weaknesses
Although Russia operates a number of loyalty programs, most of them are transactional and do not generate customer behavior or provide member insight. Only a few big companies actually work with customer segments formed as a result of customer data collection, and I cannot name any company that use loyalty program data to improve its business performance.
3. Law and taxation issues
Russian legislation in the loyalty field is just forming. A number of controversial court cases in the last two years have shown the necessity of clarification in the law and taxation. The most remarkable of all is the case of the biggest coalition program Malina. The tax authority charged the operator of the Malina program, Loyalty Partners Vostoc, more than EUR 2,5 million in taxes. Loyalty Partners Vostoc lost in the first instance and the appeal, but won the cessation. The result of the judicial dispute was unexpected, thus, after the 1,5-year long case , the parties decided to conclude by the way of agreement. At present, Russian companies are concerned about the possible risk of penalties due to the different methods of the tax calculating.
Getting adult
The actual state of the market demonstrates some indicators in the transition of the Russian market to the age of maturity.
First of all, if 2007-2009 were the years of the independent one-owner programs, the current developments indicate the stage of integration, partnership programs and co-brands. Announcements of the new partnership deals in Russian loyalty market, including the collaboration of the programs operating in different market segments, are quite basic and published almost daily.
The interest to aggregate market figures has also increased. The initial results of the year two new studies of two major marketing research companies - RBC and Romir have recently been published. Furthermore, RBC organized its own public forum, which has gathered about 200 loyalty market professionals.
The market growth has created a deficit of qualified personnel, although led to the increase of income in this field and the demand for study programs. As a result, a number of new learning courses and seminars including the short version of a well-known loyalty course of Mike Atkin (author of mini-MBA in Loyalty successfully being presented in London, Dubai, South Africa etc.) were announced and held in 2012 . Some big companies have realized the importance of the customer in the new economy and responded by appointing new top and middle management positions in customer management.
This year demonstrated the sort of shifts in the segment of law and taxation, most of which are as a result of the agreement by Malina with the tax authorities and the informational letter of the Ministry of Finance stating that customers/program members should not pay tax for collected bonus points. With a number of other precedents these cases leave hope for a clarification of legislation uncertainties in the near future. Finally, the first Russian association of loyalty market professionals was founded in July 2012 .
Russian loyalty program professional community has a lot to do to become an example of a modern developed market. But its actual trend allows us to conclude, that young bear has woken up and, we could see the new era of Russian loyalty market – the era of self-actualization and self-organization.
