The CMO Survey Blog

The Riddle of Marketing in Russia

This post was co-authored with Evgenia Barkanova, Irina Kudryashova, and Irina Melnik, all MBA students at the Fuqua School of Business, Duke University.

Winston Churchill said, “Russia is a riddle wrapped in a mystery inside an enigma.” This becomes clear when thinking about U.S. companies marketing in Russia (more properly called the Russian Federation). Results from the last CMO Survey indicate that Russia is the international market with the highest sales growth rate. Sales are reported to have grown an average of 57% for U.S. companies that designate Russia as their largest international market. This compares with India at 38%, China at 26%, and Brazil with 19% growth.

Where is the enigma inside the Russian marketing mystery? Consider these facts. Russian is the world’s 6th largest economy. A member of G8 and G20, identified among the BRIC economies, and a recent entrant to the WTO, Russia is an emerging economic powerhouse. Strong earnings from the oil/natural gas industry have grown the overall economy and allowed the country to diversify its economy while retaining an above average GDP growth rate of 4.1 % from 2010-2012 according to the World Bank (compared to 2.4% for the USA). Even with these impressive credentials, Russia remains a difficult market for many foreign companies for a variety of reasons. What should U.S. marketers know about this Russian riddle? We collected the following case studies involving non-Russian and Russian companies as well as several interesting facts to offer these insights.

1. Sochi 2014: All eyes on Russia: The 2014 Winter Olympics in the Black Sea resort of Sochi promise a wealth of opportunities for foreign firms and investors. An estimated $50 billion will be spent on more than 40 transport, housing, stadiums, and other modernization projects along with upgrades in telecom, energy, and environmental protection to convert Sochi into a winter sports wonderland. Participating in this important international event could help non-Russian firms make inroads for future projects. Official sponsorships as well as using the Olympics for independent marketing events that piggyback on individual events and athletes could help build brand awareness among Russian customers. One threat is that the games may not go off as well as sponsors hope. The opening ceremony glitch with the Olympic rings is well-known by now and public perception of the games is so bad that @SochiProblems has already racked up ten times the followers compared to @2014Sochi—the official Twitter account for the games. The Olympic experience may serve as a metaphor for doing business in Russia … full of opportunities, but one is wise to prepare for more than the usual amount of the unexpected.

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CMO Optimism, Confidence, and Company Growth Strategies

Results from the February 2014 edition of The CMO Survey, a biannual survey of marketing leaders, offer strong evidence that markets are on solid footing. CMO optimism for the U.S. economy reached its highest point in five years. Asked to rate their optimism about the overall economy on a 0-100 scale where 100 is most optimistic, CMOs reported an average score of 66.1 which is nearly 20 points higher than a low score of 47.7 in February 2009 (see Figure 1). This optimism occurred across all sectors, ranging from manufacturing to biotech and consumer packaged goods.

Figure 1. How optimistic are you about the overall U.S. economy on a 0-100 scale with 0 being the least optimistic and 100 the most optimistic?
Figure-1,-2-14

Underlying this optimism are improvements in key customer metrics such as increased entry of new customers into the market, increased customer acquisition, increased purchase volume, and increased customer retention. These top marketers also predict that customers’ top priority over the next twelve months will be a focus on product quality, not on low price. This shift indicates a belief that consumers are ready to spend again and are less interested in cost savings.
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Marketing in a Technology Company: GE’s Organizational Platform for Innovation

This post was co-authored with Anna Chavis and Jace Moreno, MBA students, Fuqua School of Business, Duke University.

At a recent roundtable discussion at Fortune’s Most Powerful Women Summit, Beth Comstock, the Chief Marketing Officer of GE, described how GE approaches marketing: “You have to create a platform that invites innovative ideas.” Unfortunately, we teach marketing and many companies approach marketing as if the organization does not exist. As a result, marketing often fails because it sits outside, or is layered on top, of the most important activities in companies. Marketing needs to be down in the trenches and marketing leadership needs to foster a culture of innovation that creates new products, new services, and new customers.

GE has written this approach into its DNA. In particular, GE’s culture ensures that technological innovation (the historical backbone of GE) and commercial innovation (managing with deep consideration of the customer’s needs and wants) are inextricably entwined. We interviewed Beth Comstock during her visit for the Distinguished Speaker Series at the Fuqua School of Business, Duke University. From this talk and from other press accounts, we derived four capabilities that constitute GE’s organizational platform for innovation. We discuss these capabilities and offer examples of the new products, services, and customers that have resulted.

Capability 1: Create Marketing Innovation Internally

A big feeder of GE’s marketing innovation is the ECLP—Experienced Commercial Leadership Program—GE’s first externally focused leadership program. ECLP began in 2002 as part of Jeff Immelt’s commitment to grow GE’s commercial pipeline and aims to position GE as the “gold standard in marketing.” The two-year post-MBA program develops a pipeline of future leaders and also teaches the company what good marketing is and how it has the potential to change traditional views of product development. The program is viewed as a mutual learning experience—the graduates bring an external perspective and unique talent to GE and program participants learn from GE’s R&D expertise. As Comstock noted, “Marketing must bring a different viewpoint to tough problems. This involves data analytics that produce customer insights and the ability to address customer needs in a creative manner.” She went on to point out that “The best marketers are the ones who have both the creativity and analytical skills in the right proportion.”

Capability 2: Integrate Collaboratively Within GE

There are two key illustrations of this capability—the Commercial Council and the Imagination Breakthrough Process.
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Innovation, Cash, and Courts: The New Reality of Tech Growth

This post was co-authored with Matthew P. Manary, Ph.D. Candidate, Fuqua School of Business, Duke University.

In addition to studying product-market strategies for company growth, I have also been asking CMOs how they use a set of “firm boundary” strategies to grow. In response to the question to “Allocate 100 points to reflect how your firm will grow during the next 12 months,” The CMO Survey™ (August-2012) reports that the majority (68.9%) of growth is expected to be organic or from within the firm’s own boundary, 12.9% from partnerships (ranging from alliances to joint ventures), 12.2% from acquisitions, and 6.1% from licensing arrangements. Organic growth gives the firm more control because growth activities happen within the firm boundaries. It does not go to the “market” for goods or services and therefore does not have to manage a partnership or licensing agreement. It also does not extend the firm’s boundary (sometimes called a “hierarchy”) to include a new firm which gives more control, but is also more expensive and may dilute the firm’s focus. At the same time, organic growth is potentially more costly because the firm must learn to do things that potential partners or acquisition targets have already mastered.

Results show that organic, partnership, and licensing growth activities have not changed significantly in the last four years of The CMO Survey™, despite minor fluctuations. The use of acquisitions as a growth strategy, however, has steadily increased. Figure 1 shows this progression from 8.8% in February 2009 to 12.2% in August 2012. There may be many reasons for this—companies have cash on hand or can get low-cost loans to make acquisitions, acquisition targets are cheaper, or firms are engaging in riskier growth (new markets and new offerings). The latter appears to be true based on data from The CMO Survey™ as I noted in an earlier blog. (more…)

A Fast Boat to China: How U.S. Companies Are Navigating the Marketing Waters

The saying “a slow boat to China” means something that takes way too long to accomplish. More and more, however, that expression doesn’t match reality. The Chinese market is an increasingly attractive market for U.S. firms and the smart ones are moving there quickly.

Here is what I found in The CMO Survey (August-2012). In response to the question, “Which international market is your highest revenue growth,” 21.5% of CMOs responded with China. This is up from 16% reported just six months ago (The CMO Survey, February-2012). In response to the follow-up question, “Considering this international market, by what percent did your sales revenue increase in the last 12 months,” CMOs reported a whopping 51.5% increase! Here is a list of some of the strategies that seem to be paying off when selling to and in China.

  1. Localize products (somewhat). In the fall, Häagen-Dazs sells ice cream moon cakes in order to celebrate the mid-Autumn Festival. Mid-Autumn Festival is an important day for the Chinese, marked by family reunions and gift-giving. Eating and gifting moon cakes is an important part of the tradition. Häagen-Dazs mooncakes can be eaten in shops or can be bought in gift boxes. The company also sells coupons, which many to companies give employees as gifts for the festival. Häagen-Dazs also offers an “ice cream hot pot” which is a special treat for small groups or parties. The hot pot is a big palette of different flavored ice creams and a pot of chocolate sauce. In another example, KFC derives almost a third of its total company revenues from China through its 2000 outlets across the country. KFC localizes by introducing dishes that match Chinese customers’ tastes. Two examples are the Beijing Chicken roll with sea food sauce (similar to Beijing duck, a traditional Chinese dish) and Spicy Diced Chicken (resembling a popular Sichuan-style dish). Both Häagen-Dazs and KFC are big global brands that bring status, quality, and exclusivity to Chinese consumers. At the same time, they have localized some of their offerings to fit Chinese consumers’ lifestyle, tastes, and preferences. The appropriate balance of standardization and localization should be thought through for each brand and its customers. A good example of a high level of localization is Home Depot. As reported in the Wall Street Journal last week, Home Depot learned that the slogan “You can do it, we can help” or more recently “You can do it” wasn’t selling among Chinese consumers who don’t embrace the do-it-yourself culture common among Americans. Instead, as noted by WSJ, Chinese consumers prefer “” which means different products (that require less work from the customer) and additional services (that are sold with home improvement products).
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Economic Pessimism and Strong Company Performance Promote Risk in Growth Strategies

The August 2012 CMO Survey finds that company growth strategies will take on more risk in the coming year. Looking at Table 1, we can see that there two types of risk familiar to marketers—targeting new markets and offering new products or services. Combining these two, there are four general types of strategies that range from market penetration, which is the lowest risk because the company targets current markets with current offerings, to diversification, which is the highest risk because the company targets new markets with new offerings.

Table 1. Types of Growth Strategies

Similar to past CMO Surveys, growth spending over the past twelve months reflects a dominant focus on market penetration with an average of 51.7% of spending focused on this strategy. This is followed by product/service development (22.8%), market development (15.7%), and diversification (9.7%). However, as shown in Table 2, these figures are expected to shift significantly in the next twelve months. Growth spending on market penetration is expected to drop by 11.6% to 45.7% while all three of the other strategies are expected to increase by nearly 10% or more! These changes are consistent with a longer-term trend The CMO Survey has observed during this post-recessionary period.
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How Does Your Company Grow?

The CMO Survey has been tracking company growth strategies for four years. Respondents allocate 100 points among four well-known growth strategies to reflect what their companies have done over the last year and plan to do in the next year.

The four growth strategies are differentiated on two dimensions. The first dimension is whether the company is growing by deepening purchases from current customers or entering new markets (new from the standpoint of the company’s portfolio). The second dimension is whether the company is growing by trying to sell more of its current products and/or services or by offering new products and/or services. These two dimensions produce a 2×2 matrix of growth strategies (Table 1) called the Ansoff Growth Matrix.

Table 1. Types of Growth Strategies

Table 2 shows the percent of company expenditures for each strategy for the past 12 months and for the next 12 months. Most companies continue to grow through market penetration. This low-risk strategy usually yields more certain but lower returns. However, this number is expected to decrease. Companies are expected to take on more risk by increasing use of the remaining three growth strategies with an emphasis on product/service development (developing new offerings for existing markets) and diversification (targeting new markets with new offerings).

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A Fast Boat to China: Notes on Marketing

The CMO Survey reported that China will be the focus of the most dramatic increases in U.S. company sales revenues in international markets during the next 12 months. When asked to list the top three international markets for sales growth, approximately 20% named China. (more…)

A Passage to India: Notes on Marketing

The CMO Survey reported that India will be the focus of the most dramatic increases in U.S. company sales revenues in international markets during the next 12 months. India’s economic boom, growing per-capita income, and increasing liberalization of foreign direct investment (FDI) rules present opportunities for foreign exporters. Four sectors have attracted the most FDI in India over the last 10 years: services (21% of total), technology (17%), construction and real estate (15%), and automobiles (5%). (more…)

How and Where Do Your International Markets Grow?

The CMO Survey asks top marketers what percentage of their company sales comes from international markets.  Analysis of this question over time indicates that this percentage increased from 19.3% in August 2010 to 24.7% in August 2011. Exhibit 1 shows that this growth rate is unevenly distributed across sectors, though.  Product companies are showing big increases while services companies are flat.  (more…)