Business episode dentsu conference 2021
[Maria Donskikh] Hello everyone! Every September dentsu hosts its big annual conference. We do our best to bring value to our partners, competitors and people working on this market, interested in marketing, advertising and sales. This year saw too many online conferences, so we’ve decided to produce our first business It’s quite short and has 4 episodes. It seems to be enough to get the concentrated knowledge
and quintessential of what’s necessary when planning 2022 I believe, we’re all interested in one thing that is to plan an exciting year of 2022. Today we’re going to talk about the main 3 trends. I will be the first to speak and then you’ll see key persons who have the best expertise in these spheres. Tomorrow the episode about marketing and ad strategies will be released. It will include 5 priorities
not to be missed. The third episode will cover creative and content. It will become clear by then why there’s so much attention to this topic. The fourth episode, the culmination of the series, where we expect to have all your attention, will be centered around trade, e-com and sales. Okay, let’s get to it, shall we?
It’s a problem. What’s the source of this data? The dynamics is less important. Consumer attention’s shifted towards them. The subscription’s up 67%. It’s a real chance to get the other attention of the audience. The consumer’s behavior has changes as well. We can see uplift by 8 or 10 times. It’s all about the convenience. -How do you think it happened? -I would treat this as a limited tool. -That’s a good recommendation. I believe that buying through segments is really efficient. If you want this polo shirt scan the code.
-The most successful influencers end up being on TV. It’s becoming less important where you’re watching them. - Yes. - To what extend they can control the value chain - “The factory of celebrities” You’re growing stronger. On marketplace the big brands with somewhat century history are very much less protected. Change goods, start doing promo very quickly. - What else needs to be considered?
- The choice of niche, the brand itself are crucial. This market is really emerging and will grow much more. Let’s talk about trends to consider when planning 2022. We’ll start by 2021. This year seems to be having a great ending. We’re growing and the market is growing more than it did in 2019. It will account to more than 550 billion RUB rub of marketing investment in Russia.
Next year is expected to see double-digit growth and to exceed the volume of 620 billion RUB. We get these figures using the scientific approach, using the model of CMASF and Short-term Forecasting, weighted the calculation with dentsu data. This brought us to having multi-factor models and the results as follows. I’m sure it’ll be valuable.
Yet, what’s behind these data is important. What are the changes on our market that are more meaningful than the dynamics? I believe, these are building the awareness and the changes in consumer behavior. I’ll talk about this in more details. Looks like it will be hard to build awareness in 2022. As an example, We have tv – on the one hand tv investments are growing and this is happening on the background of decreasing volume of inventory. If we compare May 2020 vs May 2021, we’ll see TV viewing reduced by nearly 1 hour. It’s back to the pre-COVID environment and TV viewing figure before the pandemic.
So the consumer’s attention is shifting from TV to long copies in digital for example. However, advertiser is not really welcomed there as well. The reason is that the share of AVOD dropped by nearly 18%. This means that OTT platforms choose the monetization via subscription which may be efficient for their business and unfortunate for us. Besides, the video segment is also losing the paying audience. If we take YouTube data globally, I believe Russia faces the same trend, we’ll see the subscription go up by 67%. This means that the paying audience choose to subscribe and avoid watching ads. All this narrows the sales pipeline.
This is the problem. The reason is that recently our market has seen the rise of tech startups, data and media solutions all focused on performance tools. While the problem is still on the top of the customer funnel. The wining solution here is to buy video as soon as possible, we all need early deals. Because the inventory for next year is scarce. Also we need to treat influencers as the tool to build awareness. We see consumer interest go this direction while the influencer market is not yet structures, properly measured, lacks benchmarking and bloggers’ planning remains an experiment. I recommend being part of these experiments
and treat them as such. It’s a chance to get different attention of the audience is hard to obtain through other well measured tools. Сonsumer behavior has also changed which is very important. E-com continues to grow.The share of e-com across all categories reached 5% last year, + 6% this year and 11% in total in sales now.
This is an increase by more than 100%. We can’t ignore this channel nor treat it as just a channel. Brands are growing +4% YoY while private labels are showing +17%. This means that consumer is choosing convenience and price over
goods and brands. “Brand power” starts slipping and we refer more to “experience power”. Convenience is king. Delivery services growth varies from 8 to 10 times on average which is impressive.
These are the full chains to be created ith a partner such as ourselves with the goal to understand how the consumer makes his journey through the pipeline. To see if he makes the full trip or misses out on the way and gets back. It’s really a challenging task. Moreover, we need to see the link between brand, data and content and see own development within marketplace. Ozon, X5, Samokat, Lavka - these are not just platforms, but also media and we need to know how to work with them.
One more important factor for companies producing and selling goods is that it’s becoming more complicated to operate the sales. There are so many new retailers, new ways of working, new competitors – some of them growing two times faster. All this accompanied by lack of data on sales and listings. To get this data together and build the chain to make decisions you’ll likely to need new roles and competences that you and your team may not yet have. How to tackle this? First of all, you need to get the overall market picture including listing, prices and sales – we have tools for all of it. Secondly, to configure the process so that everyone in sales work
together for real. his means linking digital specialists - normally the ones to work with e-com with commercial function. Also important to put logistics in the process because they influence e-com and trade sales a lot. To sum up. I want to talk about the meaning and the role of agency business because we are now in agency business series. I want to talk
about how we bring clear and measurable benefits. We are ready to help configure the process in 2022. We are ready to help make the right decisions – to provide data and share the benchmarks that we collect daily. Traditionally we are good at media planning and buying. Hi Lesha, how are you? Please share with us what is happening with TV ad demand now? [Alexey Tolstogan] Everything is good with the demand, all’s good and I’m also fine, thank you. The year of 2021 was really a good year for TV advertising market and the demand is huge.
We see this for this year and the next year, for autumn in particular. Feels like we are facing the recovery of TV and advertising market. We're glad to see these results. If you ask me about the forecast, I would say we’ll see TV as segment grow by 12- 13% versus previous year. That's what we will see by the end of this year.
What are the drivers for this? When something happens this is the set of factors there's no such thing as one driver for everything. Firstly, we have really great recovery after complicated COVID year with the lockdown, secondly two big sports events happened in 2021 which contributed to TV advertising market development. The state of economics and GDP forecast both by local and international experts say that the recovery of the economics is really fast. At the same time there are some additional factors that we witness in 2021, such as the return of advertisers to TV when they re-visit media split for the benefit of TV ads.
We’ve been interested about why this happened. The year of 2020 was an experiment for some of the advertisers when they’ve decided not to use TV at all. For example, in Q2 2020 some advertisers left TV being present in all other media, including digital. Almost every one of them that we met said that the brand metrics dropped. These are loyalty, purchase intent.
Awareness didn't decrease because it doesn't fall so quickly but other brand metrics dropped. So these advertisers said that the increase in ad budget in 2021 is the result of this experiment when they went off the air. So the situation of 2021 is the result of the set of factors favorable for TV that provides the 12-13% growth by the end of this year. I can say that these figures are surprisingly high and exceed our expectations and plans. Remember we met during negotiations of annual contracts of your clients? We gave a different estimation at that time and even those figures looked optimistic. What we see now is more than we expected and we’re really glad.
However, it raises the bar for other periods to come, so we will see. Let's talk about future achievements. Now we are into negotiations of early deals which is logical given the high demand. You are already mentioning high inflation rates.
I know that you are into market discussions about this. Can you please share with us? What do the advertisers that haven’t yet started the negotiations should be ready for? Indeed, in summer we started planning the next periods and not only 2022, but also 2023 and beyond. The demand and how NRA meets it relates to how satisfy all the needs of advertisers who ask for TV ads.
The only goal of NRA is to satisfy market participants at maximum based on price efficiency. TV channels should be happy, inventory sold efficiently. Advertiser should buy efficiently and we need to satisfy everyone to avoid the situation of 2021 when we had to raise prices several times during the year and that was not a pleasant thing for advertisers because no one expected this. Yes, because the budgets were planned and it was difficult to try to change in the process.
Now we need to consider this beforehand, so that the great demand we see for 2022 is properly handled, everyone could go on air and place TV ads. To meet all the demand for inventory that we see we need to have media inflation. It will be quite tangible, around 15-20% even for the increased budgets. To be mentioned that in 2021 media inflation was already 10%. This is quite an increase in price that is necessary to satisfy everyone’s need. That’s the only reason.
We did this for 2021 – in December 202 we’ve increased prices by 10-15%. Also in spring we’ve raised prices by 10-15% for August and autumn placements. The market seems to get used to this. So we hope that what we do now for autumn will help us to smoothly enter the year of 2022 with the same inflation. On the other hand, I hear people keep on saying that TV inflation is high. We analyzed the situation with other media in Russia.
For example, digital has 15-20% inflation and no one really talks about it. Well, we have a monopoly in ad sales so we can talk with you about all media inflation on TV market. Digital is more fragmented so it doesn’t work that way, also there is an auction model for some digital formats.
TV budget is bigger and it's more noticeable on the market. In 2019 and 2020 TV ad prices didn't grow because we have an opportunity to have them flat. In 2022 and 2023 we won’t be able to avoid media inflation. OK, some advertisers, ad categories will not grow with the same dynamics in business. They will not make +15-20% and will not be able to increase marketing budgets at the same pace.
What would you recommend to these categories? It's important to understand who these categories are. We have several fast growing categories – everything connected to the New Economy – ecosystems, even finance is still growing fast. - Real estate? - Well, real estate doesn’t have such big TV budgets, so is not that noticeable. So all these money of New Economy we need to works with it efficient. Yet there are categories that are not growing so fast and for them the inflation will be more tangible. TV doesn’t work in a silo on stand-alone mode – every budget works as part of media mix, in omnichannel environment.
We need to understand the input of each medium, it’s impact on sales, make sure that the mix is relevant. To make sure the business doesn’t suffer if the ad budget is not growing, I recommend rebalancing media mix to have fair TV presence and pleasant price. - That’s a good recommendation - Media mix has bee transforming for several years. It was not in favor of TV. In 2021 we see the renaissance. - OK, let's talk about FMCG, the ex-kings of the market - They are still huge When I say kings I mean that FMCG used to define market dynamics.
If their sales and ad budgets were growing, we’d see the same dynamics on the market. In 2020 the clients of New Economy started defining what the inflation will be, how much the market will grow. There time has come. What is your attitude towards FMCA category? Are they long-term partners for you? What should they do in a difficult situation as it is now? - I believe it is such. - I’d rather we split FMCG in subcategories.
Pharma has one situation, food and beverage producers – another. In 2020 we saw that some companies had good safety margin. Even though they knew they wouldn’t be able to get the return on marketing investments they kept on advertising to sustain the share of voice. There were companies who could afford it
and those who couldn’t afford it regardless of what the TV price was. They were not able even to pay salaries. It's not always the matter of pricing but rather the long-term strategy on how long companies want to be on the market, what they will do with their brands. These are things we understand during the meetings,
in the process of negotiations. Now I see Lesha, I know with targeted approach to every client, with no such thing as generic advice. - It’s both targeted and generic. - There’s always a recipe for a precise business. To get this recipe we need to understand what's happening What do you think which trends of 2021 will become long-term? For example, Tv viewing is declining, and the prices are growing – this will remain the same because there’s a demand. As for TV viewing, it’s declining all over the world. In Russia it is declining slower than on ther developed markets.
The boom of technology, penetration of Internet, satellite operators providing LTE so that you can watch the video on your mobile – this brings us to the necessity to estimate the whole audience of the exact piece of content. For example, Comedy club show is released on TV. Still this is not the only audience who interacts with the content. We need relate our estimated to how we measure the inventory linked to the piece of content. While we understand how we do this, we may see that it influences the figures of TV viewing when we consider it as an interaction with a piece of content via every screen. This approach may result in having different figures.
These are projects for 2022-2023 and beyond. From advertiser’s point of view, we believe that Internet and ecosystems will be gaining audience. You have mentioned multiyear contracts. I think we are seeing more of them. Do you think it’s the case. Can you elaborate more on this? Is it becoming the new norm when we have a contract for more than a year and book the inventory for the client for several years? Where are used to have an annual contract upfront. Upfront means that in autumn we negotiate the whole year ahead. Depending on when the deal is closed the price can be different.
For example, if we confirm the contract on December 25 it will be higher price than compared to October 20th. Yes, and the set of inventory will be different. Starting from January we sell at current prices and they are higher than parameters of annual contracts. Some years ago Video International had experience of three-year contracts. This initiative normally comes from advertiser. Within 2 years at NRA I haven’t seen the case
when it was our initiative to have a long-term commitment. This is always the initiative of advertiser and we have noticed that there is a growing demand for long-term deals. It is because of the lack of inventory.
I think it's because advertisers want to insure themselves against price increase and to secure inventory to be on air. against price increase and to secure inventory to be on air. There is some percentage of long-term contracts, but I wouldn’t say it will become general practice. I treat this as a limited tool.
We do have much demand for long-term deals, and I think we will have to limit this. OK, valuable and well noted. These episodes are dedicated to one topic – what is important for the planning of 2022. What do you think clients and agencies should keep in mind? I would recommend to put attention in having workshops together with us to understand our value beyond just price negotiation. - Can you give an example? It's about the new products. I am very happy with our cooperation on TV ads planning and buying based on audience segments and not just socio-demographic profiles.
Our French colleagues from TF1 have significant segmented buying turnover. Buying by segments is efficient. You can plan on a group of audience and not just age and gender. Do I understand it correctly that thanks to these products advertisers can spend the same amount of money more efficiently? So that we bid on value more than on just price? Yes, exactly. I am also satisfied on how the QR codes in TV advertising are used. It’s doesn’t happen a lot, but when an advertiser has a really strong offer for consumer, for example, polo shirt of Lacoste at tennis championship in France or States, I don’t remember. The ads said “if you want this polo shirt, scan QR code”.
Great offering and it worked really. Subbota TV channel during their launch within first months on air were showing QR codes for one minute with TV presenter. So people could participate in the contest and get Luois Vuitton bag or an expensive smartphone. The response was massive – the audience really interacted with this format. It is good that channels educates audience on these new things. It is performance.
Take audio marks that the clients of New Economy who have their own applications use. That is a good way to catch audience from TV and to sell them something they need. I would encourage advertisers and agencies to look in this direction together with us and find new ways to use this. Thank you so much and good luck with the negotiations and sales this fall! - Good luck to us all - I’m sure it’ll be exciting [Maria Donskikh] - Hello Svetlana! [Svetlana Balanova] - Good afternoon. - Thanks a lot for coming. I believe many people
in our industry are glad to see you and hear you speak. Your opinion influences the industry and what happens on advertising and media markets. I have a lot of questions. I’ll try to address the most interesting. First, your company is professional player in content
production league. Content is the most important for brands – there’s a need to build awareness and there are certain problems with this, etc. Сan you please share your view on what content was the most relevant in 2020, what are the learnings on 2021 and what’s in it for brands? - Thank you for having me here. I hope I will share something interesting about 2020. Indeed, the year of 2020 brought many learnings to us regarding what content is in demand. I believe that in 2020 there was more demand for
socially significant content. We’ve seen the society understands and requires more of universal values. We in our holding pay a lot of attention to what is called social impact content. This content is really in demand especially among the young audience. There are many topics in it – ecology, 0:29:53.170,0:30:01.870 societal issues, healthy lifestyle is emerging, self development.
I believe that this agenda is high on the radar all over the world and it's good that in Russia it’s becoming popular. The year of 2020 was the time when people also wanted to have rest and entertain themselves and the content that was entertaining was in demand. At the same time people wanted to see realistic and touchy content and of course information that’s always needed in the periods of turmoil. This was the case for turbulent year of 2020. The information from credible sources this is what’s really in demand. - We see that consumer attention from TV shifts to Internet, for example for OTT platforms, or to influencers where we see much attention and views. Still this is ad market segment we don’t yet know how to operate.
I know that your holding moves in this direction as well. Can you elaborate more on this please? - First of all, I wouldn't say that there’s a dramatic shift from TV. TV viewing is still almost 4 hours a day в сутки and this is quite stable for many years already. In 2020 136 million people were watching TV, so the death of TV is overrated. There is a desire to watch TV content in convenient time and format.
Regarding the online viewership of TV content included, we see that Vitrina platforms doubled in the volume of content watched during 7 months of 2021 vs 2020. OTT is booming. Partly this is the content made for TV and partly – for digital platforms. The hybrid format is really developing here. If we look on how digital platforms interact with TV channels, we’ll see that much of the content is broadcasted both ways. The slots for broadcasting the content differ – there’s TV first content and vice versa – the content that first appears online. Sometimes we experiment with the content that we didn’t expect to be
successful on TV, но показать for example, Chiki series that rocked the online world. This was initially shot for online, right? Chiki was shot for More, More Original. After it was broadcasted on STS Channel very successfully. It was an experiment for us that turned out to be more successful than expected. On influencers, let’s talk about successful influencers. They are on TV because they’ve git the ceiling either of popularity or professional development.
Maybe they could have been more popular in online only but they are limited by their professional development of what they want to do and how they want to develop. I think this kind of transition - from one environment to another is the same as for people gaining publicity on TV and then becoming popular influencers. I think this topic of opposition between digital and TV is going to be a thing of the past. We're talking about content, celebrities and influencers and not where you watch them. I have a question about this, thank you. What do you think is the right strategy for development of broadcasters? There are several international scenarios, for example, the concentration of OTT or rights selling companies, or monetization through merchandising, or the factory of celebrities… What will be with the standard TV channels that are transforming and you clearly see where? - I think there are no pure media or TV company any longer. I was trying to recall such an example and failed. Both in Russia and abroad almost every TV company has strong digital presence and develop it.
Again, there can be different strategies and different directions. Still I believe the hybrid environment where consumer or viewer can watch interesting content in convenient time and format - this is what is the key thing. Initially the difference between TV and online was that on TV you have programs schedule and online you don’t. да а в онлайн на просмотрит якобы смотришь по systems that are core to online services actually However we understand that all video recommendation systems that are core to online services actually is the programming and doesn't differ much from TV. From this point of view, that's intermixing of best practices from both environments will be used on TV. You will be having more opportunities to watch content on demand - to stop watching and continue later.
You will have more options for integrated solutions when content is linked to sales. I think that splitting of media environment will become a thing of the past. Every TV company and broadcaster should understand how to operate in this hybrid future. OK, we seem to have covered the consumer side of the story. You are the advocate of
creating the convenient environment for the consumer. Now let's talk about advertiser. I think that the situation for them is quite complicated. The attention of consumer went to digital. Most of digital platforms such as OTT players get revenue through subscription model. This is not the platform for advertiser and the inventory is quite scarce.
I mean the type of inventory that helps to build awareness and deep bonds. What brands should do? Is it about integration in the content, e.g. in the series, product placement - what do you think about it? Do you see it as the future trends and what’s the best response to brand’s needs? First of all, advertiser should build the brand on TV. But the TV viewing is dropping and the desire to place advertising on TV, if we look at it, the inflation is getting bigger. So it's not
that simple that you brought money to TV and NRA… Well, the answer is to bring more money on TV. OK that's the great answer so the question what to do with OTT - well you should bring more money on TV. Yes, that's the first. It is important to build integrated solutions and I believe advertisers are doing exactly this.
Advertising models in online services will be developing. Not necessarily will they dominate, maybe the subscription model will dominate. Given the number of services that we have and the competition between them I believeе that advertising model will be developing. We see this with international formats like Spotify who makes cheap subscription but it's half advertising model at the same time. I believe that the volume of advertising
will be growing at the services. We’ll have many creative options and advertisers like creative options. First of all they were integrated in the form of product placement, it still remains efficient. - And it's in demand - I am not sure whether you’ve seen our series by MORE Original called “Happy end”. We have really great integrations of Ozon and Alfa Bank there. When I watched the premiere…
- The advertisers are getting very bold. - Really bold. - To get integrated into “Happy end” series. - Nevertheless, this was bold, fun and exciting. I'm sure that every person who watched this really saw this integration, it was noticeable and left positive impression. I believe this will be developing, and product placements when they're elegantly and professionally done have always positive impression and give great response. Can you specify what you mean by elegant or native as it’s also called? There should be an integration within the scenario. It shouldn't be like this: the camera moves, and we see
the product that accidentally happened to be on the kitchen and stays there for 15 seconds or for some reason the slow cooker in the middle of a love scene. This is not elegant. It’s good when it's integrated into scenario, into the style of the scenario - for example, if it's comedy and it's fun. Normally advertisers do not integrate products in tragedies so actively. I believe that the integration should be done with talent.
If it's done with talent and the screenwriters were able to play it, then all will work. There are examples of footage made together with advertisers. It can be successful. I believe that's the format of co-creation has the right to exist. And again it's important not to get lost in advertising only. Because if it's only advertising message it's hard to make people watch it for half an hour of each of 8 or 20 episodes. If it is good and nice product integrated in a native way then it always gives great response. The next question is to what extend the branding is important in the context of e-com boom? In the past we had such things as share of voice, share of the market and everything was standard and logical. Now we're living
in the challenging world and it seems that being on the e-shelf, how you make the product card, how you get to the search selection are more important han what brand you really have. Do you think it’s really the case and a threat to media and brands paying for content or rather a microtrend? I'm not sure I really understand how it differs from off-line trade shelfк I think we had the same game back in 1993 when I was already doing marketing. It has just started - you should be on the shelf,be well presented on the shelf, and you will need to be recognizable you needed to be on the shelf. I have the answer to the question what have changed. We see that consumer categories are growing. Branded categories are growing by 4%
while private labels grow by 17%. The consumer is less interested in brand and more in price and convenience. That's why if we look on what's appening on the shelf, we see that those who have the biggest share of voice on TV do not have the biggest sales. Is it because the market is not balanced yet and it will settle or is it more of a long-term trend? I believe that if private labels are growing offline, they are also growing online. I don't see a big difference in this between offline and online trade.
There is a problem because consumer is getting more cost-conscious and may have other rationale behind the purchase. I still don't see the difference when a person comes to a store and takes good from the shelf or when he takes it from virtual shelf. In my opinion the presence on the shelf, clear communication and value in the head of the consumer - how willing is he took overpay for a brand of this - does not differ from online to offline. We talk more about the problem of choice between branded goods and unbranded goods, commodity or private labels and positioning. I believe that advertises are more professional in this sphere. Still I think that the key idea of who needs branding is changing. In the past this was
about the product. Now there are also platforms and e-platforms. Maybe we are seeing the change in who is becoming the leader in value chain and who is starting to set the agenda. It's more about building the strategy of the company that produces and understanding if they're able to control value chain or not. Understanding how in the war for consumer’s attention and trust
those who own the last mile – the distribution - how they built brands that are as credible to consumer as famous consumer brands. This brings us to the question where you can build brand that gets trust. The studies show that when you build brands the advertising on TV is crucial.
Brands built that way have 70% more trust than brands leaning on other environments. The question whether we want to return this brand ownership. If the brand owner should be higher какого-то отдельного продукта потребительского on the chain than the last mile owner then why the biggest advertisers now are those from the last mile and not consumer brands. Maybe that’s the trick in it. Looks like we've covered all the important topics. Maybe I haven't asked you about something and you want to give an advice to advertises who are now deciding what they will do in 2022? During periods of growth many opportunities emerge. In the periods of decline there are always opportunities as well, but the resources may not always be available. During periods of growth there are more opportunities to be resourceful. I believe that now is the time to define what's your strategy.
Whether you will put your fate in the hands of you partners in the value chain or you make your own destiny. If you make your own destiny, you need to have a very well thought-off integrated advertising campaign. he words hybrid and integration are the motto for 2022. - Thank you so much, it was valuable. - Thank you. [Maria Donskikh] Hello! Thanks for coming. [Daniil Fedorov] - Hello. - We’re shooting business series
about what to consider when planning 2022. Every conference that talks about the future of marketing and advertising have figures on the e-com. That's something that you can't overlook. It is interesting to deep dive in to understand what is happening in every category. Can you talk about this more? What are the categories demonstrating something exciting? Maybe you're planning to start selling wine or cars? - Thank you for having me here! As much as I would like to deep dive into categories, there is one universal trend - all categories are growing really good. We have just reported Q2 results.
We grew against Q2 2020 when there was COVID lockdown and all this turbulence, so we grew by 94% in turnover and 180% in # of orders. If we talk about categories, there is an obvious trend in FMCG. Overall, we see that e-com is about building habit now. During the last 3 years it is the market of newcomers. The growth is happening mainly because more and more people try e-com, many of them get back. Still it’s not the market of frequent purchases. If we take annual purchase frequency of mature groups,
we will have one or two purchases a month. The frequency will go up and in Ozon we believe it to become the driver of future growth in 3 years. When there is frequency, there is FMCG. This category is growing even faster. For example, pet care has grown by 150% in Q2.
It is public data that in Q2 2020 vs 2019 we grew by 180%. This is just crazy growth over crazy growth, and this will continue. There are other segments if we think of the regional split.
It is obvious that the level of penetration of e-commerce in Moscow and St. Pete is higher than in Russia’s regions. Although there is no reason for this. - Is the logistics ready in the regions? - Logistics is ready; we found the model to scale it almost in every city. Therefore, the obvious trend is that regions are growing. They are not as mature yet. We see the trend of newcomers, second or third time buyers. FMCG is a big driver and all eyes are on them.
Marketplace and retail are very different at how brands are feeling there. It is not just an e-shelf, it is a different shelf and the principles of working are different. Do you recall any exciting recent examples when small brands worked great thanks to the functionality of e-shelf on the marketplace or vice versa when established brand did the right thing and was feeling as good as in classic retail? That is a good question. I would say that the market of offline retail benefits from economies of scale. It is growing bigger and stronger and so do some brands. Once you are on the shelf of national retail network, you are quite good.
While it is still difficult for small brands to get there. On the marketplace, many mechanisms are still the same except that it’s driven by the network effect. The network effect is when each new player brings value to other players and the whole system. It is easier to get to marketplace for a small brand. I would even say there are no barriers for this, firstly. Secondly, there are many tools that help a brand to develop, and these are not connected directly to the money investment.
счастлива ними денег вот и я бы так сказал что marketplace ах большие бренды там иногда с вековой I would say that on the marketplaces establish brands are less secure because small brands are aggressive in their entrance strategy. There is the case of Synergetic. It is a young brand that plays on the market with big names and established brands. Are these brands comparable? If we take the share of Synergetic in offline retail, my guess it’s 1-2%, while online is 20%. I can't say that this is because they have big money investments. We see it is active company. They understand the tools; they are adaptive and react fast.
Their decision making cycle is really first. They redress the goods; they go into promos and change the product itself. Every brand has great marketing team of course; they have creative and special projects. What I'm saying is that you can change the essence of the product and sometimes marketing is #1 thing.
It is hard to say that the approach of established brands is old school. We have Nestle using our tools very well. Even though we always want the brands to use our tools even more we see that our advertising platform is yet more of a novelty. Still Nestle is one of the biggest brands and gets great efficiency on our platform. I had a question about how brands can compete on the marketplace, but you covered it all already. Is there anything else that brands need to keep in mind when entering the marketplace to compete with other brands? What else do they need to keep in mind? First of all, marketplace is the platform of interest-driven development.
There is much data available on popularity of what people search for. The first step is analytics. There is so much analytics about popularity, search requests, empty search requests so you can evaluate the landscape.
We will provide segmentation by growth, so you can understand what is growing and choose the niche. The second important thing is to understand the logic of the platform. This is not a classic retail where you give your goods and ask for sales. It is important to understand that it is a platform and an opportunity to do business to have your own customers, manage and return them. We can give you tools of customization and targeting, we will give information about your clients.
Therefore, you will be able to develop your shop, work with feedback and reviews, and build on it. It is crucial to understand that it is your business and not something simple that goods are put at Ozon’s warehouse and sales come up. This requires flexibility and expertise from your side, ability to make decisions. What I see now is that e-com units of big companies do not have appropriate mandate for this sometimes. One more question. There is the whole bunch of tools. How much are the brand power and the investments in brand power important?
Is it that much important to invest in brands as we used to do before? When we operated using share of voice and share of the market, invested a lot in TV ad and made brand visible to build awareness that converted into sales. Looks like at marketplace it is a different story. Sometimes the brand power of marketplace itself helps to build sales even for a small brand that is not really known once the brand has the right niche, price, etc.
What do you think? I am an advocate of the idea that there are basic commercial processes that haven’t changed over time. They have been repacked. If we read the articles about champagne fairs in France in the Middle Ages, we see many resemblances with the modern marketplace. Even the balance was settled 3 days after the end of fair. In classic offline retail, a brand feels more secure; still the brand is super important.
Of course, the initial conditions for established brands are stronger. Yet if you don't work on the brand, the new markets that are being created may surprise and even upset you with its data. The brand is super important, you need to develop it, and you need to watch it and it is the job to be done for a brand. Small brands have better chance. You have an ambition to get higher ad revenues than VK. How are you planning to do so? Why do you believe that advertisers will invest in Ozon’s tools and what are the categories of advertisers that you find the most relevant for this? Where is the potential for advertises at Ozon? As for advertising revenue level, I would not say it is an ambition, it is almost happening now. We are not going to reduce our growth rates. We plan to grow significantly next year and year after.
When we grow the ad revenue share in total turnover will also increase. This is basic math and this will keep happening in the nearest future. The ambition is much bigger than that. Take international practice not to reinvent the wheel. Ozon as an ad platform does not concede Facebook.
Alibaba is the main ad platform in China. There is the reason for this. Marketplace is the platform where the transaction happens… The closest connection between place the ad and seeing the money on your account. Yes, product advertising and tools we have is the format of communication between seller, brands and consumer. Having said that it is a platform with full transparency where the transaction happens with no attribution, this will be the most efficient advertising. There is one more example.
When a brand invests great money in its advertising, it’s often the case that it doesn’t promote the brand but the platform. If you open any search engine and type “toothbrush” for example, you will not see the ads of other toothbrushes because you did not invest enough. You will see the ads of exactly this toothbrush and five platforms competing to sell it to you. This is sponsored by brands; those companies do not have other sourcing for this. If we talk about our search product that is not unique, this will be competition of products and goods of exactly this brand and exactly this toothbrush against others.
We see the efficiency high, even too high, we have good rates. Will you adjust them? - We are not going to do anything - the market will balance everything. - So we are having this great times when conversion can be purchased. I will say that my opinion is a bit biased but overall yes, we see that many players are using this a lot. This is important that it is a pure product competition. OK, so you are saying that you will not adjust anything, that the market will balance and the demand will balance it. You have your private labels.
How do they feel inside the marketplace where brands bring their money? Private labels will develop but the share of our private labels in sales is less than 1%. So this is not a threat to other brands, right? For the next year for example. I think Ozon cannot bring tangible threat to brands. We have 27 million SKUs. We have dozens of categories. If we talk about smaller levels, they are thousands. It is hard to imagine that at Ozon we pick something. We have network effect that drives our growth.
It comes from sellers and brands, not a 1P business. When planning 2022 brands think not only about marketing and advertising costs, but also about income. I hope that many will have a dedicated line about sales revenue sourced from Ozon.
Can you share what are your ambitions? What can be put as a benchmark for the next year? What should be the ambition for advertisers? That is a good question. Since we are a public company, we cannot give guidance before it is given to the market. I can say that we're not going to reduce the growth rates and we want to grow 10 times in four or five years to make 2,5 billions. I would say that other categories will be growing significantly.
Within our sales, everything is very fragmented. If you grow less than 100% at Ozon, that is not good. You can do really a lot. Marketing gives boost to sales. The general guidance can be that is to everyone not blind and deaf it is obvious that there is a transformation happening in the biggest sphere of economics that is trade.
Remaking there is obvious. If you grow by 180% during Covid, this means there’s an ocean of opportunities. It really annoys me when businesses say they need to analyze, to have the roadmap, a plan to enter e-com in 2023. This is nonsense.
There is booming market and it will become bigger. The corporate culture in Ozon is that we set targets that are almost impossible to reach. One does not need to be overexcited on this market – it is feasible to grow by more than 100%. If you grow less than 100% at Ozon, this is not good.
I think this should be the main idea, we can stop right there. Thank you, that was valuable. This is the end of the first episode but it's not the end of the series. We have 3 episodes coming soon. We’ll see the unboxing of the new products of dentsu Russia, client cases and clients vlogs.
The consumer’s changing, trying to get off the radar. Video communication is about to face the lack of direct inventory. We’ll talk about the most hot topics for marketeers ahead of 2022. - Attention metrics, that’s the future - These conversations
are annoying. There’s a war for consumers attention and time of consumer. This no longer a nice-to-have category. What is important. is to make sure your voice is also heard. I would say Russia has a unique, It's magic. Very specific media and data landscape. - How not to waste money on creatives that don’t work Attribution modelling is a great tool that helps to do unbelievable things We’ve created the methodology to assess emotional intelligence of a brand.
What’s happening with the local brands. What it’s cool? Why pumped up torso doesn’t work well? Only 10% of people are ready to dig the topic and make recurrent payments. It’s clear. We have profit company. And they hope we not only be about fashion, but but we will be about a specific behavior. It’s the best time to experiment and to test.