PREFACE

'Marketing in Central & Eastern Europe' forms part of a series of reports published by FT Retail & Consumer on marketing in developing countries.

In general the emphasis of this report, and of the whole series, is on the consumer market. The early analysis of each national study focuses on the psychology of consumers in central and eastern Europe (CEE) and best practice in market research. The middle sections analyse trends and present key data on the most utilised media channels while the final sections deal with critical aspects of retail marketing.

Business-to-business marketing, therefore, is not the main focus, although the report does cover developments in direct marketing including database management and telemarketing, key components of business-to-business marketing. The report also presents over 20 case studies describing how leading companies are marketing to other businesses. The activities of Commercial League in Bulgaria and Microsoft in Romania are two such examples.

There are two areas of marketing that deserve in-depth reports in their own right; these are marketing through the Internet and e-commerce, and the forthcoming explosion in cable and digital television services. With respect to the Internet, most countries in central and eastern Europe lag far behind the West, and indeed many parts of Asia. However, rapid developments are occurring in central Europe and in order to address this opportunity, a more detailed review of the use of the Internet for advertising and marketing in the Czech Republic is provided. This may help to anticipate Internet developments elsewhere in the region. The cable and digital television sector is monitored and analysed monthly by TV East Europe, also published by Financial Times Business.

Adapting to local market conditions

Seasoned executives at firms such as Procter & Gamble and Unilever, and those who traded in the CEE well before the fall of communism, learnt long ago that this is a complex region with a rich mix of cultures and traditions. This again, helps explain why Poland is considered a reasonable prospect for marketing goods and services, for at least here we find a significant population, nearly 40 million, sharing the same culture and traditions and even speaking the same language. Where else in the region is this true?

The diversity of CEE presents enormous marketing challenges. It means that advertising, packaging, even recipes, need to be adapted to local market conditions. Of course there are successful global brands in the region but they are sustained by massive advertising campaigns and the veneer of western superiority fell within a couple of years of the Berlin Wall coming down. So one of the most important trends, measured in all the countries surveyed in this report, are the many initiatives taken to ensure that the local consumer is understood, reached and appealed to. PepsiCo may broadcast commercials featuring the actor James Fox as it does elsewhere in the world, but it will replace the American female model with a famous local model. Sexual images that may be appreciated in the Czech Republic, can be taboo in Bulgaria and regional marketing in general will never have the scope of possibilities that exist in Latin America.

Marketing models and research services in demand

Paradoxically, at a time when local preferences and traditions are being increasingly accounted for in the marketing mix, the demand for regional research models is also increasing. This demand is led by the multinationals but is not exclusive to them. Analysts who can make sense or indeed use of the research materials derived from government sources in the CEE are few and far between - actually they are almost non-existent, as the poor quality of research from these institutions gets even poorer. Even Polish official sources appear to have lost their way. As for Bulgaria, Romania, Ukraine and Russia, expect nothing from official research sources and you will not be disappointed. Base your marketing strategies (beyond standard demographic data) on them and you probably will be.

Fortunately, the private marketing and market research sector is developing rapidly. The world's leading advertising agencies have pan-regional networks and are conducting regional studies involving face-to-face interviews of 10,000 consumers or more. The world's leading retail audit and tracking companies, AC Nielsen, Information Resources, GfK and AGB to name a handful, together with their local partners, are adding substantially to our understanding of the retail and social structures.

There are many research challenges, however, that still need to be conquered. Public databases, for example, are notoriously inaccurate and, as companies such as Commercial League in Bulgaria and Microsoft in Romania have learnt, building your own database is generally the preferred option. There are some useful lists, such as those produced by the Prague Business Journal, but the good lists are naturally the popular ones, and junk mail is already a term familiar to many local executives, including city administrators in Moscow.

Case study 2.2: Commercial League - a leading pharmaceutical distributor in eastern Europe

Founded in 1991, Commercial League Co Ltd is by far the leading private Pharmaceuticals distributor in Bulgaria. Its founder, Mr. Tihomir Karnenov, then aged 30, is a Doctor of International Commercial Law, and has conducted studies and research in western European universities and the United States.

Since its formation Commercial League has established its own regional branch structure and its own small transport units. With over 200 transport units in operation, the company can deliver to any point in Bulgaria within three hours. Commercial League supplies over 2,900 pharmacies and 300 food stores, 120 hospitals and health centres and services over 4,000 orders daily. There are over 650 staff and the company claims a 42% market share.

In order to succeed in a market where there existed over 550 pharmaceutical distributors, Commercial League adopted a primary and secondary marketing strategy. Their 'Customer focus' strategy is oriented towards continuous research and monitoring of client needs. Their secondary strategy involves collaboration with their suppliers, in order to improve selling skills and to share information and relevant technology, as well as with pharmacy chains in order to facilitate distribution and influence drug consumption

Marketing environment and strategy

In 1998 the pharmaceutical market in Bulgaria was growing steadily but ineffective licensing procedures and lack of regulatory control brought about a series of price wars between 130 full-line and 320 short-line wholesalers. In addition the Bulgarian pharmaceutical industry is affected by a procrastinated five year privatisation programme and the local industry which has failed to establish modern marketing and promotion units which inevitably has resulted in loss of confidence in the quality of domestic products.

In response to this challenging environment Commercial League has invested in computerisation and automation, offers more value-added services to clients (upgraded information technology, computerised orders, merchandising and financing) and suppliers (market information, product substitution services). In addition, the company enjoys the status of a full-line wholesaler. These facts predetermine its marketing strategy. Until recently, its main goal was to fully meet client needs while not attempting to shape them. However, this is changing since in order to succeed as an importer and distributor of Pharmaceuticals it is necessary to have a more pro-active marketing strategy. This includes systematic attempts to work closely and interactively with the Bulgarian reformist government.

There are four main market segments:

·      hospitals including all types of health service institutions, usually subsidised by the State or municipalities

·      private pharmacies, including four major chains of pharmacies

·      community (municipal) pharmacies, most of which are now under privatisation

·      subdistributors; other wholesalers, usually small local entrepreneurs with limited territorial reach

Owing to the price control regime, market growth of Commercial League must be achieved by higher volume sales. Accordingly, at the end of 1998 the company took the strategic decision to diversify its product range and set up four main business divisions:

• pharmaceuticals including OTC, medical and surgical disposables and materials such as X-ray films, and high-tech diagnostic equipment

• nutritionals

• cosmetic products and hygiene supplies

• dental materials and equipment

The new divisions required new approaches to the major customer groups, which are:

• infant nutrition stores

• supermarkets

• beauty shops and centres

• dental clinics and private dentists

The essence of Commercial League's marketing strategy is best illustrated by the Personal Sales Program, which is about:

• detailed study and knowledge of the respective market segment, including clients with changing attitudes and butterfly customers

•  the territorial division of each segment; between the regional branches and subsequent allocation among telephone dealers. Hence, each dealer from the Sales Departments has a definite number of clients, whose potential and needs he must be fully acquainted with and able to satisfy. The focus is on exhausting the market potential by building the trust and long-lasting loyalty of the client

• each dealer works with a personal file of clients, categorised according to a number of basic criteria: percentage of market share, loyalty rate, activity level, development phase. This personal file measures and records each dealer's work and professional progress and weaknesses

Competitive pricing policies are the main marketing strategy adapted for the hospital and subdistributor segments. This includes sufficiently low prices coupled with attractive commercial terms. For the pharmacy segments, both private and public, the marketing mix combines pricing policy promotion and image building initiatives, advertising campaigns as well as loyalty schemes. The staff of Commercial League regard themselves as the engine of the wholesale industry's development.

Private labelling is another supportive strategy the company recently adopted. In 1999 Commercial League launched its own private brand of a wide range of cosmetics developed and produced to order in Switzerland. TURGOR, the brand, is designed and produced to satisfy Commercial League's customers with high quality at affordable prices. Immediate support is also provided by the following marketing programmes: Information Service, Active Substitution, Urgent Deliveries. These were all set up in order to provide a flexible service, such as deliveries within one hour.

Commercial League was the first in the country to launch the Care for You Program based on the ideas of managed care and pharmacy benefit management. This resulted from the new health insurance system in Bulgaria and the advice provided by the Australian Health Insurance Commission. The programme involves the gradual accumulation of patient data and building data processing capacity which is so badly needed. The first aim of the Care for You Program is the vertical integration of information among the five major healthcare providers in Bulgaria. With the support of Merck Co and Abbott, two groups of Commercial League managers studied the experience of Merck-Medco Managed Care and some privately managed insurance funds as well as the practice of the US based health organisations.

Advertising strategy

Advertising is regularly undertaken and its primary objective is to strengthen the image of Commercial League as a leading pharmaceuticals importer and distributor and remind the public of the company's value-added services.

Print advertising: Because of the particular goals of Commercial League's advertising campaign and the specific characteristics of the pharmaceutical market, print advertising (specialised journals, catalogues, brochures, leaflets, etc) takes precedence over other media. The company publishes a journal and catalogue of the products offered designed to reinforce its image as a customer-orientated supplier. The journal is published quarterly.

Promotion initiatives: The Active Substitution marketing program includes promotion and co-promotion of various products. A specialised unit of medical representatives has been formed to market and promote individual manufacturers and their products to doctors and dentists. To this end Commercial League launches new product and sales campaigns, organises numerous symposiums, as well as new product presentations.

Direct mailing: The main means of communication with target groups are letters, catalogues and monthly corporate publications. Since there are no reliable address providers in the country, the company has organised its own database of client addresses, physicians and dentists, comprising over 30,000 records. Mailings include information about products, new (seasonal) prices, commercial terms and recent company activities.

Media advertising: Due to the specific character of the market and the regulatory regime, the firm employs electronic and other media advertising on a small scale. Media advertising is utilised in PR campaigns carried out by Commercial League's senior management in cases such as the Kosovo Refugee Donation Campaign.

Successful marketing campaigns

Example 1: Thomapyrin

The introduction of Thomapyrin, a product of Boehringer Ingelheim, proved to be one of the best organised new product launches in Bulgaria and within three months had captured a 37% share of the soluble aspirin market and significantly affected sales of their major competitor, Upasrin. During these three months Commercial League combined television and mass media advertising campaigns with competitive low pricing, rebate schemes for sub-distributors as well as sales promotion programmes which provided bonuses for distributors who exceeded their sales targets. Models of expected retail demand and product substitution were provided to their network of dealers.

The success of Thomapyrin was recently cemented by the National Commission For Competition Protection which confirmed that such modern marketing practices are legal and publicly beneficial.

Example 2: Hipp baby foods

Commercial League recently acquired the distribution licence for the Hipp range of bio-nutritional (organic) baby foods. There are no fewer than ten competitors in this market but within a few months Hipp, a popular German brand of baby foods, had over-taken the traditional leader Nestle, capturing a 22% share which Commercial League forecasts will rise to 33% by the end of 1999. The successful introduction of Hipp baby foods was the result of a four pronged marketing campaign targeted at mothers with infants under six months old, paediatricians, retailers and the wider public.

Mothers and paediatricians were both contacted directly. The mothers were reached via a promotional campaign while still in the maternity wards and again during their visits to the infant consultancy centres. Paediatricians were visited by the sales force at least twice monthly. In addition to these campaigns Commercial League offered retailers commercial discounts during the two month introductory period. To reach the wider public, advertisements were placed in specialist child care journals, women's magazines as well as in medical journals.

DIRECT MARKETING AND THE INTERNET

Direct marketing activities are poorly developed in Bulgaria, partly because there are no good quality database providers and partly because consumers are suspicious of this activity, many of them having been duped in the past by unscrupulous sales persons selling goods of inferior quality to those actually advertised.

Nevertheless, there is evidence that direct marketing techniques are being more widely applied. The industry received a boost several years ago with the publication of the country's first yellow pages, a modern version of the business and residential telephone directories that had been published and updated for several decades. By combining yellow pages and their own address lists, companies are developing powerful internal databases. The pharmaceutical distributor Commercial League, for example, has a database of around 30,000 contacts. It is only a matter of time before dedicated database providers move in and provide updating services for corporate clients.

Door-to-door selling is practised in Bulgaria but as with unsolicited mail, Bulgarians are by nature distrustful of this form of marketing unless the value of the product or service is obvious, as, for example, in the case of book sales.

There is growing interest, on the other hand, in advertising via the Internet and an increasing number of Bulgarian companies have their own websites. Leading business newspapers, including Capital, Banker and Pari, can be read on the Internet and are willing to devote part of the screen to advertising.