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Russia Snapshot – Health & Wellness Multilevel Marketing (MLM)

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However, for most Russians, anything to do with multilevel marketing, or MLM in Russian transliteration, is still associated in their minds with MMM, the notorious company that became Russia’s brand name for greed in the early 1990s, from which the revenue of players involved depended solely on the number of new players they attracted.

According to the Social Information Agency, a non-governmental monitoring group, about 5 million Russians, or 6 percent of the country’s working population, are currently directly involved in about 10,000 companies and make a living from multi-level marketing. And the sector’s revenue, much of which remains in the dark, is estimated at $2 billion a year. Russian MLM companies are strong enough to regulate themselves. In fact, a few dozen Russian MLMs have “clean” business records, he said in early 2008, and several leading MLMs formed the Russian Direct Sales Association, a lobby group currently drafting a code of business ethics.

Like many health and wellness companies, nutraceutical and cosmeceutical MLM companies first entered the Russian market using the same marketing strategies that had propelled them to great success in their previous markets. After just 2 years of normal operations, health and wellness companies reported annual sales of $1.5 billion. For example, in 2006 and 2007, Avon reported sales of more than $100 million and Mary Kay reported sales of just under $75 million.

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About 65% of the Russian market for dietary supplements is in the retail sector (mail order, door-to-door and MLM). Nutraceutical and cosmeceutical are primarily sold in upscale department stores and health boutiques. As for mail order, letterzines, infomercials, and newspapers are effective media and tools. Door-to-door selling and MLM channels rely on human communication, so training such as study sessions and seminars are very important for salespeople. In the case of store development, the most successful products use well-known ingredients. Therefore, it is important that ingredient recognition is achieved by being featured on television programs and in health magazines. Once published, reputation on blogs often impacts sales. Basically, advertising by companies does not have a major impact on increasing sales. Moscow generates 17% of the total value of cosmeceuticals and nutraceuticals in Russia.

Although the capital market developed dynamically in the reporting period, growth is gradually slowing down due to relative saturation. Additionally, some local manufacturers who employ MLM practices brag that their products are natural, often they aren’t, with many companies using the word “natural” simply as a marketing ploy. Local manufacturers, who traditionally have an image of presenting more natural products than their foreign competitors, use this advantage in brand promotion. The low cost of effective labor and the responsiveness of the market to network MLM combined to ensure the great business success of MLMs in Russia. These aspects proved to be a strong incentive for leading companies to invest millions of dollars in developing their Russian operations.

Thanks to Mark Ishac

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