Russia Snapshot – Health & Wellness Multilevel Marketing (MLM)

For most Russians, however, everything related to multilevel marketing, or MLM in the Russian transliteration is still mentally associated with MMM, the notorious company that in the early ’90s became Russia’s brand name for greed, in which the earnings of the players involved depended entirely on the number of new players they attracted.

According to the Agency of Social Information, a non-governmental monitoring group, there are currently approximately 5 million Russians, or 6 percent of the country’s working population, directly involved with some 10,000 companies, making a living on multilevel marketing. And turnover in the sector, much of which is still in the shadows, is estimated at $2 billion a year. Russian MLM companies are strong enough to regulate themselves. Indeed, a few dozen Russian MLM companies have “spotless” business records, he said Earlier in 2008, and several leading MLM companies founded the Russian Direct Sales Association, a lobbying group that is currently drafting a Code of Corporate Ethics.

Like many health and wellness companies, nutraceutical and cosmeceutical MLM companies first penetrated Russia’s market using the same marketing strategies that had brought them strong success in their previous markets. After only 2 years of normal operations, Health and wellness companies reported yearly sales of US$1.5 billion in sales. For example in ’06 and ’07, Avon reported sales of more than US$100m and Mary Kay which reached approximately just under US$75m.

Approximately 65% of the Russian dietary supplement market is to non-store retailing (mail order, door-to-door selling and MLM). Nutraceutical and cosmeceutical are primarily sold in high-end department stores and health boutiques. As for mail order, effective media and tools are letterzines, infomercials and newspapers. Door-to-door selling and MLM channels rely on human communications, so education such as study sessions and seminars for sales people are very important. In the case of store development, most successful products use well known ingredients. Therefore, it is essential that recognition of ingredients is obtained by being featured by TV programs and in health magazines. After the release, reputation on blogs often has an influence on the sales. Fundamentally, advertisement conducted by companies does not have a great impact on increasing sales. Moscow generates 17% of total cosmeceuticals and nutraceuticals value in Russia.

Although the capital market saw dynamic development over the review period, growth is gradually slowing due to relative saturation. Further, some local manufacturer’s claim that utilize MLM practices boast that their products are natural, often they are not, with many companies simply using the word “natural” as a marketing ploy. Local manufacturers, which 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 market responsiveness to network MLM combined for great business success of MLMs in Russia. These aspects proved to be a strong incentive for leading companies to invest millions of dollars into developing their Russian operations.