Oktyabrskaya Magistral (St. Petersburg), June 17, 2008

FRIENDSHIP IS THE BEST METHOD? GALINA MOROZOVA

What is marketing? How developed is it in Russia? Is it necessary for railway? These questions were answered by participants of the roundtable meeting "Marketing in Russia: tribute to fashion or locomotive of company growth?" organized by the quality management and marketing service of the Oktyabrskaya Railway. Managers and leading specialists of consulting companies and railway directorates were invited to discus this topic.

The roundtable meeting was opened by Director of the Oktyabrskaya Railway Victor Stepov:

- In the last few years, the Russian railways found themselves in a harsh marketing environment. Private operators compete against them successfully in cargo transportation, especially in segments of highly profitable cargoes. For instance, they account for 70% of the volume of oil cargoes. Private companies came to the passenger sector too and we even helped them to get established on the market at first. Now we see that the market of transport services is a battlefield on which it is necessary to fight to gain your share of transportation. For this purpose it is necessary to know which tools to use. Marketing should find broad application both in RZD company and at the Oktyabrskaya Railway. It seems to me that we do not have clear understanding of the role of marketing research yet.

Igor Dyukov, Professor of the Stockholm School of Economics in Russia:

- For many years the Stockholm school has been studying competitive environment on international markets and competitiveness of various countries. Our reports are published in 130 countries. According to this research, Russia has the 90th place in the world according to competitiveness and the 67th place according to consumer orientation. Development of marketing is evaluated at 2-3 points according to a seven-point scale. Russian companies actually use marketing only for promotion of their goods and increase of sales. Such marketing resource as forecasting of future needs and changes of demand for creation of innovation technologies aimed at obtaining of additional profit is practically not used in Russia. Research done in 2005 showed that the function of marketing was confined in Russia to financial stability, profitability of production and growth of production volumes but was not connected with quality and needs of the consumer. Now this is becoming the main thing because of growing competition and globalization of markets. Some markets are close to saturation and dependence on the consumer is becoming more obvious. It seems to me that today the railway has bigger competition against the aviation transport in the line St. Petersburg-Moscow in the business segment...

Victor Stepov: - And not only thee. The queue of heavy-duty trucks does not decrease on the border with Finland and they stand there almost from Kotka... Customs officers have already requested: take a part of cargo to the railway, the automotive checkpoints are suffocating. Inside of the country we do not have competition against automobiles but in international transportation we are losing, despite that management of the company takes very serious steps for strengthening of positions and for attraction of cargoes. It is even building railways outside of Russia – in North Korea to create a more beneficial route for transportation from the Asia-Pacific countries with use of Trans-Siberian Railway. However, only 1% of all cargoes go through Russia still and the rest is transported by sea. To take cargo from the ports of Finland we even had to establish a joint venture with Finnish railways. A permanent container train travels to Moscow now but this is insufficient. The next stage will be container transportation. We are obliged to relieve the automotive roads.

Igor Dyukov: - We studied experience of some European railways. In some cases the government may contribute to development of the railway transport, for example, like this has been in Switzerland. There the government banned trans-Alpine automotive transportation and cargoes were delivered in containers. Thus, the Swiss railways became an exporter of transport services. Two trends are registered in the international economy now: growth of competition and globalization of the markets. Thus, it will be impossible to compete against other producers without development of marketing.

Elena Kovalenko, leading engineer of the organizational and staff department of the railway directorate:

- We need to take into account the industry peculiarities in which development of marketing takes place. Business of RZD develops in conditions of excessiveness of assets and insufficiency of human resources. That is why it is necessary to determine competitive and non-core kinds of activities and to divide business into the segments intended for various consumers. The consumer should become the main object in the marketing concept.

Pavel Cherkasov, General Director of Cherkasov R&C:

- Satisfaction of the client is, simply speaking, what was called quality management in the Soviet Union in the 1970s. Attention from the product to the human being was shifted later and emphasis was put on consumer qualities of the product. Practically all leading companies of the world launched regular systems for evaluation of the degree of client satisfaction by now. What is it? How is it possible to measure it? Acquisition and use of a product or a service can be considered satisfaction. Along with this, there is also such a notion as loyalty. This is such degree of habit and confidence of the client when he buys a product of this company even if other companies offer products that are not worse and are cheaper. Incidentally, it is believed that acquisition of new clients costs 400-500% more than retention of the old ones. That is why attention to clients is very attentive all over the world. It is possible to mention the example of Volvo. In 1996, it adopted a program for increase of satisfaction of the clients. In 1998, Volvo outran 23 competitors and became the largest company on the automotive market. However, we need to avoid passion for figures. It is sufficient to choose several aspects correlated with the strategy and tactic of the company and to arrange feedback to permanently communicate with the clients and to find out with what they are discontent.

Victor Stepov: - RZD is being transformed into a sophisticated holding structure. It seems that nobody has clear understanding yet how it is possible to build marketing in the company. Whose experience could we adopt?

Igor Posadov, advisor to the President of RZD, member of the operational regional commission:

- Marketing research in Russia should be correlated with Russian mentality. It is known that our mentality is Byzantine. According to the Byzantine tradition, the goal of labor is not obtaining of material benefits. Labor is means to make this life harder to get salvation in eternity. Thus, the object of labor is separated from the goal and there is no targeting at the result. That is why our corporate culture encounters resistance.

Mikhail Zvyagin, General Director of IMI SP-Consulting:

- Strategic marketing should develop primarily in the managing company and operational marketing should develop on the local level. When the holding develops operational marketing will flow to vertical business.

Vyacheslav Dyukov, deputy director of the road center of high-quality transport services:

- Marketing started functioning at the Oktyabrskaya Railway back in 1995 under the old system of governance in the industry. This was not marketing in its classic form but with assistance of market research we managed to stop decrease of the volumes of transportation. It was not discussed then on which level it was necessary to do strategic marketing and each railway had to fulfill tasks of cargoes attraction. Accuracy of the market forecasting according to the volume of transportation was important then first of all. We coped with this task. What is operational activity? At railway transport a big quantity of divisions work for the end result. We need to break down the entire business process into operations, to study the experience accumulated in the world and to compile a marketing system suitable for our conditions. It is necessary to adapt classic marketing theories to railway transport. We do not have methods from the standpoint of creation of new products.

Victor Stepov: - So far, we do not have an idea of what is marketing profit. Our financiers do not operate the notions that are used in marketing yet. There is also no system that allows evaluation of efficiency of work of the top managers. Along with this, if all cargoes are transferred to the railway we will suffocate. We will not have enough running stock and enough throughput capacity.

With regard to marketing methods, we need to learn from our neighbors. Marketing at the Finnish railways is on the highest level. When we started considering organization of high-speed transportation between St. Petersburg and Helsinki we needed to know the passenger flow. Only 160,000 people went to Finland by railway annually three years ago. We talked to President Henri Kuitunen and he promised to do marketing research of the market of passenger transportation and to give an answer. The response was the following: in three years the passenger flow would grow to 500,000 people. I did not believe in this then. But what do we see now? The forecast was confirmed. The passenger flow grows by 16-18% per quarter and approaches the aforementioned figures. Finns have a very well built transport business, all productions are certified and we have something to learn...

Mikhail Zvyagin: - I think that in cargo transportation it is also necessary to determine if it is possible to divide the market and if it is necessary to organize separate marketing services. It is important not to allow internal competition. There should be feeling of the market: we need to feel the market and to determine the direction of the main blow.

Alla Kukushkina, director of the marketing department of the directorate of Transcom:

- The place of marketing is not determined in the corporate governance strategy clearly but we feel a big need for it. It is necessary to know capacity of the market of transport services, the degree of feeling of commuter trains in different seasons and in different time of the day. We also have scarcely populated areas where the quantity of passengers is small but we cannot leave them without commuter trains. Marketing engineers use such research methods as polling of passengers, sociological research, systematization and analysis of data of the automated system TSO-2 Prigorod. In 2007, we developed a new modular technology of transport services provision to the population on the basis of study of the demand. The essence of the technology is that an ordinary electric commuter train is divided into two modules at an intermediate station and each module goes along its own route. A half of the train is quite sufficient to satisfy the needs of a scarcely populated region.

Victor Stepov: - This technological solution enabled us to save 100 million rubles and what was the most important, we released 47 motor carriage sections for organization of additional trains in the most popular directions. Social component is very important in commuter transportation: 56.3% of commuter passengers belong to categories of population entitled to social benefits. This is an order beneficial for us and administrations of the subjects of the federation pay for these transport services to us at production costs. We have big plans for organization of high-speed intercity communication for satisfaction of demand of the population. In 2008, we will send high-speed diesel train to the line St. Petersburg-Pskov and afterwards we will send a train to Novgorod. We would send such train even to Petrozavodsk but, unfortunately, we lack throughout capacity in this direction.

Igor Dyukov: - In some countries governments allocate money for construction and reinforcement of the railway infrastructure to give momentum to development of peripheral cities. It is known that development of cities accelerates after improvement of transport communications. For example, Italy allocated 22 billion euros for this purpose.

Yevgeny Yershov, deputy dean of the department of "Economy and social governance" of PGUPS:

- Going back to the goal of marketing – gaining of consumer sympathies and increase of the sales volume – image of a company is very important. The more influential is a brand the faster the new products are promoted on the market. Research shows that the consumer is prepared to pay additional 20% to the price of a product for a trademark. Incidentally, it is necessary to remark that national ideas and symbols are placed in the center of branding activity all over the world. A band that is trusted can give a competitive advantage, attract investments and partners. Hence, it is necessary to consider a set of measures for creation of positive image in the consumer’s consciousness. The Oktyabrskaya Railway is on the peak of competitive struggle now. Every department and every specialist can see his marketing task for provision of profitability of the operations.

Yevgeny Popov, director of the marketing department of the directorate of Transservice:

- Private shippers force us bear losses in passenger transportation and to think what we are to do further. Our directorate worked out measures for encouraging of passengers with assistance of the tariffing system. Changing of tariffs depending on the level of demand allows attraction of additional flow. Unfortunately, the state regulation system does not let us use all available opportunities for reduction of the price of a trip.

Sergei Mitrofanov, General Director of international consulting agency Brandtlight:

- I wish to speak about experience of reforms at the Swedish railways that may be useful for the Russian railways too. Sweden started from investments in running stock, in renovation of offices and in implementation of new uniforms for the staff. They changed the look. A few years passed but the passenger flow did not grow. Then they approached this problem from another side and started correcting mistakes. They worked out a program named "A hundred of tasks" aimed at improvement of services provided to the clients. This program was conveyed to the society through the press. When they achieved a certain goal they permanently informed the population about this. They understood that it was necessary to think not in symbols but in deeds. The staff became the main participant of the program. It was important that all employees join the common cause. Nothing cannot be done by declarations and directives. There is an economy of relations that has two aspects: belief in people on the one hand and believe in what they are doing on the other hand. Swedish railways built an economy of relations starting from the president. The logic that has guided them is interesting. Which type of human relations is the highest? Friendship. To maintain friendship you need to surprise from time to time. Yes, marketing tools and methods have been worked out but if railways do not see a friend in the passenger nothing will help. This is the first line of your brand.

Victor Stepov: - The task of our today’s conversation is helping to decide from what to begin and where to move, to understand what is marketing. Further we will set goals and develop methods. I will control issues of marketing development at our railway personally.