The influence of country-of-origin effect on russian consumers behavior in cosmetics industry

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ФЕДЕРАЛЬНОЕ ГОСУДАРСТВЕННОЕ АВТОНОМНОЕ ОБРАЗОВАТЕЛЬНОЕ УЧРЕЖДЕНИЕ ВЫСШЕГО ОБРАЗОВАНИЯ

«НАЦИОНАЛЬНЫЙ ИССЛЕДОВАТЕЛЬСКИЙ УНИВЕРСИТЕТ

«ВЫСШАЯ ШКОЛА ЭКОНОМИКИ»

Факультет бизнеса и менеджмента

Выпускная квалификационная работа

Влияние эффекта страны происхождения на поведение потребителей в косметической индустрии

The influence of country-of-origin effect on russian consumers behavior in cosmetics industry

Ентох Анастасия Вадимовна

Content

• Introduction
• Chapter 1. Theoretical aspects of Country-of-Origin Effect and its influence on consumer behaviour
• 1.1 Definition of Country-of-Origin Effect, its characteristics and variations

1.2 Approaches applicable for studying the influence of the COE on consumers' product evaluation and decision making

• 1.3 Peculiarities of marketing strategy in consideration of the COE

1.4 Empirical demonstration of the COE in cosmetics industry

• Chapter 2. Analysis of cosmetics market and its consumers behaviour
• 2.1 Cosmetics market analysis, key trends and peculiarities of its consumers
• 2.2 Overview of consumers and their preferences
• 2.3 Methodology and hypotheses of the research on consumers behaviour in cosmetics market
• Chapter 3. Research results and recommendations
• 3.1 Analysis of survey results
• 3.2 Processing of survey results for Asian countries
• 3.3 Development of recommendations for Asian cosmetics brands
• Conclusion
• References
• Appendix A. Approaches for studying the influence of the Country-of-Origin Effect on consumers
• Appendix B. Survey questionnaire
• Introduction
• For the past 5 years, the preferences of Russian consumers of cosmetics products significantly changed. If in 2015 women preferred buying European or American skin care products, currently many of them would likely choose Asian face masks or moisturizers [74]. In general, the Russian cosmetics market was estimated $8.8 billion and its skin care industry was worth $2.2 billion in 2018 based on the information of Euro Monitor International. The forecast for this number was to rise even more in 2019-2021. Optimistic scenarios are also predicted to Korean, Japanese and Chinese cosmetic brands. Annually about 20-30 Asian companies enter the Russian market [68]. This makes it more of a topical problem to study consumer's behaviour under the influence of the Country-of-Origin effect (COE) when the shift in preferences is extremely evident.
• There is still no common definition for Country-of-Origin (COO) effect as many researchers identified it in diverse ways. In this work the COO will be considered an external attribute of an item or a product-related cue or an image variable that affects consumer's behaviour (Bilkey & Nes, 1982).
• The object of the study is the customers behaviour under the influence of the COE. The subject is the consumers preferences in choosing cosmetics items made by Chinese, Japanese and Korean companies. The issue of the research is the lack of knowledge on how to build the effective marketing strategy of Asian skin care brands on Russian market.
• The overall purpose of the work is to reveal the significance of the COE on Russian consumers in cosmetics market and develop recommendations for positioning Korean, Japanese and Chinese skin care companies. To achieve this goal, the following objectives have been met:
• 1. To examine the Country-of-Origin effect, its characteristics and its variations.
• 2. To identify the instruments and methods applicable for studying the influence of the COE on consumer's product evaluation and decision making.
• 3. To investigate the practical demonstration of the COE in beauty industry and analyse the global cosmetics market as well as the peculiarities of its customers behaviour.
• 4. To reveal the preferences and behaviour changes of the Russian buyers under the influence of the COE.
• 5. To develop recommendations for positioning foreign products in the Russian market.
• The theoretical part of the study was based on the fundamental works of such authors as W.J. Bilkey & E. Nes (1982), G. M. Erickson, J. K. Johansson, & P. Chao (1984) and N. Papadopoulos & L. Heslop (1993) as well as further research of the nature of the COE conducted by M. S. Rashid (2017), Y. G. Suh, J. Y. Hur & G. Davies (2016), P. M. Fischer & K. P. Zeugner-Roth (2016) and others. In addition, the studies of the cosmetics market carried out by L. Pilelienл & M. Рontaitл-Petkeviиienл (2014), R. Baran (2018), E. D. Augusta, D. Mardhiyah, & T. Widiastuti (2019) were reviewed.
• As for methodology, in order to examine consumers' preferences, the quantitative research method was used. It included collecting data for later analysis and was in a form of online questionnaire for adult customers who live on the territory of Russian Federation. The data obtained from the survey were processed with the help of the technological tool of SPSS Statistics. As a result, a description of Russian consumers and their preferences under the influence of the COE and a set of recommendations for positioning Chinese, Japanese and Korean skin care items were developed and then the managerial implications were formulated.
• The study consists of three chapters. The first one is directed to the examination of literature sources and previous research not only of the COO but also of the cosmetics and skin care industries. The second chapter determines the market, its consumers and their preferences study as well as the description of methodology used, and the hypotheses being formulated. The concluding chapter is dedicated to the survey results overview and analysis and further development of recommendations to Asian brands working on or entering the market.
• Chapter 1. Theoretical aspects of Country-of-Origin Effect and its influence on consumer behaviour

1.1 Definition of Country-of-Origin Effect, its characteristics and variations

Although Country-of-Origin effect has remained a subject of interest for almost 50 years now, there is still no common definition for it. To start with, S. Samiee (1994) defined the COO as any influence that the country of manufacture could have on the process of choosing product, its purchase or related actions of consumers. It can be either negative or positive influence. W. J. Bilkey and E. Nes (1982) considered the COO a product-related cue or an external attribute of an item or an image variable that has influence on consumer's behaviour and described the country of origin as the location of firm's headquarters while N. Papadopoulos (1993) presented it as the final site where the goods were assembled or manufactured.

Moreover, the COO is treated as a great example of stereotyping as many customers associate the country of origin with the goods quality and therefore generalize that all goods from a particular nation are of a specific level of quality (Papadopoulos & Heslop, 1993). This generalization can be modified under the influence of certain experience as it changes from being a halo effect (when a person has practically zero data about the country's items) to a summary construct as commonality inferred from awareness or usage of an item becomes more outstanding (Suh et al., 2016). However, associating the COO with a bias or a halo effect might not always be reasonable in light of the fact that the COO is a snippet of data alongside other available information including item's internal and external characteristics. Instead, the COO is an encouraging factor in evaluation process (Rashid, 2017).

Nevertheless, even while considering the COO as an external prompt it was concluded that the perception of consumers was unimpacted for all items produced in that nation, but only for specific goods, such as cars made in Germany and watches in Switzerland (Chao, 1993). If a country is seen as having explicit characteristics or abilities, only at that point the COO turns into a factor in assessing the quality of particular goods (O'Shaughnessy & O'Shaughnessy, 2002).

So, the main characteristics of the COO phenomenon are (Kotabe & Helsen, 2017):

1. The COE is unstable over time as the perceptions of people tend to change. As people become more familiar with the nation, the marketing strategies evolve, or the overall quality of the item changes, the country images also get modified (Wood, 1999);

2. COO has an effect on the customer's willingness to pay for the goods. Several studies have shown buyers' willingness to pay more for branded items coming from a nation with a favourable image (Koschate-Fischer et al., 2012);

3. The degree of the COE depends on the demographics. It is particularly strong among older people (Shimp, 1987), less educated and politically conservative buyers (Anderson, 1972). Customer expertise also affects the product evaluation as novices use the country of origin cue in assessing the item under any conditions and experts rely on those stereotypes only when there is uncertainty in information about items attributes (Maheswaran, 1994);

4. There is higher possibility for customers to use the COO cue when they are unfamiliar with its brand (Cordell, 1992);

5. Lastly, the COE depends on product category.

All these characteristics will be described more thoroughly in the next parts of this work.

Moving on to the variations of country of origin, there is “an image discrepancy between the origin-of-brand and origin-of-product of that brand” (Rashid, 2017). Most of the researchers see the COO associated with the `Made in' label which can be accepted by customers as an external cue for product quality (Amine, Arnold, & Chao, 2005). Other variations of this label are “Country of manufacture” (COM) or “Country of assembly” (COA) written among the characteristics of product (Chattalas et al., 2008). The COM can also be associated with the COD (Country of design) or term DCI (Designed-in-country).

On the other hand, a few researchers have highlighted brand centrality in the context of COE in recent years, proposing the “origin” ought to be comprehended according to the brand origin perceived (Pharr, 2005). The COB (Country of brand) can be interpreted just as the spot a purchaser associates with the label (Magnusson et al., 2011). The more formal way to say that is the country where the “corporate headquarters of the company marketing the product or brand is located” which can also be associated by a consumer with the heritage of a brand or a cultural origin (Moeller et al., 2013).

On the whole, in this work, the COO will be perceived as the product-related cue that influences the customers' goods evaluation and decision-making processes. Its main characteristics such as the role of demographics, product category and others would be useful for developing the questionnaire and then analysis of the results. Moreover, both the COB and the COM will be studied later in terms of their effect on Russian buyers behaviour.

1.2 Approaches applicable for studying the influence of the COE on consumers' product evaluation and decision making

The Country-of-Origin Effect has been studied widely from different perspectives. The most common used approach is the “three ways” approach. Authors differentiate three separate ways how the COE can have an impact on customers product evaluation and intention to buy: cognitive, normative and affective routes.

The first consumer's route is based on being subjected to such product-relevant indicators as price and quality which leads him/her to the cognitive path of understanding the relative value of other product-related cues as opposed to the COO. As it was said before many consumers take the COO cue as an indicator of goods quality. That's why many studies showed buyers tend to choose goods from developed nations, such as European countries and the US due to the assumption that such items are of better quality (De Wet et al., 2001; Garma, Polonsky, & Wong, 2008; Hsiech, 2004). This means the level of economic growth and development of the nation plays a part in creating the COO stereotype (Suh et al., 2016). Moreover, there are extensive scientific data proving the idea that certain countries are highly specialized in manufacturing high quality goods (Chao, 1993) leading to brand association with country. This relationship between the brand and the nation means the company is perceived as of better quality as the state has a reputation for delivering the best of its type of goods (Amine, 2005).

In 2009 K. P. Roth and A. Diamantopoulos in their research proved the cognitive process is connected to this perception of the country image by customers which means that they can see a nation as more or less desirable origin for certain goods depending on their knowledge or stereotypes about the country. This “stereotypical association of a general product with particular country of origin” is assigned to the term “product ethnicity” (PE) (Fischer & Zeugner-Roth, 2017). Ethnicity of an item is a kind of typicality and also the consequence of categorization processes that exists in two ways, namely countries with traditional product roots and goods that are common to countries. Several studies have identified positive effects of the ethnicity of the product on perceptions of customers and desire to purchase an item (Tseng and Balabanis, 2011).

However, there is still ongoing dispute on which moderator of cognitive processing is the stronger one. Much research showed the importance of quality for purchaser in product evaluation process, nevertheless, it was proven that the buyer can choose the item of inferior quality because of their unwillingness to pay (Rashid, 2017). This output makes the price a better moderator than quality when it comes to forecasting the interaction between the COE and item evaluation.

Furthermore, the price can be considered a bigger influencer on product evaluation process from the perspective of value consciousness (VC). It is characterized as a concern for paying low costs, depending on quality limitations. Such consumers tend to be worried justly about the quality of goods and the affordable costs. They are therefore more likely to analyze the prices of various firms to get the best deal for their money (Sharma, 2010). Thereby the price can have a greater effect on buying decisions than quality or brand image. Still in this work the most commonly used theory will be implied meaning that the pertinent factors of interest to customers during the pre-buy evaluation of item quality are price, advertisements, brand and its image and the country of origin (Kalicharan, 2014).

The second way for a consumer is to be persuaded by the favourable COB or COD while following the affective route to product evaluation. Affective responses to country of origin of a product depend on specific positive or negative feelings towards foreign countries (Oberecker and Diamantopoulos, 2011).

There are several moderators of the affective processing of the COE cue and they are cross-border mobility (CBM) and brand symbolism (BS). Customer demand is progressively converging in different parts of the globe (Rashid, 2017). Quelch (1999) describes transboundary mobility that makes the tastes and values of consumers worldwide similar to each other. CBM may be determined by physical mobility resulting from work or leisure, or by technological mobility resulting from TV and the Internet (Lim&O'Cass, 2001). Regarding the influx of immigrants, quick paced cross-national marriage, expanded adoption of foreign children and the technological transformation, several authors support the concept of cultural mobility as an analogous form of internationalism, cosmopolitanism, world-mindedness, and worldwide openness (Nijssen &Douglas, 2008). Purchasers of one culture can gain from another culture thanks to the CBM; therefore, the exchange of thoughts is getting increasingly fast. As a result, similar customer groups are arising from various markets (Rashid, 2017). Buyers around the globe thus purchase virtually the same international brands, regardless of the COO of these brands goods (Quelch, 1999). Worldwide companies can meet differentiated consumer desires by selling the same goods and services. Therefore, the main assumption of the CBM perspective is based on the preferences of consumer groups with high cross-border mobility to buy global brands products while paying less or no attention to their countries of origin (Rashid, 2017).

Moving on to the brand symbolism, these days firms spend their time in merit-based work to build "commodity spectacles", while small producers perform repetitive manufacturing activities (Merk, 2011). Brands change from being a marked producer to a labelled retailer or a labelled marketer and it demonstrates the aim of a company to add further to the symbolic affiliation and lifestyle of customers (Rashid, 2017). Studies have found customers' connection with a company is driven by their desire to communicate their own self and ideal self (Belk, 1988; Malhotra, 1981). Aaker (1997) noted the attempts of brand managers to endow their products with individual identity through personification and consumer experience development. Therefore, the main output of this theory is that BS positively mediates the relationship between the buyers association with the COB and product evaluation process.

Other things that need to be discussed in terms of affective processing are brand image (BI) and brand evaluation (BE). BI refers to what customers think about the company and their emotions and feelings that appear while thinking about it (Keller & Lehmann, 2006). Using specific characteristics, different noticeable and invisible signs related to the company as a product or as an individual, consumers evaluate firms (Puzakova, Kwak, & Rocereto 2013). BE is defined as the buyer's emotional reaction to a brand, such as desire, trust and excitement (Hien, 2020).

As for negative feelings towards the specific country, much research was directed to study the influence of animosity on customers. This term is defined as the “remnants of antipathy related to previous or ongoing military, political or economic events” (Klein et al., 1998). Negativity towards other nation can be long-term as well as short-term. It was proven to have the significant effect on quality evaluation of the goods as animosity can prevent the buyer from purchasing the product (B.M.A.C. & Dissanayake, 2018).

The third path is the normative processing. This concept is built on ethical consumerism related to moral values. There is a tendency of customers putting more emphasis on ethical consumerism while being faced with socially responsible actions from firms, particularly on the stage of manufacturing product (e.g. labor conditions, following standards). Such consumers will value more the social responsibility of a company during their product evaluation process (Fischer & Zeugner-Roth, 2017).

The moderator of buyer normative processing is the personal values (PV) (Rashid, 2017). Humans tend to behave in the social context and maintain collective unity according to Schwartz (1992). The principles that an individual maintains decide his or her interests, relationship with others and result of evaluation (Schwartz, 1992). Schwartz (1992) categorized 57 human values into 10 forms of qualities, which are Conformity, Tradition, Hedonism, Universalism, Achievement, Benevolence, Self-bearing, Stimulation, Power, and Security. The corresponding mix of these PVs is distinctive for every individual. Doran (2009) indicates that individuals with a considerable degree of self-direction, universalism, and benevolence are more likely to accept the idea of ethical use, whereas people with high level of power value are less expected to center on moral consumption. That output makes it more clear why people tend to pay attention to ethically right business practices and arrive at their decision in purchase based on that factor (Rashid, 2017).

Moreover, buyers can be in favour of foreign goods but still decide to buy the domestic ones as they find it immoral or unacceptable because of the normative reasons and willingness to support the national economy which yields the opposite outcome to what was described in the context of CBM before. This behavioural concept is called ethnocentrism and it is important in every COO study as the phenomenon underlines that not only item's COO is influential to the results of the research but also the country of consumption due to the cultural diversification (B.M.A.C. & Dissanayake, 2018).

All the approaches described in this part were generalized in the table for better structuring (see the Appendix A).

Conclusively, there have been more than enough evidence of the fact that the COO influences product evaluation and willingness to buy of consumers from many psychological, behavioural and economic points. The moderators and mediators of that relationship are price and quality, product ethnicity, brand symbolism, brand image and its evaluation, cross-border mobility as well as such traits of customers as value consciousness, animosity, ethnocentrism and their personal values. These aspects have been included in the questionnaire to study the influence of the COO on Russian consumers taking into the account all the necessary perspectives.

1.3 Peculiarities of marketing strategy in consideration of the COE

Organizations should perform market research to examine the extent and the influence of the country of origin stereotypes for their specific items before considering potential strategies on coping with the COO. This research will show if the COO actually matters to customers and to what degree the COO helps or disrupts them in analyzing and evaluating the goods (Kotabe & Helsen, 2017). One helpful method that M. Kotabe suggests uses a choice scale for the currency. Respondents are asked to say how much they want to pay for different combinations of brands/countries.

As it was said before, country image stereotypes can either benefit a company's product or hurt it. Obviously, if an advantageous match occurs between the nation identity and the desired product features, a company can exploit this fit by promoting the origin of its goods, assuming that its major rivals may not have the same (or better) origin (Kotabe & Helsen, 2017). Marketers highlight the country-of-origin for certain items as a way to improve the buyer's perception of the quality of their products and as a strategic positioning vector for achieving competitive advantage in the market (Ettenson & Klien, 1998). Even companies from the same country and industry would have to work hard to gain support and confidence of customers. Still, the main focus of many studies based on marketing strategies under the influence of the COO is on what strategic methods, and tools can be applied in order to resist the effect of unfavourable COO or negative stereotypes about it. Kotabe (2017) made an overview of these practices organized with the help of 4P's model.

Starting with the product, a typical method of dealing with the COO is to choose a brand name which masks the COO or even evokes the favourable one (Leclerc, 1994). The good example of that can be American cosmetics company with the French-sounding name “Estйe Lauder”. Another option is to select brand names that are non-descriptive (e.g. ZTE and LG) (Kotabe & Helsen, 2017). Using private-label branding is another alternative to downplay the negative effect of the COO. The great way is to develop brand equity (Hulland et al., 1996). Utter innovation and a push for superior level of quality can typically help businesses transcend long-term COO prejudices.

As for pricing, selling the item at a moderately low cost would lure value-conscious consumers who do not think much about the country of origin of the company. Clearly, this technique is only viable when the firm has a cost advantage. On the other hand, companies may place a higher price to battle stereotypes based on COO. This is particularly powerful for item classes in which price plays a role as a quality indicator (e.g. clothes, food or cosmetics) (Kotabe & Helsen, 2017).

Optionally, businesses may use highly respected channels of distribution to manipulate customer perceptions. These methods could be the choice of renowned distributors such as the biggest retailers in different countries or partnerships with firms that might even not be related to the initial market but be trustworthy by their consumers and good supporting system to enter the industry and settle in it (Kotabe & Helsen, 2017).

As for promotion, the company's communication strategy can change the perceptions of the customer towards the item in two ways which are to advance the country image and boost the brand image. Before promoting the nation image, it is necessary to develop a set of its inherent attributes or dimensions as it will increase the accuracy of pointing out the national identity (Sutter et al., 2015). Improving the country image is less promising than enhancing the brand image because it can lead to problems with free riders meaning company's attempt to reinforce the country image will also help its rivals from the same state even if they didn't spend any resources to achieve that. Hence, the country-image-type promotions are often carried out by government departments or industry associations. To change the cultural mindsets requires either aggressive advertising focused on promoting the nation or downplaying the country of origin of the item. Kotabe (2017) also proposes the sponsorship of local brands or communities as another possible tool to improve the brand image.

Ultimately, managers and marketers have to pay the proper attention to the country of origin effect of their brands and products and apply the most suitable techniques while developing the marketing strategy. Only this way they will be able to enter the market, settle in it and have the competitive advantage to stay long.

1.4 Empirical demonstration of the COE in cosmetics industry

The cosmetics industry has already been brought up a couple of times in this work. The impact of the COO cue on beauty products consumers has been studied in various countries.

In 2014 L. Pilelienл and M. Љontaitл-Petkeviиienл conducted a research focusing on the COE on beauty items choice in Lithuania. The results showed that out of all respondents about 50.2 percent usually consider the COO and 40.7 percent sometimes consider it when they choose the goods. In general, buyers ranked France as the most favourable country of origin for beauty products while China, Russia and Poland were chosen to be the least attractive ones. Lithuania took a place in neutral country of origin for their consumers.

France has been the indisputable leader in terms of the COO perception by customers all over the world as it gained this undoubtful reputation of high-class cosmetics products, luxury, professional workforce and renowned beauty industry and “Made in France” label has become the strong sales argument (Bacouel, 2015).

Another research results demonstrated the COO associations of Polish consumers with the price, quality, safety, effectiveness, naturalness and other features of cosmetics goods (Baran, 2018). For instance, German beauty items were considered as expensive but effective products while Polish ones as cheap and safe to use. Respondents made decisions based exclusively on the COO.

In 2015 Yong-Mo Seo et al. proved that a country of origin image has a positive effect on the purchasing attitudes and intention of Chinese consumers to buy Korean cosmetic goods. The outcomes suggest that when Korean organizations enter Chinese markets, if they perform exceptionally aggressive advertising campaigns focusing on brand image, national image and the COO, they will be efficient by changing positively Chinese customers' attitude and intention to buy Korean beauty items.

Similarly, Indonesian women were proven to purchase the items made by Etude House brand because it is a Korean cosmetics label and South Korea is renowned by customers for its advanced industry of beauty goods (Augusta et al., 2019). It is also known from this research that the likelihood of respondents purchasing Etude House goods is connected to the high level of brand familiarity. Organizations ought to have the option to make the most out of this open door by hosting road-shows or taking part in exhibitions of beauty items, and Etude House should be more willing to publicize their companies both on social and print media (Augusta et al., 2019). The author also suggests to the company a way to improve their brand awareness by offering samples of their newest items to impact their public appearance. So the future target audience and customers who don't know the label will become familiar with it and thus the desire to buy goods will rise. Moreover, as it was proven in study that the information seeking of buyers influenced their purchase intention, it was proposed to increase the number of data in the media that is frequently utilized by purchasers in seeking it, for example, the web. The organization can also collaborate with individuals viewed as capable of helping businesses provide knowledge about Etude House goods to customers who are willing to purchase and even buyers that don't know the name Etude House (Augusta et al., 2019).

As for negative associations with the COO, it was verified that female European millennials have the negative attitude towards cosmetics manufactured in China because of a poor nation image which was confirmed by the previous studies that viewed China as an unfavourable country of origin (Kudeviиiыtл & Chau, 2017). Nevertheless, the findings showed no state except for France was seen by respondents as the nation with the superior level of expertise in beauty industry while it was the primary indicator for high quality. Therefore, Kudeviиiыtл and Chau suggest that Chinese cosmetics firms need to get a better understanding of the perception of their products in the European countries. That was also supported by I. Zbib in 2020. The aim of the paper was to provide marketing expertise for French and Chinese cosmetics and skin care firms seeking to expand on the Lebanese market, and for Lebanese retailers eager to attract Chinese businesses (Zbib et al., 2020). According to the findings that favour social popularity as a moderating characteristic, the authors propose companies to develop effective marketing communication and entry strategies and to be more specific, finding more outlets for social popularity attributes in the Lebanese market that go beyond tradition Chinatown $1 and $2 department stores will be useful for Chinese brands.

However, there is uncertainty towards the case of goods labelled “Made in China” in terms of cosmetics and skin care industries (Zbib et al., 2020). Although buyers still equate “Made in China” label with weak production and low quality based on past negative stereotypes of Chinese goods (Yunus & Rashid, 2016), it is projected that China will become the most authoritative market for personal care and beauty items globally over the next five to ten years (Zbib et al., 2020).

While it is obvious the country of origin affects the cosmetics industry's consumers behaviour in different countries; it is necessary to talk more about the methods used by different firms in order to enhance the country image or cope with the bad one. As for Chinese brands handling the negative effect of the COO, Herborist can be a great model. It is a skin care brand produced by Shanghai Jahwa, a major Chinese manufacturer of personal care goods. Through designing products focused on Chinese herbal medicine, the company varies from other cosmetics companies. The first thing that the brand did to resolve the issue of “Made in China” stereotype when expanding outside the Chinese market was by portraying itself as “Made in Shanghai”. It resonates with luxury buyers more easily as Shanghai has this cosmopolitan city perception by customers. Another good method was to rely on respected retailers like Sephora while promoting the label in France and European nations (Kotabe & Helsen, 2017).

Cooperation with other brands is also a good instrument to cope with the bad country image. This way THANN, a natural Thai skincare brand, collaborated with Marriott Hotels in 2013 to provide toiletries items in the bathrooms. What's more, individuals could purchase THANN goods via hotel's shopping website [69].

The final example is based on the method that has been discussed before which is the constant quality improvement in order to advance the country and brand images. Korean items have totally changed the skincare and cosmetics industry. Many firms around the world are unable to catch up with them as they are still producing fresh and innovative products. There has been a number of creative products which were produced in South Korea. The most successful one is still the cushion foundation. It was first launched in 2011 and since then it became very extremely popular among consumers as it was easy to apply and it also included the SPF component [55]. And there were many more innovative beauty solutions developed by Korean brands later on which made South Korea one of the leaders in global beauty industry.

On the whole, the literature analysis showed that the COO in both of its variations affects the consumers behaviour as an external attribute of an item. It can have an influence in three ways which are cognitive, affective and normative processing of the COO cue. Diverse factors have an impact on product evaluation and decision-making processes of a customer on each route, for example, ethnocentrism, value consciousness and cross-border mobility. There was a few research conducted to study the influence of the COE in the cosmetics market and there is still none of them dedicated to Russian consumers. The COE can benefit or hurt the businesses; therefore, it is crucial to enhance the favourable COO and to cope with the unfavourable one. The companies can either try to hide the COO by giving their brand a non-descriptive name or the one which will evoke the more preferable nation of origin or improve the country image by coming up with the innovative decision, enhancing quality of the goods and gaining trust from the audience with partnerships and local sponsorships.

Chapter 2. Analysis of cosmetics market and its consumers behaviour

2.1 Cosmetics market analysis, key trends and peculiarities of its consumers

The global cosmetics industry is a large and dynamic market powered by high opportunities for growth in demand. The growth of the middle and upper-income classes, as well as the increasing number of senior citizens searching for goods that will meet their varied needs and their endless desire for attractiveness, underpin this strong consumption, most noticeably [61].

The statistics show that the worldwide cosmetics market was worth USD 507.8 billion in 2018. The industry was estimated to be worth around 758.4 billion US dollars by 2025 [62]. In L'Orйal 2019 Annual Report of cosmetics market they estimated it 220 billion worth with the growth rate of +5,0%/+5,5% based on manufacturers' net prices and excluding razors, blades, soap, oral hygiene, and currency effects. However, on 16 April 2020 L'Orйal published its financial results for the first quarter of this year and there is a decline in sales of around 5% over this period compared to the last year due to the spread of COVID-19 [63]. And it could have been worse if the company's e-commerce didn't grow by 53% and now accounts for about 20% of the sales [66]. The sales of industry are still projected to grow by 6.5% in 2020 based on information of Euromonitor International. The overall growth of the global cosmetics market over 5 years (in %) is shown in the diagram 1.

Diagram 1. Annual Growth Rate of Global Cosmetics Market. Source: Statista 2020.

L'Orйal outlines 6 key factors that play a great role in the success of the industry [60]:

1. The gradual rise in online beauty spending

2. The growth of social networks

3. Customer interest in new, exclusive and luxury goods

4. The pace of global urbanization

5. The increase in the number of senior citizens around the world

6. The growth of the upper middle class

Zbib (2020) also points out that this high demand in the cosmetics industry is due to the rising interest in grooming among young people, evolving customer lifestyles and habits in the developing countries and the increasing awareness about the global beautification. Furthermore, as more purchasers now prefer “experiences” over “possessions”, customization and personalized beauty are developing quickly and being accelerated by smart technology that pushes the desired and ideal lifestyles (Zbib et al., 2020). In fact, powered by the healthy living movement and natural/organic use, consumers are drawn to eco-friendly goods, with fair manufacturing and clear labelling [70].

As for the main leaders of the cosmetics market, they are L'Orйal, Unilever, Estйe Lauder, Procter & Gamble, Shiseido, and Coty. Their sales are estimated 31.8, 22.4, 14.2, 13.2, 9.7 and 9.1 billion dollars respectively [61]. Moreover, they own over 182 cosmetic businesses all over the world which makes the interconnection of global customer brands more noteworthy. A good example is the takeover of leading U.S. beauty labels, including Kiehl's, Maybelline and Redken, by French L'Orйal. Most customers across the world often see such companies as U.S. brands, and in their evaluation process refer to the COO cue (Zbib et al., 2020).

However, despite the fact that most of the cosmetics industry leaders are based in the US and Europe, the geographical breakdown of the market in 2019 was in favour of Asia Pacific Region with 41 % while North America and Western Europe have 24% and 18% respectively [61]. As for product category, the biggest ones are the skincare (40%), haircare (21%) and makeup (18%) sectors. That's the reason why in this work the skin care industry consumers will be studied. Based on the information of Euromonitor the global skin care market was USD 134.62 billion in 2018 and was projected to reach USD 183.1 billion in 2023. The rapidity of the annual growth of the industry compared to the whole cosmetics market can be seen in the diagram 2. The industry includes facial skincare, facial cleansers, body care and sun protection [61].

Diagram 2. Growth of the skincare industry compared to the global cosmetics market. Source: 2019 L'Orйal Annual Report.

cosmetic consumer market

The skincare market is segmented to creams, lotions, sprays, powders and other by product type and the creams have a share of 34.28% as they can be used in a large variety of applications such as night creams, day creams, moisturising, acne treatment and others [76]. According to the Fortune Business Insights, women are still dominating in terms of utilizing the skincare products as the ones who are more concerned about their appearance, however, the number of men using these goods has also risen over the past 5 years. As for distribution channels, cosmetic stores are the leading sector due to the high level of product availability and the wide range of presented cosmetics items in one place [76].

The skincare industry is expanding quickly, again fuelled by the growth of the upper and middle classes worldwide and especially in Asia, where consumers are both educated and passionate about this sector [60]. Asia Pacific yet again led the development of the segment in 2019, powered in particular by China, Travel Retail Asia and rapid growth in South Asia region, accounting for more than half of the worldwide skin care industry (57%). North America holds about 20% of the industry and Western Europe goes next with 14%. The skincare market in Asia benefits from the popularity of luxury skincare products particularly in the anti-aging segment [61].

In terms of the country-of-origin effect, according to Euromonitor International report, an increasing number of local brands are winning market shares in China, India, the US and Australia, at the expense of foreign labels. Local brands have the advantage of combining nation identity with quality, reputation, and price points to attract customer audience better than multinational firms. Multinationals would have to adapt, be creative and acquire to succeed and retain their leadership roles [78].

The key trends of the skincare market are [76]:

1. Technological empowerment

2. Rise in personal grooming awareness

3. High demand for sustainable products

Technological advancements in skincare industry are mostly connected to the artificial intelligence (AI) and Internet of Things (IoT) based devices providing customers with customized skin care solutions. This way Shiseido unveiled its latest IoT-based skincare service named "Optune" in July 2019, which would say about the skin care requirements according to the skin condition of a person. Likewise, Kao Company and L'Orйal have launched skincare products focused on AI to target the customer audience. In January 2020, L'Orйal launched a new 'Perso' 3-in-1 app that uses AI to evaluate the skin pattern of the consumer and dispense the personalized amount of lotion, serum or cream from the app accordingly [59].

Rise in personal grooming awareness is taking place thanks to a variety of reasons like the growing prevalence of acne, dark spots, lesions, dullness, and tanning, rising worries regarding skin nourishment have raised demand for skin care items. Skin-lightening cosmetics, toners and scrubs are seeing more popularity from the younger demographic, while goods that offer the solution to wrinkles are gaining tremendous popularity due to their rising demand from the matured population. Moreover, changing lifestyle and customer purchasing habits on luxury beauty care items are expected to fuel the overall growth of the demand for skincare products [76]. In addition, customers started to look for environmentally friendly skincare items (including its packaging) that are good not only for their healthcare but also for the planet.

As for the Russian cosmetics market, according to Anna Dycheva-Smirnova, managing director, Reed Exhibitions Russia, Russia actually holds 4 percent of the global beauty industry. Volume-wise, it actually is behind Germany, France and the UK in 4th position in Europe. Based on the per capita consumption of beauty products, Russia is in sixth place worldwide [65]. During this exhibition it was also stated that France is the “undeniable leader” of the exports of cosmetics items to Russia, in particular for skin care and perfumes, followed by Germany, Poland and Korea.

The skin care industry was estimated USD 2,2 billion and although it was growing steadily in 2018 it reported slower current-value growth in comparison to 2017 according to Euromonitor International. Consumers remained highly budget-conscious with declining disposable incomes [75]. This tendency lead to manufacturers providing additional properties for skin care goods to survive the riding pressure in the market.

According to Passport Euromonitor, the biggest players of Russian skin care industry are L'Orйal with 14.1% share, Unilever (13.1%), Beiersdorf (4.6%), and Clarins (4.2%). L'Orйal Russia maintains its lead position. In both the mainstream market, the group stayed strong with its brands L'Orйal Paris and Garnier and the luxury segment with its brands La Roche-Posay, Lancфme, Kiehl's and Vichy [75].

One of the main trends inherent for Russian skin care market is the growing prominence of the smart ingredients. Makers put greater focus on smart ingredients in healthy skin items. Beiersdorf introduced day and night facial creams with oils and ubiquinone under the Nivea Energiya Molodosti line which is responsible for collagen and elastin growth [75].

Other trend is the high demand for dermocosmetics. Russian skin care market sees the growing competition for dermocosmetic products which fuelled sales in pharmacies/chemists. “Free-from claims” became extremely popular, resulting in successful brand results [75].

All things considered, the choice of product category for the current study is the skin care segment that has been the fastest growing category of cosmetics market for the past 5 years even in Russia with all the peculiarities of its consumers.

2.2 Overview of consumers and their preferences

Skincare's success is due to its exceptional place among a number of trends: a growing demand for health-promoting and self-care goods, an increasing belief in the influence of routines, the potential of social media to empower and educate customers more quickly and especially modern technology's potential to simplify the extremely nuanced options customers have while engaging with skincare products [73]. All of that is somehow connected to the consumers, their actions, behaviours and preferences. Creating a specific type of relationship with customers would be crucial for the distinction of skin care products, not only as the industry grows more competitive, but also as the range of purchaser preferences has risen even more greatly. Not exclusively do skin care decisions become more troublesome with each new entrant and item, however feeling certain about the skincare one buys turns out to be even harder challenge [67].

Consumers are really concerned about their health and wellness, therefore, the safety of the products. People now understand that such factors as pollution, sun protection, stress at the workplace are not only facets of life that people are conscious about, but also those that influence skin health and aging in particular [56]. Customers believe natural ingredients can correct and fix the complications they encounter with their skin. Buyers nowadays are seeking organic and natural, `non-toxic' or `chemical-free' skin care items due to increased awareness of the harmful effects of synthetic chemicals on the skin. Ingredients obtained from natural foods such as leaf and root extracts are safe to apply on the skin as they do not show any side effects [59]. The market for products with organic labels is therefore growing at a rapid pace and is expected to fuel skin care goods' production [76]. Moreover, such products, which are usually free from parabens, synthetic paints and phthalates, are often more costly to manufacture and are more likely to be priced at a premium - a win-win phenomenon for skin care companies who focus on the unique way customers look to resolve their contemporary issues [72].

This more wellness-oriented customer is the one who would also be the most likely to try out and stick to the everyday rituals on which they can depend and rely. In this sense, skincare rituals are not only a significant practice, but also something that pushes brands to achieve higher profitability and lifetime value. This not only shows the general shift in customer tastes, but also the changes in how companies are selling their skin care offerings. If it is via subscription boxes or through direct-to-consumer sales, newcomer niche brands account for 10 percent of the beauty industry is rising almost four times faster than existing firms because of the ability to adapt quicker to the changed in preferences of buyers [79].

In general, the society started talking more about the skin problems. According to the NHS, acne is normal with 95 percent of people between the ages of 11 and 30 being affected to some extent by acne and it is finally being perceived this way too [71]. Acne treatment has now been reviewed as the skin positivity trend makes more marketers to focus on acne tolerance through their ads and their growth possibilities have become a focus for high-level experimentation from both existing cosmetics brands and new niche firms, as research reveals that breakouts and adult acne have become the hot topics and concerns of many buyers [59].

Ultimately, due to the expansion of social networks customers have the ability to learn about and experience goods in what has historically been an ambiguous, elusive, non-visual area, so to continue to thrive, marketers need to take advantage of all that the community can bring them [73]. And there are becoming more and more communities united by their common interest in cosmetics, skin care and brands while the companies try doing the maximum to engage with them. The typical skincare company currently publishes twelve posts a week, hitting 2,5 thousand commitments per post at a pace of 0.2% [77]. More marketers are not only teaching customers about foods, correct methods and rituals through highly informative visual materials, but also encouraging them to open up about their relationship with their skin and why they enjoy these goods [64].

As for the peculiarities and preferences of Russian consumers, they include all of the sayings above. Although customers remain strongly budget-conscious and the disposable incomes decline, their demand for both organic and natural products continues to rise [75]. 65.5 % of respondents stated they were looking for natural ingredients in personal care products, according to the GCI. Face care accounts for 71 % of the Russian skin care industry due to the rise in anti-aging product demand with body care taking the second place with 13,8%. The fastest growing sector in face care is the luxury and mass face masks [65]. Hair care category with claims for natural ingredients is becoming more popular among Russian buyers while in sun care they seek items that are multitasking, i.e. protection from free radicals, pollution and UV [65]. According to the GCI, the statistic for channels Russians buy cosmetics products is perfume and cosmetic chain stores (31%), direct sales (12%), hypermarkets (12%), non-chain stores (11%) and e-commerce (10%).