The paper is devoted to econometric analysis of the impact of Russia–Ukraine conflict­, which started in February 2022, on TV advertising strategies of fast-moving consumer­ goods (FMCG) companies. With the help of quantitative methods, the study analyzes­ changes in TV advertising expenditures of domestic and foreign brands, using Mediascope TV Index daily data from 2021 and 2022 to test the hypothesis of whether this geopolitical shock made advertising costs dwindle or rise. Cross-country-of-origin and cross-product dif­ferences are also investigated. It is confirmed that, on average, the shock resulted in a reduction of ad expenditures of FMCG companies with a pronounced effect on domestic brands and brands from “friendly” countries. Thus, the cost-saving arguments seem to outweigh the expected benefits from promotion in the majority of the considered FMCG product markets. The increase in ad spending on isolated product groups (clothing, electronics, personal hygiene items and tobacco and alcoholic beverages) indirectly evidences that the brands faced sharp intensification of competition because of structural changes in the markets under which extra ad spending was found reasonable.

TV advertising, fast-moving consumer goods, brands strategies, impact of crisis, Russia.

In 2022, Russian markets faced transformations and obstacles. The key factors­ influencing these markets were the conflict in Ukraine and the forthcoming sanctions against Russia. The shift in the political landscape and the prevailing instability in the region have led to changes in numerous markets, including fast-moving consumer goods (FMCG) and advertising.

In the FMCG market, both foreign and domestic companies have been forced to reexamine their market strategies, caused by the logistical challenges and political pressures and the structural changes in competition and market participants. Many international brands stopped doing business in Russia. The niche left by departing firms has been filled by new brands appearing in 2022, mostly in the food sectors. There were changes on the consumer side of the markets as well, with people focusing on cost effective alternatives and promotions, because of the income decline and uncertainty. All of this has influenced the companies’ ­marketing strategies, including their advertising solutions, which can be con­sidered as a mirror of what was happening in 2022. There is no dominant theoretical framework to address the impact of geopolitical events on advertising. Theories from marketing and consumer behavior explain multidirectional effects influencing companies’ decisions on ad spending. Consumer spending ­attitudes undergo fundamental changes because of the crisis. Economic uncertainty significantly impacts buyer decisions (Flatters and Willmott, 2009). Consumer buying power decreases throughout recessions. The economic situation drives consumers to save money, they often postpone their buying decisions, buy only necessities, switch to cheaper brands, pay more attention to price than quality, and have a more rational view on promotion (Nistorescu and Puiu, 2009). Demand for certain goods may rise, partly to stock up, while demand for others may fall as consumers cut back in response to actual or anticipated income reductions (Peter and Olson, 2007). Brand loyalty can persist, offering a sense of security (Chou and Chen, 2003). In times of crisis, consumers search for certainty, which makes them more open to advertising messages (Albion and Farris, 1981).

During hard times companies face budgetary constraints and uncertainty as well. Because of reduced revenue and increased costs, they often decide to cut their advertising budgets to focus on essential costs instead of promotional activities (Horváth et al., 2014). However, cutting down advertising in crisis conditions results in lower brand visibility and competitive position which might weaken both profitability and future consumer trust (Gáti and Bauer, 2012). Graham and Frankenberger (2011) posit that the long-term advantages of advertising outweigh the disadvantages, in terms of market expansion and investor confidence. Companies that reduce their advertising expenditure during periods of economic downturn often experience a prolonged decline in sales performance. The positive effects of advertising reach far past emergency situations to enhance company image and customer trust. Companies that adapt their marketing strategies to the needs of consumers during the crisis are more likely to become stronger in the post-crisis period (Jha, 2023).

The specificity of the crisis, investigated in the paper, is the exit of many foreign brands from the Russian market for political rather than economic reasons. This affected the intensity of competition among remaining and newly appeared market players, thus influencing their marketing decisions. On the one hand, remaining brands strive to maintain visibility in an evolving economic context. Thus, it would be rational for them to increase marketing expenditures in order not to allow new players to acquire strong positions in the market. As discussed in industrial organization literature, following Sutton (1991), advertising is a kind of endo­genous sunk cost that can be used to create barriers to entry (Schmalensee, 2005; Cabral and Ross, 2008). Aggressive advertising increases losses of new entrants in the event that they fail to enter the market, thus making entrance less attractive. So, the strategy might be beneficial for keeping and extending market share when the risk of entry of new competitors is high. On the other hand, some authors stress that advertising might be considered as a sign of a greater likelihood of success in markets and, thus, motivates rather than restricts entry (Kessides, 1986).

Table 1 summarizes the key forces that affect the choice of advertising strate­gy of a company during a crisis. Both restrictions and opportunities appear in the period­ of uncertainty. The choice of a marketing strategy during the time of crisis­ is a result of balancing of pros and cons of increasing promotion expenditures.

The objective of this study is to conduct a quantitative assessment of the changes in expenditure on TV advertising by domestic and foreign companies in the FMCG sector of the Russian economy in 2022 compared to 2021. Firstly, it would be beneficial to ascertain whether the average expenditure of FMCG brands decreased following the shock, and if so, to determine which brands, domestic­ or foreign, exhibited a more pronounced decline. Another area of interest is whether there has been a change in the proportion of television advertisements for domestic brands following the events of February 2022.

This study is organized as follows. Sections 2 and 3 overview the situation in the FMCG and advertising markets in 2022 respectively. Section 4 explains the methods used in the research, describes the dataset, and provides some descriptive statistics. Section 5 is devoted to the empirical analysis and the discussion of the results. Finally, Section 6 concludes.

Starting from February 2022, a lot of sanctions were imposed against Russia by 48 “unfriendly¹” countries due to the Ukrainian conflict. Among others, the FMCG market was affected. The sanctions complicated the logistics of cross-border delivery of goods, forcing both foreign and domestic enterprises to reconsider their strategies. This has led to a change in the composition of market participants and competition as a whole.

Given the trade and financial restrictions as well as political pressure, the brands from “unfriendly” countries faced the choice of whether to continue their business in Russia or to leave the sanctioned country. The key factors that influence such a decision are reputation risk, size of the business opportunity and non-recoverable investments (Meyer and Thein, 2014).

The publications on the Internet in 2022 show that a great number of foreign brands announced the termination of work or suspension/shrinkage of deliveries on the territory of the Russian Federation, including FMCG companies (examples are in Appendix Table A1). After all, not all of them stopped their business in Russia. Nevertheless, many companies left the market, providing their competitors an opportunity to compete for market share.

According to IBC Real Estate’s March 2023 survey,² 33% of international brands have decided to leave the Russian market, while 36% of companies remain uncertain about their next steps. The proportion of undecided brands has fallen from 65% since the March 2022 status change, but large manufacturing companies remain among those whose exit is complicated by the presence of factories on the territory of the Russian Federation. Many companies continue to adopt a wait-and-see attitude and are looking for buyers for their assets. At the same time, a significant proportion of undecided brands are service companies with no owned or leased space. Also, 19% of international brands have transferred or sold their businesses to Russian top management, allowing them to retain jobs and continue operations, with foreign owners often retaining the right to buy out.

Rebranding has proved to have an effect on consumers’ perception of the brand (Ing, 2012). However, the direction of the effect is not obvious. Roy and Sarkar (2015) argue that the changed brand name and logo make consumers perceive these products as new, which might result in companies’ loss of consumer loyalty and market share. In contrast, the results of empirical analysis by Makasi et al. (2014) and Batara and Susilo (2022) show that rebranding supports brand reputation, while not directly affecting brand loyalty. Other scholars (Bamfo et al., 2018; Aspizain, 2016) found no statistically significant relation between corporate rebranding and customers’ loyalty and satisfaction.

Overall, the appearance of empty niches due to the market exit of some companies provided an opportunity for new market entrants, including the companies in the FMCG segment. NielsenIQ³ reported the appearance of 10 460 new brands in Russia during 2022. Food brands account for most of these companies, with alcoholic beverages, dairy products, non-alcoholic beverages and confectionery products being the leaders.

Instabilities in the economic situation of a particular country have a significant influence on consumers’ habits and behavior, thus affecting the demand side of the markets (Perriman et al., 2010). In the context of sanctions, individuals tend to adapt their behavior in response to evolving circumstances. During such a period, consumers often rationalize their purchases by declining imprudent acquirement (Durante and Laran, 2016). They also start to look for cheaper substitutes and pay attention to promotions. The underlined reasons are the realization of income decline and insecurity about the future.

The Russian case serves as empirical evidence of this effect. First of all, due to increased uncertainty, people started to save money. According to the study by Tiburon Research,⁴ around 64% of Russians reduced their spending. Besides, right after the shock, an increase in the demand for certain categories of fast-moving­ goods is observed. The research by NAFI⁵ has shown that 20% of Russians turned to purchasing goods on reserve. This panic-buying may be explained by the fear of suspension of deliveries and shortages of goods (Bentall et al., 2021). However, the episodes of over-purchasing are, on average, short-lasting with a duration of 7–10 days (Taylor, 2021). Subsequently, the concept of thrift emerges as a key consideration.

In the analysis, it is important to take into account the change in the real consumption of goods and services. In addition, 2022 is associated with a high level of inflation. As a result, although the FMCG industry in Russia has claimed to experience 13.4% growth, the contribution of real consumption turned out to be negative, around 3.4%.6

To summarize, both the supply and the demand sides of the Russian FMCG market were affected in 2022. Shifts in the composition of market players and changes in consumers’ behavior had to enforce companies to apply efforts to save or improve their market position. This should be reflected in the demand for advertising, which is indicative of the intensity of non-price competition between companies. That is why advertising campaigns of brands are the focus of the following analysis.

During the periods of economic turbulence, the prevalence of economic news sources rises (Quiring and Weber, 2012). Mass media have always served as a primary source of information during times of economic shocks (Wu et al., 2002), since it is the most efficient and fast method for people to keep updated with recent events. Therefore, television can serve as an alternative indicator of the economic state in the country. A notable correlation was identified between economic pessimism and increased levels of television viewing, particularly of news-related content. The media content consumed by viewers has proved to be reflective of their economic concerns (Hetsroni et al., 2014).

According to the study conducted by the AKAR,⁷ the Russian advertising market experienced a 2% decline in 2022 compared to the previous year, reaching 392 billion rubles. Table 2 summarizes the information on the changes in revenues in different segments of the advertising market, according to the study. However, the data on TV advertising, which is the second most prevalent form of advertising in Russia, after digital one, was not included in the AKAR’s study.

We can find some estimates for the TV advertising revenues dynamics in analytical reports of other digital advertising agencies. OKKAM assessed the TV advertising market to fall by 15% and reach a total volume of 167.76 billion rubles in 2022 compared to 2021.8 Similar results are presented in the reports by Rodnaya Rech⁹ and Group4Media, which estimated the market downturn by 14.3%; OMD OM Group10 claimed that the TV advertising market had fallen by 10–15%. Thus, all the studies confirm that the Russian TV segment of the advertising market experienced a significant decline in 2022. This reflects the fact that companies started to economize on advertising spending. There might be different explanations for that, including shortage of market participants’ budget, the exit of the largest advertisers from Russia and a decrease in the intensity of competition in the markets of traditionally advertised products. Without specific analysis, we cannot distinguish among the reasons.

According to the data, the Ukrainian conflict had an impact on the behavior of Russian TV viewers as well. Fig. 1 illustrates the dynamics of the TV audience in 2021 and 2022. The data shows an increase in the viewership (total TV audience) in the first half of 2022 compared to the same period in 2021. This result coincides with the findings of McDonald and Johnson (2013) regarding the surge in interest in various media channels in stressful economic conditions. Starting from July 2022, the gap disappears. This might mean that the impact of geopolitical factors on audience behavior has diminished.

An increase in audience activity was also followed by the change in the content preferences of the TV audience.¹¹ The time spent watching socio-political programs increased twofold, from an average of 15 min to nearly 30 min. As for the average time spent on watching the news, this increase was not too big—from 15 to 24 min following the shock. The cost of advertising is dependent upon the target audience, and thus, changes in viewer behavior can influence advertising costs.

The mentioned trends in the Russian TV ad market reflect the general economic dynamics in the country. At the same time, the situation might differ greatly among advertising companies, depending on the specifics of the economic situation and how this affects the markets of their products.

Figure 1.

TV audience in Russia, 2021–2022 (million viewers). Source: Mediascope TV Index.

The following empirical analysis is aimed at assessing structural changes in the Russian TV advertising market in the segment of FMCG products. The changes in the structure of the advertising market (by product group), i.e., the composition of players, and the volume of this market, i.e., the total demand for advertising, are estimated on the basis of expenditures of the advertising FMCG brands on Russian TV in 2021–2022.

The results of our analysis show that in contrast to the overall reduction in TV ad expenditures in Russia in 2022 compared to 2021, the FMCG segment of the market demonstrated growth that exceeded the inflation rate. This is not related, however, to the intensification of promotional activity of existing brands. Total ad spending increases due to the growth in the number of FMCG brands advertising on TV, mostly domestic ones. It seems reasonable to assume that the fall in other segments of the TV ad market is more pronounced, as in the ­period of crisis consumers become more rational in their spending and less sensitive to advertising of not demanded products. Besides, many companies, especially producers of sanctioned luxury goods from “unfriendly” countries, stopped doing business and advertising in Russia. Thus, the observed trend with high probability reflects redistribution of air time in favor of essential commodities.

The aggregated data, however, masks changes in marketing strategies of particular brands. According to the results of the econometric analysis, after February 2022, the average FMCG brand’s TV ad expenditures decreased. This reflects that, from the companies’ point of view, cost saving arguments outweighed potential benefits from advertising. According to the literature, this might take place in the markets with low current and potential competition and low probability of significant positive returns from advertising. The decrease in ad expenditures is less pronounced for domestic brands and brands from “friendly” countries. This result appeared to be opposite to the expected one, given the incredible sanctions pressure on the Russian economy during this period. The revealed trends reflect that, at least in the FMCG sector, import substitution prevails over the entry of new foreign brands.

One of the most interesting findings is the asymmetric effect of the 2022 shock on a brand’s TV ad spending in different FMCG product categories. This asymmetry reflects the difference in marketing strategies of the companies. The ­results suggest that the brand’s TV advertising was the most negatively affected for categories such as pet supplies, toys, beverages and cosmetics. In contrast, increase in a brand’s TV ad spending following the shock is revealed for clothing, electronics, personal hygiene items and tobacco and alcoholic beverages. A brief comparison of the product categories gives evidence that companies cut their ad spending more on the markets characterized by decreasing consumer demand and low opportunities to win market share using aggressive promotional strategy. In contrast, the product categories that demonstrate an increase in TV ad spending seem to be the ones characterized by intensive competition, fast entry of new brands and relatively big companies. This is consistent with predictions of theories on marketing and consumer behavior and in line with the results of empirical studies by other authors. However, more detailed analysis of each FMCG product market situation is required to draw objective conclusions on the reasons that led to the observed changes in the brand’s advertising strategies.

The article was prepared within the framework of the HSE University Basic ­Research Program.