Developing and launching a market transforming
innovation to low-income, developing world markets
CEMEX is one of the leading manufacturers of cement in the world
with annual sales of $15.1 billion in 2011.
In 1998, CEMEX sought to strengthen its position as a leader in
Mexico, its home territory, and establish a sustainable competitive
advantage in the do-it-yourself cement market. This segment, made
up of low-income homebuilders, provided CEMEX with stable growth
through economic crises and was CEMEX's most profitable segment,
representing 35% of the total market for cement in Mexico and a
similar percentage of CEMEX's annual sales in Mexico. The recent
entry of competitors into this market had, however, begun to erode
CEMEX's share, and turning back this tide was vital to its
financial health and strategy of positioning itself firmly as a
stable, high performance, growth (not a commodity-driven value)
company. Because few efforts had been made to market directly to
these home builders, enlarging share in this segment posed a
significant challenge. Their purchasing behaviour was poorly
understood, and these home builders were not credit-worthy.
Furthermore, initial market analysis revealed that aside from some
positive associations with the local CEMEX brand, Tolteca, the
primary sales driver for the segment was price.
Business-line leader's new strategy
Francisco Garza, CEO for Mexico, and later all of North America,
sought to develop an understanding of the low-income do-it-yourself
homebuilder sufficient to make product and service changes that
would transform the industry and thereby capture a strong market
share through true differentiation.
VISION's engagement strategy
Senior consultants who now work for VISION formed a joint
cross-disciplinary team with CEMEX. The team would develop a
profound understanding of this customer segment through immersion,
articulative listening, and value-conflict analysis in order to
develop an entirely new approach to the customer. Rollouts of any
change would occur through pilots of increasing size, as this
roll-out strategy would maximize learning even as increasing sales
proved - and paid for - the concept in development.
Through its research, the joint team discovered that the values
of maintaining status in the community through participating in
festive communal practices were in conflict with getting ahead and
improving the living conditions of one's family. To secure status
in the community, individuals found themselves compelled to spend
decidedly large portions of their income on Quinceneras, baptisms,
and other religious festivities. These expenditures were largely
unplanned and severely disrupted attempts at the disciplined
planning necessary for adding on to their homes. As a result, the
segment had insufficient and inconsistent savings practices along
with inadequate or nonexistent building plans. These saving and
building practices made for highly inefficient material purchase
and use and a frustratingly long period of four to seven years on
average for the completion of each room.
Further, the joint team identified a bridge practice that helped
people deal with the value conflict between community
responsibility and "getting ahead." Low-income people joined
tandas, informal groups in which every member contributed 100 pesos
each week, and a different member would receive the entire group
sum each week until each had taken the pool once. The group had
features of both community solidarity and individual "getting
ahead". Most people had already entered into tandas to save for
building materials but usually spent the entire sum on "unforeseen"
festivities. Nevertheless, when it worked, the communal tanda was
well suited for bridging the values of community and getting
The joint team designed a new channel and offer, with the
defining elements of the tanda value-bridging practice at its core.
Members of low-income communities joined a club that gave them the
right to form building materials groups that worked much like
tandas. Only instead of a pot of money, group members received the
building materials to build their next room. They received
technical advice on which building materials were right for the
rooms they wanted to build, and warehousing and delivery services.
The joint team also named this offer in a way that bridged the
value conflict of these communities: Patriomonio Hoy, or Patrimony
Today. Building a home or a room for oneself was greedy. But
building one to take a stand in the community and pass down to
one's children showed the right community spirit. Doing it "today"
as opposed to over years meant entering modernity.
The business model for this offer was built through successive
pilots, each increasing in scale. In pilot after pilot, the joint
team managers gauged customer responses, set prices, identified the
appropriate mix of employee backgrounds - some from social work,
some from traditional cement business - identified the optimal
structuring of internal processes, grounded estimates of
profitability and scalability, and ironed out techniques for
managing value chain tensions with existing retailers.
By the end of the last concept test, 1,000 families had joined
CEMEX's tanda clubs. On the basis of the experience with these
families, the team witnessed the following: Whereas an average
homebuilder had traditionally built one room every 4-7 years,
members of CEMEX's tanda clubs took an average of 1.5 years, less
than a third of the time. Not only was consumption of building
materials accelerated but also as a result of the program, 18% more
families in the test region had begun building, and the average
annual spending per family increased from $240 to almost $600.
Families now planned to build 2-3 more rooms than they had
originally, and their constructions now contained 25% more cement
per cubic meter.
The tanda clubs also created significant brand differentiation
for the local CEMEX brand, Tolteca. While previous studies showed
consumers responding positively to all brands with a slight edge
for CEMEX, after launching the tanda clubs, the brand index for
Cemento Tolteca was 4.6 out of 5. The closest competitor achieved a
3. Other competitors achieved an index of less than 2.
Now, with Patrimonio Hoy, 1,040 kilograms of cement are consumed
every 1.25 years, three times the previous rate. Patrimonio Hoy is
exceeding the minimum standard of a 15% return. Given the response
in the initial test market, CEMEX's revenues from the
do-it-yourself construction market are expected to double by
As of late 2003, 13,000 Mexican families had realised the dream
of home ownership through "Patrimonio Hoy".
As in other cases where value conflicts are resolved, the
success looks so counterintuitive to competitors that they simply
cannot believe that it will continue to work. Thus, no credible
competitive response has developed.
This case has been written about at Changemakers.
net by Valeria Budinich (see: http://proxied.changemakers.net/journal/02september/index.cfm);
Donald Sull wrote about it in HBR's Strategy and Innovation,
"Innovating around Obstacles" (November 1, 2003), and we published
on the case in the California Management Review (Summer 2003),
"Developing Productive Customers in Emerging Markets."