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CEMEX : Patrimonio Hoy
Developing and Launching a Market
Transforming Innovation to Low-Income, Developing World Markets
In 2003, CEMEX was the third largest producer
of cement in the world, and the most profitable. Its revenue
was US$6.5 billion.
Strategic Situation
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, highperformance,
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 behavior
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
VISION formed a cross-disciplinary team from
within its own ranks and CEMEX’s. 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.
VISION's Intervention
Through its research, the CEMEX-VISION
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 six years on average
for the completion of each room.
Further, the CEMEX-VISION 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 ahead.
The CEMEX-VISION 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 CEMEX-VISION
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. Pilot after pilot, the CEMEX-VISION
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.
Results
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 2005.
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://www.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."
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