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.
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.
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 ahead.
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 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://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.”