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BOS Moves

Cemex

Cemex Blue Ocean Strategy Strategic Move

Cemex, the world’s third-largest cement producer, created a blue ocean by shifting the orientation of its industry from functional to emotional.

In Mexico, retail cement sales to the average do-it-yourselfer represent more than 85% of the total cement market. However, the market was unattractive. Even though poorest families owned their own land and cement was sold as a relatively inexpensive functional input material, many areas in Mexico are chronically overcrowded. Few families built additions, and those that did took on average four to seven years to build a single additional room. Why? Disposable income is spent on social priorities such as village festivals, quinceañeras (girls’ fifteen-year birthday parties), baptisms, and weddings. Contributing to these important milestone events is a chance to distinguish oneself in the community, whereas not contributing is a sign of arrogance and disrespect.

As a result, even though owning a cement house was the stuff of dreams in Mexico, most of Mexico’s poor had insufficient savings to purchase building materials. Cemex conservatively estimated that this market could grow to be worth $500 million to $600 million annually if it could unlock this latent demand.

Cemex’s answer came in 1998 with its launch of the Patrimonio Hoy program, which shifted the orientation of cement from a functional product to the gift of dreams. When people bought cement they were on the path to building rooms for sharing laughter and happiness —what better gift exists? The foundation of Patrimonio Hoy was the traditional Mexican system of tandas, a community savings scheme. In a tanda, a group of individuals contribute a small sum each week for ten weeks. In the first week, lots are drawn to see who “wins” the pot in each of the ten weeks. All participants win only once, but when they do, they receive enough to make a large purchase. In traditional tandas the “winning” family would spend the windfall on an important festive or religious event such as a baptism or marriage.

The Patrimonio Hoy building materials club that Cemex set up consisted of a group of roughly seventy people contributing on average 120 pesos each week for seventy weeks. The winner of the supertanda each week, however, did not receive the total sum in pesos but rather received the equivalent building materials to complete an entire new room. Cemex complemented the winnings with the delivery of the cement to the winner’s home, construction classes on how to effectively build rooms, and a technical adviser who maintained a relationship with the participants during their project.

Whereas Cemex’s competitors sold bags of cement, Cemex was selling a dream, with a business model involving innovative financing and construction know-how. Cemex went a step further, throwing small festivities for the town when a room was finished thereby reinforcing the happiness it brought to people and the tanda tradition.

Since the company launched this new emotional orientation of Cemex demand for cement has soared. Around 20% more families are building additional rooms. In a market that competed on price with slow growth, Cemex enjoyed 15% monthly growth, selling its cement at higher prices. Cemex has so far tripled cement consumption by the mass of do-it-yourself homebuilders—from 2,300 pounds consumed every four years, on average, to the same amount being consumed in fifteen months. The predictability of the quantity of cement sold through the supertandas also dropped Cemex’s cost structure. Social pressure makes defaults on supertanda payments rare.

Overall, Cemex created a blue ocean of emotional cement that achieved differentiation at a low cost.