blue ocean strategy

Blue Ocean Strategic Moves

Cemex, the world’s third-largest cement producer, is another company that created a blue ocean by shifting the orientation of its industry from functional to emotional. In Mexico, cement sold in retail bags to the average do it yourselfer represents more than 85 percent of the total cement market. As it stood, however, the market was unattractive. There were far more noncustomers than customers. Even though most poor families owned their own land and cement was sold as a relatively inexpensive functional input material, the Mexican population lived in chronic overcrowding. Few families built additions, and those that did took on average four to seven years to build only one additional room. Why? Most of the families’ extra money was spent on village festivals, quinceañeras (girls’ fifteen-year birthday parties), baptisms, and weddings. Contributing to these important milestone events was a chance to distinguish oneself in the community, whereas not contributing would be a sign of arrogance and disrespect.

As a result, most of Mexico’s poor had insufficient and inconsistent savings to purchase building materials, even though having a cement house was the stuff of dreams in Mexico. 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 to this dilemma 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 of love, where laughter and happiness could be shared—what better gift could there be? At the foundation of Patrimonio Hoy was the traditional Mexican system of tandas, a traditional community savings scheme. In a tanda, ten individuals (for example) contribute 100 pesos per week for ten weeks. In the first week, lots are drawn to see who “wins” the 1,000 pesos ($93) in each of the ten weeks. All participants win the 1,000 pesos one time only, but when they win, they receive a large amount 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. In the Patrimonio Hoy, however, the supertanda is directed toward building room additions with cement. Think of it as a form of wedding registry, except that instead of giving, for example, silverware, Cemex positioned cement as a loving gift.

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 cement coupled with its funding and technical services, demand for cement has soared. Around 20 percent more families are building additional rooms, and families are planning to build two to three more rooms than originally planned. In a market that competed on price with slow growth, Cemex enjoyed 15 percent monthly growth, selling its cement at higher prices (roughly 3.5 pesos). 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 quantities of cement sold through the supertandas also drops Cemex’s cost structure via lower inventory costs, smoother production runs, and guaranteed sales that lower costs of capital. Social pressure makes defaults on supertanda payments rare. Overall, Cemex created a blue ocean of emotional cement that achieved differentiation at a low cost.

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