2. When realities don’t fit your business model, try a new model.
While consumers in underserved markets sometimes want exactly the same product features as consumers in mainstream markets, more often they are looking for a different combination of features—at a lower price.
The development of CEMEX’s Patrimonio Hoy (literally, “Inheritance Today”) product line is a good example of a redesigned business model that has led to dramatically increased sales. In the mid-1990s, CEMEX, which is the world’s third-largest cement maker and one of Mexico’s largest companies, was hit hard by Mexico’s crippling currency devaluation. The buying power of the peso was cut almost in half, dramatically reducing the market for CEMEX’s products.
The company decided to pursue increased sales in the do-it-yourself homebuilding market, which dominates lower-income neighborhoods in Mexico. In order to create a new product offering, the company significantly changed its typical process for gathering information on customer needs, sending a team of managers to live in these neighborhoods for a year. This innovative approach led to the creation of the Patrimonio Hoy program, which combined financing, architectural advice, and building materials into one package. CEMEX worked with the customers to form buying clubs. Each member of the club would pay a small portion of his or her earnings into the club each week, and then, on a regular basis, the pooled money would be used to make a purchase from Patrimonio Hoy. This approach enabled consumers to pay for building supplies from their weekly earnings and to get advice on how to use them most effectively.
The results from the experience of the first 1,000 families in the purchasing program were dramatic. Whereas an average homebuilder had traditionally built one room every four to seven years, members of CEMEX’s Patrimonio Hoy program took an average of one and a half years, less than a third of the time. Not only was the speed of building (and therefore the sale of building materials) accelerated, but also as a result of the program 18 percent more families in the test region had begun building, and the average annual spending per family increased from $240 to almost $600. Families planned to build two to three more rooms than they had originally, and their constructions now contained 25 percent more cement per cubic meter. The families also used materials more efficiently because they were able to get the right amount of materials due to the advice they received from architects. The CEMEX program created value for communities because it helped families build housing more quickly, more efficiently, and more safely. And it has created business value for CEMEX by tapping into a market that the company couldn’t reach effectively before.
Based on this initial success, CEMEX expanded the new business model quickly, and it now has 140,000 Mexican families enrolled in the program. CEMEX is planning to expand the program to other countries as well. The Mexican company has already opened Patrimonio Hoy’s offices in Colombia and Nicaragua.
[Sources: CEMEX, 2005; Sandoval, 2005; Vision, 2005.]
