CEMEX Case Analysis

Group 6

CEMEXS STRATEGY IN EGYPT Transforming Assiut Cement into a market leader

Need for a good product and a good marketing strategy to avoid price based competition Investment of $125M: improvement of production facilities increase of capacity development of logistics network infrastructure to distribute ready mix

DECOMMODIZATION STRATEGY 1. Positioning as a producer of premium product 2. Distribution strategy based on a partnership with a network of small retailers

DECOMMODIZATION STRATEGY
1. Positioning as a producer of a premium product
Characteristics: Dark, smooth, and fresh Specialty needs: resistant to salt water, customized for sulfate rich soils, low-price line Marketing stressed on quality, commitment to customers, and Egyptian roots

2. Distribution strategy: network of small retailers Avoid brutal price negotiations, sell directly to retailers New logistics: agreement with Banque Misr so that the retailer does not need to come to the plant Retailer selection: legally established, 500 tons of cement sold/month, sells to end customers, has storage and sales area, willing to forge a partnership Need for retailers to know how to sell the product, and teach end users how to use the cement need for them to be loyal (loyalty & reward programs)

How does the Reward Program fit in this strategy?

Strong Retailer Network & Locus of Power Pushing premium priced products

Motivating retailers to sell our products while ensuring good returns

Reward Program allowed higher emphasis on Premium products through points allocation Cemex products were reaching the end customer without cutting off the prices

Avoiding Price wars

Controlling variability & volatility of demand

Setting fixed monthly targets & assuring reliable estimates of monthly production

Why did Llotop choose the Reward Program and not another incentive programs for retailers?

Retailers margins and loyalty discounts were not strong enough incentives to achieve the target growth rate

Moving away from usual incentives being given by competitors Pushing premium products A minimum sales volume was assured as opposed to Discounts and rebates Reward Program helped in targetting the competition loving nature of Egyptians

Did the Reward Program motivate retailers to sell more CEMEX products?

Reward Program 2002

Not Participant 400.00 300.00 200.00 Still In Tournament Dropped

100.00
0.00 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Avg Sales Dec

Average Sales
325.00 250.00 175.00 100.00 Still In Tournament Not Participants Dropped
317.18

Participant Type Not Participant

Number

Sales

960
2020 2231 5211

230196
479200 458335 1167731 573785

239.79
237.23 205.44 224.09 317.18

239.79

205.44

SIT (Till May02) Dropped

SIT (After May02)

41.51 %

1809

Reward Program 2003

Still In Tournament 400.00 300.00 200.00 Dropped

100.00
0.00 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Average Sales
225.00 200.00 175.00 150.00 125.00 100.00 Still In Tournament Dropped
148.54 222.10

Participant Type SIT (Jan03)

Number

Sales

Avg Sales 300.29

505

175665

Dropped

4443

659960

148.54 49.52 %

SIT (Feb03)

1992

442407

222.10

Comparison 2002 V/s 2003

Exhibit 2
Consumption (MMT)
2003
25

10.71%
28

2002 23 24 25 26 27

28

29

Exhibit 12 Sales
2003
182.06

26.61%
248.08

2002 150.00 175.00 200.00 225.00

250.00

Comparison 2002 V/s 2003

Still In Tournament
400.00 300.00 200.00 100.00 0.00 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2002 2003

Dropped
300.00 200.00 100.00 0.00 Jan Feb Mar Apr May Jun Jul Aug

2002

2003

Sep

Oct

Nov

Dec

2002 Still In Tournament (Avg Sales) Dropped (Avg Sales) 317.18 205.44

2003 222.09 148.54

% Drop 29.98% 27.69%

Ques 4 :What characteristics of the Reward Program do you like the most? And the least? Why? Positives

Encouraged loyalty and retained retailers Sales representatives detailed the retailers about the program Did not just focus on sales numbers but also on product portfolio: variable point system Monthly targets : Reduced forward buying Easy for production scheduling Clearly quantified goals e.g. 70% of target per month to be ordered, buy at least 150 tons of Assiut cement Diversity of retailers considered: Small and big retailers had different parameters of evaluation Regional grouping gave fair chance to all the retailers as the economic development of regions was different Monthly feedbacks to retailers Voluntary participation- no pressure on retailers Consideration shown towards those who remained till the end TV given as reward but was not an appropriate reward

Negative

Keeping a part of the bonus would affect the initial decision of participation Reward system was too complex High rate of elimination of participants Should have had a quarterly / semi annual rewarding system to encourage the participants and reduce drop out rate No disclosure about the parameters on the basis of which the number of prizes per region was decided

E.g. West Delta has appx. ratio of 8:1

East Delta also had ratio of appx. 8:1

But Qena had 17:1, Qena had average performance is greater than West Delta

The number of winners remained same for the regions in 2003 despite of increase in number of retailers for all the regions

What are the advantages and disadvantages of specifying quantities of each type of product in retailer targets? Would you think a generic target of dollar sales, or dollar contribution margin, could have been more effective in supporting CEMEX strategy?

Advantage and Disadvantage of specifying quantities of each type

Advantages:

Indirectly drive and monitor the sales Ensure minimum purchase in different categories Push Sales strategy Disadvantage: Quantities fixed need not reflect local demand of the region

Need for the reward system

Grow in a stagnant market Supply side exceeds demand in local cement industry Push sales for premium products

Retailer score computation

Existing

Proposed

Sales
Basic PRM SRC Point Calculation Basic PRM SRC Total Points 175 35 0 250 50

Quota
70% 70%

Sales
200 80 20

Quota
0% 70% 50%

Points Basic PRM SRC

1 5 9

0-

175 175 0 350

0 56 10

0 280 90 370

Retailer should fulfill minimum quantity of 120 tons Or He should fulfill the quota for premium products

Loyalty Cash-back
Quantity Range and Products Existing (LE/Tn) First 0-400 tons From 401-800 tons From 8011200 tons Over 1201 tons PB SRC Loyalty Rewards Quanti Existing Propsed ty System System Basic 200 800 400 1600 600 2200 800 2800 1000 3200 1200 3600 1400 3800 1600 4000

Proposed (LE/Tn) 4 3 2 1 4 4 3 3 2 2 4 4

600 1200 1800 2400 2800 3200 3600 4000

This will help in promoting premium products as retailers will have greater incentive

Reward System performance in 2002 and 2003

Per Retailer Sales

350 300 250 200 150 100 50 0

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Per Retailer Sales (2002) Per Retailer Sales (2003)

Per Retailer Sales (2002) Per Retailer Sales (2003)

Per Retailer Sales (2002)

Per Retailer Sales (2002)

Per Retailer Sales (2003)

Non Participa nts Participants Dropped Participants Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 194 155 212 234 228 235 181 182 194 232 201 191 192 154 220 239 280 297 225 238 246 310 240 229 0 0 0 0 0 0 159 163 169 211 174 162 221 165 168 147 159 171 185 172 164 149 179 172

Dropped
0 112 114 101 104 110 123 120 108 102 91 120

Assumpti on 2002 % of Sales Points Basic PB SRC 96% 3.5% 0.5% 0.96 0.175 0.045 1.18 % of Sales 92% 7% 1% 2003 Points 0.92 0.35 0.09 1.36

The Suggested Rewards system

The rewards should be evaluated on a half- yearly basis, this will incentivize the smaller retailers, while also ensuring lesser dropouts. The loyalty cashbacks should be reduced for basic cement to promote premium products. The target of 150 tons along with individual quotas should be reduced Egyptians, and Arabs in general, like competing with each other. Hence we would suggest continuing with a reward program rather than target of dollar sales