For those of you born in the 60s to 80s and living in Nairobi, going to shagz (rural homes) was somewhat a part of our calendar year activities and our parents always insisted we accompany them ‘home’. Long weekends and the festive season were appropriate for such trips. Whereas we were used to living in well built houses in the cities or towns, electricity supply and water supply, shagz was a different prospect altogether. In those days a cement or brick house was the stuff of dreams and indeed a sign of affluence. Electricity and water supply? unheard of. The quickest and most affordable means to build shelter was mud, poles cut from trees to act as the frame and support and thatched grass. You then proceeded to build the house yourself with the help of your family and neighbouring relatives. Your house was complete.
Today, a lot has indeed changed since then; more and more people are building cement houses too. However, majority of the people still live in mud houses in the rural areas. Houses and schools built using cement are in some parts of Kenyan unheard of let alone unseen. A major reason for this is that cement as a building component is not affordable to most of them when purchased in large quantities. Labour is also costly and who needs labour when you can do it yourself. Surprisingly, this is a scenario that isn’t unique to developing Kenya but also developing Mexico.
In Mexico, most families live in overcrowded houses as the cost of building additional houses or rooms for family members is high. Just like most of rural Kenya, Mexicans are a very traditional people. A significant portion of their extra money is spent on festivals and ceremonies. These events are unavoidable to the Mexican budget. For them cement is a luxury. Rather than cement houses being a source of pride and emotion, for them it just meant an additional cost. As a result, most of Mexico’s poor had insufficient and inconsistent savings to purchase building materials, even though having a cement house was a lifetime dream. So how do you sell cement to willing buyers who have low incomes and no access to credit?
In Mexico, this is the problem that faced CEMEX, the world third largest cement producer. CEMEX conservatively estimated that this market could grow to be worth $500(Ksh 40b) million to $600(50b) million annually if it could unlock this latent demand. To solve this market puzzle, CEMEX launched a community program dubbed Patrimonio Hoy (Property Now) that improved on an already existing community saving scheme in the Mexican community, tandas. In a tanda, ten individuals (for example) contribute 100(Ksh800) pesos per week for ten weeks. In the first week, lots are drawn to see who “wins” the 1,000 pesos ($90) 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 proceeds are directed toward building room additions and houses with cement. CEMEX enlisted these participants of Patrimonio Hoy as members of a collateral free micro-financing system.
Naturally what followed was the need for technical expertise which was sorely lacking in these communities. This led to many construction projects being started but never completed or being of very low quality. CEMEX went ahead to provide free engineering and architectural expertise as part of the membership.
The unique aspect of CEMEX’s strategy was that it managed to combine a basic human aspiration (building/owning a house) with an age old tradition( the tandas). Through this revolutionary innovation CEMEX was able to enlarge its market and build customer loyalty by shifting the orientation of its industry from a functional product into an emotional one. This also lowered CEMEX’s inventory costs, led to smoother production runs and guaranteed sales that lowered the cost of capital. This programme has also been rolled out to other parts of South America including Colombia, Costa Rica, Nicaragua and the Dominican Republic.
By understanding their potential consumers and their traditions, CEMEX helped the poor help themselves. In return, they reaped enormous profits. Cement producers in Kenya and Africa could learn a thing or two from CEMEX about competitive strategy after all. Think about it……what if every Kenyan in rural Kenya or even in city slums slept in a cement room/house every night? Now isn’t that the stuff of dreams?
Consult.Ed 