New Tricks for Mature Markets

Volume 7 Letter 11

The problem with mature markets is that the market share of the major competitors is usually set in concrete. Since price is often seen as the only differentiating factor companies generally try to run leaner and meaner but rarely is there any significant change in market share. To break this endless deadlock one can either transform the customers’ experience or dramatically reform the company’s offering or both. Cemex, a Ready mix concrete company from Mexico, is a good example of a company that did both.

The problem with the ready mix concrete market is that it has a product with a very short shelf life. It begins to set from the moment the truck is loaded and if not delivered on time it’s a “hard” mess to deal with.

Ideally, Ready mix companies want to drive up to a construction site, drop their load and run so they can most efficiently utilize their trucks and avoid losses in productivity and expensive clean ups due to delays. The construction companies they are delivering to, with their costly equipment and crews, also want the Ready mix companies to arrive just at the right moment so they can optimize their resources and pour the concrete with minimal disruption to the work flow. Neither the construction company nor the Ready mix company want to be left waiting as lost time and subsequent scheduling nightmares can suck the profit margin right out of a job.

Unfortunately, the problem with construction sites is that they are mostly in urban areas where traffic can delay deliveries. Add in weather considerations and other inevitable setbacks that happen and this can all add up to a lot of money for an industry dependent on good timing.

When Lorenzo Zambrano became CEO of the Mexican Ready mix company Cemex, he was determined to find a better way of doing business. Traditionally, construction companies buy concrete by the cubic yard but in fact what they value is the right amount of concrete delivered precisely on time. To bring more flexibility to the Ready mix delivery business Cemex studied pizza delivery companies, Fedex and ambulance dispatchers. Cemex developed a central command centre and equipped their cement trucks with radios so they could re-route them on the fly. This added flexibility where Cemex could deliver earlier if needed and reroute trucks to other pressing jobs if the primary site wasn’t ready. Additionally, Cemex’s system meant concrete was more fully utilized meaning customers only paid for what they needed and extra concrete could be used in other jobs. Construction managers love this system as the flexibility boosts their bottom line.

Cemex, once a regional cement company is now the third largest in the world operating in 30 countries with revenues over 8 billion simply because they stopped selling cement and started selling well timed deliveries of concrete.

In mature industries the strategic choices need to be well thought out. Two strategies are to transform the customers’ experience and / or to dramatically transform your company’s offering. Transforming the customer experience means one needs to fully understand the needs of the customer. What drives their costs or keeps them up at night?

As you reflect on your business:

    • What keeps your customers up at night?

 

    • Can you today, using technology and systems solve some of those problems?

 

  • Can you today using technology and innovation dramatically transform your company’s offering so the product performs as well but costs much less to produce, deliver or service?

Each industry falls into a rut where products are turned into commodities and price seems to be the only competitive weapon. This is a trap ! – break away from this kind of thinking – don’t let the concrete set.

For the full story see “Market Busting Strategies for Exceptional Business Growth” Rita Gunther McGrath and Ian MacMillan HBR March 2005

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