The paper "Block by Block by R. Sandoval" is a delightful example of an article on business. Ricardo Sandoval’ s article ‘ Block by Block’ is an apt illustration of the ‘ Fortune at the Bottom of the Pyramid’ principle expounded by the management expert C. K.Prahalad (Stanford Social Innovation Review, June 2005). While businesses tend to cater to the relatively small number of middle and upper-income customers (upper parts of a pyramid) for reasons of higher profit margins and limited risks, they have to devise new strategies to reach the much larger numbers of low income customers (pyramid bottom) and yet thrive, even in times of economic slump. Case summary Devaluation of the Mexican currency in the mid-1990s and the consequent economic downturn created a serious crisis situation for many companies to find new customers.
Mexico’ s cement major Cemex devised new methods to tap a large number of urban poor and middle-class families with dreams of owning homes, even though they did not offer the comfort of ‘ cash and carry’ operations as with rich customers. Cemex’ s successful example was followed by many other firms, based on the marketing strategies of micro-lending and community money pooling.
Strategy Cemex identified the strategic issues from a deep study of the customer characteristics and noted them as strong desire to build and own homes, limited ability to spend, investing in small sums and sustaining for long periods to build in stages, and suspicion of business firms as profiteers. Cemex’ s solution to these issues was based on micro-lending and community resource pooling, efforts to create trust with the help of leaders among the community of beneficiaries, and creative publicity.
Local leaders’ involvement ensured good participation and generated trust; micro-lending and community money pooling helped to create the initial corpus of fund sufficient to start supplying building materials for a number of homes at a time; volumes ensured economizing on costs; pace of implementation matched with the ability of customers to repay loans in installments; defaults on loans were insignificantly low and the turnaround time for home completion for each customer was much faster than he would otherwise have achieved. Problems and solutions For Cemex, the urban poor who build their own homes at a leisurely pace presented a vast but risky opportunity to acquire new customers.
For the beneficiaries, financing the cost of building materials with limited incomes was a major hurdle in their desire to own homes, resulting in efforts stretched over years. Mistrust between the two sides compounded the problems. Since the problems were identified, Cemex devised the new marketing strategy of being a manufacturer and a money lender at the same time, reducing the risks by tailoring loan amounts to the debtor’ s ability to repay comfortably. In other words, Cemex virtually financed only the initial few cycles of funds flow, while repayments ensured subsequent cash flow needs.
Material flow accompanied by innovative publicity helped to bring in new customers, while the community-based approach prevented the stigma of defaults to a large extent. Conclusion and recommendation Businesses tend to stick to safe and trusted methods to ensure successful operations. However, external factors such as competition, government policies, economic cycles, etc. make it impossible to carry on business as usual, at all times. Even in normal times, since profitable growth is the aim of all businesses, change is inevitable to stay ahead of times and competition.
Such change should be supported by adequate market research and sound planning for execution.