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CEMEX: Rewarding Egyptian Retailers

CASE Analysis
1990s
The cement market in Egypt at this time was in overcapacity and struggling with a downward pressure on
price. Assiut Cements current distribution channel consisted of 20 wholesalers and offered a poorquality, commercialized product to end users. The channels lack of spatial convenience and variety, high
wait/delivery time, and low/zero customer service/information, coupled with an undifferentiated product,
gave more bargaining power to the retailers. This power dynamic led to brutal price negotiations.
Objective
In 1992, CEMEX entered the Egyptian market via its acquisition of Assiut Cement (CEMEX Egypt). The
main objective of CEMEXs expansion into Egypt was to maximize profit and become market leader. In
order to achieve its objective, the company focused on optimizing four main decision variables: costs,
revenue, brand awareness, and retailer loyalty.
The companys $125MM capital investment went to optimize the factorys efficiency in producing highquality, differentiated products. The outcome was a premium product differentiated by color, texture, and
freshness. This de-commoditization strategy coupled with the target markets increased willingness to
pay, allowed CEMEX to command a higher-than-market price on its premium products, while also selling
a lower-quality, lower price product to capture additional revenue from price sensitive users. The result
was a new high revenue-low cost structure within the market.
The objective of the new distribution strategy was to maximize the loyalty of a network of retailers in
order to minimize price-cutting from competitors. Increasing retailer loyalty meant also increasing
cooperation among retailers, and ultimately decreasing each retailers bargaining power. By offering
excellent customer service/information, decreased delivery/wait time of financial transactions, decreased
cycle time, and higher profit margins, CEMEX was able to incentivize collusive pricing within its
network and further enhance its margins.
Problem
In 2002 and 2003, CEMEX ran a new Tournament-Style, Rewards Program to motivate retailers to (1)
increase the proportion of premium products sold and (2) sales in all regions, (3) without a price
deterioration.

Results and Analysis


Although the quantitative results of the program yielded the desired outcomes (listed above) of the
company, it failed (1) to produce optimal sales ($175,080.25 in unrealized), (2) increase loyalty/retention,
and (3) increase satisfaction of retailers.

With initial dropout of 40% (49.9%, 2002), and low completion percent, the Reward Program failed to
retain a majority of retailers. Once participants were dropped, their average monthly sales produced were
-36.85% (-12.12%, 2002) lower than the projected average sales. These results indicate that the Reward
Program motivated only the top 17% of retailers, while demotivating the other 83% of retailers. It also
indicates that the top 17% contributed to the bulk of the sales.
Brand Awareness & Retailer Loyalty
The Reward Programs inability to increase retailer cooperation via higher motivation and satisfaction
was in direct conflict with CEMEXs de-commoditization strategy, which depended on high retailer
loyalty to decrease pricing pressures.
Contest-Cycle Time & Goals: Although the program initially created buzz and excitement among
retailers, the high attrition rates and de-motivation of retailers indicated the retailers inability to sustain
the desired growth rate under the given incentive scheme. The increasing complaints at the end of the
second contest also revealed the contest goals were not strong/achievable enough to keep retailers excited
throughout the entire contest period. Centering the contest on monthly cycles though, would decrease the
demotivation factor since retailers would not be dropped within a given period, but would rather increase
each retailers chances of winning a prize within the fiscal year. Shortening the contest-cycle to a would
and changing the contest objective to an obtainable short-term goal that takes precedent over other goals
during that period, would better incentivize the retailers to align their behaviors with the goals of
CEMEX.
Rewards: Since CEMEXs offered higher prices and could push its low-price products to limit pricecutting from competitors, retailers knew their margins could not be improved by moving to another
competitor. Therefore, unless current margins decreased below the next best margin offered by a
competitor, there was no incentive for retailers to leave the CEMEX network. Rewarding retailers with
additional cash was not the optimal incentive since retailers were still better off with CEMEX even if
they were dropped from the program. Using non-cash incentives that also add value benefits would
better incentivize the retailers.
In using the TRI*M to calculate the market resistance ratio, CEMEX did not account for the
unconsequential bad word of mouth that occurred with increasing dissatisfaction among retailers. For
example, offering monetized rewards, like a TV, did not match retailers expectations for their efforts and
resulted in negative brand exposure for CEMEX. Ultimately, the increasing de-motivational effect on
retailers via the current rewards program increased a market opportunity for competitors to gain retailer
loyalty and eventually market share.
Additional Thoughts
(1) provide multiple prizes (not winner-takes-all); (2) provide some incremental incentive to do better but
do not necessarily have elaborate multi-tier winning levels; and (3) run for one to two sales cycles.
loyalty and brand equity to stimulate sales growth because of its low retention ability, de-motivational
effect, and byproduct of un-consequential bad word of mouth.

Results
Projected Sales
Actual Sales
Unrealized Sales
Sales (Participants)
Sales (Dropped)
Sales (Not Participate)
Initial Dropout
Avg. Churn Rate
Remaining

2002

2003

$976,854.94
$865,179.00
$111,675.94
$406,844.00
$458,335.00
$133,587.00
49.90%
23.98%
16.63%

$1,453,112.25
$1,278,032.00
$175,080.25
$618,072.00
$659,960.00
40.00%
11.34%
16.58%

More Notes
2.
The most immediate problem that CEMEX should solve in regards to its loyalty program is the
huge attrition suffered early on, as retailers realize or decide that they wont be able to succeed in the
competition. The retailers believe that, if they had a slow month at the beginning, they have no chance of
winning anything, and so the field is left to the so-called contenders, the ones who have shown enough
promise to decide to stick with it. In other words, CEMEX must figure out a way to keep as many of their
retailers engaged as possible for the duration of the contest. Several solutions present themselves.
The first solution would be to offer monthly prizes for specific goals met. Perhaps a prize could
be given to the retailer that has the most improvement month over month, or a prize given to the retailer
who has the single highest sales total (by percentage) for that particular month. Offering alternate prizes
for sub-categories could help to keep the various retailers engaged for longer periods of time.
As a complement to that, they could also set up similar awards for the end of the year. A prize
could be offered to the retailer who had the single biggest month over month increase in sales for the
entire year, just as an example. Diversifying the prizes offered would allow CEMEX to stimulate sales for
the entire year, and not just for the first few months. As the case states, Egyptians love competition (p.
9), and the added recognition could encourage retailers to stick with it, and non-Assiut retailers to join.
Another solution would be to change the qualifications quota. If they set up their qualification so
that a retailer must sell a minimum amount of premium cement, for example, they could drive sales of
their premium cement and thus gain some stronger brand equity. This would encourage retailers to push
the more expensive cement and give CEMEX more of an edge in sales. There would surely be some
pushback from retailers on this particular requirement, so perhaps CEMEX could lower the minimum
amount of cement sold so that more retailers would qualify for the program.
The next problem CEMEX has to attack is how to further stimulate sales beyond what the loyalty
program was bringing to the bottom line. In other words, how can they ensure that the loyalty program
continues to grow?
The most obvious way to solve this is to simply expand the program and induce more retailers to
join. One hopes that this would happen organically, that as the program becomes more and more wellknown, outside retailers would be encouraged to join. Greater publicity could help with this.
(Another more creative way to do so could be to offer cement retailing consulting in exchange for
a commitment to buy a certain amount of cement. If CEMEX offers to help companies with their cement
sales, as well as what trends they foresee, more retailers would feel positively about CEMEXs offerings,
and would be more likely to join the loyalty program.)