Well, hi everyone. Welcome back. Let's start with some basic questions regarding the CEMEX case and make sure that we all understand both the setting and the right analysis to solve this problem. Let's start with some basic questions. The first question I would ask you is, why is CEMEX interested in the consumer home construction market in the first place? There are some factors that are mentioned in the book, but let's be sure that we're all on the same page as to what exactly they are. Well, in class, students will cite a number of factors, including the economy as well as cultural factors. One of the clear things regarding the economy is that there's more and more migration to urban rings. Small communities are popping up everywhere, and lower-income families, basically, will settle on a plot of land and then they'll try to build a one-room home upon arrival. Now, an important cultural factor is this idea of patrimony. In the Mexican culture, the idea of patrimony is bequeathing to the next generation everything that is yours, in other words, leaving a legacy. For most families, that is usually a house. Many families will stay in the same area, live in the house for years, and what they would like to do over time as their wealth grows, is to add an additional room to the house. As the house grows larger, you pass it on to the next generation. This is what creates the do-it-yourself or auto-construction segment that CEMEX is interested in. As a result of these efforts, many individuals are having to try and build this themselves or as part of a family effort. That, as you know, and as you saw in the earlier pictures, doesn't always go well. So this is a family's dream, to build a home, to pass it on to the next generation. This is something that is very strong in the Mexican culture. But why exactly isn't it happening in this culture? What is it that makes it so difficult in this particular case? A third and important factor that isn't cited in the case is the fact that the Home Depot company, we'll soon be entering into Mexico. CEMEX wants to make sure that they have a piece of the action, so their goal is to seal up that retail channel to end customers. Now, let's think about why this doesn't happen. The idea of patrimony and passing along a home to the next generation is a great idea, but why exactly isn't it happening in this particular case? As many of you have probably already realized, there are many market and channel factors that can account for this. Let's just list a few of them here. From a channel perspective, we know that there are many layers of distribution between CEMEX and the end customer. We know that it takes a long time to build. One room is built about every four years and ends up costing about two-and-a-half times as much as if it was built in a single year. We know in the economy that inflation is running at about 10 percent, and that doesn't help with the price of goods. We know that many families have problems with lost or stolen materials. We know that there are very few services to help customers who don't know how to build. We know that dealers are not always honest. All of these factors are keeping home-buyers and auto-construction people from actually completing the homes that they want. Those are some of the factors from the standpoint of the market in the channel structure that is trying to reach the customers. But what about the customer itself? There are things that are happening with the customer that are also impeding the building of these homes. One thing that's happening is that many of them have insufficient savings. Many of them have difficulty saving. Saving patterns, if any are there, are often inconsistent. There's often no building plan. A lot of consumers suffer, as you recall from the pictures, from wasted materials, maybe having bits and pieces instead of the larger pieces they need. There's a lot of misconstruction that is happening because people don't really know how to build. There may be duplicated labor, goods are often purchased and then they are ruined because they're subject to elements such as wind and rain. There's also maybe a lack of discipline and the building effort. After all, these are families, these are not people who know how to build or know how to plan the building process. There's also this sense of fate among people that, when the process takes too long and it goes on for ever, you just get the sense that it's just not possible. Of course you've got dealers who are always ripping them off, bleeding their bags, and giving them leftovers and raising prices. All of these factors make it very hard for consumers to build the houses that they want. Now, let's put a channel strategists hat on. Let's ask ourselves, what channel benefits do those end-customers really need?
