Regional Cement Manufacturer

C: I would like to start with some clarifying questions. What is the geography we are talking about and when exactly did the player enter the market?

I: Eastern part of India (Bihar, Jharkhand etc.) and entered the market last year.

C: Okay. What all products does the player has? Grey cement of white cement or both. Also, what is the customer split of the player among retail sales, institutional sales and any other? What is the competitor’s landscape like? Is it more of a fragmented market or controlled by few large players?

I: They have one type of cement which is grey cement. Sales consist of 70% through the retail channel and 30% through Institutional sales. Also, 60% of the market is controlled by 2 big players, while the rest by regional players.

C: Does the client have any specific objective in mind wrt to percentage growth in sales or market share? Also, as you mentioned before he has sales of 1 Lakh tonne per month, what is the present capacity of the plant, and do we have any time and financial constraints to fulfil this growth objective.

I: The present capacity of the plant is 2 Lakh tonnes per month, and the client wants to reach a capacity utilization of 80% in one year. Doesn’t have any financial constraints.

C: Got it, so right now he’s working at 50% capacity and would want to increase sales to increase the capacity utilisation. I’ll take a few seconds to structure my thoughts.

I: Sure. Go ahead

C: So, since the objective is to increase the market share, I’m assuming the market share in the current geography and current product, is that right? 

I: Yes, he only wants to focus on the existing markets.

C: In the existing markets he can grow inorganically by acquiring competitors of some vertical integration. But since the client already has excess capacity and wants to increase the utilisation, it’ll make more sense to increase the sales organically to achieve the objective.

I: Yes, you’re right. The client is not looking for any inorganic growth right now. What will you advice the client to do? 

C: Since the major portion of sales is coming from the retail channel I’ll start with that and then can move to the Institutional sales. To do that I would like to see the customer funnel and see at which level can we increase the sales

I: Yes, focus on only the retail sales.

C: Right, so starting with need, since cement is a commoditised product and given the time to fulfil our objective, I don’t think we can increase the need of specifically our cement in the market.

I: Yes, that is right.

C: Coming to awareness and accessibility, have we built enough brand awareness of our cement in the market through promotions and all? And what are the distribution channels we are using and is our product accessible to final customers?

I: Yes, the client has already worked a lot on brand building and building an accessible distribution channel.

C: Okay, then coming to the customer experience and affordability part, if the quality of cement is good enough (in terms of time taken to dry, strength etc).

I: Yes the actual quality of cement is very good and better than many competitors. Let’s talk more about the affordability part.

C: Sure, for that I would need the price point at which we and our competitors are selling the product. Also, the margins that they are giving to their distributors.

Me: (Made the table myself by asking for specific info points)

Analyzing the information I feel the reason for low sales can be unclear positioning of the product. From my understanding of the cement market, there are two types of customers, one only looking for the brand name and good quality and doesn’t care about price and the second category who sees cement as a commoditized product and want the best price and won’t pay more for minor differentiation. 

Right now we are not positioned for either of the category and would need to decide on one and work accordingly.

I: That’s a good analysis, if you had to advise the client of picking any one category which one would it be and why?

C: Let’s weigh the pros and cons of both. Since the client is a new player, let’s look into competing with the regional players first. For that, he will have to reduce the price to Rs 380 and also increase the distributers margin but that would reduce the profit margins of the client by a lot.

Also, as mentioned earlier, the client’s cement quality is better than these players, which might mean the production cost might be more as well and can even lead to losses for the client.

I: Yes that is right that would make the client to incur losses and the client would not want to position his product in that category. What else can he do?

C: Then the second option is to position the product at par with the product of big players. Right now even though the actual quality of the client’s product is good, the perceived quality by the customer might not be that good as he is selling at a lower price. 

The client should increase the price to Rs 400 and can use the additional profits to increase the margins for distributors. This would help to increase the sales even further because of distributors pushing their product.

I: That sounds good. What can be some risks involved with this and what would you recommend your client.

C: As the big players are already very well established in the market, it might become difficult to compete with them. The client should couple this price and margins change with strong advertising, onboarding influencers and stars (gave examples of cement TV ads, how they target the aspirational feels of people while building a house) and tie-ups with distributors of related products, cross-selling 

(To cap off, Gave an example of how Asian Paints is getting into the white cement market to utilize a dealer network of paints while Birla White is starting Birla Paints)

I: Excellent. Thanks for your time and a great set of analysis done overall.