The Challenge of Marketing Cement

Masters Thesis Defense Dipl.-Ing. Gnter Woltron Danube Business School Krems, July 25th, 2012

What is cement?
Cement is a hydraulic binder [] which, after mixing with water, sets and hardens independently as a result of chemical reactions with the mixing water and, after hardening, it retains its strength and stability even under water. The most important area of application is therefore the production of mortar and concrete, i.e. the bonding of natural or artificial aggregates to form a strong building material. (Locher 2005: 17)

Cement, the glue that holds concrete together, is a key ingredient of economic development. Concrete becomes our offices, factories, homes, schools, hospitals and roads, as well as our underground water and drainage pipes, bricks and blocks, and the mortar that bonds them together. None of these things could be built without cement. There is currently no other material that can replace cement or concrete in terms of effectiveness, price and performance for most purposes. (WBCSD-CSI, http://www.wbcsdcement.org/index.php/about-cement)

Gnter Woltron - The Challenge of Marketing Cement Danube Business School July 25th, 2012

And how is it produced?

Stages of Manufacturing and Application of Cement (Battelle 2002a: 6 adaptation by the author)

Gnter Woltron - The Challenge of Marketing Cement Danube Business School July 25th, 2012

Lets summarize a few facts

Cement is a basic nearly irreplaceable processed material of global importance. Cement is a proven (mature) material produced and applied worldwide utilizing more or less generally known technology. Cement may be called a commodity as it is perceived to feature the typical related attributes: homogeneous undifferentiated standardized traded in price dominated markets

An interesting case for marketing research? Not so far!

Gnter Woltron - The Challenge of Marketing Cement Danube Business School July 25th, 2012

The intention behind this masters thesis

There is no basic literature on marketing of cement available. A lack of related sector specific concepts, frameworks and tools can be recognized. The amount of research literature available in the field of commodity marketing is generally rather moderate. Cement industry specific management research is in many cases focusing on production and operations. Research is due to the specific economic importance often focusing on the situation in emerging economies.

So what about marketing of cement in mature industrial environments like the European Common Market? Are there no interesting aspects? No specific challenges?
Gnter Woltron - The Challenge of Marketing Cement Danube Business School July 25th, 2012

Cement Industry Challenges

General competitive challenges Challenges of the specific industry environment like the following issues
green building, industrial ecology, resource efficiency & life cycle approaches greenhouse gas emissions, the issue of global warming & emission trading schemes fuel & energy prices additional emergent dimensions of customer value

And many more

A certain dynamic is emerging!

Gnter Woltron - The Challenge of Marketing Cement Danube Business School July 25th, 2012

Overall goals identified for this masters thesis

Providing a profound insight into the marketing of cement with a focus on mature markets/mature industrial environments and a focus on the strategic level of marketing. As a personal choice, Michael Porters work on strategy was chosen as a starting point for the research.
Gnter Woltron - The Challenge of Marketing Cement Danube Business School July 25th, 2012

Research Questions
1. Which of the Michael Porters generic competitive strategies or elements of them can be regarded as feasible options for a cement company active in a mature industry environment like the European Union? 2. Is there a feasible differentiation strategy for a cement company active in a mature industry environment like the European Union which is likely to lead to a sustainable competitive advantage? 3. What are the implications of pursuing a differentiation strategy for marketing strategy and management in the cement sector?

Gnter Woltron - The Challenge of Marketing Cement Danube Business School July 25th, 2012

Michael Porters Generic Competitive Strategies

Three Generic Strategies (Porter 2004b: 12)

Gnter Woltron - The Challenge of Marketing Cement Danube Business School July 25th, 2012

Overall Cost Leadership Strategy

Frequently the dominating strategy in commodity sectors. In the absence of differentiation (the pure commodity case) its solely a cost game (Porter 2004a: 43). Overall Cost Leadership Strategy basically represents a viable choice for cement companies active in mature markets. A sustainable competitive advantage can primarily be gained by controlling important cost drivers (location, scale, capacity utilization, integration). The Strategy fits quite well commoditized building material markets. But: Beware of technological change!
Gnter Woltron - The Challenge of Marketing Cement Danube Business School July 25th, 2012

Focus Strategies
Focus Strategies exhibit only moderate potential for cement companies active in mature markets. Options of and incentives involved in tailoring the value chain for specific segments are limited. Exploitation of interrelationships between segments exerts dominant influence. Compromises broad scoped producers are facing are insignificant. Consequence: the cement industry is mainly dominated by broad scoped producers. The Feasibility of focus strategies might be given for cement derived products or in specific cases of differentiation focus strategies.
Gnter Woltron - The Challenge of Marketing Cement Danube Business School July 25th, 2012

Differentiation Strategies
The research questions 2 & 3 are investigated in the course of a hypothetic case study analyzing the feasibility and implications of the following two differentiation approaches: Approach/case 1: Differentiation approach based on a product range of common cements/technologies. Approach/case 2: Differentiation approach based on a product range of other than common cements/technologies (assumption: technological change enables the development of a substitute to common cement).

Gnter Woltron - The Challenge of Marketing Cement Danube Business School July 25th, 2012

Instruments for differentiation

Viable instruments for differentiation mainly positioned outside the product core are available also in the case of commodity-like products. Effective differentiation goes along with a decommoditization.

Modified Core-Satellite Model (cf. Homburg et al. 2011: 37 adapted and translated by the author)
Gnter Woltron - The Challenge of Marketing Cement Danube Business School July 25th, 2012

Differentiation Strategies - Summary

Both differentiation approaches investigated in the course of the case study are able to provide relevant levels of uniqueness. But the potentials, opportunities, costs and risks involved as well as the strategic sustainability attainable are inherently different for the two approaches. In general, effective and especially profitable differentiation in the cement sector represents a challenging task.

Gnter Woltron - The Challenge of Marketing Cement Danube Business School July 25th, 2012

Implications of differentiation for marketing strategy & management

The implications especially of the differentiation approach of case 2 for marketing strategy & management are numerous and far reaching. Remarkable impacts on competition and industry structure are likely. New Business Models? New Industry?
Gnter Woltron - The Challenge of Marketing Cement Danube Business School July 25th, 2012

Feasibility of the Generic Competitive Strategies Summarizing Conclusions

It can be stated that there is no distinct generic competitive strategy able to meet all the challenges identified for cement companies active in mature industrial environments by nature. The feasibility of a strategy approach to be pursued by a company is depending on many factors of the specific microand macro-environment and the (local) competitive setting. Innovation and technological change play major roles in determining a feasible strategy. Unfortunately the corresponding developments are by nature erratic.
Gnter Woltron - The Challenge of Marketing Cement Danube Business School July 25th, 2012

What are other insights into Marketing of Cement provided by this masters thesis? two teasers

Gnter Woltron - The Challenge of Marketing Cement Danube Business School July 25th, 2012

An insight into the complex multistage value system the cement sector is embedded to

The Cement Producers Downstream Value System (figure developed by the author)
Gnter Woltron - The Challenge of Marketing Cement Danube Business School July 25th, 2012

An insight into industry value creation characteristics

The Value Proposition Feasibility Check (figure developed by the author)

Gnter Woltron - The Challenge of Marketing Cement Danube Business School July 25th, 2012

The risk to be stuck in the middle

Porter entitles strategy approaches which are not indicating a clear tendency towards one of the generic strategies as stuck in the middle and characterizes them as an extremely poor situation of almost guaranteed low profitability. (Porter 2004b: 12) Once differentiation should be chosen as a generic strategy the approach has to be sustained! In order to successfully implement differentiation approaches in a commoditized industry the commodity mindset has to be overcome. It can be regarded as a challenging task for an industry accustomed to think in costs to start thinking in value.

Gnter Woltron - The Challenge of Marketing Cement Danube Business School July 25th, 2012

An industry caught in a (perceptive) trap ?

The cement industry produces a commoditized industrial good which remained largely unchanged in its basic composition and characteristics for almost the last 200 years. The industry and its customers may partly for understandable reasons be characterized by certain levels of risk averseness and conservatism. An Innovators Dilemma? - Clayton Christensen concludes that well-managed companies [] often fail because the very management practices that have allowed them to become industry leaders often also make it extremely difficult for them to develop the disruptive technologies that ultimately steal away their markets.(Christensen 1997: 231)
Gnter Woltron - The Challenge of Marketing Cement Danube Business School July 25th, 2012

Summary & Outlook

This masters thesis should contribute towards marketing research in a sector which is frequently dominated by research related to production and operations. It furthermore represents an industry specific contribution in the field of commodity marketing. This masters thesis should provide an impression of the characteristics of marketing in the sector with an emphasis on mature markets utilizing the European Common Market as an example. It might serve as a starting point and food for thought regarding further research. There is still a multitude of interesting research topics to covered in an industry which can be regarded as understudied from the marketing point of view.
Gnter Woltron - The Challenge of Marketing Cement Danube Business School July 25th, 2012

Acknowledgements
Thank you very much for your attention!
A special thanks to Ms. Wannerer MA for the valuable supervision! I owe my deepest gratitude to my supervisor Colin Egan BA, MBA who inspired me with his enthusiastic approach towards marketing! For detailed references please refer to the masters thesis original.
Gnter Woltron - The Challenge of Marketing Cement Danube Business School July 25th, 2012