Colceramica – Corona Group
We are meeting with Alberto Suhuanes Ibanez, Iberica Chief Brand, a company that has won a risky bet: teaming up with an NGO to reach out to Bogota’s poor communities.
Colceramica S.A. is a subsidiary of the Corona Group (a Colombian multinational with 13,000 employees), which exports to more than 36 countries and has factories in Colombia, the United States and China. Amongst its eight products lines, it has a line of ceramic tiles (wall and ceiling) under the ‘Corona’ brand.
The Colombian market is opening out to competition
As the new CEO appointed at Corona in 2003, he questioned the brand’s positioning at the national level. The Colombian market had just opened to competition and other growth opportunities had to be considered.
He saw that the ‘Corona’ line of ceramic products was only present in the high-end market segments (4 and 5 ) (1). They were expensive, fashionable and design conscious products. The old collections were sold to the lower population segments (2 and 3) at a cheaper price, through retailers.
54% of Colombia’s population, i.e. 25 million people, belong to the low segment. Up until then, Corona had only offered them unsold or end of stock products. The question was therefore a simple one, full of sense ‘How can we reach this 54% more effectively?’ In 2004, Colceramica decided to create the Iberica brand, exclusively dedicated to this market.
The discovery of a new world
The company spent two years on the socio-economic study of this population. Colceramica’s teams went out into the field, met with NGOs but also C.K Prahalad (2) and Mohamed Yunus (3), in order to have a better understanding of the best strategy to develop this market.
Segment 0 is not a market for Corona, ‘as the population has nothing, not even a house, they are people living in great distress’. Segment 1 encompasses a population that lives in an unstable construction (cardboard wood) to one in a stable construction (cement). However the land is often not legally owned, which means that the building’s durability is not guaranteed. To Colceramica, the obvious target is segments 2 and 3, representing almost 40% of the population.
There were several key questions to be answered in order to answer to this population’s expectations:
1. What is the geographical location of this population?
Located close to towns, very often on the mountainsides surrounding Bogota, this population is sedentary. It takes them around 20 years to transform their house made from unstable materials into one made from stable materials. Their house is often their only property and usually comprises 3 rooms, housing 2 adults and 5 children.
2. How do they live?
This population is equipped with household electrical goods and also flat TV screens or game consoles. However delinquents, drug traffickers, paramilitaries or people on the fringes of society also live in these no-go areas where access is almost impossible for nonresidents. The police do not patrol and the community is governed by informal rules often through a local chief. However, there is obvious purchasing power in these districts.
3. How should the product be launched?
The Iberica brand was created in 2004 and was aimed at segments 2 and 3 with a three-year warranty. The Corona brand continued to be aimed at segments 4 and 5 covered by a 10-year warranty. The product’s history was turned upside down and over 60 years of marketing was called into question. The whole distribution system had to be reviewed with new constraints: brand, technical specificities and quantities. As Alberto stressed ‘ to make a low-cost product, you must start of the beginning of the chain, the whole company had to transform’.
Still, the Iberica product did not meet with the anticipated success despite launching this cheap brand.
Revolutionizing its know-how
Colceramica realized that a traditional approach to serving this population did not work. It was not only necessary to adapt its products but also to totally rethink the value chain. Colceramica’s team contacted ‘Patrimonio Hoy’, a housing programme which had been very successful with the poor communities (4), in order to study it. One of the key points of the programme success was a partnership with the Ashoka NGO .
The NGOs which work in these poor areas have a unique knowledge of how these communities operate.
This type of partnership gave the company the following:
- information on this market,
- the use of the NGOs networks to penetrate the community,
- a bond of trust between the company and the community,
- outsourcing risks,
- a knowledge of the informal rules existing in the community.
A partnership which was difficult to establish
At this time the 20 Ashoka Fellows (5) contacted by Colceramica did not see the benefits of entering into this commercial arrangement with Corona, preferring to dedicate themselves to purely social missions for the people in the area.
However, Hayde Duque finally showed an interest in the idea and met with Corona: the capitalist world versus the voluntary world. NGOs and businesses have two different logics and they have to learn to speak the same language.
Hayde had set up an NGO to psychologically help people who had been displaced from their own regions by violence. Her knowledge of these populations was extremely valuable.
An agreement was reached after everyone understood the other’s goals and values better. Hayde was reassured to see that social values really existed in Corona’s approach through its representatives, and decided to help Corona enter the communities.
Hybrid Value Chain
According to Hayde, the ONG-Company partnership, to be successful, must start at the very beginning with the products design and development in order to keep the same respective strengths. If the NGO had become involved further up the value chain, the company would have a tendency to impose its own viewpoint.
A partnership with Hayde enabled the following problems to be addressed:
1. What distribution channel to serve these populations?
Women were chosen to be the promoters of the Iberica brand for the following reasons: 90% of households are run by women, they are more sensitive to improving their house than men and they are welcomed more easily from door-to-door with products. Hayde enabled Colceramica to come into contact with these women. 88% percent of the community work informally (street sellers of arts and crafts or food). Corona therefore provided them with a stable job, paid according to the average Colombian salary. Some 7% percent of the sale price was allocated to these women as salary (70%) and to the NGOs (30%) to benefit the community (schools, children).
2. Access to lending?
A study showed that these families’ capacity to pay to improve their homes totaled 12 US dollars a month i.e. 150 US dollars per year. This sum corresponds to the investment required to renovate a room (kitchen, bathroom, bedroom or living room). This corresponds to the purchase of raw materials, as renovation work is self performed.
Originally, Colceramica did not offer any payment facilities. As there is often very little property to be put up as guarantee, access to credit is very restricted in these communities. Trust grew gradually, with Colceramica offering a loan when 50% of the tiles had been paid for. Today, there is less than 1% of unpaid loans and loans are often repaid several months in advance.
3. What logistic solutions?
As ceramic tiles are a very heavy product, it is difficult to bring it to these populations living on mountainsides in remote areas. Corona therefore decided to establish service centers in each district. As home renovation is a Do-it-yourself activity, these centers were used as logistic platforms as well as information on technical support centers. The quantities also differed (15m² per family), and the packaging was therefore to be totally rethought. To reduce costs part of the logistics were outsourced: customers came to the community service center to pick up the product directly themselves.
Change in mentality
The business company had to make internal changes as well, which was a difficult challenge to overcome. This project changed the company’s mentality in terms of marketing, sale and logistics. The involvement of CEO Rainaldo was a key factor in all these changes, encouraging the management, employees and workers. Trust was an essential factor: offering loans without security, selling products in an informal setting, being accepted by the population, finding promoters … all difficult problems to overcome.
Results & Development
The potential market is 10 million families. After two years of business activity, 13,000 families have benefited from the programme which represents 1% of Corona sales at the present time.
270 women are all working for the programme today. They are paid in cash but Colceramica has decided to formalize their jobs.
The business objectives are twofold: to increase sales to reach 5% in 2009 and 10% in 2010, and to extend the programme to other towns.
Between now and 2015, Colceramica wants to be present throughout Colombia and abroad in Equator, Venezuela and Peru where the market conditions are similar. As logistics is a large expense item, Colceramica is studying the possibility of building a factory in these countries.
Colceramica is currently looking for a financial partner to manage these credit lines more efficiently. ‘Our core trade is to produce and sell tiles’.
The catalogue will soon offer new products, as the product mix bought by these communities yields 30% additional margin compared to the traditional market: they do not buy the cheapest product for their homes, as they are investing for life.
Colceramica realized that a simple ‘adjustment’ of its products would be insufficient to serve the poor communities. The partnership with Hayde Duque’s NGO created sufficient mutuam trust for the business to operate in a difficult economic environment. The company’s internal changes revolutionized the value chain , making this a viable project.
The objective today is to reinforce the programme and to expand it. The programme’s internal functioning will have to be automated to make its processing easier from an administrative point of view.
(1) The Colombian Statistics Department classifies the population into six socioeconomic strata ; the highest revenues belong in level 6
(2) Author of the reference book « Fortune at the Bottom of the Pyramid ». C.K. Prhahalad demonstrates that companies can create economic value by having a strong social impact by developing products and services for poor populations.
(3) See Compartamos Portrait
(4) See Creativ’Entrepreneur website to know more about Ashoka
(5) An Ashoka Fellow is a social entrepreneur elected by Ashoka to assist him/her during the phase of launching its social project. By becoming an Ashoka Fellow, the entrepreneur is assisted financially, and has an access to the worldwide Ashoka community.