COCONUT FIBER CEMENT BOARD MARKETING DRAFT

August 28, 2012

AGULTO, Ralph Julius BAYOCBOC, Jerome CALAYAG, Ernest John TUAZON, Jose Martin

1) General market description A) Market for construction materials The entire market for construction materials can be viewed in the integrated construction industry performance where it includes activities of establishments primarily engaged in the putting up of buildings and structures and other land improvements; secondary activities such as the provision of technical/engineering services and the manufacture of construction materials undertaken by horizontally integrated construction firms; and informal construction activities like repair and maintenance and own-account construction.1 Construction is divided into private and public construction (where public constructions are all construction owned by our government and government corporations) or by residential and non residential construction.

Source: National Statistical Coordination Board 1 Figure 1. Construction Output (in million PHP) and share to total GDP

Figure 1 shows that from 2006 to 2010, the total share of construction industry to the total GDP is increasing which is an indicator of the importance of this industry in the growth of our economy. The steady increase in the share of construction industry can be an indication of a rising market for construction market here in the Philippines. Since supply and demand for construction material cannot be measured due to time and data constraints, we summarized in table 1 the selected indicators for construction industry. Increasing projects in construction suggest that the market for construction materials is also increasing thus demands for materials has high demands. In table 1, there was a slight decrease in the industry during the start of 2011 of about 8.6 billion pesos but still a high contribution from the industry. These data

Table 1. SELECTED MACROECONOMIC INDICATORS In 2000 Billion Pesos (First Semester 2009, 2010 & 2011)

2009 Gross Domestic Product (GDP) % Share of Construction to GDP GVA or Peso Contribution of Construction to GDP
Source: National Statistical Coordination Board (NSCB)

2010 2,786.4 6.20% 171.9

2011 2,897.3 5.40% 157.1

2,564.1 5.70% 145.0

GROWTH RATES (In Percent) 2009-10 2012-11 8.7 4.0 18.5 -8.6

The decrease in the % GDP of the industry may be an impact from the recent global financial crisis which becomes a factor for construction materials to mainly increase. Table 2 shows the price index by commodity group in the National Capital Region. Prices are gradually increasing every month for the past 2 quarters. These price hikes can be the main reason for decrease in the % GDP for the construction industry, by introducing another product with a low price in the market; we can shift the demand for main construction materials like cement, concrete materials, and plywood because of cement boards capacity to replace their uses in housing construction and other infrastructures. Cement boards are basically new alternative walling and other main uses in the house here in the Philippines but it is commonly used worldwide for a fast and durable construction of houses and buildings since19702.
Table 2 Construction Materials Wholesale Price Index in the National Capital Region

Commodity Group All items SAND AND GRAVEL CONCRETE PRODUCTS CEMENT HARDWARE PLYWOOD LUMBER G.I. SHEET REINFORCING STEEL STRUCTURAL STEEL TILEWORKS GLASS AND GLASS PRODUCTS DOORS, JAMBS, AND STEEL CASEMENT ELECTRICAL WORKS PLUMBING FIXTURES & ACCESSORIES/WATERWORKS PAINTING WORKS PVC PIPES FUELS AND LUBRICANTS ASPHALT

2011 Dec 214.1 190 195.9 178.1 207 176.2 218.2 173.5 242.6 267.7 171.5 177.7 194.7 188.4 154.3 198.6 170.2 333.6 441.3

Jan 214.4 190.5 196.4 175.3 207 177.1 218.1 174.1 240.4 269.4 171.5 177.7 194.7 188.6 154.7 199.6 170.2 335.6 446.7

Feb 215.6 192.6 196.4 174.8 207.3 176.1 217.9 175.7 241.4 270.2 171.5 177.7 195 189.4 155.2 200.2 170.4 345.9 446.7

Mar 217.3 195.1 197.6 177.4 208.5 176.6 218.7 176.9 242.1 272.2 171.9 177.7 196.3 191.1 155.4 201.1 171.2 353.4 446.7

2012 Apr 218.9 198.2 199.8 178.1 211.2 177.7 222.3 176.9 243.5 275.6 171.9 177.9 197.8 193 155.6 201.6 172.4 353 446.7

May 218.3 198.6 200 178.1 211.2 178.1 225.1 176.9 244.6 278 171.9 178.2 197.8 193.9 155.6 201.6 172.4 341.7 446.7

Jun 216.5 198.6 200 179.3 211.2 178.1 225.1 176.9 245.7 278 171.9 178.4 197.6 194.4 155.8 202.8 172.4 319.7 446.7

Jul 216.7 198.6 200.3 179.5 211.6 178.2 225.6 176.9 246.7 278 172.6 178.7 197.6 194.4 155.8 202.8 172.8 319.6 446.7

MACHINERY AND EQUIPMENT RENTAL

Source: Economic Indices and Indicators Division Industry and Trade Statistics Department National Statistics Office Republic of the Philippines

114.6

114.6

114.6

114.6

114.6

114.6

114.6

114.6

B) The Companys Macro environment I) Demographic and Socio-Cultural Environment The household pattern in Laguna can be categorized as nuclear. Nuclear family is a family group consisting mainly with parents and their children3. Table 3 shows the basic structure of a household. The number of households that make up the population of Laguna is increasing from 1995 to 2007, with an average size of 4.69 per family. This data can be used to state the number of families that our company will target. The median age of each household is 23 years of age which means that generally man of the decision makers in the family belongs to the younger age group. The dependency ratio shows that 60.2 percent of the population are still dependent to the 39.5 percent part of the family and still corresponds to the part of the family which is the decision maker. Generally in a nuclear family, there is only one decision maker but since family traditions in the Philippines (termed as Pakikisama) often include both of the adults (often the parents) to do the decisions in the house as a group4.
Table 3 Demographic Statistics in Laguna

Number of households Average household size Median age Dependency ratio Young dependents Old dependents
Source: 2007 Census of Population

2007 542,906 4.55 -

2000 417,886 4.69 23 60.2 54.8 5.4

1995 337,018 4.83 22 63.3 58.1 5.2

II) Economic Environment The buying power of the target market is considered in the economic aspect of the companys macro environment. Their ability to pay for the product offered by the company is a measure of potential income. Table 4 shows the average income, expenditure and savings per region. CALABARZON or Region 4a shows a trend of increasing expenditure and savings which means an increase in the buying power of every family in the region.

Table 4 Average Income, Expenditure and Savings of Families by Region at Current Prices: 2006 and 2009

III) Natural Environment The source of raw materials for the production of coconut fiber cement board comes mainly from coconut wastes, these wastes are coconut coir, fronds, and spathes. Coconut is the main agricultural crops that farmers are growing at every town in Laguna along with palay, corn sugarcane and banana. Table 5 shoes the top 5 agricultural crops from Laguna. Even if the raw material supply is adequate for the production, the company is eager to preserve them as possible and also minimize wastes by using byproducts such as coconut coir into potting medium for vegetables and other plants as practiced in the Aurora province5.
Table 5 Top 5 Agricultural Crops in Laguna

Top five agricultural crops Palay Area (hectares) Production (metric tons) Corn Area (hectares) Production (metric tons) Coconut Area (hectares) Production (metric tons) Sugarcane Area (hectares)

2009

2008

2007

25,313 111,063 1,432 3,654 62,248 107,322 133

30,049 137,758 1,743 4,685 62,248 98,491 137

28,080 124,649 1,640 4,209 62,250 102,153 120

Production (metric tons) Banana Area (hectares) Production (metric tons)

Source: Bureau of Agricultural Statistics

10,241 7,057 17,321

10,814 7,022 15,697

9,432 7,025 14,006

IV) Political and Legal Environment Starting this year until 2015 there will be an infrastructure spending boom that may attract record-high annual investment levels of P200 billion to P400 Billion because of the start of public-private partnership (PPP) lead by the Aquino administration through the department of Trade and Industry (DOTC) 6. Public-private partnership is a business venture between private companies and the government. Private companies bears the financial, technical and operational risks while the government provide the contracts and the service 7. This venture attracts private companies which also is an opportunity for the construction companies to gain monetarily from this venture by providing constructional services. This is also an indication for an increase in demand for materials. C) Cement board manufacturing industry I) Total market potential (TMP) The total market potential per annum of coconut fiber cement board is the product of different criteria which is the number of households in Laguna (Table 3), average annual expenditure of families in Laguna (Table 4) and the percent of expenditure of families for construction and repairs (Table 6). Equation (1) shows the total market potential for coconut fiber cement boards. ( ( ( ) ) ) ( ) ( )

PHP The value generated constitutes to the total monetary value that can be earned by companies engaging in construction industry. The value has to be divided to different competing products and services offered but still this value is the target value of our company since there is no other limiting factors to subdivide the total market potential.
Table 6 Percent to Family Expenditure by Region

Region

House Maintenance and Minor Repairs 2006 2003 0.5

0.3

NCR

CAR I - Ilocos Region II - Cagayan Valley III - Central Luzon IVA - CALABARZON IVB - MIMAROPA V - Bicol Region VI - Western Visayas VII - Central Visayas VIII - Eastern Visayas IX - Zamboanga Peninsula X - Northern Mindanao XI - Davao XII - SOCCSKSARGEN XIII - Caraga ARMM

0.5 0.6 0.7 0.6 0.5 0.6 1.2 0.6 0.8 0.9 0.6 0.6 0.5 0.3 0.9 0.5

0.6 0.7 0.8 0.8 0.5 0.8 0.9 0.9 0.9 1.1 1.2 0.8 0.8 0.7 1.1 0.9

2) Marketing Research Approach The primary data for this study was done by a survey involving residents from the Laguna province. It was held on August 25, 2012 at the Calamba Central Transport Terminal, to assure the randomization of the participants. Here are the questions and responses of the 100 participants for the survey. 1. Number of household members. = 4.9 (average) 2. What do you prefer in a building material? low cost, low quality = 11% average cost, average quality = 69% high cost, high quality = 20% 3. Light weight or Heavy? Light = 88% Heavy = 12% 4. How important that the material is waterproof? Very important = 33% Slightly important = 65% Not important = 2%

5. How important that the material is fireproof? Very important = 79% Slightly important = 21% Not important = 0% 6. Are you willing to use Eco-friendly building materials for your house? Yes = 97% No = 3% 7. What would you prefer among these three building materials? Plywood = 31% Cement board = 20% Coconut fiber cement board = 49%

Preferred Materials for: 8. Roof? Plywood = 0% Cement/clay = 11 % Galvanized iron sheets = 41% Cement board = 23% Coconut fiber cement board = 25% 9. Ceiling? Plywood = 32% Cement board = 16% Coconut fiber cement board = 52% 10. Wall? Cement = 55% Wood = 0% Cement board = 13% Coconut fiber cement board = 32% 11. Dividers? Blocks of wood = 43% Plywood = 12% Cement board = 16% Coconut fiber cement board = 39%

3) Marketing Segmentation, Targeting and Positioning A) Market Segmentation

For the Coconut Fiber Cement Board, the market was primarily segmented into the general usage of the boards, specifically the general types of projects in which the boards were used. Residential this market segment pertains to the possible usage of the general public with regards to Cement Boards. This includes, but is not limited to, the construction of homes and its general repair and maintenance, and possible small construction projects. This holds the largest percentage of the total market potential, involving an estimated number of 1228 projects valuing up to 1.3 billion Pesos in the first quarter of 2011 alone. Non-Residential or Industrial this market segment involves any other possible projects that do not involve housing or small construction, with this segment revolving around the construction of structures involving industry. This holds the second largest value, with 125 projects valuing up to 338 million in the first quarter of 2011. Construction Firms and Depots this market segment involves the companies in which this project may become a potential supplier. This market includes construction companies, which supervises 85% of all construction projects, and retail hardware stores. Government Contracts this covers all the possible construction projects commissioned by the Philippine government. Though not technically a market segment according to our segmentation variables, it bears mentioning due to the governments large expenditure on public projects, and is the main source of income for some companies.

Selecting Market Segments The criteria for selecting the Market Segments to sell this product to are based primarily on the usage and amount spent of each market segment for construction and maintenance, specifically involving cement boards. These are: The number of projects in processes over a specified period of time, and The average expenditure for these projects per year.

Based on these two criteria, the priority target would the Residential Market Segment, which is the largest market segment, by a huge margin. The company only sells uniform products that serve as a new alternative to the competitors products, and resources do not seem to be constricted. By this, the company should select an undifferentiated market coverage strategy.

4) Marketing Mix: 4 Ps A) Product Again, our product is Coconut-Fiber Cement Board (CFCB), a possible alternative to cement boards currently used in construction.

CFCB can be used the following: Wall panels Roofing system Flooring system Ceiling partitions Furniture and boxes component

For marketing purposes, we shall call our product Coco Base Cement Board (CBCB). CBCB products shall be sold in the following variations: CBCB A: 8mm x 0.6m x 2.3m CBCB B: 12mm x 0.6m x 2.3m CBCB C: 25mm x 0.6 x 2.3m Coir dusts as by product

B) Price Our main objective is to maximize profit. In doing this, we shall estimate profit by computing demand and costs and choose which yields highest profit. In order to analyze which pricing will yield highest profit, we shall use the two approaches in pricing: cost-based pricing, and competition-based approach. We shall neglect value based pricing for the mean time since we lack data on it. Cost-based Pricing The total monthly production cost, considering only fixed-cash and variable costs, amounts to Php 451,540. Total monthly production CBCB A: 1667 pcs CBCB B: 833 pcs CBCB C: 625 of each product of CBCB is as follows:

If we shall base the pricing to volume, we can compute the base prices of each product using the break-even analysis as follow: Each meter-cube will cost Php CBCB A: Php 92.73/pc CBCB B: Php 139.09/pc CBCB C: Php 289.77/pc

Competition-Based Pricing Our top competitor in the country is Hardi Flex Cement Board. Its standard size is similar with CBCB C and is priced at Php 889.02 (medium density). Another cement board producer in the country is the Shera Plank. Their CBCB C counterpart is pegged at Php 420. Lastly, Gypsum Boards, more known internationally, pegs it price at US$ 11 or roughly, Php 462. With this, we can roughly price our product (CBCB C as focus) between Php 289.77 to Php 420. C) Place Next to NCR, the Calabarzon Region is the biggest spender in terms of construction. One primary reason to this is the high volume of family residing the region. Also, due to the over urbanization of NCR, industries and development projects is transferred in Region IV. Our target market includes households, construction companies and construction depots (hardwares) in Laguna. Laguna has a total of 25 towns with a total population of 2,669,847, ranking 4th out of 80 provinces in the country. In the first quarter of 2012, there was a total 1533 new construction projects in the province amounting to 1.78 billion pesos. The previous statistics can be further divided between residential projects with 1,228 projects costing 1.3 billion pesos, and nonresidential with 225 projects amounting 338 million pesos. This means that on the average, the province of Laguna spends roughly 593 million pesos for construction. And considering that our product can be used for more than 50% of the total construction materials, we can say that Laguna can be a very big potential market.

D) Promotion

We shall call our product Coco Base Cement Board with a tag line We wood not let you down. This will be our message strategy, making production of CBCB a personal commitment to our buyers. Since our product is new, we shall employ advertising through traditional media, television ads, newspaper and radio commercials, and social media such as facebook, twitter and websites. We shall also employ sales promotion where we shall have limited free samples where we can introduce the product to the customers. This tool is also called, Consumer-Promotion Tool. In order to strengthen our products credibility, we may also opt to do cash refunds.

References: (1) 2011 Country Report by the Philippine Constructors Association, Inc. Jun 01, 2012. Retrieved August 28, 2012 from http://www.philconstruct.com/docs/industryperf/firstSem2011_CountryReport.pdf (2) Van Elten Ing. G.J., PRODUCTION OF WOOD WOOL CEMENT BOARD AND WOOD STRAND CEMENT BOARD (ELTOBOARD) ON ONE PLANT AND APPLICATIONS OF THE PRODUCTS. November 15 2008. Retrieved August 28, 2012 from http://www.eltomation.com/Eng/Publications/Lecture%20IIBCC%20WWCB.pdf (3) Nuclear family. Retrieved August 28,2012 from http://en.wikipedia.org/wiki/Nuclear_family (4) Philippines: Cultural Tips. Retrieved August 28, 2012 from http://asagbiotech.net/Data/Countries/Philippines/Download/Philippines_Cultural_Tips.pdf (5) Sarian, Z., Coir, Dust from Coconut Husk, February 22, 2012. Retrieved August 28, 2012 from http://www.mb.com.ph/articles/352190/coir-dust-coconut-husk (6) Publicprivate partnership. Retrieved August 28, 2012 from http://en.wikipedia.org/wiki/Public%E2%80%93private_partnership

Appendix
Appendix A Number, Floor Area and Value of Non-Residential Buildings, by Type and by Province: first Quarter, 2012

Appendix A Number, Floor Area and Value of Non-Residential Buildings, by Type and by Province: first Quarter, 2012

Appendix A Number, Floor Area and Value of Non-Residential Buildings, by Type and by Province: first Quarter, 2012

Source: National Statistics Office

Appendix B Number, Floor Area and Value of New Construction, by Type and by Province: First Quarter, 2012

Appendix B Number, Floor Area and Value of New Construction, by Type and by Province: First Quarter, 2012

Appendix B Number, Floor Area and Value of New Construction, by Type and by Province: First Quarter, 2012

Source: National Statistics Office

Appendix C Number of Families by Construction Materials of Roof and by Region and Construction Materials of Outer Walls: 2009

Appendix C Number of Families by Construction Materials of Roof and by Region and Construction Materials of Outer Walls: 2009

Source: National Statistics Office