Cemex Pricing Increase Overly Optimistic

Implications: Cemex announced an across-the-board $25/yard price increase for ready mixed concrete for all its operations in the U.S.  This increase is an overly simplistic plan for improving the profitability of the company in the U.S.  Cemex ignores the economics of supply and demand and the specific dynamics of each of its markets by attempting this overall increase. Even if one were to give Cemex credit for attempting to be the market leader in ready mix concrete, a price hike does nothing to change the existing market conditions in each market.  Demand will not increase in any given market nor will this price increase reduce demand.  The end result will be to drive existing Cemex customers to other ready mix producers that are competitors in each market.  These competitors will price ready mix, in actuality just a commodity, below Cemex to get the sale.  Consumers in the market are more driven by price than company loyalty.  This same price consciousness can also overcome customer service.

Analysis: The attempt by Cemex at increasing its profits by adjusting its price upwards for ready mix concrete in all its markets will set itself up for failure.  Taking the pricing power away from each of its local operations and placing it at the national level is a risky move.  Their likely internal analysis that higher prices will offset lower volumes has gone to an extreme.  Such a large price increase will more likely have the effect of driving many of its existing customers to other competitors where they may likely stay.  Fleeing customers due to the announced price increase will stall this price increase.  Without the offsetting large increase in profit margins and the resulting reduced volumes from fewer customers, revenues and profits in the short and long term will be hurt.