Amanco Brazil: From Second Best To Market Leader

Overseas companies entering new markets often face stiff competition from domestic rivals. How can they make their presence felt or, for that matter, convince customers to shift brands, abandoning their long-time supplier or retailer of choice?

These are common concerns for companies trying to expand their markets to other shores. In their case study of Amanco Brazil, IESE's Paulo Rocha e Oliveira, Fábio Cerquinho of ISE School, Brazil, and Rodrigo Sauerbronn Jacinto show how a poorly positioned company division was able to reverse its fortunes by taking on and overcoming the market heavyweight.

A Struggling Market

In the mid 2000s, Amanco was Latin America's leading manufacturer and marketer of pipes and fitting solutions for water management systems. Yet despite being present in Brazil for about 10 years, Amanco's operations were still losing money.

In early 2006, Amanco's CEO, Roberto Salas, and marketing director, Marise Barroso, were preparing a proposal for Grupo Nueva, the Swiss holding company that owned Amanco. Salas had just one month to decide which strategy to pursue for the Brazilian subsidiary.

The reason for such haste was that Grupo Nueva was planning an IPO and needed the group's balance sheet to look impeccable. For that to happen, the company needed to either sell its Brazilian subsidiary or present a feasible plan to significantly expand its market share, which then stood at just 16 percent.

To increase its market share, it would have to take on the domestic market leader, Tigre Tubos e Conexoes, a family-owned business that accounted for 60 percent of market sales. After many years of very high expenditure in advertising, Tigre's brand had become synonymous with quality pipes and fittings.

The Eye of the Tigre

Tigre's dominance was the reason why Amanco's performance in Brazil stood in such stark contrast to its success in the rest of Latin America. The company had tried to buy out Tigre, but the family owners had no interest in selling.

The company would have to take a different tack. In order to be closer and have easier access to the market with the greatest growth potential in Latin America, Amanco had decided, in 2005, to move its corporate headquarters from Costa Rica to Sao Paulo. The question that remained was how to conquer the Brazilian consumer.

Salas and Barroso realized they had to choose between two markedly different strategies: They could either restructure the company to compete in the low-cost market; or they could increase marketing investments to position Amanco at the same level as Tigre.

Research showed that Tigre had no visible quality differentiation yet its nearly 100 percent brand awareness enabled it to charge a 25 percent premium over Amanco and stay well ahead of its competitors.

Re-creating a Brand

The problem for Amanco, as Salas realized in 2005, was that it had virtually no marketing structure or mind-set. To change that, Salas had brought in Barroso. One of her first jobs was to understand consumer behavior in the market. Studies showed that only 32 percent of customers made their purchases based on price; the remaining 68 percent bought based on brand.

When it came to the relative strengths of each brand, Tigre came out the clear winner, thanks primarily to its fear-based advertising, which convinced people that if they bought cheaper products, they would risk having to break through their walls to fix leaky pipes.