Portico Case Study

Portico

1. Current strategy & results

Promotion: not mentioned

Product: wooden doors from Costa Rica

Price:

The current strategy focuses mainly on the low price of the product. The market for wooden doors, especially for high quality doors, is little to small in Costa Rica, so that is why the company is exporting to the US. Furthermore the financial condition of the company was very bad, so they had to make profits in short period of time, which explains the low price strategy and the big chain distribution, that makes it easy to get economies of scale in a short time.

Also the company just pays a small price for its raw materials in Costa Rica, which makes it easy to maintain a low price strategy in the US market.

The doors of the company are in the lower price category for wooden doors, but they seem to be superior of those doors from the competition concerning quality.

Place:

The company is involved in an intensive distribution through big chains of building supply retail outlets. To utilize the new built plant the company had to produce and sell at a high volume to the US by exporting. By this strategy they try to target the mainstream US market with their product.

Results:

The company had problems with financing the new plant in the beginning. But with the established building supply retailer contracts in the US and their high volume of exports they got back on track and reached a break even on a cash basis recently.

2. plans for the future

The future strategy is to serve a special niche in the US market by selling higher priced doors through regional distributors, who then sell the doors to the customers. This new strategy focuses on a higher quality product that is sold with a higher price. It also emphasizes on the service factor of the specialized retailers, who target a different type of customer. Instead of a one-stage distribution channel this would be an example of a two-stage distribution channel strategy, which implies a different pricing strategy. The selective distribution of the new strategy would possibly give their product a new, higher quality image and get the customer more service.

3. Why change market positioning?

The company has the opinion that their product is of a higher quality and could be sold with a higher price than current. They want to change their positioning because they want to target a different customer group that is more concerned with quality wooden doors.

Furthermore they are frustrated with the ongoing competition on price in their segment, which was critical by that point where companies from the far east stepped into the market.

Those companies tried to please their retailers by providing them with "push money" and other events that seemed to be unfair trade methods for the Portico company. So the Portico company decided to focus on a different segment.

4. is the change desirable (economic & other factors)?

Economic factors:

The new strategy is desirable considering just the economical factors. The economic factors the new strategy would benefit from are the low currency value of the Colon and the low labor costs in Costa Rica. If the Colon is less worth, the company can still sell their products in Dollar for a higher price. But on the other hand the old strategy is working under these premises as well since a lower Colon means that the company has lower production costs, which means they easily can compete with lower prices offered by the companies from the far east.

Furthermore if they positioned on a higher quality and price basis, they could increase their revenues because of the higher margin. But since a new stage is added in the distribution hierarchy, this higher margin could vanish because the regional distributor also adds a high margin to the product.

On the other hand the new target market is just a small niche in the market, which means it could be too small to gain more revenues than with the old mass market strategy.

Other factors:

Regarding other factors the change is not a good thing since there are a lot of problems connected to perform the new strategy. First of all, the company has just recently managed to break even, which means the financial condition of Portico could be and has to better for performing the new strategy which is related to a lot more costs, especially in the beginning (for example, to please the new distribution channel and to create a service orientation in the company).

Furthermore If they want to effectively utilize the new plant just built by the company, they have to produce doors in a high volume. This is hardly possible within the new strategy which seems to be a selective distribution strategy with a lower cumulative productivity for the company.

Also the company has a procurement problem in Costa Rica with its suppliers,