Kone Case Study

ID # 001-97-6835A Comprehensive Case Study & Analysis On KONE: The MonoSpace© Launch in Germany ID # 001-97-6835 KONE is one of the largest elevator companies in the world with $2.2 billion revenue in 1995; the revenue from new equipment sales and service contracts was 38% & 68% of total sales respectively. However, the competition in global elevator market is very acute, KONE needs to deal with several world renowned elevators companies including OTIS, Schindler, Mitsubishi, Thyssen as well as several regional elevator manufacturers. To be remaining very competitive in the market, KONE’s R & D team came up with EcoDisk technology which would eliminate the machine-room requirements for elevator installation, especially for low-rise and mid-size elevators. KONE’s MonoSpace© powered by EcoDisk had launched in several European markets including Netherlands, France as well as United Kingdom. The response rate from these markets was a mix; KONE experienced huge success in Netherlands whereas the experience in UK & France was not reasonable. KONE Aufzug wants to launch the MonoSpace™ in one of the European largest elevator market in Germany with aiming to conquer the German low-rise elevator markets. However, before launching the MonoSpace in German Market, KONE Aufzug needs to consider and analyze the new products, current market situation as possible marketing strategies [ Exhibit -1: Issues Need to Consider & Analyze Prior Launching MonoSpace© in Germany] Analysis on New Product: MonoSpace© as New Product: Machine-room-less elevator had been a long compelling notion to elevator manufacturer as it would reduce the total elevator cost by eliminating the machine room requirements completely. Furthermore, it would give additional usable space for revenue-generation purpose and greater architectural freedom to the customers. KONE’s MonoSpace© powered by EcoDisc is a machine-room-less elevator, mainly for the low-rise residential and mid-size (12 floor or less) market. As a new product, MonoSpace© brought substantial appealing features and value in the market to get customer attention         No machine-room required Comparable ride comfort like the gearless elevators Extremely energy efficient, requiring only half of the energy of comparable geared tractions and one-third of the energy required by hydraulic drive elevators Does not require oil like hydraulic drive elevators Environment and eco-friendly Required significantly less installations-hours comparatively with the traditional elevators Lower maintenance cost MonoSpace© is available for 8 person/13 persons elevators MonoSpace©’s EcoDisc technology can be applicable to the existing KONE’s elevators ID # 001-97-6835 Regardless all the exemplary benefits, MonoSpace™ had to deal with some drawbacks like most of the new product does. MonoSpace© would require a machine room if customer wants to use 16 person cabin elevator. The MonoSpace elevator is not suitable for the outdoor or penthouse installation as its drive unit require a temperature between 5C to 40C. Apart from these two drawbacks, MonoSpace© would face classic problem for being the single supplier of this kind elevator, customers may fear that they have to pay whatever KONE ask, in fact KONE had the same experience in UK MonoSpace© for German Market: MonoSpace© as a new machine-room-less elevator would have a potential success in German elevators market mainly in low-rise residential elevators segment and mid-size market. The low-rise residential elevator has approximately 74% market share of the total German elevator market. Therefore, KONE Aufzug has the solid scope to position new MonoSpace™ in the large German low-rise elevator market. As a new product MonoSpace™ had already extreme positive customer feedback from the other European market, here are some feedbacks –“Why you did not come up with this earlier?” “At least there is something new in the elevator industry”. Apart from these overwhelming feedbacks, MonoSpace© had received some negatives like “single supplier issues” etc. However, its simply clear indication that, the new features of EcoDisk technology, especially machine-room-less, energy saving, low maintenance cost, eco-friendly would create a great appeal towards German low-rise elevators market. However the success would depend how meaningfully and tactically KONE Aufzug can position the new MonoSpace product in German market. Analysis on Current Market: KONE Aufzug had strong presence in Germany which is one of the European largest elevator market in Europe, KONE’s set up their strong footprint in Germany with 25 sales branche s with strong sales forces in there geographical territories across the country. KONE’s offered both new equipment sales as well as service contracts for the German market. They earned approximately DM 206 million sales revenue from German operations which yield DM 13 million profit in 1995. KONE’s earned a huge percent of sales in 1995 from low-rise residential market, it was approximately 48%. The total sales in low-rise residential market came through hydraulic drives elevator (92%), geared traction and gearless drive was 6% & 2% respectively. KONE has to deal with fierce competition in German markets from all the global and local elevators manufacturer and service providers. Regardless all the competition- KONE Aufzug had 9.2% market share in new elevator market in Germany. Overall, KONE Aufzug has strong presence in ID # 001-97-6835 Germany with substantial operations resources including offices, sales forces, manpower as well as potential market to launch a new product like MonoSpace™ in Germany. Market (German) Competition & Performance Analysis: The long rapid constant growth of German construction industry gave a boost in the elevator market yielded the growth rate in elevator sales from 8000 units to 15000 units from 1988 to 1995. However the growth rate is ended up in 1995 with a projected shrink of elevator market by 15% by the year of 2000. Furthermore, the price of new elevator fell between 5% and 7% in 1994 and 1995. The German elevator market is dominated by residential construction with 74% market share which is expected not to change significantly in following five years. The low-rise residential elevator is mainly occupied by the hydraulic drives elevator with approximately 60% market share and rest of the market is captured by gearless or geared traction elevators including expensive PU types. The German elevators market is captured by six major companies including Schindler, Otis, Thyssen, KONE, Haushahn, Schmit & Sohn and others and their market share of new equipment sales in 1995 were 17.7%, 13.8%, 15.4%, 8.5%, 6.5%,5.4% & 32.4% respectively. It is obvious that KONE is not the market leader in Germany, Schindler, Otis & Thysseen are top three performers with highest market share in Germany. However, Otis and Schindler reported loses in 1995, further Schindler alternative growth plan helped them to climb the top position. With 8.5% market share KONE is way behind from the top three companies who had double figure market share. Furthermore, the mid-size players and the cowboys (small local companies) wiped out the market share from KONE and others. By considering the entire situation it seems German elevator market is not favorable for the elevators manufacture in terms of profitability as well as market growth. However, I do believe KONE’s MonoSpace© machine-room-less elevator could shake up the German elevator industry with its features, and would help KONE Aufzug to swipe the market share from its competitors. Recommended Marketing Strategy for Launching the MonoSpace™ in Germany: Market Segmentation Strategy: Taking the product to the right customers determine the future success of the product. By considering the market analysis data as well as the product features, we would recommend KONE Aufzug undertake the advertising and lunching plan go with low-rise residential elevators market mainly. However, they could also target the mid-size elevator market (12 floors or less) with the MonoSpace .We have recommended the low-rise residential market because this segment is accounted for 74% of total German elevator ID # 001-97-6835 market share and this rate will not be changed significantly. Furthermore, KONE Aufzug earned 48% of its total sales in 1995 from low-rise market; it seems KONE has the strong understanding in low-rise elevator market to leverage more success. Therefore it is true that new product would help them to gain more market share from the overall low-rise elevator market. Top on this, KONE could potentially get into the mid-size market with MonoSpace™ although the mid-size and high-rise elevator market is accounted for only 26% of the total elevator market. The low-rise elevators customers in Germany are mainly property developers, general contractors, architects, there are four largest contractors who controlled almost 20% of the total constructions whereas 20,000 small contractors covered the rest. As data reveals, the final elevator purchase decision is made by contractions 50% of the time, by the architect 40% of the time, by the property developers 10% of the time. Therefore, we would recommend KONE Aufzug to target the contractors and architects heavily during the campaign. Value Proposition and Market Positioning Strategy: KONE Aufzug should have differentiated the MonoSpace© in the market by extracting all the value of new EcoDisc system including the machine-room-less, liberty in designing the building, energy efficiency, eco-friendly as well as low maintenance cost. In fact, these are the value would be perceived by the customers by purchasing MonoSpace© elevator. Customers are always concern whether the value of product is meant to them or not, certainly MonoSpace©’s EcoDisk brought the value on the table what customers was looking for a long period of time. On the other hand, I would recommend KONE Aufzug to undertake the functional-positioning strategy as the MonoSpace© would solve several functional area of the elevator systems. As KONE already a well renowned established brand it would be easier for them to position the product with functional aspects, furthermore the experience in UK, Netherlands and France market would help to furnish the positioning strategy. KONE Aufzug should campaign the long-term partnership and preserving reputation approach in German market to avoid “Single Supplier Worries” issues. Pricing Strategy: Pricing for the MonoSpace© in German would be tricky by considering the acute competition, fell down of price of existing product from 5% to 7% in recent years as well as the possible cannibalization rate of existing low-rise elevators sales. Although KONE’s managers from Brussels headquarters suggested that the MonoSpace© be priced above existing price if KONE held less than 15% market share and in line with the existing price level if KONE otherwise, I would recommend to go with the following pricing for ID # 001-97-6835 the German Market by considering the aggressive pricing strategy to increase the market share and profitability rather than target profit pricing strategy- MonoSpace© DM 66,000.00 each unit As the target customers are low-rise elevators buyers who mainly buy the hydraulic elevators, furthermore, most of the case the purchase decision makers are contractors and Architects who are more concerned about the upfront cost rather than long term cost benefits or savings from fuel as well as maintenance, therefore I tried to keep the price as close as hydraulic elevator price. However, I have added 10% more on the hydraulic price to come up with DM 66,000 (DM 60,000+ DM 60,000X10%). Customers will be willing to pay additional 10% for the MonoSpace© as they would save money directly from the machine room construction cost. This pricing would be appealing to contractors, architects as well as property developers. Generally, the total elevator cost includes, half of the new equipment cost and half constructions of the shaft and machine room and installation cost. Approximately, machine room cost for hydraulic drive elevator is accounted for 25% or less of the total elevator cost. So, the machineroom cost might be 10% to15% of the total new equipment cost. From this permutation, I have added 10% more on hydraulic elevator price to come up with MonoSpace pricing. Cannibalization of Sales & Competition Handling Strategy: Certainly this pricing would cannibalize the hydraulic elevators sales significantly, however would cover the losses by selling more units of MonoSpace , and swiping out the market share from the competitors. In fact, the recommended pricing of MonoSpace would not leave lot of profit on tables from sales, but it would potentially increase the revenue from services and contracts sales section. As generally, 80% of new equipment sales come up with service contracts with high profit margin, it would adjust the profits as a whole. As KONE wants to conquer the whole German market, I am not considering the cannibalization rate of existing low-rise elevators sales especially hydraulic drive elevators, to me it would be dead technology for the elevators market by considering the maintenance cost as well as safety and hazards issues. It is obvious that KONE would face immediate competition reaction from the competitors as they faced in other European markets, competitors might dumped down their price significantly to match with MonoSpace© offerings and value. However, we have to deal with the aggressive competitors like Schindler or Otis through pricing strategy (possible adjustment in recommended) and possible huge marketing campaign to position the value of the products. Certainly, it would not be possible for ID # 001-97-6835 competitors to come up with machine-room-less or similar technologies in few quarters, we do believe by this time KONE Aufzug would receive substantial market share in German market. As KONE engineers are working on further development & enhancement of EcoDisk technologies, it would add extra edge in KONE’s product line. Advertising & Communication Strategy: By considering the previous learning and experience from UK, Netherlands and France launching operations, I would recommend KONE Aufzug to undertake a holistic launching approach with the combination of Launch Event, Advertisement and Seminars. Here are the recommended DOs for a successful launch of MonoSpace© in Germany –  Arrange a product launching-event night in the heart of German business district by inviting the construction companies, architects, property developers as well as journalist followed by a heavy advertisement ( full page advertisement) in the highly circulated daily newspapers ( 2/3 popular newspapers) in following day. Arrange two-week long road shows across the country ( mainly in three regions) with at least one seminar each day ( The target customers of road shows would be 20,000 small contractors, architects and property developer) Undertake massive advertising for one-month long in all the popular architectural, building and construction journals   All the above tasks will be conducted simultaneously, after completion road shows; I would recommend KONE Aufzug to conduct at least one seminar in each region every month. Once the initial one month journal advertisements would over, KONE should continue the journal advertisement through popular journal in limited basis. Finally, I do believe the launching strategy for the MonoSpace©, along with the MonoSpace© product itself would bring the expected success for the KONE Aufzug. Apart from all the above recommendation, I would recommend KONE Aufzug to leverage their existing sales force more in outbound sales activities rather than existing inbound sales approach. Good combinations of passive and active sales activities of a good product backed by proven marketing campaign certainly bring the success for any company. ID # 001-97-6835 Appendix: Exhibit: 1 (Issues Need to Consider & Analyze Prior Launching MonoSpace© in Germany) Issues Need to Consider & Analyze Prior Launching MonoSpace© in Germany Issues with New Product:  Is MonoSpace™ the right product for the German market?  Is really customer care about the new EcoDisk™ technology of MonoSpace?  How MonoSpace would differentiate itself from the existing product line in German market? Issues with Current Market:  Does current German market situation support the launch of new product?  Does KONE Aufzug have the capacity and capability to extract the value of new product in German market?  What would be the size of the German elevators market?  How competitive is the German elevators market? Issues with Marketing Strategy:  What would be the right segment for the MonoSpace™ elevator in Germany?  Who would be the right purchase-decision-maker group for MonoSpace™ elevator in German market?  What would be the optimum value proposition and positioning strategy for the MonoSapce™ in German Market?  What would be the possible best pricing strategy?  What would be the perfect launching & advertising vehicle for MonoSpace?  How KONE Aufzug would handle the possible competitor reactions in the market? Exhibit: 2 (Global estimated demand of elevators in 1996 and the global big players in the elevator market List of Global Elevators Manufacturers ID # 001-97-6835 Exhibit: 3 (Analysis on current German elevators market shares in 1995) Exhibit:4 (KONE’s market share in German Elevators Market) ID # 001-97-6835 Exhibit: 5 – Launching Event Strategy for KONE Aufzug Product Launching (Kick-off Night) First Two Weeks of Launching Event -Plan First Month Launching EventPlan Kick off event in a local Hotel Road Shows across three regions Monthly Seminar Full Page Advertisement on Popular local News Paper in following day of Kick off event Heavy advertising on Journals Advertisement on popular journals (Periodic)