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KONE’s “MonoSpace” Launch in the German Market

Kone Writeup Final

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Page 1: Kone Writeup Final

EWMBA 269: Pricing

KONE’s “MonoSpace” Launch in the German Market

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KONE’s “MonoSpace” Launch in the German Market 2011

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Executive Summary:

KONE’s launch in Germany is an incredible opportunity for it to showcase its revolutionary Monospace

product. However, what goals should KONE pursue in this market introduction?

We discuss the high level objectives that KONE should set: 1) Grabbing a larger market shares in the

mid-tier non-hydraulic segment 2) Positioning MonoSpace and Eco-Disc product for future growth 3)

Restoring some balance in the two-part pricing revenue model.

Based on these goals, we explore the strategic choices KONE has to achieve these goals and discuss the

merits and disadvantages of the different approaches. Based on prevailing market conditions and the

high level objectives, a Neutral Market Pricing is deemed to be most appropriate. This targets the

geared traction customers in the residential market and sets a pricing level between the current PT and

PU segments.

Necessary next steps for capacity planning, promotion, and communication needed to build a coherent

launch strategy are listed. Finally, long term steps needed to develop a successful corporate strategy for

MonoSpace/Eco-Disc are touched upon.

Industry Analysis

After a wave of restructuring and consolidation, the worldwide elevator market in the early 90’s was

dominated by 5 large players: Otis (USA), Schindler (Switzerland), KONE (Finland), Mitsubishi Electric

(Japan), and Thyssen (Germany). Although KONE was the third largest elevator company, it was far

smaller than the market leaders, who generated twice the revenue. KONE had also divested its non-

elevator businesses and was entirely dependent on its performance in this competitive market. In

Europe, KONE’s top competitors were Otis, Schindler and Thyssen. KONE had the largest market share

in the Netherlands, where geared traction elevators were the most abundant. Otis had the largest

market share in France and UK, where hydraulic elevators were much more popular.

At this time, revenue in the elevator business was generated by a two part pricing system: new

equipment ($9B) and service ($13B). All the large players sold equipment as well as provided post

installation service. The volume and type of elevators sold largely depended on factors such as

urbanization, population density, and government support of public housing. Choice of elevator

technology depended on various factors such as travel height, speed, comfort, machine room

requirements, drive systems, controls, cabin size, interior finishing and price.

A key distinction was related to the type of drive system used to lift the elevator cabin. The primary

drive technologies currently available were gearless (high speed), geared (medium speed) traction, and

hydraulic, with hydraulic being the most popular due to its lower price. Both these technologies

required a machine room to be built above the elevator shaft (PT), to the side of the top shaft (PU), or

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KONE’s “MonoSpace” Launch in the German Market 2011

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on the bottom floor (PU and PH). These machine rooms typically accounted for about one-quarter of

the total elevator costs (equipment and installation).

The number of people involved in making the purchasing decision for an elevator varied greatly based

on the size and cost of the building (complex DMU/DMP). Even for the same type of building, the

importance of features differed based on the specific decision maker. For a low rise property, decision

makers could include the property owner, a construction company manager, an architect, a construction

company purchasing agent, or a building service manager. While owners/developers typically cared

more about the upfront costs for an elevator, owners/landlords cared about the lifetime costs for an

elevator but did not care much about comfort and aesthetics.

A lack of innovation in product development had resulted in commoditization of the market, and

competitors competed fiercely on price for new elevator installations. While equipment was often sold

at or below cost, the major players maintained high margins on the annual service contracts, which

were approximately 5% of the purchase price of the elevator. Low barriers to entry in the service

market, due to relatively simple elevator technology, steady demand and high margins, attracted many

new, smaller competitors. These smaller competitors offered better pricing and faster service, but for

the moment, 80% of service contracts still flowed directly to the original elevator manufacturer.

German Market

Germany was a critical market because of its large size (15,500 total units annually) and its global

reputation as a technology leader.

In 1995, the construction boom that started in Germany in 1988, ended abruptly and as a result,

demand for new elevators was expected to drop 15% by 2000. The majority of construction was

residential with 74% of elevator installations in low-rise residential buildings. Of this, hydraulic elevators

accounted for 60% of the elevator installations in low-rise buildings with geared traction elevators

making up the rest. Two thirds of the geared traction units were of the more expensive (PU) type.

26%

44%

20%

10%

74%

German Elevator Market

Mid/High-rise

Hydraulic - PH

Geared Traction - PU

Geared Traction - PT

Low-rise

Total German Market Low-rise Residential Market

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Schindler had the highest market share in terms of units sold, followed by Otis, Thyssen and KONE,

other mid-sized held approximately 46% of the German elevator market. All the large players provided

24-hour service and had sales and manufacturing facilities in Germany. The mid-sized players operated

regionally and typically sold 100 to 300 elevators per year. Several smaller players operated in various

cities, but they lacked manufacturing facilities and focused on the purchase and assembly of

components and installation as well as local service.

In Germany, smaller contractors who possessed limited technical knowledge typically built residential

buildings. As a result, these contractors usually relied on the architects to select elevators. KONE

managers believed that in the German residential market the final purchase decision was made by the

general contractor 50% of the time, by the architect 40% of the time and by the property developer 10%

of the time.

Product Benefits

KONE’s MonoSpace elevator design is based on an innovative component called the “EcoDisc”. This

innovation equips the MonoSpace with capabilities similar to those of geared traction elevators, but

with improved comfort, better aesthetics and a number of short term and long term cost savings. The

following list details the benefits that differentiate the MonoSpace from current elevator designs:

Tangible benefits – Quantifiable benefits that can be measure by the customer:

o Energy efficiency : The “EcoDisc” power unit consumes 50% less energy than a

comparable geared traction elevator and 33% less energy than a comparable hydraulic

elevator. Furthermore, the lower energy requirement allows less expensive wiring and

fuses to be used. The total energy savings based on the France entry amounted to

DM2,091 (FF5,000) per year [Beneficiary : Owner]

o Space/ Installation cost savings (machine-room-less): MonoSpace elevators in low-mid

rise buildings do not require a machine room, which typically occupies 11 SQM of space.

Therefore, the cost to build such a room and the opportunity cost of the space occupied

can be eliminated. Machine room installation costs account for 25% of the total cost of

installation, and for the case of a PT installation, the savings amount to DM37,500.

[Beneficiary : Owner]

o Easier and shorter installation: Installing a MonoSpace elevator requires 60 fewer hours

than a comparable geared traction elevator. It also does not require scaffolding, which

further reduces the complexity and the cost of installation. Such cost savings were

estimated to be 5% of the total installation cost (i.e. For a PT elevator, these savings

amount to DM3,750). [Beneficiary : Owner/Contractor]

Intangible benefits – Difficult to quantify, but can differentiate the product:

o Safety & Environmental friendliness: Unlike Hydraulic elevators, MonoSpace elevators

are oil free, thus, eliminating hazards associated with using large amounts of oil and the

negative environmental impact of an any oil leaks. [Beneficiary : Owner]

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o Aesthetics & Design flexibility: The machine-room-less design gives architects the

freedom to use all of the surrounding space for aesthetic purposes. [Beneficiary :

Architect]

o Ride-comfort: The speed control of the MonoSpace results in a more comfortable ride

compared to that of the geared traction and hydraulic elevators. [Beneficiary :

Owner/Tenants]

Clearly, the MonoSpace elevator is a differentiated product that offers a variety of tangible and

intangible benefits to everyone involved in the decision making process. Some of the tangible benefits

can be realized instantly (installation costs savings for example), while others accrue over time (energy

savings). Detailed calculations are included in Exhibit 1, but the following list highlights the value of each

benefit:

Machine-room-less installation cost savings (PT): DM37,500

Other installation cost savings (time saved, easy): DM3,750

Annual energy efficiency related savings: DM2,091

Lessons from Prior Market Introductions

KONE’s previous forays into the Dutch, French and British markets offer valuable lessons that should be

applied to the launch in Germany.

The Netherlands demonstrated the power of being the market leader and the importance of designing a

marketing campaign that carefully targeted DMUs. KONE leveraged its position as market leader and

also offered face-to-face and individual presentations that were very effective in selling the benefits of

MonoSpace. In addition, they created an easy mechanism for the architects and contractors to “drop”

Customer Benefits Offered

Comfort

Safety

Aesthetics, Look

Energy Savings

Low Maintenance Cost

Low Equipment and Installation Cost

No Machine Room

Decision Makers

Tenants/Users

Building Service Managers

Structural Engineers

Property Developers

Architects

Contractors

Owners/Landlords

Seller Buyer

Most Important/ Quantifiable

Least Important/ Not Quantifiable

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in plans by offering electronic designs on a CD Rom. Kone now has market knowledge that when

positioned against geared traction elevators in the correct environment, MonoSpace will have

outstanding sales.

The market launch in the UK showed how cost sensitive buyers will react to an uncompetitive price.

Also, the unique segmenting of the UK market into a bifurcated market made up of only top-of-the-line

and rock-bottom elevators meant that Monospace lacked an appropriate target segment to attack.

France also had the same broad demand in the mid-range, mid-quality elevator of the Dutch market, but

KONE’s marketing outreach program was much more haphazard and less directed. This coupled with

KONE’s much smaller market share helps explain the lackluster results in the French market.

Although there were valuable lessons learned, differences between these individual markets and the

German market must be considered. The Netherlands is a much smaller market that was already

dominated by KONE, and hence, competitors’ willingness to fight for this market may have been muted.

In addition, this was a bit of an “anomalous market” where geared traction elevators were 5% less

expensive than hydraulic elevators. Some of the UK results must be discounted because of the bipolar

nature of the market and the effect of the required “£15,000 transfer price.” Differences between the

French and German markets included the regulatory environment and the prevalence of the two-stage

bidding process in Germany.

Pricing Objectives and Role for MonoSpace

The two lukewarm market introductions in the UK and France make the MonoSpace introduction in

German market especially critical in building credibility and market acceptance for this revolutionary

product.

Though facing a competitive marketplace both in Germany and globally, KONE’s development of the

MonoSpace product gives it a fundamentally superior product with which to achieve some key

objectives.

1. KONE must move into the mid-tier geared traction segment because it represents a large

untapped market

2. KONE’s introduction and pricing strategy in the German market should position MonoSpace as a

future flagship product that can eventually carry a large bulk of its global product line by

expanding sales into the growing mid-tier market without cannibalizing its share of the PH

segment.

3. Kone should try to restore margins that have eroded over the years and recapture some of the

service revenue that had begun to leak to the smaller start-ups.

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Strategic Consideration in MonoSpace’s Price

Focusing on the high level objectives stated above, KONE must determine the market segments and by

extension, the competitors, they will target through the prices they set. A pricing window should be

determined by calculating the added economic value MonoSpace provides over existing products and

adding this to the most appropriate reference value. In this section, we consider the qualitative

advantages and disadvantages of the different approaches to dividing the economic benefit with the

customer. Later, we delve into a detailed quantitative analysis of the four-floor, residential pricing

model.

The case for skimming:

For KONE, this approach would entail pricing near the very top of the price window and retaining most

of the economic benefit created by MonoSpace. The emphasis is high profit margins rather than large

volumes (i.e. SOM).

Pros:

Emphasizes profit margins

Higher price conveys benefits of MonoSpace to the market and reinforces the message that

MonoSpace is a revolutionary product

Does not upset other current players in the market and minimizes their reaction

Helps improve revenue model to the benefit of the KONE and the industry

Gives KONE the most room to maneuver and change future pricing (as it is easier to lower prices

than to increase them)

Cons:

Price may be too high since not all benefits are enjoyed by all the decision makers

Total economic value of MonoSpace will not be enjoyed until later (since many customers have

already designed machine rooms into their buildings)

Harder to sell benefits of the product to the customer since they receive a smaller portion of

their value

Need a very skilled, experienced sales force that can carefully market the high value of each of

these benefits to the customized segments

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The case for penetration:

For KONE, this means pricing near the bottom of the price window and giving the customer most of the

economic value created by MonoSpace.

Pros :

Easier to sell benefits to the customer

Volume play that will likely increase revenue results in Germany

Likely short lead time makes it important to establish strong first mover advantage

Cons:

Will incite a far greater reaction from stronger competitors in the segment

Increases reliance on the equipment loss leader- service revenue model

May make it harder to position the rest of the product line in the future

May cannibalize sales of its low rise PH product

The Neutral Market option:

Because of the prevailing competitive landscape, our recommendation is to pursue a neutral market

pricing strategy that targets geared traction elevators customers in the low-to-mid rise residential

market.

A key objective in Germany is for a successful launch that can be used to evangelize MonoSpace’s

benefits and position it in future market and geographic segments. For this, KONE need to sell units and

reach as many people as possible while balancing the ability to position this product in the future. It is

imperative to begin growing the MonoSpace ecosystem—making architects aware of the design

flexibility, selling owners on the operating efficiencies, demonstrating savings to contractors, and even

making consumers aware of the comforts and intangible benefits to MonoSpace.

The present competitive landscape makes skimming an unattractive option because KONE will not reach

enough customers. The benefits of MonoSpace are distributed to several different DMUs and some of

the benefits are difficult to quantify or may accrue in the future. For example, developers may not be

concerned with future energy cost savings that are enjoyed by landlords in the future. Other benefits

such as the cost savings from the removal of the machine room cannot be realized initially until the

MonoSpace market matures and architects and contractors design buildings to MonoSpace’s abilities.

In addition, selling individual DMUs on the full value of these benefits will be difficult with KONE’s

limited sales force in Germany.

There are also several important factors that discouraged the use of a penetration strategy. As the

fourth largest player in Germany, KONE is vulnerable to retaliatory actions taken by the market guerillas

that would react strongly to a low price incursion into the PH market. In particular, the hydraulic market

is the heart of the residential low rise market and also represents the most cost sensitive segment. It

will take time to build the EcoDisc technology into a vibrant product line and KONE lacks the deep

resources of its competitors to engage in a price war at this moment. Even though the PU and PT

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KONE’s “MonoSpace” Launch in the German Market 2011

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PE

RFO

RM

AN

CE

PRICE

PS

PH

Gear-less

PUPTMONO

products are a much smaller piece of the total market, for KONE, it still represents huge incremental

revenue gains that it is currently missing. In the residential market, KONE’s geared traction products

brought in only DM3.3 million (8% of KONE’s revenue) out of the DM333 million residential geared

traction market.

Moreover, a low price interferes with the ability to position MonoSpace as an anchor of the future. It

erodes the message that this is a new revolutionary product and makes it more difficult to segment and

position future EcoDisc products as KONE drives improvements in this technology. A price based on a

penetration strategy also squanders the opportunity to improve on the current revenue model. With

production costs equal to those of a hydraulic elevator, MonoSpace has the ability to re-establish some

margins without disrupting customer’s price expectations. This rebalancing of the revenue model

means profits on elevator equipment can be restored and the threat from the service ankle biters can

be minimized.

For all these reasons, a neutral pricing strategy

that prices MonoSpace in between the PT and

PU levels seems to strike the right balance

between immediate sales and future positioning.

It allows time to grow the ecosystem while

increasing chances for a successful German

launch; it maintains current revenues from

existing hydraulic markets by minimizing

cannibalization. This price level preserves the

current discrete product segments and leaves

KONE well placed with respect to margins,

product positioning, and flexibility for future

expansion.

Quantitative analysis of 4-floor pricing:

A quantitative analysis for the 4-floor residential elevator illustrates the pricing procedure in detail. In

general, the top feasible pricing level is the differentiation value added to the reference value, but the

final division of this value is determined by many factors such as market power and pricing strategy.

Because this is a B2B transaction and benefits are defused among the DMUs, we used only the

immediate, tangible cost savings in our benefit pricing model. (Exhibit 1)

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Assuming that switching costs and other negative differentiation values are close to zero, we get a total

differentiation value of 33,000 DM. Because we are not the market leader and for the reasons detailed

earlier, we recommend that KONE give the consumer at least 50% of the economic value (V) created by

the MonoSpace product. This entire exercise leaves us with a price recommendation of DM 76,500,

which sits between the PU and PT price range and results in a price ladder shown above.

Supporting Decisions

Because of the sales process in Germany (customer initiates contact and sales reps work one-on-one

with the customer) and the complex web between benefits and the DMUs, it is critical that KONE’s sales

force be equipped with both the capacity and the necessary skills to complete the sale. KONE’s sales

force is currently outnumbered 5 to 1 and given the possibility that the competition may not

accommodate the MonoSpace entry, the size of the sales force must increase to support the growth

plan. Furthermore, it is important to align the market entry strategy with the time needed to build that

sales force. The sales force must be trained to communicate the benefits to the relevant collaborators

and DMUs.

It is also important to get the necessary approvals to certify the MonoSpace for use in Germany. As

shown in France, any delay in that approval can give the competition the opportunity to prepare a more

effective retaliation effort. Furthermore, it could raise customer doubts about the reliability and safety

of the MonoSpace design.

The promotion strategy for MonoSpace is the last, key aspect of the entry strategy. The most effective

way to communicate the value of the MonoSpace is through demonstration and a one-on-one sales

PH: DM93,000 (price+V)

DM65,217 (cost)

PT: DM116,250 (price+V)

PU: DM124,000 (price+V)

DM95,625 (PT base – 50% value retained)

MONOSPACE REFERENCES

DM102,000 (PU base – 50% value retained)

PU: DM80,000 (current price)

PT: DM75,000 (current price)

PH: DM60,000 (current price)

DM76,500 (PH base – 50% value retained)

* Total retained portion of the savings is 50%

ReferenceValue

Machine-Room-Less

Savings

Installation Cost Savings

Comfort

Aesthetic

Oil-Free

% of Economic Value shared w/

Customer*

Energy savings

Intangible

Accrues over time

Total Eco

no

mic V

alue

Po

siti

ve

Dif

fere

nti

atio

n

Val

ue

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effort. The marketing effort must target each decision making group with its most valuable benefits.

Also, the scale of the marketing effort must align well with the objective of a controlled “neutral” entry

into a smaller segment and then slowly gain traction and expand as the target market grows. Therefore,

when choosing to communicate the value proposition, it is more important to prioritize depth rather

than breadth in the MonoSpace discussions.

Tactical Go-to-Market Recommendations

This section describes tactical actions that support our overall market launch strategy.

Target audience: Communication of the benefits to each decision maker must be customized and

focused on their individual benefits. It is important that these constituencies are not grouped together,

and they must be presented material specific to their needs.

Marketing Kit: As a result, we recommend a combination of sales-visits, targeted seminars, a media kit

that includes a video CD, and advertisements in subscription based monthly trade journals. This effort

can scale as KONE develops a larger team and a stronger foothold.

Pilot projects/Live demonstrations: Because this is a new technology with a number of intangible and

experiential benefits, it is important to have several installations around the country for demonstration

purposes. These installations must be designed so that architects can appreciate the freedom they will

have, owners can quantify the savings, and for contractors to experience the ease of installation.

Supplier power concerns: Customers may have concerns about price gouging once they have designed

their buildings for MonoSpace. Other concerns could arise over switching costs if KONE were to decide

to suddenly discontinue the product line. KONE can demonstrate its commitment by offering contracts

that offer price guarantees once building designs are finalized and penalty clauses if the MonoSpace line

is discontinued.

New technology: With any innovation, concerns about reliability may arise. KONE can offer customers

warranties or bundles with a 1-year service contract included free of charge (KONE’s estimated cost for

maintenance is DM2,100 per year). Furthermore, KONE can emphasize its leadership position in other

markets and its history in delivering reliable innovative product to reassure customers.

Maintenance and Distribution: KONE must also undertake the proper capacity planning and build-up to

guarantee capacity needs on both the new equipment and service side can be met.

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Long Term Actions

Kone must continue to invest in technology development to both expand the capabilities of the EcoDisc

technology and drive down costs. KONE should consider increasing its R&D expenditures (1.5% of

revenues) to close the spending gap with the market leaders. This will enable KONE to maintain its

technology lead and extend a high end EcoDisc solution higher up the price/performance line. Cost

reductions will also enable KONE to sell cost competitive low end EcoDisc solutions closer to the PH

segment. In the future as this product line gains breadth, further market segmentation can transition

MonoSpace products into a far reaching product line that completely spans the low to medium range

segments. In addition, as it grows its technological and organization capabilities, KONE should devise

entry plans in the fast growing markets in Asia.

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Appendix: Supporting Calculations

-Exhibit 1-

Computations for key figures used in pricing the MonoSpace

Notes:

Maintenance service cost was computed to be 3% of the selling price on average based on the revenue generated, profit margins

figures and the number of elevators under contract. This is slightly different from the 5% mentioned in the case

Annual savings DM USD

Fuse cost (PH) $1,000

Fuse cost (GT) $500

- Fuse cost (Mono) $38

= Fuse Savings (Mono/GT) $463

+ Energy savings (FF5000) $1,000

= Total annual savings 2,091 $1,463

MonoSpace cost DM USD

PH selling price 60,000

Discount 8.0% 65,217

PH cost (DM) 65,217

= MonoSpace cost 65,217 $13,043

Total installation cost savings (DM) PH PT PU

Equipment cost 60,000 75,000 80,000

Total costs (2x Equip) 120,000 150,000 160,000

Machine room cost 25.0% 30,000 37,500 40,000

Saving = 5% of install cost 5.0% 3,000 3,750 4,000

= Total installation cost savings 33,000 41,250 44,000

MonoSpace pricing guide (DM) PH PT PU

Elevator current prices 60000 75000 80000

Retained value of savings 50.0% 16500 20625 22000

MonoSpace price 76500 95625 102000

Maintenance service cost (DM) DM USD

Total number of serviced units 425,000

Total Revenue 2,200,000,000

% of revenue (service) 62.0% 1,364,000,000

% of service (maintenance) 78.0% 1,063,920,000

Avg. Service contract value (annual) 2,503

Profit margin (based on Germany) 16.1%

Cost of maintenance contract 2,100 $1,469

Contribution Margin DM

MonoSpace price 76,500.00

- MonoSpace cost 65,217.39

= Contribution margin per unit 11,282.61

Contribution margin percent 17.3%

Promotion costs DM

Sales visit (4 visits / week ) 100,000

Video conversion 20,000

Video distribution (1000 units) 5,000

Seminar / with Demo (1 per month) 120,000

Trade press (monthly journal, 1 per month) 19,200

Total promotion costs 264,200

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-Exhibit 2-

MonoSpace price comparison across various markets

KONE 1996 (in local currency) PH (Hydraulic) PT (Traction) PU (Traction) MonoSpace % Premium (Min) % Premium (Max)

Netherlands DG 65,000 62,000 68,000 69,000 1.47% 11.29%

France FF 150,000 180,000 20.00% 20.00%

United Kingdom Pounds 15,800 30,000 30,750 2.50% 94.62%

Germany DM 60,000 75,000 80,000 76,500 -4.38% 27.50%

KONE 1996 (in $) PH (Hydraulic) PT (Traction) PU (Traction) MonoSpace % Premium (Min) % Premium (Max)

Netherlands 40,625 38,750 42,500 43,125 1.47% 11.29%

France 30,000 0 36,000 20.00% 20.00%

United Kingdom 24,308 46,154 0 47,308 2.50% 94.62%

Germany 41958 52448 55944 53497 -4.37% 28%

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-Exhibit 3-

German Market demand forecast and KONE’s projected profitability (KONE is retaining 50% of value created; result is +3% SOM in 1st year and +1.5% thereafter)

Notes:

In 1996, we will offer 1-year service for free

In 1997 and later years, we will resume normal service offerings for the MonoSpace

Maintenance has a 16% profit margin, and we are only servicing 80% of the elevators sold (20% is serviced by local contractors)

Demand forecast (units) 1996 1997 1998 1999 2000

Low Rise (74% of market) 74.0% 11,126 10,782 10,438 10,094 9,750

GT (40% of LR) 40.0% 4,450 4,313 4,175 4,037 3,900

PU (66.6% of GT) 66.7% 2,967 2,875 2,783 2,692 2,600

PT (33.3% of GT) 33.3% 1,483 1,438 1,392 1,346 1,300

KONE's market share 1996 1997 1998 1999 2000

At current market share 9.2% 1,024 992 960 929 897

PU 2.0% 20 20 19 19 18

PT 6.0% 61 60 58 56 54

GT total 82 79 77 74 72

Hydraulic total 942 913 883 854 825

Assumptions levers

Increase in Market Share - Annual 3.0%

Value retained 50.0%

3.0% 4.5% 6.0% 7.5% 9.0%

Profitability w/ MonoSpace - DM 1996 1997 1998 1999 2000

Increased share 334 485 626 757 877

Unit contribution margin 11,283 11,283 11,283 11,283 11,283

Promotion - free service cost (2,100) 0 0 0 0

Total profit from equipment sale 3,763,775 5,474,107 7,065,869 8,541,160 9,899,981

Maintenance profits (80% share) 16.0% 0 264,057 465,983 710,069 992,987

Communication costs (264,200) (264,200) (264,200) (264,200) (264,200)

Total profit (DM) 3,499,575 5,473,964 7,267,652 8,987,029 10,628,769

MonoSpace Price USD DM

Maximum value price (PH base) $65,035 93,000

Discounted price (PH base) $53,497 76,500

Premium over PU (4.4%)

Premium over PT 2.0%

Premium over PH 27.5%

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-Exhibit 4-

Sensitivity Analysis – Profitability f (SOM)

(SOM will change with the portion of value shared with customers)

[40% to 60% retained value @ 1% to 3% SOM]

Y1996 40% 50% 60%

1% 1,356,146.16 988,991.46 621,836.76

2% 2,978,592.62 2,244,283.22 1,509,973.82

3% 4,601,039.08 3,499,574.98 2,398,110.88

Y1997 40% 50% 60%

1% 2,182,220.53 1,648,521.43 1,114,822.33

2% 4,628,641.05 3,561,242.85 2,493,844.65

3% 7,075,061.58 5,473,964.28 3,872,866.98

Y1998 40% 50% 60%

1% 2,935,305.49 2,246,417.29 1,557,529.09

2% 6,134,810.98 4,757,034.58 3,379,258.18

3% 9,334,316.47 7,267,651.87 5,200,987.27

Y1999 40% 50% 60%

1% 3,652,265.14 2,819,543.14 1,986,821.14

2% 7,568,730.29 5,903,286.29 4,237,842.29

3% 11,485,195.43 8,987,029.43 6,488,863.43

Y2000 40% 50% 60%

1% 4,331,990.01 3,366,789.51 2,401,589.01

2% 8,928,180.02 6,997,779.02 5,067,378.02

3% 13,524,370.03 10,628,768.53 7,733,167.03

Page 17: Kone Writeup Final

KONE’s “MonoSpace” Launch in the German Market 2011

17

-Exhibit 5-

Profitability forecast based on different value retention percentages

1996 1997 1998 1999 2000

60% retained 1,356,146.16 2,182,220.53 2,935,305.49 3,652,265.14 4,331,990.01

50% retained 2,244,283.22 3,561,242.85 4,757,034.58 5,903,286.29 6,997,779.02

40% retained 2,398,110.88 3,872,866.98 5,200,987.27 6,488,863.43 7,733,167.03

0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

8.00

9.00 M

illio

ns

(DM

)