CASE ANALYSIS KONE: The MonoSpace Launch in Germany
Abhishek Sahu (M007-14) Ankita Nareda (M017-14) Chetan Sehgal (M024-14)
N Vinoth Kumar (M040-14) Yagna Teja D (M067-14) Gauri Rajpal (M094-14)
Harsh Marodia (M095-14) Shailesh Singh (123-14)
Shalini Sathapathy (M124-14) Toshima Singh (M129-14)
Subject: Strategic Marketing Submitted By: Group 6
Situation Analysis Industry Analysis The Elevator Industry
High consolidation in the industry with 5 major players. The business is split into 2
sectors: new equipment (V1) and service (V2).
Global sales in 1995: $ 9Bn in V1 and $13 Bn in V2.
Competition: Fierce leading to price wars and profit erosion in the new equipment
sector.
Low entry barriers: Simple technology, steady demand and high margins in the service
market. But 80% contracts still flowed from new equipment sales.
Customer: Urbanization and increase in population density led to a rise in demand for
elevators.
Substitutes: The threat of substitutes was low.
There was a lack of innovation in product development. The equipment was often sold at
or below cost, but the major players maintained high margins on the annual service
contracts, which were approximately 5% of the purchase price of the elevator.
The elevator drive units could be of 3 types:
Type Sales Percentage Gearless 10% Geared Traction 30% Hydraulic 60%
The elevator purchasing decision involved the property owner, construction company
manager, architect, construction company agent and building service manager.
49%
13%
38%
Demand By Region - Residential Low-Rise, 1996
Europe, Middle East &Africa
North and South America
Asia & Australia
Market Analysis
Aspect of comparison Netherlands France United Kingdom Germany Sales Volume (1995) 2,100 7,000 3,300 15,500 Kone Market Share (Volume)
40% 14% 20% 9.2%
Construction Activity Relatively Stagnant Relatively Stagnant Relatively Stagnant Declining Market Residential Building share of Construction Activity
~50% ~50% ~50% Dominated by Residential
Construction % of Low Rise Elevators sold
70% 90% 70% 74%
Type of elevators dominating the market
Mid Quality Elevators Mid Quality Elevators Top of the Line and Rock Bottom
Elevators
74% Low rise to remain for 5 years
Geared Type Elevators sales
60-70% 20% 10% NA
Hydraulic Elevator sales NA 80% 90% 60%
PH Price (Hydraulic) DG 65,000 N/A 15,800 N/A
PT Price (Traction) DG 62,000 FF 150,000 30,000 N/A
PU Price (Traction) DG 68,000 N/A N/A N/A
MonoSpace Price DG 69,000 FF 180,000 30,750 N/A
Premium Pricing Rationale
Savings due to no machine room to
owner
Savings due to no machine room to
owner
Due to Transfer Price N/A
Price Range set near Geared Traction (PT) Geared Traction (PT Geared Traction (PT N/A Primary mode of marketing
Individual Customer Meetings (100)
Breakfast Meetings (20)
Presentation in London Museum
(80)
N/A
Monospace Results Successful Not successful Not successful N/A
KONE is the third largest elevator company and in Europe, KONEs top competitors include 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.
74%
26%
German Elevator Market
Low Rise Mid & High Rise
48%
52%
German Market Sales
Residential Commmercial
Key Learnings from the test markets
Netherlands where Kone had the maximum market share has been a successful launch
for Kone. All these markets are dominated by the sale of low rise elevators where
MonoSpace has a huge potential. The support from the regulatory authorities also
provided help for the sales of Kone in Netherlands. The significant penetration of geared
traction type of elevators in Netherlands impacted positively the sale of MonoSpace. The
pricing of a superior product like Monospace in the range of a geared traction type of
elevator given that the Hydraulic type costed only ~6% lesser helped Kone in the
Netherlands.
It can be assumed that the pricing in France where MonoSpace was 20% more expensive
than the PT type did not quite work out well for Kone. It is also observed that the Kone
branch managers were not correct in their assessment of the situation that customers
would be willing to shell out all the cost benefits due to energy savings into the cost of
MonoSpace elevator. This indicates that Kone should try to get additional revenue from
the service contracts rather than charging a hefty premium on the equipment sale.
Regulatory obstacles also did no good to MonoSpace sales in France.
In the UK market which is highly price conscious the availability of a cheaper hydraulic
elevator did a lot of damage to the positioning of MonoSpace. The cost efficiencies took a
backseat when the purchase managers considered the upfront costs of Monospace which
impacted the sales negatively in the UK. Considering the three scenarios it can be seen
that it is of paramount importance for Kone to get the pricing and positioning correct.
German Elevator Market New Elevator Market
Player Value Value Units Units Average Price Per Unit
Thyssen 15.4% 157355 12.9% 2000 78697
Otis 13.8% 141007 11.6% 1798 78424
Huashahn 6.5% 66416.2 5.8% 899 73878
Schmitt & Sohn 5.4% 55176.6 5.8% 899 61375
Kone 8.5% 86852 9.2% 1426 60906
Others 32.7% 334125 35.5% 5503 60722
Schindler 17.7% 180857 19.4% 3007 60145
Total 15,500
If we take into account the average pricing it can be assumed that Kone does not charge
a heavy premium compared to its competitors in Germany. Of the top three players while
Thyssen and Otis seem to price their elevators on the higher side Schindler does not
follow a similar approach. Both Otis and Schindler have lost market share during the year
and they have focused a bit more on equipment sales. It also makes a better case to focus
on the service revenues and price MonoSpace at the current average to increase sales.
SWOT
Objectives 1. Launch the MonoSpace in Germany in a way so as to ensure market acceptance
of this superior product
2. Maintain market share in Germany
3. Realize higher profits in the given market
4. Price and position MonoSpace for long-term profitability
5. Devise a launch plan
Implication of success of the MonoSpace Launch:
1. Kone will gain market share Though Kone does not want to upset the market by
securing a very high share, some increase in likely if the launch is successful
2. Increase in profitability
3. First mover advantage It would be the first to introduce a superior product which is
commercially viable
4. Establish itself as a credible brand
5. Some cannibalization of sales of low-end elevators
Implication of failure of the MonoSpace Launch:
1. Kone will have to suffer huge financial losses
2. Loss of reputation - A failed product will reduce the trust in the brand value
3. Loss of market share and profitability
Alternatives Pricing Alternative I Comparable to Hydraulic ~ DM 60000
This option will grab the market share from Hydraulic & Traction.
Cost price of a Monospace near to Hydraulic and Hydraulic is sold at 8% loss in Germany. So the cost price comes to be DM 65000 (60000/.92)
The company will aggressively gain the market share but lose on profit one sale of new equipment which is not as per their desired policy of maintaining the
market share and gaining higher profit because the competitors (Otis) will jump
in price war.
But the higher market share will enable them to increase their profit through service.
Pricing Alternative II Compared to Traction between DM 60000 75000
This will serve as a replacement for Traction with little impact on Hydraulic segment.
The company will gain market share and also earn profit on the sale of new equipment and subsequently on service.
Competitors may not proactively react to this move.
Pricing Alternative III DM 75000 + 5% premium
This will have no impact on Hydraulic segment with little impact on Traction segment.
Since the Monospace will be sold at a premium, it will ensure significant profit on the sale of new equipment and subsequently on service.
But the gain in market share wont be much and competitors wont react as their share will be maintained.
Solution The learnings from previous launches are
Small items such as using lower risers, time/process savings taken together could
amount to 5% savings for the construction company. This provides a reason to
charge premium for our product.
Peoples worry about the monopoly of Kone given they are the only provider of
elevators that doesnt require machine room and hence may lead to price gouging in
the future. Hence they cannot position Monospace as something that saves room
space. So they can position it as a superior technology product with a better
performance.
Saving for Builder on Machine Room:
Saving if Machine Room not built DG 8,000 or DM 7,150
Saving on Construction for the Builder:
Total Elevator Cost (PT) DM 150,000
Machine room Construction Cost (PT) 25% of Total = DM 37,500
Construction & Installation Cost (PT) 25% of Total = DM 37,500
Cost Saving on Construction (PT) 5% of construction cost = DM 3,750
Energy Savings:
Energy Saving in France (assumption: similar case elsewhere)
FF5,000 or DM 1430
Saving on Fuse Cost (Geared) DM 661.38
Total DM 2091.38 We prefer alternative III because of the reasons mentioned above.
POSITIONING
We will position MonoSpace as a technologically advanced product that leads to various
advantages for the customer and the combined value derived out of these advantages is far
more than the premium charged on MonoSpace. Let us look at the customer benefits offered
by MonoSpace that make it the preferred choice:
1. Energy Efficiency: The drive unit consumes 50% less energy as compared to geared
traction and 66% less as compared to hydraulic system. This means the requirement
for electrical wiring and fuses is less expensive.
2. Faster Installation: Installation time for a MonoSpace is 190 hours which is 60 hours
less than for the simplest elevator.
3. Safety: It requires no oil, eliminating potential fire and environmental hazards.
4. Ride comfort: The drive unit in MonoSpace can control speed as done in gearless
elevators.
The target audience is comprised of the general contractors and the architects who make the
purchase decision 50% and 40% of the times respectively. The contractors possess little
technical knowledge and therefore, what appeals to them is the economic gain they can make
on a purchase. Price savings should be detailed to attract them. On the other hand, the
architects are concerned about the safety as well as quality of the product and the efficiency
achieved in installation of the elevator.
PRICE AND PERFORMANCE IN GERMANY, 1995
With respect to competitors:
Pe
rfo
rma
nc
e
Price
Hydraulic
Gearless
Geared MonoSpace
Implementation MARKETING PLAN
The Marketing Resources available for the Monospace launch in Germany included
Advertisements, Direct Mail, Launch Events, Exhibitions, Customer Visits and Public
Relations.
Target Audience Direct Mail Trade& Journal Advertising
Customer/ Sales Visits
Seminars Press Kits+ Videos
Architects Yes Yes Yes Yes Yes Big 4 Contractors
Yes Yes Yes Yes Yes
Small Contractors
Yes Yes Yes Yes No
Property Owners
Yes Yes No No No
Advertising: It is given that single ads were the most common with campaigns being very
rare. Hence, Trade Press and Journal Advertising was chosen as one of the mediums to
propagate the Monospace. Given that a single ad is the most preferred frequency, a black
and white one-page advertisement in a monthly journal with a circulation of 18,000 and
cost DM 1,600 was chosen.
Direct Mail: This channel was targeted by large companies to architects, investors and
general contractors. It is given that KONE sent letters to 22,000 existing French
customers requesting them to watch a television program. Taking a similar number of
customers into account, a direct mail campaign can be undertaken for around 30,000
customers can be sent regarding the launch of Monospace.
Trade Press and Journal Advertising was targeting the mass media (Above the line) while
the direct mail was more personalized. These can be the two mediums that can be used
to target the property owners whose purchase decisions amount to a meager 10% of the
total number of purchase decisions.
Launch Events: Since Road Shows can be a heavy marketing investment during the early
stages, seminars targeting the Architects, Big 4 Contractors and the small 20,00
contractors.
Exhibitions: Since this was mainly used by the component companies, this option is not
viable in this context.
Customer/ Sales Visits: Personal Selling along with Advertising are the most preferred
modes of communication during the early stages in a product life cycle. Personal Selling
can done during the sales visits to the Big Contractors alone which can capture 20% of
the market share. This can also be extended to the other 20,000 small contractors and the
architects.
Press Kits/ Videos: These can be primarily targeting the big four contractors and the
architects who are the major deciders of the purchase decisions.
COST ALLOCATION
Type of Marketing Channel
Circulation/ Reach Cost Anticipated Sales
Direct Mail 30,000 60,000 DM 90~120
Trade Press & Journal Advertising
18,000 1,600 DM 40~60
Exhibitions - - -
Launch Events: Seminars
10( Assuming as the no of seminars) *70=700
100,000 DM (Assuming 30% conversion) 210
Customer/ Sales Visits
(Assumption)2,000 500*2000=10,00,000 DM
(Assuming 30% conversion) 600
Press Kit+ Video 4+ 10,000 (10,000 architects as the assumption)
20,000+ 10,000*5=70,000 DM
(Assuming 30% conversion) 3.0012
Total Marketing Cost= (60,000+ 1,600+ 1,00,000+ 10,00,000+ 70,000) DM=17,31,600
DM
Total Anticipated Sales= 120+ 60+ 210+ 600+ 3=993 units of Monospace Elevators
Let us analyze the marketing cost that can be covered by the sale of each unit
anticipated in terms of three situations:
Best Situation: Assuming that 60% of the total Anticipated Sales (595 units) are
Converted. Then the Cost per Unit Ratio is 2910.3 DM
Realistic Situation: Assuming that 40% of the total anticipated sales (397 Monospace
elevator units) are converted. Then the marketing cost per Monospace unit that is
covered amounts to 4361.7 DM
Worst Situation: Assuming that 20% of the total anticipated sales (198 Monospace
Elevator units) are converted. Then the marketing cost per Monospace unit that is
covered amounts to 8745.45 DM
The above figures indicate the pricing that must be set on the Monospace elevator and
the amount of marketing cost that can be covered by the sale of each Monospace
Elevator unit.
Short-term Strategy Kone must focus on launching the MonoSpace so as to gain credibility in the market and
increase its profits. Also, from Table E, we note that Kone serviced only 4.9% lifts in 1995. This
is a very low share as compared to other players. We also know that the margins in this
division are higher. Therefore, Kone could lower its price for providing service in a bid to gain
market share.
Long-term Strategy Extend the capabilities of the EcoDisc machine and the MonoSpace product line. To stay
ahead of the competition, Kone must maintain its core ability to come up with innovative and
technologically superior products.
Kone could target a high growth market like Asia in order to expand its business.