KONE CASE HBS Purpose of the Report KONE Aufzugs elevator business was suffering from region-wide construction

slumps, increased price competition, and margin erosion within the elevator industry. Their operating income was falling significantly and they projected to report after tax income of zero earnings in the next year. Raimo Hatala, director of KONE Aufzugs elevator business, knew he had to introduce a new product to revolutionize the elevator industry and increase KONEs downward trending operating profit. KONE designed a revolutionary product called Monospace, which had the potential to capture significant market share. KONE managers, however, werent quite sure how they would take Monospace to market. KONE managers had to decide what segment of the market they were going to target, how they were going to penetrate this segment, and how they could quantify the overall economic value of their product to their potential customers. Recommendations The marketing strategy that we chose for KONE Aufzug was to advertise their product at trade shows, sales visits, and exhibitions such as Konstructor. We also chose to install fully functional Monospace elevators in all regional offices throughout Germany in order to demonstrate the potential benefits of this revolutionary new product first hand to our customers. Monospace elevators will come with a price guarantee between initial quotes to final delivery. This will alleviate any financial anxiety that our customers might have about dealing with a single supplier. Furthermore, we recommend that KONE set the price of the new Monospace elevator at DM 85,000 and increase their sales force, especially in regards to introducing new products, in order to compete with their competitors.

Analysis KONE Monospace is a revolutionary machine-room-less elevator that yields significant advantages over other designs. The gain of additional usable space for revenue-generating purposes and the greater architectural freedom in the design and construction of new buildings are some of the many reasons why KONE Monospace is a truly innovative product that will help increase revenues of potential clients. There are many savings that potential clients will see when operating a KONE Monospace elevator in addition to using new freed up space for revenue generating purposes. Those Savings include saved energy costs of DG 1,540 per year vs. hydraulic elevators and DG 740 per year vs. geared traction elevators. There is no machine needed to operate the elevator which accounts for another savings of DG 7,500. Finally, it is estimated that the savings for a construction company is upwards of 5% of construction costs when using a KONE Monospace elevator as compared to any other hydraulic or geared traction elevator. Please see attached Excel Spreadsheet for savings comparisons. In addition to the quantitative savings factors, there are also qualitative benefits that Monospace elevators provide. These qualitative benefits include the reduced risk of a fire hazard when compared to hydraulic elevators that use oil and other flammable products. They are more comfortable to ride in with shorter average ride times and are more aesthetically appealing. These improvements will be very popular among future riders. The perceived disadvantages that potential customers may have to the KONE Monospace elevator are the higher initial investment and the size of the Ecodisc required machine room for greater than 16 floors. However, the higher initial investment costs are almost immediately recovered in the cost savings from the machine room of DG 7,500, as well as the energy savings of DG 1,540 per year vs. hydraulic elevators and DG 740 per year vs. geared traction elevators. Our target market segment includes those customers who are less than 16 stories in height, which would eliminate the latter concern. Customer, Company, & Competition KONE was established in 1910, and headquartered out of Finland. Its core business was focused on the sale and maintenance of electrical motors. Over the years KONE expanded its core business to

include steel equipment manufacturing, maritime equipment sales, and elevator manufacturing and services, among many others. KONE is currently the worlds third largest elevator company behind rivals Otis and Schindler. KONE Aufzug A.g., which operated in Germany and was the most important market in mainland Europe. It manufactures and sells low-rise passenger elevators, medium-rise elevator systems, and high-rise elevator systems. Low-rise elevators accounted for approximately 75% of KONEs equipment sales, while mid-rise and high-rise elevators accounted for 15% and 10% of sales, respectively (Case). KONES elevator business was organized into two distinct divisions: New Equipment, called V1; and Services, called V2. According to case statistics, the New Equipment Division accounted for 38% of revenue, while the Service Division accounted for 62% of revenue. Over 90% of KONES sales are outside of Finland with 53% in the European Union, 29% in North America, 10% in Asia, and 4% in Australia (Case). KONES new revolutionary Monospace elevator is a machine-room-less elevator that will yield significant additional usable space for its customers and allow greater architectural freedom in the design and construction of new buildings. Monospace is being targeted at low rise buildings in Germany, which constitute 74% of real estate in Germany. Currently, this segment is served by 60% hydraulic, 40% geared traction elevators. We will target the geared traction segment, albeit with a price slightly higher than current price levels. We make this decision based on the fact that the elevator market is not as cost sensitive as it is quality and utility sensitive based on the fact that over 66% of the geared market went for the more expensive option.

Product, Price, Place, & Promotion Monospace elevators are a revolutionary product which take induction motors to a new level and offer the chance to architects to get rid of the clumsy and inconvenient machine rooms which so often spoil the perspective of the building or hampers basement and foundation design. It offers developers the chance to save the significant costs related to building these machine rooms. It was attractive owners of projects in that they would be substantially cheaper and safer to operate.

KONE Aufzugs branch managers have often commented that the sales force of their competitors in Germany often outnumbered those of KONE by one to five. We believe that since most of the selling goes on through one to one customer contact, this sales force should be drastically increased to be at par with the competition in order to maximize exposure and to launch this brand new product. Demo installations at our regional headquarters throughout Germany will also convince those careful buyers who wouldnt want their project to be the Guinea pigs for this new technology. Monospace has typically found that going to Konstructor and other trade shows is not as lucrative. However, because we are launching a completely revolutionary new product, it is essential that the contractors and architects (who together make up 90% of the elevator decision makers) are exposed to this new product. So while we will continue to invest in trade press and journal advertising, we will have to make the investment to attend expensive trade shows for maximum impact. While the cost, ease and speed of construction will be emphasized to the contractors, the selling point to the Architects would be the aesthetic value that the absence of a machine room can bring to the skyline. According to the companys policy for markets with less than 15% market share, we have decided to price Monospace slightly above current price levels, i.e., at DM 85,000. Most elevator models across brands have been making an average loss of 5% on initial elevator sales. For the first time, Kones Monospace would be profitable in the initial sale as well.

Conclusion KONE Monospace is a revolutionary product with a great potential to bump up revenues for Kone and to regain lost market share even in an economy where construction activity was slow. KONE has the technology to vastly and dramatically differentiate its products from anything else in the market and be not only qualitatively better, but much more cost effective. With this marketing strategy, we believe KONE has the potential to make the most of Monospace as a lucrative new product. We believe that with

a marketing strategy along the lines of the recommendations made above, Monospace can be a very lucrative new elevator product and can reap large benefits for KONE in the German market.