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Assignment 1

Kone: Launch of Monospace in Germany case

1. Develop a detailed marketing plan for launching the MonoSpace in Germany. Decide a price
for the MonoSpace (to facilitate comparison with prices of existing products as given at the
bottom of case page 4, price a low-rise, 4-floor elevator).

Because of construction elevator industry was on rise from 1988 (8000 units) to 1995 (15500 units)
but this industry was decreasing at the rate of 3% y-o-y and expected to decrease by 15% till 2000.

GERMAN elevator market:


Total 15500
Low rise residential 11470
Hydraulic 6882
Geared 4588

KONE objective is to successfully enter the German market. German elevator market shows 48% of
sales were residential, (92% hydraulic, 6% gearless and 2% traction). In the initial phase the company
must target

low-rise residential elevators mid-size elevator market (12


market floors or less).

The two sectors combined will help cover the larger market share, where low-rise residential market
accounts for 74% of total German elevator. Also, they earned 48% of their total sales in 1995 from
low-rise residential market. The low-rise elevators customers are property developers, general
contractors, architects. Although mid-size and high-rise elevator market accounts only 26% of the
total market.

Data helps us understand that the final purchase decision is made by the contractors 50% of the
time, 40% of the time by the architects and 10% of the time by the property developers.
Thus, the company must primarily target the contractors and architects.

• Pricing:
Considering the acute competition and price cut of existing product from 5% to 7% in recent
years, along with possible cannibalization rate of existing low- rise elevators sales. Although
company managers from Brussels suggested that the product must be priced above existing
price if the company holds less than 15% market share.

For the German Market company must consider aggressive pricing strategy to increase the
market share and profitability rather than target profit pricing strategy- and hence each unit
of Monospace should be price at DM 66,000.00 each unit.

Low-rise elevators buyers are the target customers who largely buy the hydraulic elevators
and when the major purchase decision makers are contractors and Architects who are
largely concerned of the upfront cost of the elevator rather than long term cost benefits or
the savings from fuel consumption as well as maintenance, therefore I tried to keep the
price as close as hydraulic elevator price. To consider the profit margin and other overheads
I have added 10% more on the hydraulic prices, that is, DM 66,000 (DM 60,000+ DM
60,000X10%).
Considering the total cost in use concept, customers will be willing to pay additional 10% as
they will be able to save money directly from the machine room construction cost (that is
the possession cost and the usage cost can be reduced). Also, this price would also appeal to
contractors, architects and also the property developers. As mentioned in the case,
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 machine-room cost might be 10% to15% of the total new equipment cost and hence
we have added 10% more on hydraulic elevator price.

2. Specify clearly how it is to be positioned relative to the current product line (PH, PT, PU or PS).
Based on the pricing and positioning decisions, propose a marketing and sales effort. Justify
your decisions and investments with anticipated sales and the associated contribution relative
to the amount you plan to spend.

Their experience in UK, Netherlands and France market would help to furnish the
positioning strategy. The company must differentiate their new product 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 and low maintenance cost.
Customers were actually waiting for EcoDisk, also the company can undertake the functional-
positioning strategy that is the product would solve several functional area of the elevator
systems.
As the company is already well renowned, it would be easier for them to position the
product with functional aspects. KONE Aufzug should campaign the long-term partnership
and preserving reputation approach in German market to avoid “Single Supplier Worries” issues.

3. How important is this product launch for KONE? What are the implications of the success or
failure of the MonoSpace launch?

This new product is expected to have a significant impact on the current product lines of
KONE and its competitors. 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.

4. What can be learned from the test market and market launches in the other three countries?
How does the German market (and KONE’s position in and approach to it) differ from the other
markets? What are the implications of these differences for transferring experience gained in
the other markets?
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 1995were 17.7%, 13.8%, 15.4%, 8.5%, 6.5%,5.4% & 32.4% respectively.

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. 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 favourable for the elevators
manufacture in terms of profitability as well as market growth.

5. How do you expect competitors to react to your launch plan? How do you plan to manage
competitors’ reactions?

We can expect minor spoiling tactics by the competitors in the short run, as mentioned in
the case there is possibility that large competitors will try to engage us in the price war.
They will further expand their advertising and marketing budgets that include advertising,
direct mail, customer and launch events, exhibitions, customer visits and public relations.
Therefore, we believe that Schindler will now use aggressive marketing strategy (as in Asa
and eastern Europe, whereas Otis will now follow the growth strategy, to gain its lost share
back.
6. Where does the MonoSpace fit price- and performance-wise relative to KONE’s and its
competitors’ current product lines? Or does it potentially change anything? If yes, how? What
are the short term and long term implications of your approach?

There are five other major players in the German elevator market and approximately 30
mid-sized players. Kone is the third largest elevator company behind Otis and Schindler.
With the abrupt construction boom in Germany, competition has become aggressive. And
hence, many mid- sized players due to the sudden fall in prices have now shifted their focus
from new elevator equipment to services. Schindler is penetrating in the market well, and
are the market leader for hydraulic elevators, whereas Otis seem to lose its market share.
Therefore KONE must devote its time and resources in pursuing and significant launch of
Monospace.

7. What key weaknesses in KONE’S current capabilities will need to be managed to ensure the
success of the product launch?

Few weaknesses of Kone’s current capabilities are:


• Failure to meet demand and supply, a better mechanism to calculate the desired
demand and to product that much
• Unanticipated worries of the consumer in regards to the product
• They do not currently have any provision for the ventilation
• The product can’t be installed in penthouse buildings, also it is not suitable for
outdoors
• They will have to keep a check on the elevators regulations
• They need to keep a close actions by the competitors