KONE: The MonoSpace Launch in Germany - Essay Example

first KONE: The MonoSpace Launch in Germany Problem ment: Product: KONE’s new product, MonoSpace isa revolutionary product, but seems less promising in terms of acceptability in shorter span. This product is suitable only for 8-person and 13-person elevators with operating speed of one meter per second usable in buildings less than 12 floors. This product could be a replacement for hydraulic and gear traction elevators, but not suitable for high rise buildings. Place: Initial launch success in KONE-dominated regions of European market was varied; hence unpredictable in Germany. In Germany, construction industry reached the lowest during 1995, and hence the demand for elevators shrunk gradually. Seventy-five percent of low-rise buildings did not predict change of elevator units post 1995. Demand for new equipment seemed almost nil considering high capacity and commercial high-rise buildings. Price: Suggested price for MonoSpace is higher than existing low-rise elevators. However, in Germany, most part of the construction industry (80%) is highly fragmented, with about 20,000 small contractors competing for construction projects and the rest controlled by larger contractors. Secondly, their competitive bidding process for construction equipment and material focused on reducing the prices further. This would reduce sales of MonoSpace further because most of the business lies with small contractors in Germany that would not prefer highly priced KONE product. Promotion: MonoSpace’s positioning strategy is not compelling to customers. Too many marketing resources are at disposal for this product; however, this product is aimed at specific customer segment, the construction industry comprising of builders, contractors and developers. New construction as well as buildings under renovation would be their potential business spots. The CEO, Hätälä, is faced with the challenge of capturing the market instantaneously in order to sustain revenues for KONE Aufzug, which means achieving high sales in the initial stages through cost-effective promotion strategies. Alternative 1: Adopt unique positioning and distribution strategy that not only reinforces KONE Aufzug’s brand image but also improves sales and distribution of MonoSpace elevators throughout Germany. Approach the 20,000 small contractors at the same time to create awareness and educate them about the benefits of MonoSpace. Product Introduce MonoSpace elevators with the EcoDisc unit in German market for low-rise residential buildings. This product would be sold as a whole unit to the customers that would include large and small contractors as well as contractors/developers involved in renovation work. Pros Cons 1. Better product features in terms of installation, maintenance and efficiency compared to gear traction and hydraulic elevators. 2. Machine room requirements are nil. 1. New product, and hence apprehensions regarding its performance, features, maintenance etc will prevail. 2. Would still require maintenance. Place Approach the large base of small contractors as well as large contractors that are involved in low-rise building constructions. Considering the market saturation, it would be better to identify rising markets like in rural and sub-urban areas that are experiencing greater construction activities. Pros Cons 1. Considering that small contractors are usually involved in small-scale constructions, these contractors can provide access to larger numbers of low-rise buildings. 2. Larger contractors tend to choose between other competitors products during which MonoSpaces product features will help in leveraging their decision. 1. Small contractors do not necessarily involve in low-rise constructions that would require elevators. 2. Pricing decisions play a critical factor in capturing the market via small contractors. 3. Extremely difficult to reach out to thousands of small contractors. Pricing Pricing should be comparable to the competitors and existing products prices in order to gain initial entry into the market. Even slight increase in pricing could impact contractors buying decisions because this segment is only considered about product price rather than its features. MonoSpace’s product features are of more value to the building owners. Pros Cons 1. Better performing features at similar or comparable prices will directly impact buying decisions of contractors as well as building owners. 2. Will help in picking up sales from the beginning because of price sensitivity created by market saturation. 1. Fluctuation of competitors prices cannot be guaranteed. 2. Quality-conscious customers tend to misinterpret price strategy before testing the product. Promotion Employ promotion strategies that help in firstly spreading awareness to wide mass of people, here large and small contractors and builders; this could be done through advertising, direct mail, events, exhibitions and also personal relationships. All promotional activities have to highlight various benefits of MonoSpace depending upon the target audience. Advertisements can highlight energy efficiencies of MonoSpace; events and exhibitions can highlight its non-dependence on machine room space and maintenance; direct mail can highlight all the benefits such as low peak current, less energy consumption, savings on oil and maintenance costs; energy and time efficiencies etc. Pros Cons 1. Building owners, developers and contractors can save costs in some way or other. 2. Customers will gain better understanding. 3. Improve awareness of the new product and its unique features. 4. Customer responses/feedback can be elicited in various ways, especially through personal selling, events and exhibitions. 1. Initially such mass promotional activities would require higher investments. 2. Gaining access to direct mail and reaching out to all contractors is extremely difficult. 3. Events/Exhibitions may not attract too many customers; this also involves huge costs. 4. These promotional activities may not be able to provide experience of using the product, which some customers might prefer. Alternative 2: Adopt a marketing strategy that involves intermediaries such as the ‘cow boys’ to sell MonoSpace elevators as well as its patented parts such as the EcoDisc Drive units. Product: The product features of MonoSpace elevators remain same as outlined in Alternative 1; however, here a proposition for another product, the EcoDisc, the motor used in MonoSpace elevators is made, which can be targeted towards the mid-size players and the “cowboys.” Product The EcoDisc motor is extremely efficient due to its exclusive design and components. This product, as already patented by KONE, along with shaft equipment can be sold as an exclusive unit to the small elevator companies within Germany. This product also requires less expensive electric wiring and fuses. These elevators would not require oil and are not susceptible to hazards like fire. Installation time of these elevators is almost 1/3rd of traditional elevator. Pros Cons 1. Improves business for KONE MonoSpace concept by increasing customer base through small and mid-size players. 2. Elevators can be customized depending upon customers requirement. Purchasing power of suppliers as well as customers will improve. 1. Product customization should still be limited to the EcoDisc capacity till other versions are introduced. 2. Combining KONEs motor with other elevator materials can affect overall quality of the end product. Place Given the fact that about 30 mid-size players and about 150 cowboys operate within a single region and city, respectively, all such elevator providers can be contacted in all major cities in Germany. Pros Cons 1. Improved access to elevator business within Germany. 2. These small players will also provide access to small contractors that prefer low-cost systems. 1. The requirement for EcoDisco motors and hence MonoSpace elevators may not be proportional to the number of small players. 2. Other preferences such as quality of elevator parts etc can vary in different regions. Price The total cost of EcoDisc will be lesser than the motor used in traditional elevators because of low-cost electrical wires, fuses, motor etc. Banking on the energy consumption pattern and efficiency, its cost per unit to the distributors and elevator assembling units can be higher, which will provide good profit margin to KONE as well as intermediaries, if any. Pros Cons 1. Only equipment cost is to be borne, which will not affect the customers much (here, mid-size players and cowboys). 2. Total cost of elevator can be adjusted in other materials used in the elevator such as the chamber, lighting etc. 3. The other materials used can be customized as per the customer (builder/owner) specification. 1. KONEs brand image may be affected if the assembled elevator is of low quality, irrespective of the EcoDisc and elevator performance. 2. End users may not be able to identify and assess the pricing strategy of assembled elevators. Promotion Promotional activities to spread awareness and highlight the unique features of MonoSpace to mid-size players and cowboys would remain same as in Alternative 1. However, promotion of EcoDisc can be done through trade press and journal advertising. Pros Cons 1. Promotion activities aimed at specific customer segments will be less expensive compared to general promotional activities. 2. This will also elicit customer queries regarding greater specifications, pricing etc. 3. Customization options will improve sales potential with small contractors as well as small-scale assembly units. 1. Demand and supply of EcoDisc motor and associated parts could be a concern. 2. Handling too many customer queries could be tedious for KONE Aufzug. Recommendation: We recommend Alternative 2 to launch MonoSpace elevator In Germany. Various factors that impact KONE’s business have resulted in this proposition. Firstly, revenues of KONE Aufzug had to be improved at shortest possible time. KONE introduced new product, the MonoSpace elevator, which eliminates machine room requirement besides providing far better efficiency. Secondly, German construction industry is saturated and this new product is suitable only for low-rise buildings. Hence, potential business for KONE Aufzug would be in developing sub-urban areas and smaller towns. Most of the construction work in these areas would be carried out by small contractors that aim at low-budget affairs. Presence of about 20,000 small contractors throughout Germany would be an added advantage. Moreover, fully assembled elevators are more expensive than those assembled ad hoc provided by mid-size and cowboy elevator divisions. Product: MonoSpace elevator provides the advantage of operating without machine room requirement in addition to better energy efficiency. This is possible because of the special EcoDisc motor produced by KONE, which has changed the design and operational capability of KONE elevator meant for low-rise buildings. This EcoDisco motor can be sold to companies that manufacture/assemble elevators for low-rise buildings in Germany. Contractors’ preference for lowest possible price and elevators that fit the planned shaft dimensions instead of modifying the shaft can be addressed by assembling the elevator unit and incorporating EcoDisc motor. While EcoDisc is used to build low-rise elevators, efforts to improve its capacity to suit high-rise elevators should continue. Standards for quality of other elevator materials have to be benchmarked so that agreeable qualities of elevators are produced using KONE’s EcoDisc motors. This is important for maintaining brand image of KONE Aufzug. Place: Reports indicate the presence of about 200 mid-size players and the cowboys. The two groups account for significant percentage (35.5% of total units in Germany) of elevators business and generate total revenue of about 25% compared to the highest of Schindler at 19.4% units and 21.1% revenues and that of KONE at 6.7% revenues and 9.2% units. The top players like Schindler, Otis, and Thyssen mostly occupied the high-rise building business while mid-size and smaller companies are involved only in equipment assembly, sales and service. The 20,000 small contractors also provide huge potential for sales of KONE’s EcoDisc and the existing assembly units. This approach will also help in capturing the market for MonoSpace elevators considering KONE’s existing customer base. However, these numbers do not necessarily indicate capacity for business; but these small players have direct access to most low-rise elevator business in the region. Secondly, quality of elevator parts varies in different regions according to costs; however, quality and pricing of EcoDisc should remain same. Pricing: Different pricing considerations for KONE Aufzug to introduce MonoSpace in Germany through EcoDisc motor include the motor’s manufacturing, distributing and promotion costs. Selling MonoSpace elevator to low-rise buildings built by large and small contractors throughout Germany would require huge promotion, distribution and manufacturing costs before sales improve. The True Economic Value (TEV) that EcoDisc motor provides is extremely significant in achieving higher sales. Initially, KONE’s production costs are only related to the motor and not the entire elevator unit. Moreover, the purchasing costs for the customers (assembly units) is the motor, which in addition to superior quality motor also saves costs related to electrical wiring and fuses, oil etc. For the end users, maintenance costs are minimized along with minimal energy consumption. As a replacement for gear traction and hydraulic elevators in renovation cases, this system also provides compounded benefit in the long term. Moreover, considering that 90% of sales are of PH type, it can be predicted that creation of MonoSpace elevators using KONE’s EcoDisc would also be high. Agreeable standards of quality of material used in elevators by the assembly units will help better business relationship between KONE, assembly units as well as end users. Promotion: This proposition is to initially promote MonoSpace concept instead of the product. As the target market is specific, promotion can be done through trade press and journal advertising of a black and white, one-page advertisement in a weekly journal with a circulation of 31,000 costing DM 2,700 would be most suitable. Secondly, personal selling to mid-size players and the cowboys by counting on KONE’s existing brand image would be effective. This would also help in understanding customer behavior with respect to the product and thereby adjusting the demand/supply aspects. The 20 half-time sales people of V1 may be used to handle customer queries on regular basis. Read More