Trading the Kunst 1600 Vacuum Pump 12 - Case Study Example

Contents: Executive summary 2 Introduction 3 The chief, quantifiable value and cost elements related to the Kunst1600 3 Additional value elements not presently quantified that might merit consideration 5 Examination of target market segment(s) for commercialization efforts 6 Choice of the segment in which to trade the Kunst 1600 vacuum pump 11 Customer value statement for the Kunst 1600 in the light commercial refrigerator repair segment 13 Kunst 1600 commercialization Executive summary The function of the report is to determine the best market segment in which to introduce and trade the Kunst 1600 vacuum pump brand in the predetermined American market. A very much extensive study of the market regarding the potential of each segment has been carried out. A study to determine the advantage of the Kunst 1600 vacuum pump has been carried out as well as examination of the levels of competition in the potential segments. The study on the potential segments was aimed at arriving at the segment that would give the highest return in terms of sales and how customers view the new brand of vacuum pump. Market potential for each segment was determined by considering the number of units sold in each segment and the number of competitors available in each segment. Furthermore, a study on the amount of money buyers are likely to save for buying the pump in each segment was determined. The figures obtained were afterwards applied to some formulas to determine the segment with the highest potential. The study also considered other un-quantified value elements which included the weight of the pump, ecological benefits arising from the fact that the pump is oil free and durability of its parts. The results so obtained were of crucial importance in determining the best segment in which to introduce the pump. Introduction Kunst 1600 dry piston vacuum pump is a fractional horsepower, injection- molded pump which is made of aluminum. Its pumping speed is 1.6 CFM (cubic feet per minute) and it weighs 16.5 pounds – a weight which is much lesser than that of other traditional (conventional) pumps. The brand is a reconfigured compressor which is fitted with a screen over its input nozzle and hence the pump is able to run longer and cooler than other conventional pumps. As such, the pump functions at a higher efficiency and at lower pressure than other pumps. The pump has fewer working parts than other traditional pumps models. It is also oil free implying that its users will save on the cost of oil leading to higher profits. The main segments for the vacuum pump in the US market are home refrigerator repairs segment, light commercial refrigerator repairs segment and residential AC repairs (Anderson, James and Das 256,2009). The chief, quantifiable value and cost elements related to the Kunst1600 a) Cost cutback resulting due to the fact that the Kunst 1600 pump does not require oil. The Kunst 1600 dry piston vacuum pump is oil free implying that repair agencies will save on the costs associated with oil change. Unlike other pumps, technicians using the Kunst 1600 vacuum pumps do not have to change the oil. This benefit is available to the users in all the potential segments. This will be a great benefit to the technicians given oil is changed after every repair work and that each oil change usually takes a quart which is valued at 8 dollars. Therefore, eliminating the need to change the oil will mean increased revenue. Furthermore, Kunst 1600 will save all the technicians the costs incurred in cleaning the oily mess that results from changing the oil. This includes 0.5 dollars incurred in buying the solvent based scouring soap and 0.15 dollars incurred in the purchase of the specialized cloth- fiber based towel. The other costs savings will include the 5 dollars cost incurred in recycling every gallon of used oil in order to comply with the US environmental laws which require proper disposing and recycling of all oil based liquids. This implies that the process of changing the oil could be a very costly one and since Kunst 1600 vacuum pumps eliminates all this costs; they will be easy to market due to the cost saving effect both to the owners and the technicians (Jim and Alan, 211, 2005). b) Impact of extended life time Kunst 1600 vacuum flask is manufactured from injection- molded aluminum while other traditional vacuum pumps are made of steel. This means that Kunst 1600 does not rust like its competitors. As a result, the pump will last longer than its competitive models. Kunst 1600 is therefore expected to last for six years without breaking down unlike the other traditional models which usually last for 2-3 years. Although, it is a little more expensive than the other models, the fact that it lasts two times longer implies that more money will be saved by not making many vacuum purchases (Michael and Thomas, 342, 2009). For example, a repair agency using another model will have bought two or three vacuum pumps by the end of the six years time. On the other hand, a repair agency using the Kunst 1600 vacuum pump model will only have bought one vacuum pump. This represents a price reduction in the future. Additional revenue (incremental revenue and profits) This refers to the new income that will result from greater product efficiency associated with Kunst 1600.introduction of 1600 in the residential AC repair segment and the home refrigerator repair segment does not result in any incremental profit. In the light commercial repair segment, the Kunst 1600 vacuum flask’s ability to work more efficiently at low pressure will enable technicians reduce the time needed for vacuuming on a particular job by 10 minutes. This would result to two additional jobs per week during the 12 weeks of summer which is the peak time. This results in additional revenue of 720 dollars per year for every pump. Therefore, repair agencies dealing with light commercial refrigerator repairs will most likely adopt Kunst 1600 vacuum pump in order to take advantage of the incremental revenue (Ross, Louise and Raymond, 338, 2007). Additional value elements not presently quantified that might merit consideration a) Weight Kunst 1600 vacuum flask is made from injection- molded aluminum and has fewer internal parts compared to other traditional pumps. This makes the pump to weigh less than the competitive models by 5 to 10 pounds. The reduced weight implies increased ease of use. Technicians and owners of the repair agencies will appreciate the weight savings since the pump has to be carried to the work place. However, the weight reduction is only likely to be appreciated in the residential AC repair segment where the average traditional pumps weigh between 20 and 30 pounds as opposed to the Kunst 1600 vacuum pump which weighs only 16.5 pounds. In the other segments an average pump weighs between 10 and 15 pounds. Therefore, Kunst 1600 vacuum pump will not lead to weight reduction in the pumps used in this segment. b) Ecological benefits resulting from the fact that the pump does not require oil change Since Kunst 1600 vacuum pump is oil free, the costs associated with disposing the oil are all eliminated. Furthermore, it eliminates environmental pollution resulting from improper oil disposal which leads to environmental pollution. Improper used oil disposal also exposes the technicians to the risk of being fined for improper disposal. At 150 dollars per gallon per individual and 2000 dollars for the company involved, the fines are deemed very high. Introduction of the Kunst 1600 vacuum pump will therefore eliminate the risk of paying all these fines (Ian, 313, 2006). c) Durability of its parts Unlike the traditional pumps which are made of steel. The Kunst 1600 vacuum pump is made of aluminum. This means that its parts can withstand exposure to harsh environmental conditions without rusting. This greatly reduces the probability of the parts breaking down during vacuuming process and therefore incurring extra cost in either repairing it or replacing it (Richard and Collin, 289, 2008). This increases the reliability of the pump and it can indirectly lead to increased revenue to the technicians due to the cost saved due to its reliability. Examination of target market segment(s) for commercialization efforts There are three segments where the Kunst 1600 vacuum pump can be introduced in the US market namely; the home refrigerators repair segment, the light commercial refrigerator repair segment and the residential AC repair segment. The residential AC repair segment has the highest sales potential at 125000 units annually while the light commercial refrigerator segment has the lowest sales potential at 40000 units per year. The home repair segment on the other hand has a sales potential of 60000 units. Using of derived values to examine target market segment(s) for commercialization efforts Cost saving associated with oil change Lack of oil change presents the greatest benefit that technicians can derive from the purchase and use of the Kunst 1600 vacuum pump. The cost saved per oil change will be given by; Oil price Vacuum flask manuals recommend that the pump oil be changed after every repair job. Each change of oil will take a quart which costs 8 dollars for every quart for specialty oil. Labor cost Each oil change involves hiring a maintenance worker or using the repair technician to change the oil. The process of changing the oil takes around thirty minutes. Given that a repair technician will be paid 30 dollars for every hour worked; this implies that each oil change avoided by using the Kunst 1600 vacuum pump will result in 15 dollars savings in terms of oil change labor cost. The labor cost saved will be given by; Labor cost = hour rate of the repair technician changing the oil × the amount of time required for every oil change. Clean up supplies In cleaning up the mess, the repair technician needs to purchase a solvent based scouring soap valued at 0.5 dollars and a specialized cloth fiber valued at 0.15 dollars. Using the Kunst 1600 vacuum pump therefore eliminates these costs. The total cost saving will be given by; Supplies used in cleaning up the mess = price of the special soap + value of the special towel. Oil disposal costs Oil change compels the repair agencies to use around 5 dollars in recycling every gallon of used oil so as to comply with the US environmental requirements on proper disposal and recycling of used oil. Using the Kunst 1600 vacuum flask will therefore lead to saving of these costs. The cost saving will be given by; Oil dumping cost = recycle charge for every gallon of worn oil × the quantity of gallons to be recycled. a) Changing the oil for the segment dealing with residential AC repair if the oil is changed by a maintenance worker Cost saved per oil change = $8 + ($12 ×.5) + (.15 + .50) + ($5 ×.25) = $15.90 The cost savings for oil change every year = cost savings for every oil change × the times the oil is changed per year = $15.90× 20 =$318 b) Changing the oil for home refrigerator repair segment Cost saving for every oil change = $4 + (15 × .5) + (.15 +.5) + ($ 5 × .125) =$12.775 Cost savings for oil changes per year = cost saved for every change of oil × the number of times the oil is changed per year =$15.90 × 12 = 153.30 c) Changing the oil for light commercial refrigerator repair segment Cost saving for every oil change = $4 + ($24×.5) + (.50 + .15) + ($ 5× .125) =12.775 dollars Yearly cost savings for not using oil = costs saved per oil change × the times oil is changed in a year = $17.275 × 12 = 207.30 Yearly increase in profit Use of the Kunst 1600 vacuum pump does not result in any direct increase in the revenue attained in the residential AC repair segment and the home refrigerator repair segment((David, Robert and Bruce , 339,2008). This is because use of the pump does not result in any additional jobs being completed in both of these segments. However, use of the Kunst 1600 vacuum pump in the light commercial refrigerator repair segment results in an increase in the total revenue and hence the profit attained. This is associated with the pumps ability to work more efficiently at low levels of pressure. This result to a reduction in the time require for the vacuuming process by 10 minutes from 30 minutes to 20 minutes on a typical job. Therefore, a repair technician is able to perform two extra jobs per week during the summer peak time which is 12 weeks long. Each job results in a profit of $30 dollars. Therefore; Incremental profit per year = (2 ×$30) ×12 =60× 12 = $720 To determine the actual benefit of using the Kunst 1600 vacuum pump in every segment, we must put into consideration the price of buying another pump which is not from Kunst. This is the value in use of the pump which is the theoretical maximum price which a repair technician or a repair agency will be willing to pay for the Kunst 1600 vacuum pump. We will also take into consideration the fact that the expected lives of the different pumps differ and hence determine the differential price per year of the Kunst 1600 vacuum pump. Differential price for every year = (incumbent pump price/ expected number of years) - (price of Kunst 1600 vacuum pump/ expected number of years) In this case, it will be assumed that the expected life for the Kunst 1600 vacuum pump is 6 years. However, for the pump to last for the six years, it will be assumed that it will not be exposed to abnormal physical conditions likely to damage it such as carelessly handling it and throwing it carelessly -yearly gain due to price difference in the residential AC repair segment Yearly gain = (250 dollars ÷2.5) - (500 dollars ÷6) =100-83.33 =16.67 dollars - Yearly gain due to price difference for home refrigerator repair segment Yearly gain = (150dollars ÷ 3) – (500dollars÷6) = 50 -83.3 = -33.3dollars - Yearly gain due to price difference for the segment dealing with light commercial refrigerators repair Yearly gain = (200 dollars÷2) – (500 dollars÷6) =100-83.3 = 16.67dollars Total amount of money that will be saved for different segments as a result of using Kunst 1600 vacuum pump per year Element Residential AC repair segment Home refrigerator Repair segment Light commercial Repair segment Oil change savings $318 $ 153.30 $207.30 Incremental profit $0 $0 $720.00 Total value $318.80 $153.30 $927.30 Differential price (per year) $16.67 -$33.33 $16.67 Choice of the segment in which to trade the Kunst 1600 vacuum pump Owing to the fact that Kunst is a new acquisition and therefore the product (the 1600 vacuum pump) is new in the US market; the company ought to choose a single segment to begin with(Pascale, Robin and Jerome , 233,2007). Due to the fact that Kunst is a very small company, the management ought to focus the limited resources available to the segment which is likely to offer the most practical chances of success. This segment will serve as a stepping stone that the company will use in penetrating the other segments afterwords and possibly with the other Atler products. Of all the possible segments, the light commercial refrigerator repair segment offers the greatest potential for success. This is because it is the only segment where all the three value (price) elements that have been considered came into play for the Kunst 1600 vacuum pump brand. The fact that the pump enables the technicians do more jobs becomes the pivotal factor in this case given that the owners and technicians see the cost of changing the oil as being trivial and also overestimate the cost of the other traditional pumps (Arch, Francesca and Michael, 220,2009). Therefore, the segment preferred (chosen) for the Kunst 1600 vacuum is the light commercial refrigerator repair segment because of the following reasons; 1. The value created per year for using the Kunst 1600 brand is $927.30 which is a significant value and far greater than the value created in all the other segments. 2. The incentive to buy the Kunst 1600 brand in the light commercial refrigerator repair segment is a significant one at about 844 dollars per year. 3. The Kunst 1600 brand reduces the repair time by about ten minutes thereby increasing the number of the possible jobs by 2 per week during the peak (summer) months leading to additional revenue. 4. Due to the fact that the brand is oil free, it eliminates the hassles associated with oil changes for the largely independent operators in the segment. 5. The pump also eliminates the risk of being fined which can be caused by illegal oil dumping. 6. Most likely, the competition in this segment is not likely to be as strong as in other segments. This may be due to the following reasons which make the pump less attractive in the other segments; a) Despite the fact that the pump is highly attractive due to its size, the residential AC repair segment may not be feasible owing to perceptual barriers and because of its being underspecified i.e. It is a 1.6 CFM pump while the pumps used in this segment are 3-6 CFM. The management should target another Atler product in the segment. b) Although the pump may be viable in the home repair market, it may be over specified at 1.6 CFM since the pumps used in the segment are 1 CFM. Moreover, the Kunst 1600 does not lead to increased jobs in the segment and pumping in this segment only takes fifteen minutes. Customer value statement for the Kunst 1600 in the light commercial refrigerator repair segment The following is the customer value statement that will be used in marketing the Kunst 1600 vacuum pump in the light commercial refrigerator repair segment. “Due to the pumps enhanced efficiency, technicians are able to finish more jobs during the high season and hence increased profitability while still eliminating the need for oil change and the cost associated with it”. Conclusion Quite some time was spent in assessing the segment with the biggest potential and hence the best for introducing Kunst 1600 vacuum pump. After close and careful examination of all the compiled data, I am of the opinion that the company should introduce the Kunst 1600 vacuum pump brand in the light commercial refrigerator repair segment since it has been found to have the greatest potential. References Anderson, James and Das Naravadas. Business market management: Understanding, creating and delivering value. Upper Saddle River, NJ: Pearson education, 2009. Arch, Francesca and Michael Gibbert: Creating and managing superior customer value. Oxford: Oxford university press, 2009. David, Robert and Bruce wrenn. Marketing management: Text and cases. London: Routledge, 2008. Ian Chastens, G. Small business marketing management. New York: Palgrave, 2006. Jim and Alan Zimmerman. Business to business marketing management: A global perspective. New York: Thompson, 2005. Michael and Thomas Speh. Business marketing management: B2B. New York: South Western, 2009. Pascale, Robin and Jerome McCarthy: Marketing: Creating and delivering value. New York: McGraw hill, 2007. Richard and Collin Gilligan. Strategic marketing management: Planning, Implementation and control. Butterworth: Heinemann, 2008. Ross, Louise and Raymond McDowell, Business to business marketing. London: Sage, 2007. Read More