Marketing Performance of MonoSpace - Case Study Example

KONE Situation Analysis The gist of this case is that Mr. Hatala, who is responsible for the launch of Kone's new product Monospace in Germany, hasreceived negative interim financial report that states that Kone's products are performing badly in the international markets due to: Construction slumps Low differentiation amongst offering by competitors leading to price competition and erosion of profits. Monospace is a new product offering by Kone that the Kone management is hoping, would be able to steer them out of these bad times. Monospace is a revolutionary product and any other commodity is not offering the benefits being offered by MonoSpace. However, Mr. Hatala is contemplating the following issues: 1. The size of Mono Space market in Germany 2. How should Mono Space be priced and positioned 3. How far will Mono Space cannibalize sales of Kone's existing low-rise elevators 4. What would be needed to ensure a successful launch Demand of the elevators depends on factors like: Urbanization Population density Government support for public housing External Analysis The external environment of the elevator industry on the whole and Kone can be evaluated by carrying out a PESTLE analysis. Political: 90% of Kone's sales come from international markets. This makes it very vulnerable to political stability in its global markets for example Italy is one of the markets of Kone and elevator regulations are governed in Italy by parliament. Thus , to bring MonoSpace i.e. an elevator without a machine room in compliance with standards , it would require an act by the parliament. Economical: The performance of elevator industry is directly proportional to the performance of the construction industry. The construction industry has maximum potential in developing countries rather than the developed countries. The reason for this is that the developed countries have maximized their growth potential whereas the developing countries would require heavy spending on construction to build malls, offices and other infrastructure. Thus, the most economically feasible regions for Kone products would be the less developed Asian and Australian markets as compared to the developed European and EU markets. Social: It can be argued that the MonoSpace elevators are a hard sell since it requires a unanimous decision of people from different backgrounds for e.g. the owner might be affluent and influential wanting perfection in the looks and features of the elevator, the contractor would be worried about the cost benefit analysis and the property developer would be thinking about the cost saving versus the benefit of space saved. Technological: elevator market is a technologically driven market. However, technology that is being applied is at the back office rather than on the consumer side. The consumer is only impressed by the ride comfort and speed of the elevator. The customer i.e. the owner investor or the property developer, contractor etc would be interested in the performance (maintenance cost, Hazards involved), initial investment and the space that is being used by the elevator machine room. This space is rendered useless for the owner since the elevators are using it. The reason behind the margin erosion phenomena is that the features directly impacting the customer (the owner, contractor and property developer) are similar by all the various competitors and there is not much differentiation in the end product. Gearless Traction Gear traction Hydraulic 10% 30% 60% Commercial Buildings High rise Less than 6 floors Low rise Legislative: In France, Kone had received approval only for ten installations. It can be deduced from this that having a machine room less elevator is a benefit provided to the customers however, it has widespread concerns and ambiguities and customers as well as the various governments would like to test the new MonoSpace product first for reliability before letting it be installed all over their regions. Environmental: Unlike the hydraulic elevators, which use two hundred plus liters of oil, considered hazardous and a potential environmental threat as well as having fire threat, Mono Space offers the advantages of being a comparatively environment friendly and hazard safe option. Porter's Five Forces The strategic position of Kone can be determined by using Porters five-force model. Any industry can be influenced by the five forces supplier power, threat of substitutes, barriers to entry, buyer power, and degree of rivalry. Supplier Power: In the case study it is mentioned that Thysen one of Kones major competitor out sources most of its functions except for the most strategic components. Considering this, it can be assumed that the supplier power is not very strong and they form a small fragmented market or the parts that they supply are a small component for the elevators or maybe there are too many players providing the same components in the industry. In this regard, Kone need not worry about supplier cartels or associations. Threat of Substitutes: Elevators are elevators and there are no close substitutes for them. In this aspect, Kone need not worry about any close substitutes. Barriers to Entry: The market is characterized by low entry barriers due to relatively easy technology that is required in the making o& servicing of elevators. This is a threat for Kone, since at any point in time; new competitors can become a threat. Buyer Power: Since the customer base is primarily business market, thus buyers have immense power. Also, the general feeling regarding the product will filter to the entire potential market since it is a small market of buyers who are in contact with each other r and might even discuss what brand of elevators they are buying and why. Degree of Rivalry: As it can be seen from the table below, the competitive rivalry is very high and seven key players having neck top neck competition dominate the market. The general tendency is that all the manufacturers are stronger in their home markets. Otis Schindler Kone Mitsubishi Thyssen Toshiba & Hitachi Goldstar United States Switzerland Finland Japan Germany Japan Korea Market Share France 41% 20% 14% 18% UK 30% 10% 20% 10% Netherlands 19% 13% 40% 6% Markets & Segments The market is divided into two key segments i.e. the new manufacturing and the servicing of elevators. The total sales of new equipment amounted to US $ 9 billion and the servicing contracts amounted to US $ 13million.The reason why the servicing sector is more profitable is that once the in initial installation is made, it is easier for the same supplier to acquire the maintenance contract and maintenance is more costly in the sense that it comprises of the 5% value of the elevator itself. Opportunities & Threats: Opportunities: 1. The Austral-Asian markets are the greatest opportunity for Kone's existing product line as well as MonoSpace. The demand for this market forecasted for the year 1996 is 90, 000 units which is the highest as compared to any other region. In this region, Kone is just making 10% of its sales. 2. Another opportunity for Kone is the successful launch of the Monospace in Germany that might yield significant benefits. Germany is the largest market of continental Europe. 3. The environmental benefits that MonoSpace provides are a hidden opportunity that might start yielding benefits once the consumers and customers are made aware of the operational costs that they would be saving in terms of less energy consumed by using MonoSpace and the environment and hazard safety aspects of Kone. Once the awareness of these factors develops, Kone will have a competitive edge in terms of product specifications unmatched by customers. Threats 1. The greatest threat to Mono Space is technology being copies by competitors. Since the entry barriers are low, it is easy for competitors to enter into the same industry and be a threat to Kone. 2. Another threat to Kone is the failure of MonoSpace as a product. Till yet Mono Space has received a remarkable response in the Netherlands, however, it failed in the UK and France. The success of MonoSpace in Germany is critically dependent on its pricing and positioning. 3. Another threat to MonoSpace is the non-compliance with existing codes since compliance was obtained for the elevators with the machine rooms and not for elevators without machine rooms. The above analysis of the external environment of Kone and the elevator industry, the critical success factors of MonoSpace are: Critical Success Factors for Success of MonoSpace in Germany: The right positioning and pricing to appeal to the target market The product should be strong enough to withstand competition. Since the product is new and offering dynamic features never offered before, the customers are wary and "cautious" in investing in something so new having a high capital cost. Considering this massive advertising is required to convince them to purchase the elevator. The cost advantage that MonoSpace provides over a period of six years by reducing energy consumption and saving space should also be emphasized INTERNAL ANALYSIS The internal analysis if Kone is necessary to determine the positives and negatives that Kone has as a company to face the external opportunities & Threats and other environmental issues mentioned above. For this purpose, the internal analysis would comprise of VRIO Analysis, Value Chain, Benchmarking and evaluating Strengths and weaknesses. VRIO is the resource-based analysis of the firm that determines which resources and capabilities may result in which strengths and weaknesses. The objective is to build strategies that exploit strengths and avoid weaknesses. According to VRIO, the resources and capabilities of a company should be valuable, rare, and inimitable and organization can effectively be able to exploit them. The technology that Kone is using at the moment is rare. However, whether it is valuable to the customer or not is a different story .The experience of Monospace in Netherlands shows that the benefits provided by MonoSpace are beneficial however; the UK and French market tell the opposite story. It can be concluded that the technology of MonoSpace is rare but not highly valuable to the customer. It is also not inimitable since the technology being used is relatively easier to copy and there are not trademarks and copyrights on this technology. Value chain: considering the value chain, it can be seen that Thysen has been outsourcing a lot many functions except for the core strategic functions. In this regard, Kone has to see that will it be able to provide higher value for money by outsourcing some of its functions to suppliers Benchmarking: The new MonoSpace needs new benchmarks to be set out in terms of quality, reliability, and value for money and other benefits being provided to the customer. The MonoSpace can be benchmarked against the existing product line maybe the hydraulic elevators and the performance can be measured in comparison to that till the new standards for MonoSpace are developed. Strengths & Weakness Analysis: Strengths: Eco Disk power unit, which is very energy efficient and consumes only half the energy of comparable elevators. Mono Space requires no oiling due to which it is comparatively safer and has fewer hazards associated with it. Break through technology unmatched by any of the competitors. Weaknesses: Premium pricing in a deteriorating market The mixed feelings of people towards a machine room less elevator. POSITIONING MAP and POSITIONING STATEMENT The positioning of the MonoSpace elevator is aimed at achieving: Top of the mind brand recall Emphasis on the environmental and safety benefits that the elevator provides to the customer The unique selling property of the MonoSpace is the Minimum space required setting it up. It does not require a machine room. The positioning statement for MonoSpace should be: "MonoSpace- Solution for space and safety concerns" Company & product Target Customers Benefits Price Value proposition Kone MonoSpace The current customers of Elevators Requires less space Premium A complete solution to safety and space concerns. Alternatives & Analysis of Alternatives The best alternative positioning statements to use can be: "MonoSpace-for priceless safety" This is a positioning statement that stresses more on the safety aspects provided by MonoSpace. However, it may have a negative spillover effects on the other brands of Kone in the sense that the customers might be led to think if this is more safe does that mean that the other Kone brands were not safe It would be due to this that this statement has to be very cautiously used. Another option could be "MonoSpace, make more of space" This is in a way more of a teaser in a way that it makes people wonder how to make more space Curiosity is the best way to grab attention. Once the curiosity of the target market has been aroused, then it is relatively easier to make them recall the rest of the brand elements once the campaign starts. Marketing Strategy for the German Market: Market Shares of key Competitors in the German market Schindler 17.7% 13.8% 13.8% Thyssen 15.4% Kone 8.5% Haushahn 6.5% Schmitt & Sohn 5.4% Others 32.7% It can be seen that Kone ranks on fourth position with a market share of 8.5%. This is not a positive signal. However, the opportunity is the unbranded 32.7% of the market that goes to many small clusters. Kone's MonoSpace can strike a jackpot by trying to penetrate in the "Others' Segment. The best strategy for MonoSpace would be a market Nicher Strategy. As described by Philips Kotler" An alternative to being a follower in a large market is to be a leader in a small market, or niche. Smaller firms normally avoid competing with larger firms by targeting small markets of little or no interest to the larger firms." The best aspect about using this strategy is that it would minimize the cannibalization effect and MonoSpace would not be eating up the sales of the older product lines. Likewise, Kone being a recognized brand would keep competing in the larger markets whereas the MonoSpace would aim at a very small market which it can justify its premium prices too. Another advantage that this strategy would offer is that it would justify the premium prices that are being charges for MonoSpace. Objective for the Marketing Strategy: A sale of 25 units in the first year of the launch and capturing 5% market share in Germany. Target Market of Kone The product segment that MonoSpace will be targeting is the hydraulic elevator system and the market targeting strategy to be used is Selective Specialization. The two segments that Kone will be targeting are the MonoSpace would cater to the hydraulic segment and the traditional product lines would satisfy the needs of the other segments. Elevator is a capital investment. Due to this, there is a large number of people involved in the decision making process. All the people involved in the purchase decision making process of an elevator are the target market for Kone including: Owner Property developer Construction contractor Architect Elevator consultant & Major tenants Building service managers Company purchasing agents Characteristics of Target Market Decision Maker Considerations Owner Post construction purpose Owner/developers Upfront costs Owner/landlords Life time costs Owner/tenants Aesthetics as well as performance MARKETING MIX FOR THE TARGET MARKET According to Kotler, " Marketing Mix is the set of marketing tools that the firm uses to persue its marketing objectives in the target market". (Philips Kotler, Marketing Management) The four components of the marketing Mix are: 1. Product 2. Price 3. Place 4. Promotion Product: The MonoSpace is a new product variant of the elevators. It is an innovative product aimed at providing better performance as well as space saving features for the owner. Also, it is economical in operations as compared to other elevators. It is thus a premium, high quality product .The various value-adding features include Ecodisk, which can be used in any other products of Kone but is best suited for MonoSpace. However, in the elevator industry, after sales service is not being provided as an inbuilt feature of the product. Servicing is another business contract in itself. For this purpose, it is recommended that MonoSpace should offer discounts on after sales maintenance and servicing of its installations to encourage relationship building with customers in Germany. Price:Since it is a high quality product having innovative space saving and energy conservation features, it is prices slightly above the hydraulic elevators. This is a suitable pricing strategy since it emphasizes in a sublimely the quality aspect of the product. However, higher price premiums cannot be charged since the target market tends to be very sensitive since the competition is very high and buyers are unwilling to spend a high amount of money. It is recommended that in Germany, Premium pricing should be carried out but price premiums should not be too high. Another strategy that can lead to an increased number of sales is that MonoSpace can offer competitive payment period and flexible credit terms to the customers. The advantage with this strategy is that the capital investment can be distributed over a period of years, due to which the investors would not find the prices of elevators too high. Promotion: The advertising should roughly follow the same model as that in The Netherlands. The essence of Business-to-Business marketing is meetings. The reason behind failure of the launch in France is the impersonal marketing tactic of using letters and requesting people to watch television advertisements was ineffective. Same could be said about the market in UK. Capital investments require the maximum amount of convincing and face-to-face meetings. These meetings put to rest any doubts in the mind of the investors regarding the product. Also, they come into a comfort zone whereby the realize who to contact if something goes wrong with the product. For the Launch of MonoSpace in Germany, it is recommended that rather than television advertising, an announcement supplement in the leading newspaper should be published preferably on a Monday. The purpose of this would be to educate the reader about the benefits of the product. Similar to the model in UK, an inauguration ceremony announcing the launch of the new product should be conducted and personal invitations should be sent out to a database of 5000 people at least in the construction industry. The selling should not be undermined and to meet the marketing objective, it is recommended to increase the sales muscle of Kone and offer them a commission on the sales they make. This would increase their incentive and closing the deal. The availability of Kone management should be made high. This can be carried out either by having an interactive website, or having a toll free number, answering of email enquiries. Since the distribution of MonoSpace is on order only, thus, remaining available at all times is critical. REFERENCES I. Marketing Management, Philips Kotler II. Pearce, J. and Robinson, R (2005) Strategic Management, 9th Edition, New York: McGraw-Hill. III. Porter, M. (1985) Competitive Advantage, New York: Free Press IV. www.rapidbi.com V. www.marketingteacher.com VI. iicee.tvu.ac.uk VII. www.coursework4you.co.uk/pest.htm VIII. www.improvementnetwork.gov.uk IX. www.quickmba.com X. www.valuebasedmanagement.net XI. www.fratfiles.com XII. www.netmba.com XIII. www.learnmarketing.net XIV. www.learnmanagement2.com XV. www.mindtools.com XVI. management.about.com Read More