Annika Jansen

Case Analysis: KONE – The MonoSpace Launch in Germany

IBUS-301-001 – International Marketing
Professor Khilji
March 22, 2004

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 By 1996, the financial situation of KONE Aufzug’s elevator business in Germany
had worsened as compared to previous years. Since predictions did not indicate an
improvement in the near future, the business director, Raimo Hatala, hoped for the launch
of the company’s newest and revolutionary product MonoSpace in Germany to enhance
the company’s financial position. However, as early test markets began, concerns about
the product’s ability to conquer the German market were raised. Hatala began to
contemplate about a successful entry strategy for MonoSpace that would position the
product properly and allow the company to leave a lasting impression on the market.
With Germany’s reunification in 1988, its construction industry experienced an
upsurge that eventually turned the country into continental Europe’s largest elevator
market. In 1995, the elevator industry had reached its ultimate peak. Despite the intense
competition, KONE generated revenues of DM 216 million and profits of DM 12 million.
During that year though, the market saturated, as the construction boom ended abruptly
and demand for elevator equipment was expected to fall by 15 percent.
Traditionally, the elevator industry was split into two sectors: new equipment and
service. Therefore, competition for new elevator installations was intense, as the large
companies often sold their equipment at or below cost to price-sensitive customers.
Service contracts were usually closed with companies that initially installed the elevator.
In 1995, six major companies dominated the German market, with KONE being fourth
behind Schindler, Otis and Thyssen. Approximately 30 additional mid-size players, and
150 small, local companies influenced the industry as well. The market itself was
fragmented. While the four largest construction companies controlled 20 percent of the
market, nearly 20,000 small contractors competed for contracts in the remaining market.
In 1995, KONE reported that 48 percent of its sales originated from the residential
market. The proportion of elevator units installed in residential buildings in the entire
market came to 74 percent and was not expected to change significantly over next five
years. Property developers consistently used the bid process to pressure contractors for
price reductions. With its well-established image in the market, KONE was never forced
to directly communicate with property developers, since customers usually initiated
contact by sending elevator specifications and a request for a bid. KONE’s policy
foresees for a sales person to follow up each customer inquire and review the logistics.

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 Considering the saturated elevator market, the intense global competition, the
price-sensitive consumers, as well as the company’s goal to enhance its financial
situation, “Hatala recognized that immediate, favorable results from the German launch
were vital to KONE’s success.” The pricing and product positioning strategies he set for
MonoSpace in Germany would have a significant impact on the long-term prospects for
KONE. As elevator prices fell five to seven percent in 1994 and 1995, leading elevator
companies Schindler and Otis reported losses due to turnover of approximately 11 and 13
percent. Symptoms of such nature indicated that while Schindler focused on gaining
share, it enabled the company to become the market leader in hydraulic elevators.
Contrary, Otis’ professed objective to eliminate losses in the new elevator business had
caused it to lose market share. The cause of this pricing and positioning challenge
resulted from the abrupt end in the construction boom, as well as the declining demand
for elevators.
At first glance, it might be obvious, which pricing strategy KONE should
embrace. Several factors, such as the legal approval for MonoSpace to be installed in
every state throughout the country, the company’s objectives for differentiation and brand
building, the fact that the government does not subsidize the elevator industry, as well as
the headquarters suggestion to price the MonoSpace above existing prices if KONE’s
market share was less than 15 percent, indicate that KONE should implement a skimming
pricing strategy. Results from similar markets, such as the Netherlands and France,
signify this to be a successful strategy. However, there is also evidence counteracting
those outcomes. Despite KONE’s strong market share in the United Kingdom, a
skimming strategy failed to have the same impact as in the Netherlands and in France due
to price sensitive consumers. Given this fact, it is clear that a skimming pricing strategy
would fail in Germany, where consumers are also extremely price-sensitive due to market
saturation. Rather, KONE should price the MonoSpace similar to products offered by
Schindler and Otis, but emphasize MonoSpaces benefits, such as being the most energy
efficient, not requiring oil and therefore eliminating fire and environmental hazards, as
well as its lower installation time. These factors are more likely to appeal to German
consumers who are not just price sensitive, but also quality, efficiency, and customer
service oriented.

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Lessons Learnt
Lessons Learnt
•Target the major influencing group, i.e. energy suppliers.
suppliers.
•Target the architects and general contractors.
Target the architects and general contractors.
•Communicate the benefits of the new technology
Communicate the benefits of the new technology
by print, electronic media and personal meetings.
by print, electronic media and personal meetings.
•Before attracting the customers, install the pilot
Before attracting the customers, install the pilot
plants.
plants.
•Focus on the activities of competitors and work
Focus on the activities of competitors and work
accordingly.
accordingly.
•With the low rise builders rarely using scaffolding
With the low rise builders rarely using scaffolding
and use cranes, we need to focus on which
and use cranes, we need to focus on which
se ment to tar et.
se m

Implication of Success or
failure
failure
Benefits
Benefits
•No machine room construction leading to
No machine room construction leading to
cost saving.
cost saving.
•Energy Efficient.
Energy Efficient.
•Lower peak currents
Lower peak currents
•No oil requirements
No oil requirements
•Installation time.
Installation time.

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http://www.scribd.com/doc/42109385/Mono-Space-2