KONE : The MonoSpace Launch in Germany

Case Notes & recommendations

27-Apr-2012 Sahil Gupta ePGP 03 - 074 Jaimin Narendrakumar Dave ePGP 03 - 121

Preface
Nocember 1996 Raimo Hatal,director of KONE Aufzugs new elevator business was going to lauch new product The Monospace. Due to region wide construction slumps and low differentiation among competitive offerings price competition increased and margins eroded. Hatala and other executives thought that new product launch will get them out of this price wars The main concern was size of the market for Monospace in Germany ; how to price and position Monospace ? ; how much would Monospace cannibalize the other low rise products ?; how to make sure of the successful launch of the Monospace ?

The Elevator Industry

Dominated mainly by five competitors : OTIS;SHNIDLER;KONE;MITSUBISHI;THYSSEN TOSHIBA and HITACHI of Japan and Goldstar of Korea were main competitors in Asian markets Mainly two sectors : New Equipment and Service New elevators sold at cost or low than that and service was the margin generator Low entry barrier due to simple technology but it didnt seem to last longer looking at the current economic conditions

Elevator technology
Varied with respect to travel hight, speed, ride comfort, machine room equipments, drive system, controls, cabin size, interior finishing and price. Drive Mechanisms :- Three types :- gearless, geared and ropes (traction). Gearless:- Used primarily in commercial buildings and offered greatest ride comfort,travel height and speed of 2-12 meters per second. Mainly for high rise buildings.Replacement costs are also low Geared :- moderate ride comfort , low to moderate travel height and low to moderate speed ( 1-2 meter per second. Traction :- Only in low rise buildings and provided minimal ride comfort with low speed of <0.6 meter per second. Machine Room Equipments :- They occupied the space either at the top of the shaft or in the bottom. Their types are as follows PT :- On top of the shaft PU ;- On the lowest floor next to the shaft. Expensive and only used if it cant be placed at the top of the building PS :- Most expensive and least used. Slightly above the top floor and to the side of the shaft. PH :- Hydraulic machine rooms and can be placed on the lowest floor within 10 meters of the shaft.

Purchasing Decision : Owners or developers who sold the building after completion were concerned about upfront costs. Owners or landlords were more concerned about the life time costs.

Evolution of KONE Monospace : Built on the concept of machine-room-less lift. Built in 1993 by R&D team on induction motor concept and got rid of the geared traction system with Eco Disc instead. Ride was much comfortable compared to gearless drive system. Machine room eliminated by keeping Eco disc at the top of the shaft thus occupying Mono space. Eco drive was extremely energy efficient Lower pick current translated into less expensive electrical wiring and fuses. Elimination of oil which is the potential hazardous part in lift Less installation time

Monospace Experience in Europe : In Europe it was targeted at Low rise residential elevators. By the time of launch in Germany it was already launched in Netherlands,France and UK.

Market Strategies ; Netherlands :- Primarily through individual meetings ith around 3500 architects, construction companies, owners and consultants. Lots of presentations made. France :- Letters to 22000 existing customers, advertisement in specialized building newspaper, The main market launch through breakfast meeting with architects, developers, building owners,managers of costruction companies and safety officials. United Kingdom :- Due to price sensitivity Monospace was launched by emphasizing that KONE is a technological leader in the elevator market.

Sales Results : Netherlands :- 70% target within 1st ten months and in one year 62% market of low rise captured. France ;- Only 40 units sold in 1st 3 months. UK :- No unit was sold after 1 month.

Customer reactions were over all positive and competition started doing negative marketing of this new technology.

Preparing for the German Monospace Launch : Production costs were same as that of a comparable hydraulic elevator,

In 1995 construction boom ended in Germany and and elevator market was expected to shrink by 15% by 2000. In 1995 60% of the market was dominated by hadraulic elevators. Competition :- Schindler, Otis, Thyssen, KONE, Haushahn and Schmidt & Sohn.All operated throughout Germany and maintained 24-hour service backup. Approximately 30 mid-sized players and 150 small companies also operated in German Market. Market Performance :- Due to bust in market boom elevator prices fell 5% to 7% in 1994-95. Samll and mid sized players turned their focus on service putting extra efforts on price as well. Schnidler reported losses of 11% and Otis 13% of the turnover. Low rise Elevator Market :- In German market as per Kones managers purchase decision was made by general contractor 50% of the time, 40% of the time by the architect and 10% of the time by the property developer.

KONE Aufzugs selling process :- KONE was well known in the market and customers
directly approached them 96% of the time by sending the specifications and drawings. Then locals sales guy used to go and meet the customers and then suggest for any changes or confirmation on the drawings made by the architect. Generally contractors wanted no changes in the drawings and that too at the least possible price. Experience of the sales person mattered a lot as customer assessed them whether he can understand and fulfill all the requirements. After the technical clarification the final decision was made by purchase department where mostly discussions revolved around pricing and terms of payment. Procurement process took almost 8-15 months from start to finish.

Recommendation for Lunch :KONE has below two options. 1. To market Monospace in between the hydraulic elevator and the geared traction elevator 2. To position it as top of the line KONE can have following two strategies to position Monospace in elevator market, so that it should not self cannibalize its own products and should be differentiated among its competitors. Approach 1:- Pricing it similar to the products of Schnidler and Otis and selling it by emphasizing its benefits to the customers. Approach 2:- Positioning it above gear traction products and marketing its premium features and garnering margin instead of going for the market share by adopting low cost strategy. Monospace fit price and performance wise relative to other products Pricing Monospace needs to be priced at margin if KONE has 15% market share and if not it should be priced at the same rate Savings due to not requiring to build a machine room will entice the constructors and owners to prefer for Monospace in their specifications .

Performance A new energy efficient drive system . Ventilation not required due to decreased thermal loss Positive responses of customer

Areas needed to be imporved upon : Qty of salespersons that are much lesser in Germany and outnumbered by four or five to one by other big firms such as Thyssen, Otis, and Schindler. To effectively manage its selling team in Germany with lesser number of employees, KONE current capabilities will play a major role. Property owners would fear that KONE can monopolize the amrketdue to its revolutionary technology. Building strong relationship is of paramount importance in a Business Market scenario. Therefore current marketing professionals strength needs to be increased.