1. ANALYSING THE CURRENT SITUATION OF KONE, THE MONOSPACE.

1.1 CURRENT MARKET SITUATION (Hutt & Speh, 2010:559-569)(Wood, 2004:338)

Germany experience a reunification in 1988, in which the German democratic republic

joined the federal republic of Germany, its construction industry underwent a rise that

made Germany Europe’s largest elevator market. The elevator industry achieved its

eventual peak in 1995. Regardless of the strong competition in the industry, KONE was

able to produce revenues of DM 216 million and profits of DM 13 million (Hutt & Speh,

2010:559). The construction boom ended unexpectedly in that year and the market

flooded. Demand for elevators was anticipated to fall by 15 percent (Anon, 2004a:2)

The German market is a powerfull market which possess great opportunities for entry.

Germany is a heavily populated state and has the largest economy of the European

Union. There are key political powers and enjoy high technological control in many

areas (Anon, 2011a).

1.2 MARKET SUMMARY

The Financial state of KONE Aufzug’s elevator company in Germany had deteriorated

in 1996 judged against previous years performance (Hutt & Speh, 2010:561).

MonoSpace was KONE’s only solution to present to the German market to improve the

company’s financial position, since estimations for future improvement was in

substantial (Anon, 2004a:2). KONE had introduced the product into three countries,

Nehterlands, France and United Kingdom (Hutt & Speh, 2010:564). These launches

went well and targeted sales figures was obtained in the Netherlands but not in France

and the United Kingdom (Hutt & Speh, 2010:567). However, there were a unease that

the product will be able overpower the German market. Thus Hatala considered to

implement a successful entry strategy for KONE’s MonoSpace into the German Market

that would position MonoSpace appropriately in the mind of the consumer and allocate

the company to put down a image and impression that would be long lasting in the

German Market. Regarding German’s flooding elevator market, the strong completion,

consumers that are price sensitive as well as a company goal to improve their current

financial position, it is clear to identify that KONE’s success of being launched in the

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German market would rely on favourable results to be obtained. Pricing and positioning

strategies would have a major influence on MonoSpace’s long-term prediction for KONE

(Anon, 2004a:2).

Competitive elevator companies Schindler and Otis stated losses due to elevator price

falls of 5% to 7% in 1994 and 1995 and their turnovers of roughly 11 and 13 percent

(Hutt & Speh, 2010:570). Indications that Schindler was focued on gaining market

share which lead them to become the market leader in hydraulic elevators. Otis alleged

objectives to decrease losses in the new elevator business and this had lead them to

loose focus and lose market share (Hutt & Speh, 2010:570).

The foundation of this pricing and positioning challenge was caused by the immediate

stop in the construction boom and the decrease in demand for elevators in the market

(Anon, 2004a:3)..

1.2.1 Consumer Market (Hutt & Speh, 2010:561-562)(Wood, 2004:73).

Target Segment – General contractors, architects and property developers, in the

German residential market that are seeking space savings on a more modern cruise

ship, weight savings, more space for architechtural freedom, cost savings, energy

savings, noise reduction, heat discharge, environmental friendliness and a

comfortable elevator drive.

It is important for KONE to examine the consumer market because this will give

them a better understanding of:

Customer characteristics and needs – customers are looking for elevator that aquire

less space, are cheaper, faster and better which is highly differentiated from

competitor elevators.

German culture – German Cuisine’s, Sports, Academic landmarks, religion and

music.

KONE can use this to bring the customer’s attitudes, behaviours, needs and

expectations in relation to the MonoSpace offer.

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KONE managers consider that the final elevator decision in the German residential

market is made by the general contractor, then the architect and lastly the property

developer.

1.2.2 Business market (Wood, 2004:46,78).

Target Segment – General contractors, Architects and Property developers.

Business Relationships inside and outside of the business.

KONE have strong connections and relationships with suppliers and channel

members.

They have 25 sales branches situated locally where salespersons account to a

specific branch manager. The branch manager then report to the business division

directors and the regional directors (Hutt & Speh, 2010:559).

KONE is determined in accentuating its long-term relationships and safeguarding

their reputation amongst their suppliers (Hutt & Speh, 2010:568).

KONE is not very dependent on their suppliers and channel members, but they

depend on their long-term relationships for the growth of their company and to

survive

KONE makes use of advertisements in the form of elevator newspapers, journals,

architecture newspapers and journals which are national and local. This build on

KONE’s international business development (Hutt & Speh, 2010:568).

KONE managers consider that the final elevator decision in the German residential

market is made by the general contractor, then the architect and lastly the property

developer (Hutt & Speh, 2010:570).

1.2.3 Market trends and growth http://www.oppapers.com/essays/Kone/99090

The German Market is skrinking by 15% by the year 2000. The Elevator market in

Germany is controlled by residential construction. In 1995 the fraction of elevator units

that was established in low-rise residential buildings was 74%. Low price hydraulic

systems was accounted for about 60% of the German market in low-rise elevators (Hutt

& Speh, 2010:569). The estimated German market in 2000 is 4000 modernising units

which is approximately 26% of 15 500 units in the year 1995 and 13 000 new units

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which is approximately 85% of 15 500 units. Given that part of the anticipated market

will be modernizing their projects, which cannot exploit MonoSpace most considerable

strengths, it would be best to split KONE’s marketing strategy into two parts for

MonoSpace to achieve increase market share. KONE held market shares for New

Elevators in units at 8.5%, lifts in Service 4.9% in units and had a overall total revenue

value market share of 6.7%. This put them 4th in the German elevator industry.

KONE’s market share is a fundamental sign to know that there is a problem or

opportunity arising. 6.7% of total revenues in market share in Germany is not very

good. This is only a very small part of KONE’s revenues that they generated from

Germany without the introduction of the MonoSpace. This could mean that they’r brand

name is acknowledge in Germany but that their target customers are preferring

something new and different and from what their competitors are offering into the

elevator industry. The example of the launch of the MonoSpace in Netherland is a good

guide to use because their prices was reasonable for all their offerings and their gained

40% market share which is excellent. The MonoSpace in Netherlands was focused on

individual customer meetings which gace KONE a good idea of what the market

wanted, the number of estimated customers and purchases in the form of money spend

and units. KONE has access to the complete German market demand for elevators.

Elevator prices was estimated to fall with 5 – 7% in 1994 and 1995.

1.2.4 Marketing research

To ensure that KONE keeps in touch with their targeted segment of General

contractors, Architects and Property developers as well as the Germany market trends it

is important to conduct quantitative research to examine customers perceptions,

attitudes, behaviours and predictions and purchases and number of customers for the

MonoSpace (Wood, 2004:343). This is in the form of questionarres, personal interviews

and telephone interviews, since the Netherlands focused on individual customer

meetings, and that is the direction MonoSpace Germany should follow. Through this

relevant problems, opportunities and threats can be addressed which could relate to

customer and channel satisfaction. MonoSpace is seeking customer intimacy to

examine customer demands and needs towards establishing marketing efforts, product

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offerings and improvements accorting to specific customer trends. Primary and

Secondary research will be done to maintain new elevator development, the planning of

public relations, activities and presentations and to get a grip on the competitive position

and circumstances and observe MonoSpace’s progress towards their objectives (Wood,

2004:343). Finally, feedback will be petition for through KONE’s web site and through

representatives and salesforce/persons.

1.7 KONE’S CURRENT OFFERINGS (Hutt & Speh, 2010: 559-560).

Repair and sale of reconstructed electrical motors.

Manufacture and sale of equipment cranes, steel, chemistry analyzers, wood

handling systems and maritime equipment.

Manufacturing and Sales of Gearless or Traction (PT), Traction (PS), Traction (PU)

and Hydraulic (PH).

Pricing include : PH is DM 60 000, PT is DM 75 000, PU is DM 80 000 and PS is

DM 120 000 – 200 000.

PH contribute to 8% of KONE’s losses while PT, PU and PS contribute only 5%.

Standardized low-rise passenger elevators (78% of revenue), medium-rise elevators

(15% of revenues), high-rise elevator systems (10% of revenues), scenic elevators,

hospital elevators, freight elevators, escalators, autowalks and elevator components.

New Equipment carrying 38% in revenues and.

Services divisions carries 62% in revenues with its maintenance contracts obtaining

78%, modernization of current existing elevators 22%.

Consumer need are satisfied through the MonoSpace product line because it is

cheaper, comfortable ride, controlled speed, extremely energy efficient, requiring no

oil, quicker installation time, occupying 8 persons, can be used in a building of 12

floors or less, yielding considerable extra usable space.

MonoSpace has a 70% of sales.

Pricing of MonoSpace in three countries Netherlands is DG 69 000, France is FF

180 000 and the United Kingdom is £30 750.

MonoSpace obtained Market Share of 44% in the Netherlands, 14% in France and

20% in the United Kingdom.

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1.8 BUSINESS RELATIONSHIPS (Hutt & Speh, 2010:559)(Wood, 2004:46)

KONE have strong connections and relationships with suppliers and channel

members.

They do have 25 sales branches where salespersons account to a specific

branch manager. The branch manager then report to the business division

directors and the regional directors.

KONE is determined in accentuating it long-term relationships and safeguard

their reputation amongst their suppliers.

KONE is not very dependent on their suppliers and channel members, but they

depend on their long-term relationships for the growth of their company and to

survive.

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1.9 BUSINESS ENVIRONMENT

1.9.1 Political legal

The MonoSpace should meet the terms of the German traditional laws and regulations

that governs the quality of the product, the labels, installations, safety procedures,

standards and codes. MonoSpace will comply to Germany’s standards of elevator

installations. Political legal can be very important to KONE’s profitability and increase in

market share for it plays a vital role the success of MonoSpace in another country than

its local and regional areas. There are existing elevator codes in the Europe market

according to EU standards, which states that elevator installations should be installed

with a machine room. MonoSpace did not fulfill this. There are difficulty in transforming

regulations, but this varied from country to country (Hutt & Speh, 2010:564).

1.9.2 Economic Factors

http://www.ehow.com/list_6059553_five-economic-factors.html

Since the German marketing shrinking, KONE should be aware of the economic factors

that could affect the success of the MonoSpace.

Supply and demand – This is vital because a high demand for MonoSpace could

mean that KONE can supply it to their customers and receive estimated profits and

market share at a specific price. But if there is a low or no demand for MonoSpace

then KONE cannot supply anything for a profit. Supply and demand will be affected

by the shrinking of the German market which may mean that customers may not

have enough money to demand the product and this could lead to huge price

deductions.

Interest rates – This affect the customer purchasing of MonoSpace. When interest

rates are high, customers may not borrow from the bank to pay for the installation of

a MonoSpace and sales will not occur for KONE. This is possible because of the

shrinking German market, interest rates could increase slightly.

Inflation – A increase inflation will mean that the MonoSpace price levels will

increase and customers may not be willing or able to buy it due to too high prices.

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MonoSpace should be priced at a low enough price level for its first launch in the

German market, because it is important to first obtain high market share.

Unemployment – The more people that are unemployed in Germany the less money

flows through the economy because of the decrease in purchases of goods and

services.

Foreign exchange rate – KONE is situated in Finland, which operates with the same

currency as Germany (Euro’s). Thus it will not cost KONE more or less to penetrate

the German market.

1.9.3 Social responsibility and Ecology

MonoSpace requires no oil, unlike the hydraulic elevators. This ensures that it is a

more environmental friendly product and abolished the possibility of environmental

hazards and fires.

MonoSpace commit themselves to act in a way that is beneficial to the society e.g

making ethical business decisions.

1.9.4 Technological factors (Hutt & Speh, 2010:559-564)

KONE engaged in enormous effort of obtaining better technological factors than their

competitor Otis from Japan to develop the MonoSpace.

Research was conducted in various ways to enhance every aspect of the prototype

that was previously introduced.

Technology was gathered from motor geometry and new different materials to build

this light weight, thin, cheaper, energy efficient and environmental friendly product

MonoSpace.

Technology is a strong point in the German market and this poses as an advantage

to KONE with their MonoSpace, because a lot of effort was put into designing this

elevator with extreme highy acknowledged technology.

Customers, Suppliers, distributers, MonoSpace Marketing efforts and processes will

react positively and embrace to this new technology.

MonoSpace technology is effected by the EU standards and elevator codes of

installations with machine rooms.

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This industry is however dependent on new and improved technology and

technology is the only way that competing companies will be able to offer

differentiated products to their customers in this industry.

This technological revolusionisation will ensure that substitute products will be offset

for at least a medium sized period and that the only factor with which KONE will

compete will be its price levels according to their competitors price levels. This will

give them a jump start with obtaining market share in Germany.

KONE invested roughly 1.5% in 1995 in new product development which required

research. Their competitors are investing three times more due to substantial

prices, products and market share. This technology will ensure KONE to invest

more in their business through fisrt obtaining market share. The highest part of

spending on development and research is over for now, KONE can enjoy the pure

pleasure of launching their MonoSpace and improving on it.

1.9.5 Social Cultural trends

http://www.tatsachen-ueber-deutschland.de/en/society/main-content-08/

demographic-trends.html

With the shrinking economy of Germany, there are some demographic trends that need

to be taken into account when planning to launch the MonoSpace:

Birth Rates – Germany has been observering fewer births for the past 30 years.

There have been fluctuations since 1975 but the average newborn infants per

woman is in the region of 1.3 children. This has lead to conclude that for the past 35

years the age bracket of children have been lesser than that of their parents

Immigration – Immigration to Germany have been high and this has prevented the

total population from reducing in size consequently.

Life Expectancy – This has gone up constantly and had moved to 77 years for

males and 82 years for females.

All these factors have lead to a 4th trend which has major consequences. The

proportion of young individuals in the total population has decreased and older

individuals have increased. This has lead to there being only two individuals of an

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workable age for every individual that is over the age of 60. This could have the

result of less younger people being employed in highly acknowledged business

positions. The new generation will be able to develop new techniques and use the

new technology, but there will be fewer of them that are able to do it.

All these trends will have an effect on the consumer preference for the MonoSpace

product, the demand for it and the switching to other products. KONE will have to

keep this in mind when estimating how big they want to become in Germany with

their products. They will properly have to look into opening a branch in Germany

with individuals that they employed from their regional and national base which are

able to demonstrate their product offerings and market accordingly.

1.9.6 Competitive factors (Wood, 2004:52)

Competition in the German elevator market is Schindler, Otis, Thyssen, Haushahn,

Schmit & Sohn and then KONE (Hutt & Spech, 2010:569).

Otis had launched a prototype of a machine-room-less elevator which was based on

a linear training motor, but it did not succeed commercially because its price

premium was higher than its assembly cost savings and its possibilities of

generating revenue. (Hutt & Speh, 2010:561).

The main competitors in the German market is 30 Mid-size players and 150

cowboys.

The Mid-size players are established to be 30 on number offering new equipment

sales series of 100 to 300 elevators per year and some of them produce hardly any

key constituents and most of them contract their manufacturing outward. They

operate regionally (Hutt & Speh, 2010:569).

Cowboys are the smaller companies that operate locally. They influence the

elevator industry aswell. (Hutt & Speh, 2010:570).

There are two sectors in the elevator industry namely the new equipment sector and

service sectors. The competition in the elevator industry is intense, especially when

it comes to pricing, quality and technology offerings. The larger companies usually

sold their equipment at a price that was below or at the cost to price-sensitive

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customers. Companies that originally installed the elevator were saught as service

contracts.

In the German market the four largest construction companies enjoyed 20% control

of the market and just about 20 00 small contractors battled for signing contracts in

the remainder of the market (Anon, 2004a:2).

KONE has a competitive advantage over the rest of its competitors because of its

technology that it has invested into the business. KONE knows the know-how of the

detail technology they used to make the lift. This competitive advantage will help

decrease the advantages that Otis, Schindler and Thyssen have over KONE.

If they decide to implement low prices, this will also give them an advantage

because they can ask what ever price they want to because they are the only

company with his MonoSpace in which customers are interested in. They can set

their prices low because their business model is economically viable e.g revenue,

customer acquisition, retention costs and the time taken to obtain the customer, their

constribution margins are relative enough for them to cover their fixed costs and

KONE’s operating cash cycle characteristics for capital investments and the level of

margins to obtain are looking relatively stable. The only problem here is that on

procurement process takes 8 to 15 months to be finished, which is a long time and

this could count as a disadvantage. This means that there are inventory piled up in

working capital which are not yet sold and this could effect the time taken to pay

employees and resellers. This all depend on how long the customer takes to pay

the company for services, installations and equipment (Mullins, 2010:107).

KONE has the highest market share in the Netherlands

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1.10 SWAT ANALYSIS

Strengths

Weaknesses

Opportunities

Threats

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13

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2. ANALYSING CONSUMER AND BUSINESS MARKETS

2.1 Business market 68

2.2 Market definition

2.2.1 Potential market – customers that might buy the product

2.2.2 Available market – all customers that are interested and have both adequate

income and adequate access to the product

2.2.3 Target Market

2.2.4 Penetrated market – customers in target market who currently buy or have

bought

2.3 Market changes

2.3.1 Number of customers consumer population increasing / decreasing

2.3.2 Purchases how many products are all companies in the industry esitimated

to buy in the next year or later, how has trend in purchases changed.

2.4 Market share % of sales within a market accounted for by a company, product

calculated in terms of units or money

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2. DIRECTION AND OBJECTIVES

2.1 Marketing plan direction

2.2 Marketing plan Objectives

3. PLANNING SEGMENTATION, TARGETING AND POSITIONING

3.1 Market segmentation p.95, 98

3.1.1 Consumer market variables

3.1.2 Customer characteristics – consumer

3.1.3 Product – related variables – consumer

3.1.4 Business market variables

3.1.5 Customer characteristics – business

3.1.6 Product – related variables – business

3.1.7 Conclusion

3.2 Targeting

3.2.1 Type of marketing used

3.3 Positioning

We recommend KONE to launch MonoSpace in Germany. The most likely price for the elevator is $70,000 (Exhibit 1). KONE should position the product in the low rise hydraulic segment since this segment has the maximum market penetration (over 74%) in Germany and MonoSpace offers the best value proposition in this segment.

ANALYSIS OF RECOMMENDATION (Pricing & Positioning):

16

Based on the financial analysis and study of overall elevator business in Germany we believe that KONE will be able to increase its overall revenue by 50% and gain a further 5% share in low-rise hydraulic elevator market. The overall increase in revenues will come from higher margins obtained from 50% cannibalization of PH line and also new market share from competitors. (Exhibit 1 for risk analysis and scenario analysis). We believe that substantial increase in revenues can be obtained by advertising and education of consumers about value-added v/s price as well as aesthetic aspects of the new product. Our team recommends that new MonoSpace at the most likely price of $70,000. MonoSpace provides value to the customer in the form of cost savings, ease of installation and energy efficiency. The total value-add for the customer was determined to be $18,500 (Exhibit 2 – Rationale behind pricing). We suggest that KONE divide the benefit gained equally between customers and KONE. This approach to pricing should be considered as “fair” from the perspective of customers as they are getting a price point lower than to that of perceived value. Current market dynamics makes it very attractive for KONE to launch mono space in Germany. The total market for low rise elevators is 74% of the total elevators market. Furthermore 92% of this is residential segment. KONE can outclass the...

3.3.1 Differentiation

3.3.2 Applying Positioning

4. DEVELOPING A STRATEGY

4.1 Plan a product strategy

4.1.2 Product mix and product line decisions

4.1.3 Product life-cycle decisions

4.1.4 New product development decisions

4.1.5 Quality and performance decisions

4.1.6 Feature and benefit decisions

4.2 Plan a Brand strategy

4.2.1 Brand identity

4.2.2 Brand meaning

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4.2.3 Brand response

4.2.4 Brand relationship

5. DEVELOPING CHANNEL AND LOGISTICS STRATEGY

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.

5.1 Analysing the value chain

5.2 Plan channel strategy

5.3 Plan logistics strategy

6. DEVELOPING PRICE STRATEGY

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. We recommend KONE to launch MonoSpace in Germany. The most likely price for the elevator is $70,000

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(Exhibit 1). KONE should position the product in the low rise hydraulic segment since this segment has the maximum market penetration (over 74%) in Germany and MonoSpace offers the best value proposition in this segment.

ANALYSIS OF RECOMMENDATION (Pricing & Positioning):

Based on the financial analysis and study of overall elevator business in Germany we believe that KONE will be able to increase its overall revenue by 50% and gain a further 5% share in low-rise hydraulic elevator market. The overall increase in revenues will come from higher margins obtained from 50% cannibalization of PH line and also new market share from competitors. (Exhibit 1 for risk analysis and scenario analysis). We believe that substantial increase in revenues can be obtained by advertising and education of consumers about value-added v/s price as well as aesthetic aspects of the new product. Our team recommends that new MonoSpace at the most likely price of $70,000. MonoSpace provides value to the customer in the form of cost savings, ease of installation and energy efficiency. The total value-add for the customer was determined to be $18,500 (Exhibit 2 – Rationale behind pricing). We suggest that KONE divide the benefit gained equally between customers and KONE. This approach to pricing should be considered as “fair” from the perspective of customers as they are getting a price point lower than to that of perceived value. Current market dynamics makes it very attractive for KONE to launch mono space in Germany. The total market for low rise elevators is 74% of the total elevators market. Furthermore 92% of this is residential segment. KONE can outclass the...

6.1 Pricing based on Value

6.2 Influences on Price strategy

6.2.1 External Influences

6.2.1.1 Customers

6.2.1.2 Market and demand

6.2.1.3 Competition

6.2.1.4 Channel members

6.2.1.5 Legal, regulatory and ethical considerations

6.2.2 Internal influences

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6.2.2.1 Organisational and marketing plan objectives

6.2.2.2 Costs

6.2.2.3 Targeting and positioning

6.2.2.4 Product decisions and life cycle

6.2.2.5 Other marketing – mix decisions

6.3 Making pricing decisions

6.3.1 Pricing Objectives

6.3.2 Pricing the products

6.3.3 Adapting prices

7. DEVELOPING INTEGRATED MARKETING COMMUNICATION STRATEGY

7.1 Integrated marketing communication tools, message and media

8. CUSTOMER SERVICE AND INTERNAL MARKETING

8.1 Customer service strategy

8.2 Internal marketing strategy

9. PLANNING TO MEASURE PROGRESS AND PERFORMANCE

10. FINANCIAL FORECASTS AND DETAILS

11. IMPLEMENTATION AND CONTROL

Anon. 2004a. KONE’s MonoSpace offering.

http://www.google.com/search?

hl=en&source=hp&q=German+elevator+market&rlz=1R2ADFA_enZA344&aq=f&aq

i=&aql=&oq=.

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Anon. 2011a. Germany reunification.

http://apcentral.collegeboard.com/apc/members/courses/teachers_corner/

29051.html.

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