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ID # 001-97-6835 KONE is one of the largest elevator companies in the world with $2.2 billion revenue in 1995; the revenue from new equipment sales and service contracts was 38% & 68% of total sales respectively. However, the competition in global elevator market is very acute, KONE needs to deal with several world renowned elevators companies including OTIS, Schindler, Mitsubishi, Thyssen as well as several regional elevator manufacturers. To be remaining very competitive in the market, KONEs R & D team came up with EcoDisk technology which would eliminate the machine-room requirements for elevator installation, especially for low-rise and mid-size elevators. KONEs MonoSpace powered by EcoDisk had launched in several European markets including Netherlands, France as well as United Kingdom. The response rate from these markets was a mix; KONE experienced huge success in Netherlands whereas the experience in UK & France was not reasonable. KONE Aufzug wants to launch the MonoSpace in one of the European largest elevator market in Germany with aiming to conquer the German low-rise elevator markets. However, before launching the MonoSpace in German Market, KONE Aufzug needs to consider and analyze the new products, current market situation as possible marketing strategies [ Exhibit -1: Issues Need to Consider & Analyze Prior Launching MonoSpace in Germany]
ID # 001-97-6835 Regardless all the exemplary benefits, MonoSpace had to deal with some drawbacks like most of the new product does. MonoSpace would require a machine room if customer wants to use 16 person cabin elevator. The MonoSpace elevator is not suitable for the outdoor or penthouse installation as its drive unit require a temperature between 5C to 40C. Apart from these two drawbacks, MonoSpace would face classic problem for being the single supplier of this kind elevator, customers may fear that they have to pay whatever KONE ask, in fact KONE had the same experience in UK
ID # 001-97-6835 Germany with substantial operations resources including offices, sales forces, manpower as well as potential market to launch a new product like MonoSpace in Germany.
Recommended Marketing Strategy for Launching the MonoSpace in Germany: Market Segmentation Strategy:
Taking the product to the right customers determine the future success of the product. By considering the market analysis data as well as the product features, we would recommend KONE Aufzug undertake the advertising and lunching plan go with low-rise residential elevators market mainly. However, they could also target the mid-size elevator market (12 floors or less) with the MonoSpace .We have recommended the low-rise residential market because this segment is accounted for 74% of total German elevator
ID # 001-97-6835 market share and this rate will not be changed significantly. Furthermore, KONE Aufzug earned 48% of its total sales in 1995 from low-rise market; it seems KONE has the strong understanding in low-rise elevator market to leverage more success. Therefore it is true that new product would help them to gain more market share from the overall low-rise elevator market. Top on this, KONE could potentially get into the mid-size market with MonoSpace although the mid-size and high-rise elevator market is accounted for only 26% of the total elevator market.
The low-rise elevators customers in Germany are mainly property developers, general contractors, architects, there are four largest contractors who controlled almost 20% of the total constructions whereas 20,000 small contractors covered the rest. As data reveals, the final elevator purchase decision is made by contractions 50% of the time, by the architect 40% of the time, by the property developers 10% of the time. Therefore, we would recommend KONE Aufzug to target the contractors and architects heavily during the campaign.
On the other hand, I would recommend KONE Aufzug to undertake the functional-positioning strategy as the MonoSpace would solve several functional area of the elevator systems. As KONE already a well renowned established brand it would be easier for them to position the product with functional aspects, furthermore the experience in UK, Netherlands and France market would help to furnish the positioning strategy. KONE Aufzug should campaign the long-term partnership and preserving reputation approach in German market to avoid Single Supplier Worries issues.
Pricing Strategy:
Pricing for the MonoSpace in German would be tricky by considering the acute competition, fell down of price of existing product from 5% to 7% in recent years as well as the possible cannibalization rate of existing low-rise elevators sales. Although KONEs managers from Brussels headquarters suggested that the MonoSpace be priced above existing price if KONE held less than 15% market share and in line with the existing price level if KONE otherwise, I would recommend to go with the following pricing for
ID # 001-97-6835 the German Market by considering the aggressive pricing strategy to increase the market share and profitability rather than target profit pricing strategy-
MonoSpace
As the target customers are low-rise elevators buyers who mainly buy the hydraulic elevators, furthermore, most of the case the purchase decision makers are contractors and Architects who are more concerned about the upfront cost rather than long term cost benefits or savings from fuel as well as maintenance, therefore I tried to keep the price as close as hydraulic elevator price. However, I have added 10% more on the hydraulic price to come up with DM 66,000 (DM 60,000+ DM 60,000X10%). Customers will be willing to pay additional 10% for the MonoSpace as they would save money directly from the machine room construction cost. This pricing would be appealing to contractors, architects as well as property developers. Generally, the total elevator cost includes, half of the new equipment cost and half constructions of the shaft and machine room and installation cost. Approximately, machine room cost for hydraulic drive elevator is accounted for 25% or less of the total elevator cost. So, the machineroom cost might be 10% to15% of the total new equipment cost. From this permutation, I have added 10% more on hydraulic elevator price to come up with MonoSpace pricing.
It is obvious that KONE would face immediate competition reaction from the competitors as they faced in other European markets, competitors might dumped down their price significantly to match with MonoSpace offerings and value. However, we have to deal with the aggressive competitors like Schindler or Otis through pricing strategy (possible adjustment in recommended) and possible huge marketing campaign to position the value of the products. Certainly, it would not be possible for
ID # 001-97-6835 competitors to come up with machine-room-less or similar technologies in few quarters, we do believe by this time KONE Aufzug would receive substantial market share in German market. As KONE engineers are working on further development & enhancement of EcoDisk technologies, it would add extra edge in KONEs product line.
All the above tasks will be conducted simultaneously, after completion road shows; I would recommend KONE Aufzug to conduct at least one seminar in each region every month. Once the initial one month journal advertisements would over, KONE should continue the journal advertisement through popular journal in limited basis. Finally, I do believe the launching strategy for the MonoSpace, along with the MonoSpace product itself would bring the expected success for the KONE Aufzug. Apart from all the above recommendation, I would recommend KONE Aufzug to leverage their existing sales force more in outbound sales activities rather than existing inbound sales approach. Good combinations of passive and active sales activities of a good product backed by proven marketing campaign certainly bring the success for any company.
ID # 001-97-6835
Appendix:
Exhibit: 1 (Issues Need to Consider & Analyze Prior Launching MonoSpace in Germany)
Exhibit: 2 (Global estimated demand of elevators in 1996 and the global big players in the elevator market
List of Global Elevators Manufacturers
Monthly Seminar
Full Page Advertisement on Popular local News Paper in following day of Kick off event