Case Overview

Kunst Vacuum Pumps is the recently acquired U.S. Division of Atler GmbH. This firm is involved in
manufacturing of expensive vacuum pumps which are to be used in the highly demanding
laboratories, industrial applications and health care. Kunst Vacuum Pumps headquarters are located
in Frankfurt, Germany and its revenues exceeded by 5 billion. The reason why Atler acquired Kunst
was to penetrate some of the new segments in the U.S. market. Alter produces diversified lines of
high-quality compressors, monitoring devices and high measurement instrument. Alter is a very well
known and famous company in Europe and has enjoyed a good reputation for its scientific discovery
powers, its reliable products and also for their competency when it comes to the technical service.
Kunst 1600 Dry Piston Vacuum Pump is an injection-molded aluminum pump, fractional horsepower
with a pumping speed of 1.6 cubic feet per minute (CFM). It weighs 16.5 pounds. In addition to it,
Kunst 1600 is oil-free as well. Due to its compressor, the Kunst 1600 can run longer and cooler than
the conventional vacuum pumps, which is an additional advantage which enables Kunst1600 to
function more efficiently at lower pressure levels than any other competing products. Moreover, the
fact that the Kunst 1600 is injection-molded means that in comparison to the traditional models it has
fewer working parts.

Issues and Problem discussed in the Case for Kunst for Market Segmentation
Segmentation is defined as dividing the market into groups of buyers who might have some common
characteristics or buying behavior and who might need different products or marketing mixes while
targeting is defined as evaluating each segment’s attractiveness and then deciding on which
segments to go for and target them. Even though Evan, the senior product manager at Kunst
Vacuum Pumps, had confidently predicted and thought that the Kunst 1600 along with the Kunst
reputation will be the “Mercedes” of Vacuum Pumps in the U.S. and even though he had set some
decisions to address the important issues like identifying and targeting the high potential market
segment and developing a value proposition for each segment, he had faced the following problems
that can be summarized as the following.

Among two of the segments that the management was trying to target, residential AC repair and
Home and Light Commercial Refrigerator repair Segment, Evan was not able to determine which
segment to select and target even after conducting the market research.

And the market research yielded very different and confusing results from which Kunst Vacuum
Pumps thought the value for the customer is while entering into new market segments.

For instance, in case of the Residential AC Repair segment, technicians had to carry the pumps to
unusual locations at job sites, they felt that the lighter the pump would be the better it is. It was

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considered to be lighter than its competitive models because of its aluminum body. However, they
wondered and it made them worried if the aluminum would make it more vulnerable to breakage. In
addition to it they thought that the acids exhausted from the Kunst1600 would accumulate which
would result in the aluminum housing to corrode more rapidly and quickly. Moreover, the
technicians strongly believed that reducing the vacuuming time would not necessarily reduce the
total job time because what is considered to be an idle time from the Kunst management is actually
helping those technicians in completing their other tasks like repair tasks, writing invoices and
developing a more personal relationship with the homeowner.

Most importantly, the discussion of oil changes gained contradictory and confusing results as the
owners and technicians both agreed that the vacuum pump instructions called for the oil to be
changed after every job. While in fact repair technicians saw changing the oil as a dirty little job as it
took for about 30 minutes to complete it.

Finally, the participants responded that they are not interested in the Kunst 1600 having 1.6 CFM
rating because they regarded it to be too small to handle a residential AC repair job. Regarding the
other segment, Home and Light Commercial Refrigerator Repair, on the home refrigerator jobs, the
participants did not see any advantage in reducing the amount of vacuuming time. There was another
problem which was related to changing the oil in the home and light commercial refrigerators as the
technicians change the oil during working hours between jobs. It is also important to note here that
after specifying the segment any firm wants to target, managers need to identify the correct value
proposition for each segment as well as delivering the proper and superior value to that particular
segment.

Case Analysis
Value Proposition
The Customer value proposition for the Kunst Pump Case is the one which was given by as on of the
contractors during the market research surveys as described in the case :
“If you can’t show me how your vacuum pump is going to increase the number of jobs I can do per
week or cut my operating costs, I don’t want to hear about it!”

So the value proposition for the customer is the following:

The faster draw-down performance of the Kunst 1600 enables customer’s firm to
complete more jobs in the busy season and earn more, while eliminating the oil change
mess and hassle.

Analysing the customer value for 3 market segments discussed in the case :
From a quantitative perspective, the superior value and price of the Kunst 1600 can be attributed to
these three elements.

Value Elements:
•Cost savings due to the elimination of oil change expenses
-- Most owners and technicians trivialize oil change related costs.
• Incremental revenue and profits

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–Incremental revenue and profits refer to new income that can be attributed to greater product
efficiency. In this case study, this occurs in only one segment –light commercial refrigerator repairs.

In all other segments, repair firm revenues remain the same regardless of which pumps are used.

Price Element:
• Increased pump durability
-- The Kunst 1600 lasts 2 to 3 times longer than the incumbents in most segments. This means that
repair firms will have to buy more conventional pumps than Kunst1600s. This impacts the price
a repair firm has to pay for conventional pumps (i.e., 2 to 3 times greater) and not the number of
jobs it can complete! In the economic sense, there is no incremental profit merely greater price.

Value Proposition
For the most part, there are few differences among conventional pumps and the Kunst 1600. Here
are a few
• Weight differential
– The Kunst 1600 is lighter than pumps currently used in residential AC repairs and heavier
than those used in home refrigerator and light commercial refrigerator repairs. These weight
differences may impact technician preferences.
•Durability of parts
– As the Kunst 1600 is constructed of molded aluminum, its parts may be subject to less
corrosion and thus last longer.
•Brand Popularity
– Currently, Kunst has little brand equity in the potential market segments. This may put them at a
competitive disadvantage with long-established rivals.
•Expected value of oil dumping fines
One would calculate the expected value as “the sum of company and individual fines times
probability of being caught times the amount of oil dumped per year.” There is limited case
information that enables you to do such calculations, but this will be difficult to pin down in that any
calculation will involve assumptions about how often the contractor illegally dumps the oil.

Calculations of Economic Value

Cost savings per oil change
= Oil price + Labor cost + Clean-up supplies+ Oil disposal cost Labor cost = Hourly rate of individual
changing oil x Hours of time required per change Clean-up supplies = monetary amount of scouring
soap used + price of cloth towel Oil disposal cost = recycling charge per gallon of oil x number of
gallons recycled

For Residential AC Repair segment (using maintenance worker):

 Cost savings per oil change = $8 + ($12 x .5) + (.15 + .50) + ($5 x .25)= $15.90
 Cost savings per year for oil changes = Cost savings per oil change x Number of oil changes
per year= $15.90 x 20= $318
For Home Refrigerator Repair segment:
 Cost savings per oil change = $4 + ($15 x .5) + (.50 + .15) +($5 x .125)= $12.775
 Cost savings per year for oil change = Cost savings per oil change x Number of oil changes
per year= $12.775 x 12= $153.30
For Light Commercial Refrigerator:
 Cost savings per oil change = $4 + ($24 x .5) + (.50 + .15) + ($5 x .125)= $17.275
 Cost savings per year for oil change = Cost savings per oil change x Number of oil changes
per year= $17.275 x 12= $207.30

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Incremental profit per year
= (Number of additional jobs per week x Average profit per job) x Weeks per busy season The Kunst
1600 would not enable the contractors to perform any additional jobs in either the residential AC
repair or home refrigerator repair segments.

Only for the light commercial refrigerator repair segment was it found that using the Kunst
1600 would enable the contractor to perform additional jobs.
Incremental profit per year = (2 x $30) x 12= $60 x 12= $720
To move from the total value of the Kunst 1600, given by the preceding calculation, to the
value-in-use of the Kunst 1600, we must also include the price of the alternative pumps.

Value-in-use is an economic term that equals the theoretical maximum price that a customer would
be willing to pay. When the expected lives of the offering differ, this must be taken into account, and
can be expressed as the differential price per year.

Differential price per year

= (Incumbent pump price/Expected number of years) – (Kunst 1600 price/Expected number of years)
An assumption to question here is the given expected life of 6 years for the Kunst 1600. A point to
make is that this estimate was likely obtained from accelerated use lab tests. Estimates obtained in
this way can be problematic when one or more assumptions made in the accelerated use lab tests
do not hold in the actual use of the Kunst 1600 in the given applications (e.g. careless handling,
throwing the pump into the back of the truck).
For Residential AC segment :
Differential price per year = ($250/2.5) – ($500/6)= $100 - $83.33= $16.67
For Home Refrigerator segment :
Differential price per year = ($150/3) – ($500/6) = $50 - $83.33= - $33.33

For Light Commercial Refrigerator segment :

Differential price per year = ($200/2) – ($500/6) = $100 - $83.33= $16.67

Customer Value Models

Residential
Value AC repair Home Refrigerator Light Commercial Repair
Element Segment Repair segment segment
Oil Change
Savings 318 153.3 207.3
Incremental
Profit 0 0 720
Total Value 318 153.3 927.3
Differential
Price 16.67 -33.33 16.67
Best in terms of Customer Value

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Recommendation & Conclusion

Recommended Choice of target segment(s) for the Kunst 1600 in terms of Customer Value
Proposition

Given Kunst’s status as a new acquisition, Evan and Will should target a single segment at this
time. Given that this is a small firm, they should focus their limited resources on the segment that
offers the most feasible chances of success. They can use this segment as a“foothold” to penetrate
other segments later on perhaps with other Atler products.
•Of the three segments, the one offering the greatest potential is a light commercial refrigerator
repair This is the only segment where all three value/price elements (incremental profit, cost savings from
oil changes, and durability) come into play for the Kunst1600. The fact that the Kunst 1600 enables
firms to do more jobs per week is the pivotal factor in that owners and technicians trivialize
changing the oil and overestimate the lifetimes of conventional pumps.

 The value-in-use per year (i.e., $943.97) and value created per year ($927.30) are significant
and far greater than that created in the other three segments.
 The incentive to buy the Kunst 1600 in this segment is significant (i.e., around $844 per
year).
 The Kunst 1600 reduces repair job time by 10 minutes and increases the number of job
possible by 2 per week during the summer months.
 The Kunst 1600 eliminates the hassle of oil changes for these largely independent
operators.
 There is no likelihood of fines due to illegal dumping of oil.
 The competition will probably not be as strong in this segment as it will in other segments,
namely residential AC repairs.

Although it is highly attractive in terms of size, the residential AC repair segment is not
feasible because of perceptual barriers and the fact that the Kunst 1600 may be underspecified
(1.6 CFM pump in a 3-6 CFM application). Target another Atler product at this segment.

The home refrigerator repair market may be viable long-term however, the Kunst 1600 may
be over specified for the application (1.6 CFM pump in a 1 CFM application). The Kunst
1600 does not create incremental jobs here and pumping only takes 15 minutes.

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