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CASE STUDY

KONE:The Monospace Launch in Germany


Business Marketing
Submitted By: Avishek Tarun Nikit Tyagi Rajesh rai Saurabh Mathur Syed Mehtaj

International Management Institute, New Delhi

In order to enhance its financial position in a saturated elevator market and intense global competition, KONE developed the Monospace elevator that uses revolutionary technologies. It has various benefits, such as being the most energy efficient, not requiring oil and therefore eliminating fire and environmental hazards and its lower installation time. 1. Importance of Monospace launch for KONE and implications of success or failure The launch of Monospace is very important for Kone. The reasons can be summarized as following
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Value addition The launch of Monospace will add value to Kone in the form of product differentiation instead of competing on price. It s an improved product which eliminates the requirement of machine room, consumes only half of other elevators and no need of hydraulic oils. Dwindling profits Profits for Kane has decreased from 6.5% to 6% and profit after tax has come down to 0%. So, It is important for Kone to launch a product which is advanced in terms of technology. For gaining market share The launch of Monospace will cater to a new segment which should increase the market share of Kone.

Implications of success
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It will help Kone in gaining a significant market share and establish itself as a leading innovator and technological superior company. As it has a better margin than existing elevators, it will help Kone in increase its profits. It might cannibalize other low price elevators that have been offered by Kone. It will give an early mover advantage to Kone in this new, energy saving, and comfortable elevator segment.

Implications of failure
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If the product fails, it will be huge loss in terms of capital invested in advertisement activities such as road shows, seminars and other PR activities. It will reduce reliability of Kone in the market as it can t develop a successful product even after investing large amount of money. Need to compensate the unsatisfied customers who have already purchased the Monospace elevators.

If Monospace launch is successful, company s worsening financial position will improve and its market share in residential elevator market will improve. If it fails, company will further incur financial losses and hence company s future growth strategy will get affected. The pricing and product positioning strategies set for Monospace in Germany would have a significant impact on the long-term success prospects for KONE.

2. Test Market Launches: Unit sales and Market share Units KONE Otis Schindler Thyssen

France UK Netherland

7000 3300 2100

14 20 40

41 30 19

20 10 13

18 10 6

Learning from the test market launches


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

Comparison of German market with respect to other markets

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Saturated market and construction slumping Germany led to fall in demand for elevator equipment by 15 percent Price sensitive customers due to market saturation Skimming pricing strategy will not work in Germany Also quality, efficiency, and service oriented customers Legal approval for Monospace to be installed in every state throughout the country Government does not subsidize the elevator industry Property developers consistently used the bid process to pressure contractors for price reductions.

Monospace 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 will appeal to German customers, who are not just price sensitive, but also quality, efficiency, and customer service oriented. Price skimming strategy, which is successful in other countries cant be applied in Germany, where consumers are extremely price-sensitive due to market saturation.Rather, KONE should price the Monospace similar to products offered by Schindler and Otis, but emphasize on Monospace benefits. 3. Launch Plan of Monospace KONE was to launch the Monospacein the low-rise residential elevator market in Germany, which was its largest country market in Europe and vital to its overall success.Basically KONE has two options. 1. They could market the product either in-between the hydraulic and the geared traction

2. They could position it as top of the line 4. Monospace fit relative to product lines Based upon above mentioned two options of Monospace launch plan, 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: Rather than adopting price skimming strategy in extremely price sensitive German market, KONE should price the Monospace similar to products offered by Schindler and Otis, but emphasize Monospace benefits to customers. Approach 2: KONE should position Monospace above the gear traction products, market its distinctive features with high-end price and keep the hydraulic as their low-end model. Since there was less demand for new elevator installation, KONE should focus on profits and not on market share generated from following low cost strategy. Monospace fit price and performance wise relative to other products

Pricing
 Monospace was priced in line with equivalent and more expensive geared traction elevators  Monospace be priced above existing prices if KONE held less than 15% market share and in line with existing price levels if KONE otherwise  A significant portion of the savings of not building a machine room would accrue to either the owner or construction company motivating them to specify the Monospace  In France cost was FF55,000 per year less than that of a comparable elevator (repaying a premium of FF 30000 in 6 years  In UK was dictated primarily by the 15000 pound TF which put it near the PT price

Performance
 A new drive system all other elements of which were identical to other KONE low-rise elevators.  Extremely positive reactions from the customers  No ventilation due to decreased thermal loss  The benefits of eliminating the machine room and reduced consumption and the manner in which the roping worked with emphasis on feasibility and reliability

5. Key weaknesses in KONE s current capabilities


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The current Brand of KONE is not at the same level when compared to already settle bigger brands such as Schindler, Otis, Thyssen present in Germany. Therefore, KONE will have to conduct a lot of marketing activities such as Product launch, advertising etc. in order to fully demonstrate its current capabilities to the prospective buyers.

KONE will have to work with its current network of salespeople in order to convince the purchase decisions makers (general contractor and architects) to enclose deals. Currently, the salesperson s strength that KONE has for KONE AUFZUG, which operates in Germany, is much lower and outnumbered by four or five to one by other big firms such as Thyssen, Otis, and Schindler. Therefore, in order to effectively mange its selling team in Germany with lesser number of employees, KONE current capabilities will play a major role.

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Property owners fear of a monopoly : As the machine-room-less elevator was a revolutionary technology started by Kone, property owners felt they could be left with very little bargaining power as there was no other competitor offering this technology. Convincing prospective customers on this front is a potential weakness. Sales force of Kone was comparatively lesser than it s competitors. This means lesser visits per week in a given region. Building continuous relationship is of paramount importance in a Business Market scenario. Legal regulations of target market countries may or may not allow easy roll out of the latest technology. May get caught in Red-tape issues. Proprietary technology means customers have to rely on Kone throughout the lifecycle of the machine as other local service providers have no/very little knowhow about this technology.

To succeed in the new market, it is very important KONE leverages its competitive advantage that it has in the form of technology (EcoDisc) and directs all their marketing strategies on this line.

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