Kone Case Analysis

Case Analysis: KONE: The MonoSpace© Launch in Germany

MGMT 62300

November 8, 2016

Yoko Okubo

Hangqiao (Vera) Liu

Chien Wen (Nancy) Cheng

Ting-Wen Hsueh

Table of Contents

Problem Statement --------------------------------------------------------------2

Market Analysis     -------------------------------------------------------------- 2

Recommendations  -------------------------------------------------------------- 3

Plan of Action         -------------------------------------------------------------- 4

Risk Mitigation       -------------------------------------------------------------- 6

Exhibits                   ---------------------------------------------------------------7

Problem Statement

Entering and expanding the German market with KONE’s revolutionary newest product, MonoSpace©, is challenging to KONE; considering that the price competition and margin erosion within the elevator business industry issues, which were caused by the construction slumps and low differentiation offerings in competition, and the declining demand for new elevator equipment in Germany. So we will propose a marketing plan to help KONE launch and promote MonoSpace© in German market.

Market Analysis

The elevator industry saw a major consolidation in the past two decades and there were 5 dominant companies including KONE in 1995. The industry consists of two sectors: new equipment and service. The new equipment sector was significantly competitive often leading to being sold at or below cost. On the other hand, the service sector kept high margins due to tacit agreements.

For KONE, the success of MonoSpace© was crucial in the situation of decreasing net income. Also, sales from new equipment accounted for significant amount of its revenues (38%), therefore this new product launch was a key strategy for their success.

KONE had launched MonoSpace© in Netherlands, France and United Kingdom. The results were varied; success in Netherlands and failure in France and UK. It was priced in line with existing price levels in Netherlands and UK and above existing prices in France in accordance with the suggestion by the headquarters. The market strategies varied in the three countries. In Netherlands, more than 100 one-on-one presentations were done within the first year to architects, construction companies, owners and consultants. In addition to that, the articles related to MonoSpace© were published one per month in order to grab architects and construction companies’ attention. In France, on the other hand, the marketing was mainly relied on a television program or advertisement. In addition to these, approximately 20 breakfast meetings were held towards primarily architects, developers, building owners, owners or smaller construction companies and safety officials. Similar to in France, KONE had only three presentations to 80 constructions companies, developers, quantity surveyors, consultants, and architects. Drawing from the sales results, we can observe that KONE did well in the country in which it did more face-to-face meetings.

In German market, new elevator prices were falling in 1994 and 1995 due to the end of the construction boom and other competitors were reporting losses. In order to analyze the

fit of MonoSpace© in German market, we conducted a SWOT analysis as shown in Exhibit 1. Its technical strengths are good fit for the dominant residential construction and also positive feedbacks from customers in Netherlands, France and UK would be beneficial to implementation in Germany. There are weaknesses such as inaccurate needs analysis in the previous launch, but it can be concurred by the recommendations below.

Recommendations

        We organized three strategies as our recommendations to KONE Aufzug based on above market analysis.

Market Needs Strategy: In order to successfully launch a new product, which is MonoSpace©, into Germany, we suggest KONE to put more efforts to clarify what are the new market needs, and who will be the potential and correct customers that we need to contact with. Because we have had lessons drawn from other mistakes, which KONE failed to accurately match the markets needs with the France and United Kingdom markets compared to the one in the Netherlands. The sales results for both France and UK were not what KONE expected. For Germany, we know that 74% of German elevator needs were low-rise residential buildings, and this percentage would not be changed for the next five years. And this market need and German specific situation affected the key customers, who were general contractor, architect and property developer. We will discuss more on how to analyze the market needs more through our key customers in the Plan of Action part.

Pricing Strategy: We recommended KONE to set MonoSpace©’s price at $68,000 (USD). We considered multiple reasons to finalize this price. First of all, generally MonoSpace© was priced as the same price as geared traction elevator unless as the Brussels headquarters managers said if KONE’s market share was below 15%. Since KONE’s market share was indeed less than 15% based on Table E in the case, we suggest it should be sold at a range of $65,000-$68,000 (USD). Secondly, about 60% of German low-rise residential elevator were hydraulic and other geared traction ones were 40%, and by virtue of MonoSpace© better safety than hydraulic, we started to gravitate toward the $68,000 (USD) selling point. Last but not least, due to the consideration of cannibalization among KONE’s products, $68,000 (USD) was the best offer we think KONE should do.

Product Awareness Strategy: Finally, we recommend KONE to help their customers increase their awareness of MonoSpace© in order to assist KONE’s own launch to be more efficiently and effectively. Combining the launching experiences in the Netherlands, France, and UK and the customers group and the marketing situation in Germany, we decided several methods to communicate with our customers. Details will be demonstrated in the Plan of Action part.

Plan of Action

        Three action plans has been conducted following the recommendations, respectively.