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Kone Case Study
Kone Case Study
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]
No machine-room required
Comparable ride comfort like the gearless elevators
Extremely energy efficient, requiring only half of the energy of comparable geared tractions and
one-third of the energy required by hydraulic drive elevators
Does not require oil like hydraulic drive elevators
Environment and eco-friendly
Required significantly less installations-hours comparatively with the traditional elevators
Lower maintenance cost
MonoSpace is available for 8 person/13 persons elevators
MonoSpaces EcoDisc technology can be applicable to the existing KONEs elevators
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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
As a new product MonoSpace had already extreme positive customer feedback from the other
European market, here are some feedbacks Why you did not come up with this earlier? At least there
is something new in the elevator industry. Apart from these overwhelming feedbacks, MonoSpace had
received some negatives like single supplier issues etc. However, its simply clear indication that, the
new features of EcoDisk technology, especially machine-room-less, energy saving, low maintenance cost,
eco-friendly would create a great appeal towards German low-rise elevators market. However the success
would depend how meaningfully and tactically KONE Aufzug can position the new MonoSpace product
in German market.
KONE Aufzug had strong presence in Germany which is one of the European largest elevator market in
Europe, KONEs set up their strong footprint in Germany with 25 sales branches with strong sales forces
in there geographical territories across the country. KONEs offered both new equipment sales as well as
service contracts for the German market. They earned approximately DM 206 million sales revenue from
German operations which yield DM 13 million profit in 1995. KONEs earned a huge percent of sales in
1995 from low-rise residential market, it was approximately 48%. The total sales in low-rise residential
market came through hydraulic drives elevator (92%), geared traction and gearless drive was 6% & 2%
respectively. KONE has to deal with fierce competition in German markets from all the global and local
elevators manufacturer and service providers. Regardless all the competition- KONE Aufzug had 9.2%
market share in new elevator market in Germany. Overall, KONE Aufzug has strong presence in
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Germany with substantial operations resources including offices, sales forces, manpower as well as
potential market to launch a new product like MonoSpace in Germany.
The German elevators market is captured by six major companies including Schindler, Otis, Thyssen,
KONE, Haushahn, Schmit & Sohn and others and their market share of new equipment sales in 1995
were 17.7%, 13.8%, 15.4%, 8.5%, 6.5%,5.4% & 32.4% respectively. It is obvious that KONE is not the
market leader in Germany, Schindler, Otis & Thysseen are top three performers with highest market
share in Germany. However, Otis and Schindler reported loses in 1995, further Schindler alternative
growth plan helped them to climb the top position.
With 8.5% market share KONE is way behind from the top three companies who had double figure
market share. Furthermore, the mid-size players and the cowboys (small local companies) wiped out the
market share from KONE and others. By considering the entire situation it seems German elevator
market is not favorable for the elevators manufacture in terms of profitability as well as market growth.
However, I do believe KONEs MonoSpace machine-room-less elevator could shake up the German
elevator industry with its features, and would help KONE Aufzug to swipe the market share from its
competitors.
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
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the German Market by considering the aggressive pricing strategy to increase the market share and
profitability rather than target profit pricing strategy-
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 machine-
room 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
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Arrange a product launching-event night in the heart of German business district by inviting the
construction companies, architects, property developers as well as journalist followed by a heavy
advertisement ( full page advertisement) in the highly circulated daily newspapers ( 2/3 popular
newspapers) in following day.
Arrange two-week long road shows across the country ( mainly in three regions) with at least one
seminar each day ( The target customers of road shows would be 20,000 small contractors,
architects and property developer)
Undertake massive advertising for one-month long in all the popular architectural, building and
construction journals
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.
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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