KONE-

The MonoSpace Launch in

Germany

Jeramy Hebebrand
Ryan Mackie
Zeynep Orhon
DigVijay Singh

TEAM 9
1
 The German Elevator Market

 German elevator market is dominated by residential

construction
 New elevator market;
 8,000 buildings in 1988
 15,500 buildings in 1995
 Expected 13,175 buildings by 2000 (expected to shrink by 15%)
 60% of the elevator units is hydraulic and 40% is traction.
 Two thirds of the geared traction units are PU type.
 In 1995, expected demand for elevator units =11,470 units
In 1996, expected demand for elevator units =11,125 units
 based on 74% of the residential buildings would install elevators
 based on ~ 3% annual shrinkage in the residential construction market

TEAM 9
2
The German Elevator Market by Type

German Elevator Market

Geared Traction -222 units

PU
Type

Geared Traction -20 units 1996

PT
1995
Hydraulic PH
-128 units

0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000

Hydraulic PH Geared Traction PT Geared Traction PU

1996 6660 1510 2930

1995 6882 1530 3058

New Units Solds

TEAM 9
3
 The German Elevator Market -
Competition
 The Majors - 1995 Market Share
New Elevator Market Lifts in Service

Schindler Schindler
19% Otis 14%
Otis
35% Thyssen 11% Thyssen
12% KONE 49% KONE
Haushahn 12% Haushahn
6%
13% Schmitt&Sohn Schmitt&Sohn
5%
6% 9% 3%
Others Others
6%

Total Turnover Value

Schindler
25% 21% Otis
Thyssen

4% KONE
19% Haushahn
6%
Schmitt&Sohn
7% 18%
Others

TEAM 9
4
 The German Elevator Market -
Competition
 The Mid-Size Players
 Approximately 30 mid-size players, with new equipment sales ranging from 100 to 300 elevators per year

 Operated regionally

 Produce few key components, mostly outsourced manufacturing

 The Cowboys
 Small local companies, numbers about 150

 Usually operated within a single city

 Focus on the purchase and assembly of components and, installation and service

TEAM 9
5
 The German Elevator Market -
Low Rise Elevator Customers
 Property developers, general contractors and architects are involved
in purchase decisions
 Property developers are concerned with the overall costs, in which
choice of elevator has little impact. Thus, KONE and other other
companies seldom communicate directly with them. Property developers
use the bid process to pressure contractors for price reductions.
 General contractors exert the greatest influence on elevator purchase.
Four largest German contractors control 20%, however construction
market is highly fragmented (about 20,000 small contractors).
Contractors use a competitive bidding process to procure specialized
building systems, occasionally two-stage bidding.
 Residential buildings are usually built by small contractors, often
relied on architects to select elevators. For mid-size hotels and offices
generally built by larger contractors, where the higher end
residential elevators are typically used, architects select only
elevators’ cosmetic options.

TEAM 9
6
 KONE Aufzug - Overview
 Generated DM 216 million and profits DM 12
million in 1995
 TABLE B page 5
 Organized as a matrix of business divisions (V1,
V2, Finance, Personnel) and geographical
regions (North, South, East)

TEAM 9
7
 KONE Aufzug - MonoSpace
 Regulatory approval of the new technology is a
precondition of the launch. MonoSpace have
been approved in all German states

TEAM 9
8
 KONE Aufzug - Sales Efforts
 25 local sales branches, 23 full time, 20 half time salespeople in V1
sales
 Full time salespeople four to five day sales calls per week and spend
the remainder of their time in preparing proposals, answering
queries from customers and prospecting.
 Half time salespeople divide their time between V1 sales and other
responsibilities, 13 were also branch managers and 7 worked as V2
salespeople.
Kone Aufzug`s Residential Sales in 1995
by Type

6% 2%

 48% of 1995
sales were Hydraulic PH

residential Geared Traction PT

Geared Traction PU

92%

TEAM 9
9
 KONE Aufzug - Selling Process
 KONE being one of the major players, had access to the entire demand for elevators in the
German market
 From start to finish, procurement process takes 8 to 15 months. Selling process steps are;
 96% of the purchases are from contacts initiated by the customer by sending elevator
specifications and a request for bid to a local KONE branch
 Customer inquiries are followed by a visit from a KONE Aufzug salesperson to the customer
contact - usually the construction company manager or the architect
 Salesperson reviews architect`s drawings, design specifications and special requirements and
details elevator options in the form of a sketch or drawing
 Once the elevator specifications are negotiated, a contractor`s purchasing manager becomes the
main point of contact and discussion shifts to payment terms and price.

TEAM 9
10
 KONE Aufzug - Pricing
 Average prices for KONE`s standard 4-floor, low rise, residential, volume range
elevator were;
 DM 60,000 for Hydraulic PH
 DM 75,000 for Traction type PT
 DM 80,000 for Traction type PU
 DM 120,000 for Traction type PS

 KONE`s losses on new equipment sales averaged approximately 8% of sales for

hydraulic and roughly 5% of sales for traction elevators.

TEAM 9
11
 KONE Aufzug – Pricing Strategy
for Monospace Launch

KONE should use

• Competition Oriented pricing for New

Equipment sales (V1 segment ), using
“Machine Room less” feature as product
differentiator, and

• Value based pricing for Services (V2

segment)
TEAM 9
12
 KONE Aufzug – Pricing Strategy
for Monospace Launch

• Major source of KONE’s revenue and profit

was Services and is projected to remain so in
the future
• The market for Services is such that the
Equipment suppliers have an advantage in
winning the contracts to service their installed
bases
• Major competitors (Schindler, Otis) are likely
to react to low price of MONOSPACE by
lowering the price on their new equipment as
losses can beTEAM
covered
9
up by getting service
contracts 13
 KONE Aufzug – Pricing Strategy
for Monospace Launch

• Production costs of MONOSPACE is expected

to be same as for a comparable Hydrolic
elevator

Therefore, MONOSPACE in Germany should be

priced at
DM 60,000

TEAM 9
14