Kone: The Monospace

Launch in Germany
Q1.Kone has targeted MonoSpace directly at Europe's largest equipment market segment:
low-rise residential elevators. Put yourself in Hatala's Shoes and develop a detailed
marketing plan for launching the Monospace in Germany. Set a price for the MonoSpace
and specify clearly how it is to be positioned relative to the current product line (PH,PT,PU
or PS). Justify your decisions with anticipated sales relative to the amount you plan to
spend.

KONE has targeted MonoSpace directly at Europe’s largest new-equipment market segment:
low-rise residential elevators. Put yourself in Hätälä’s shoes and develop a detailed marketing
plan for launching the MonoSpace in Germany. Set a price for the MonoSpace (to facilitate
comparison with prices of existing products as given at the bottom of case page 4, price a low-
rise, 4-floor elevator) and specify clearly how it is to be positioned relative to the current product
line (PH,PT, PU, or PS). Based on the pricing and positioning decisions, propose a marketing
and sales effort. Justify your decisions and investments with anticipated sales and the associated
contribution relative to the amount you plan to spend.

Taking the product to the customers at the right time and to the right customers determines the
future success of the project. Considering the market analysis and the unique characteristics and
features of the project it is recommended for the KONE’s management to undertake the
launching and advertising plan for the new product by targeting the low rise residential elevators
market. The mid size elevator could also be targeted by the launch of the new product. The low
rise residential elevator market has been recommended for the company because it occupied
around 74% of the total market share of the German market which is not going to change over
the next few quarters at least. Apart from this, the mid high size and the mid size occupied
around 26% of the total German market.

• MARKET POSITIONING STRATEGY AND VALUE PROPOSITION:

KONE should differentiate Monospace in the market by emphasizing on all the values that are
going to be created by the new EcoDisc technology which would include energy efficiency, low
maintenance cost, eco friendliness, and machine-room less and liberty in the building design.
These are the set of the perceived value propositions which would be perceived by the customers
for purchasing the Monospace elevators for their buildings. The latest technology of this product
had brought the complete set of the values which the customers were looking since a very long
period of time. On the other hand, the management of the company should also take a functional
positioning strategy as this new technology is going to resolve most of the issues related to the
functional areas of the elevator systems. Also due to the fact that KONE is a well established
brand in the major markets therefore, it would be easy to position the new product on the basis of
the functional aspects and the market of France and Netherlands would also play a major role in
furnishing this strategy. The company should also take steps to avoid the single supplier issues
by setting up campaigns for the long term partnerships and also preserving the reputation in the
German market.

• 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 KONE’s 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 the German Market by considering the
aggressive pricing strategy to increase the market share and profitability rather than target profit
pricing strategy-

MonoSpace DM 66,000.00 each unit

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 added10% more
on hydraulic elevator price to come up with MonoSpace pricing.

• Cannibalization of Sales & Competition Handling Strategy:

Certainly this pricing would cannibalize the hydraulic elevators sales significantly, however
would cover the losses by selling more units of MonoSpace , and swiping out the market share
from the competitors. In fact, the recommended pricing of MonoSpace would not leave lot of
profit on tables from sales, but it would potentially increase the revenue from services and
contracts sales section. As generally, 80% of new equipment sales come up with service contracts
with high profit margin, it would adjust the profits as a whole. As KONE wants to conquer the
whole German market, I am not considering the cannibalization rate of existing low-rise
elevators sales especially hydraulic drive elevators, to me it would be dead technology for the
elevators market by considering the maintenance cost as well as safety and hazards issues. 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 competitors to come up with machine-room-less or similar
technologies in few quarters, we do believe by this time KONE Aufzug would receive substantial
market share in German market. As KONE engineers are working on further development &
enhancement of EcoDisk technologies, it would add extra edge in KONE’s product line.

• Advertising & Communication Strategy: By considering the previous learning and

experience from UK, Netherlands and France launching operations, I would recommend
KONE Aufzug to undertake a holistic launching approach with the combination of
Launch Event, Advertisement and Seminars.

Dos : For a successful launch of MonoSpace in Germany 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

Q2. How do you expect competitors to react to your launch plan? How do you plan to
respond to competitor's reactions?

Competitors’ reaction to launch plan:

 Silence of competitors in other markets shows their inability to match

MonoSpace’ssuperior technology

 Competitor’s salespersons and theircounterparts in other countries may continue

highlighting MonoSpace’s flaws and give negative feedback to clients in order to
degrade the product

 Otis was the first to develop MonoSpace’s technology- it may revive the project and
consider developing a similar competitive product

 Major competitors like Otis may get into price wars with the company over the product
Response to competitor's reactions:

 Go for aggressive launch

 Capture the market share before competitor steps in with similar technology

 Focus more on locking in Clients into Service Agreements since Services are their major
source of revenue

 OTIS can improve on its replica of MonoSpace and come up with a better offering

 A relatively less premium will ensure that Kone enjoys a market capitalization for a longer duration

Q3. What key weaknesses in KONE's current capabilities need to be managed to ensure the
success of the product launch?

One of the main weaknesses of Kone is its limited sales force as compared to its competitors.
This restricts them from entering the market aggressively with a new product like monospace
which requires a larger sales force. Especially as there will be more follow ups required to see
how the product is doing and what could be improved.

Kone is also facing issues with regards to getting regulatory approvals in a few countries. Getting
approvals is extremely important if they want a more effective and larger launch for their
product.

Lastly, there are some weaknesses with respect to the product as well such as ventilation issue, it
cannot be installed in buildings taller than 12 floors and it has a limited capacity of maximum 13
persons.