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QUESTION 1
Jowers should charge $4,500/machine for Tronn Servers with PESA. If he plans on selling the servers alone without
PESA, the status-quo pricing model is still profitable and should be used at the $2,000. However, given the boost and cost
savings available for the consumer with PESA, being $4,500 alone (after 50/50 split is calculated), not inclusive of variable
or fixed costs of production, an upcharge of $2,500 for adding PESA is fair for both consumer and customer. The
calculations below show pricing considerations under each of the 4 approaches as well as justify the pricing suggested.
However, given that the company is hoping to bundle as many as possible, they should also consider removing the option
to purchase devise without PESA all together. If this is not possible, considerations in branding the bundled and unbundled
product differently and marketing these to different segments (one to Ontario’s low end, and another higher end), may be a
wise decision.
1. Status quo pricing
Sales price = $2,000
Cost per server = $1,538
Profit per machine = $462
PESA Software development cost = $2,000,000
Cost per PESA = $188.86
Profit per machine after PESA = $273.14
Demand = 50,000 ($40/machine for PESA)
Specialty shift from hardware to software (incur additional sales team costs)
1 Tronn loaded with PESA = same level of performance as 4 basic servers
*Case stated that 50% of machines would be PESA enabled. This calculation is based upon profits for machines with
PESA capabilities alone. If status quo pricing was used for machines without PESA, additional profits would be 5295
machines x $462 = $2,446,290.00. Total profits would be: $17,130,066.30 (VALUE-IN-USE PRICING)
QUESTION 3
Given that he is a seasoned veteran with 20 years in the computer industry, which has used status quo pricing for nearly all
of the company’s other products, he will likely see the pricing decision as highly risky. His recommended conservative
pricing estimate was influenced largely by his focus on the competition in the basic, low-end server market, Ontario
Computer. Given that they charge $1,700, and Matzer has recommended a $2,000 price point, bringing a recommended
price that is more than double, at $4,500 will likely be met with great opposition and will require a great deal of explanation
before he considers supporting this pricing strategy.
QUESTION 4
The sales force is hardware oriented and will feel more comfortable with what they know. Given that their commissions
are 30% of their salary, they may not devote a large portion of their efforts to mastering a new technology and may not
have confidence in their own ability to push the sales of the new technology. While they will see the opportunity to boost
their commissioned sales by a great deal in selling this product at a much higher cost, they may see that the risks of wasting
efforts on something that is uncertain outweigh the potential benefits.
QUESTION 5
The product positioning should also coincide with and justify the pricing. What they are offering is not a basic (Ontario) or
high performance (Radia) machine, but a machine somewhere in between, which is precisely what the price reflects.
Differentiating their products outside the scope of one or the other will likely gain the company a selling point that will
allow them to compete in either market and does not force consumers to chose a machine on one end of the spectrum or the
other. It will provide the option for consumer to find a middle ground between the two extremes currently on the market.
Their product can be positioned as a basic and high performance machine bundled into one. The basic machine, similar to
that offered by Ontario, is in its hardware, while the PESA software to elevate its performance, allowing it to function more
like a Radia higher performing machine.
QUESTION 6
Customers have the alternative to buy a system through Ontario for less than half of the Atlantic price point. Upon initial
glance, the $4,500 price tag may seem incredibly outlandish to them. However, given the projected cost savings through
this new technology, its price can be defended. Though the Tronn is currently positioned in the basic market, explanation
of how much more it offers will be helpful in justifying the steep premium price. The company history of customer service
can also be cited as an added benefit to delivering on the efficiency and value promised with the new product.
Offering a hardware and software machine in one can allow customers to deal with repairs, any problems with the machine
and the like through a single company. By integrating the two, they will be working with a team of people knowledgeable
on both operating items and who are well versed in how the two interact and affect one another. In the past, they spent time
and energy on managing each part separately; at times not knowing which part was at the route of the problem. In
purchasing the two-in-one package deal, time wasted is virtually eliminated.
QUESTION 7
When first introduced, Ontario may not react at all to the Atlantic bundle. Given that the price point is so much higher than
what they offer the product for, they will likely not see it as a threat to their high existing market share. The online sales
component and differing strategies of the two companies may further enforce their beliefs. However, if Atlantic does begin
to infiltrate their market power, they could rethink the decision and either begin creating software similar to PESA in order
to regain their competitive edge, or ramp up their offline sales efforts in order to compete and deliver through multiple sales
outlets.
DOOSAN
Identification of the problem
Korean conglomerate Doosan had acquired the Bobcat compact equipment, the utility Equipment and Attachment Business
from Ingersoll Rand to form Doosan Intracore International (DII). The acquisition was a means to become a global, full-
line manufacturer and marketer of construction equipment. While the full ownership of Bobcat brand was transferred to
DII, however the 100 year old IR brand with strong brand equity was licensed to DII for maximum of five years. Hence,
the challenge is how to go for rebranding of the IR brand which is now under Portable Power Division.
Recommendations
It is recommended that Doosan should go with the second option i.e. Begin co-branding strategy over 12-24 months, then
transition to Doosan. No brand transition is required for Bobcat. As IR portable power equipment has significant source of
brand equity, across end-user and geographic markets, it makes sense to leverage on its brand equity. Also, the extensive
dealer network which is a main influencer of user’s decision, won’t be disturbed. It would give ample time to dealers and
users to adapt to the transition.
Also the offerings by Doosan are standardised and the firm follows decentralization approach. Hence, the firm should
follow Brand Park architecture. This approach has the benefit of leveraging the equity of the family brand to the whole
portfolio, while retaining the equity in the line brands
Using Branding Doosan strengths to Branding Doosan can use two approaches - building on KONE
consolidate and expand the market present strengths, or analyze the trend and build processes to MONOSpace
position. two pronged market penetration approach.
Recommended
Weakness Opportunities (WO) Weaknesses Threats (WT) Strategies
Marketing
Strategies
Strategy for
Branding Doosan should just get out of these business areas
Launching the
Building strategies based on consumer and focus on strength and threats box , or on weakness and
MonoSpace™
oriented product development and opportuniti
in Germany:
marketing approach.
Market
Segmentation Strategy:
Taking the product to the right customers determine the future success of the product. By considering the market analysis
data as well as the product features, we would recommend KONE Aufzug undertake the advertising and lunching plan go
with low-rise residential elevators market mainly. However, they could also target the mid-size elevator market (12 floors
or less) with the MonoSpace .We have recommended the low-rise residential market because this segment is accounted for
74% of total German elevator 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.
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 added 10% more on hydraulic elevator price to come up with MonoSpace pricing.