TEAM 9 CONSULTANTS
KONE MonoSpace Prepared for: Professor John Durr Prepared by: Roby Camagong, Balindal Suttatanachod, Katrina Kalsø, Wolfgang Feger, Branden Maes November 25, 2013 Proposal number: 001
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TEAM 9 CONSULTANTS
Table of Contents SITUATION ANALYSIS………………………………………………………………….3 STATEMENT OF PROBLEM AND GOALS……………………………………………3 MARKETING PLAN……………………………………………………………….….…5 MARKET AND COMPANY ANALYSIS………………………………….….….5 MARKETING STRATEGY………………………………………………….…..9 CONTROLS………………………………………………………………….…12 CONCLUSION…………………………………………………………………………12
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TEAM 9 CONSULTANTS
SITUATION ANALYSIS 1.0 Global In the late 1970s and 1980s, there was a rise demand in elevators due to significant restructuring and consolidation. The key factors t hat drive demand in different regions comprised of urbanization, increased in population in city area and government support in public housing. The revenue structure in elevator industry business was divided into two sectors: new equipment and service. Interestingly, major revenues come from service sector as many large companies tend to sell their product below the cost in order to gain share in the market. This market has low entries barriers: simple technologies, steady demand and high margin which made the market to be highly competitive. The market has reached the highest peak in 1995. However, during 1996, there was a drop in region-wide construction and product offering in the market was mostly undifferentiated. As a result, demand wa s expected to fall respectively.
2.0 Germany Germany was the Europe’s largest elevator market. From 1995, the construction boom had driven market from 8,000 units to 15,500 units compared to France 7,000 units, UK 3,300 units, and Netherlands 2,100 units. The German market was dominated by residential construction. While there was a bust, the demand in new elevator equipment expected to fall. However, 74% of demand in low-rise residential elevators did not expect to drop during 1995 to 2000. Six majors players who dominant in market share during this period included Schindler, Otis, Thyssen, KONE, Haushahn, and Schmitt & Sohn.
3.0 KONE KONE, the world’s third largest elevator company. Their revenue come from 2 sides. One is from selling new equipment. Another is from services, 38% and 62% respectively. Their product can be categorized into 3 segments: low-rise elevators, mid-rise elevators and high rise elevators. For almost 75% sales come from lowrise elevators. During 1991 to 1995, net income has been dropped dramatically. Therefore, KONE research and development team introduced new product to the market called Monospace, using new technology that use Ecodisc instead of using old machine room, moreover it gain energy co st saving and gain more safety because it required no oil. KONE had been test marketed in Netherlands, UK, and France before decided to penetrate Germany market.
STATEMENT OF PROBLEMS AND GOALS Due to the changes in region-wide construction slumps and low differentiation among competitive offerings, a price competition has risen which in turn led to an erosion of margins and therefore to a financial downturn of KONE. This output contains the problems faced by KONE in entering the German market as well as several global issues and our goals, in providing value to the company by offering strategic marketing plans and action program.
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1.0 Marketing Level 1.1 Currently KONE is generating its sales in the EU (53%) and North America (29%). However, according to the estimated demand by region for 1996 the regions which should be mainly t argeted are low-rise residential buildings in Europe, Middle East and Africa (65,000 units and almost 49% of total units in this segment) and Asia and Australia (50,000 units and almost 38% of total units in this segment). • As a result our goal on a global level is to reshape our focus on Asia and Australia, because currently only 10% of sales are generated in this field and with the launch of the MonoSpace (EcoDisc) several opportunities await in these emerging economies. In addition our goal is to target the EU market even more because of the company’s experience in these markets and to benefit on from previous efforts. 1.2 KONE is suffering from its organizational structure. For example the M. Elden (responsible for Germany operations) has to not only coordinate and execute the operations in this country but also in Poland. Furthermore, the sales department suffers from the same issues. A relatively small number of employees (some full time and others part-time) have to engage in several different tasks at the same time • As consultants, we would recommend KONE to strengthen these segments by restructuring their organization and hiring new employees to reduce the workload in order to handle its future engagement in the German market. As we will later show these improvements will show vital as the success in the German market relies on perfect execution on several levels (Strategy, Tactic, and Operation).
2.0 Pricing Issue 2.1 There is a prevalent mismatch in supply and demand. • Our aim is to enhance and design the products that will tailor fit the needs and the demand of the market. 2.2 The new technology and current conditions in the German market present challenges to the market entrant. • Our goal is to break the barriers to entry by developing a n aggressive pricing strategy. 2.3 Misaligned perceived value of the customers to the products. • Our goal is to shape the perceived value of the customers by focusing on adding strategic service differentiation strategies. 2.4 Launch options inefficiencies due to not weak targeting of marketing strategies. • Our goal is to develop a marketing plan and strategy that will directly address the core customers of KONE.
3.0 Competition 3.1 Substantial market share by the mid-market players and small companies • Our goal is to steal the market share away from the mid-market players and small companies.
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MARKETING PLAN FOR KONE MONOSPACE
1.0 MARKET AND COMPANY ANALYSIS
1.1 TARGET MARKETS Current Situation Between 1995 and 2000, demand for new elevators is expected to decline by 15%. Currently, residential construction is the dominate driver for elevator sales in Germany. This is a major factor for introducing the MonoSpace to the German market, as KONE’s low-rise elevators produce 75% of the companies equipment sales. Of the low-rise residential sales, hydraulic makes up 60% of sales and geed traction generates 40% of sales revenue. Target Market Segmentation KONE MonoSpace will target German low-rise residential buildings of 12 floors or less. The residential construction market in Germany is dominated by 20,000 small contractors, making up 80% of the market; the remaining 20% being dominated by four major contractors.
LOW-RISE ELEVATOR CONSUMERS
A. General Contractors
The general contractor is the largest decision maker for elevato r purchases, choosing the type and brand of elevator installed 50% of the time. The contractors exerts the greatest influence on elevator purchase on the developer. There are approximately 20,000 small contra ctors in the market that bid for jobs in the low-rise residential construction market. In constructing a bid, the contractors request bids from elevator suppliers, usually incorporating a low-cost offering into their construction bid. They possess little technical knowledge and may often rely on the architect to select the elevator.
B. Architects
The architect is the second largest decision maker for elevator purchases, choosing the type and brand of elevator installed 40% of the time. The architects design the needs of the property developers. In doing so, the architect is concerned with maximising useful space of the building. Increase in useable space increases the revenue generated from the additional space.
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C. Property Developers The property developer is the least decision maker for elevator purchases, choosing the type and brand of elevator installed 10% of the time. They are mostly concerned with overall costs, the investment value in terms of quality, time of completion, and the costs of operating. The developer using a bidding process for acquiring a contractor to build the property.
1.2 MARKETING DEMOGRAPHICS • Due to an abrupt end in the construction boom In Germany, elevator equipment is expected to fall by 15% by year 2000. On the other hand, 74% of low-rise residential buildings are not expected to fall and therefore KONE should focus on this segment. Furthermore, elevator prices have fallen between 5% and 7% the last year. Therefore, it is likely that t here will be a demand in Germa ny for a cheaper MonoSpace elevator.
1.3 MARKETING NEEDS The need for new residential elevators in Germany is expected to decrease, while maintenance of elevators most likely will stay the same: • “Low-priced” modernized product – In order to keep up with the aggressive competition in the elevator industry in Germany, KONE needs to differentiate itself and focus on a low-priced modernized product • Maintenance contracts – Since the MonoSpace is a relatively new product, they need to build a close relationship to customers. • Design modernization – Architects, who account for 40 % of the purchase decision-making are looking to buy more modernized elevators in terms of appearance.
1.4 MARKET TRENDS KONE should focus on differentiating itself from the other com petitors by launching the MonoSpace a s an environment-friendly (energy-saving) elevator, which does not need oil. Moreover they should focus on making cosmetic options for architects and m ake more modernised design elevators. Also, they should focus on building long-term partnerships and build up a good reputation. •
General contractors – looking for prize reductions (competitive bidding)
Architects – looking for cosmetic options
•
•
Property Developers – looking for price reductions when they purchase elevators as they are
concerned with the overall cost when developing or renovating new buildings
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1.5 SWOT ANALYSIS Strengths MonoSpace(EcoDisc •
Requires no oil
•
Lower energy costs
•
Better
•
Reduced installation time
•
Ride comfort
•
Energy-saving/energy-efficient
•
Machine room eliminated
•
Positive customer reactions to the MonoSpace
safety
Weaknesses •
Failure to match demand and supply
•
Unanticipated consumer worries in connection with MonoSpace
•
No provision for ventilation
•
Lack of approval for the MonoSpace
•
Cannot be installed in Penthouse Buildings
•
Not suited for outdoor use
Opportunities •
74% of low-rise residential buildings are not expected to fall
•
Extend capabilities of the EcoDisc and MonoSpace product line
•
Long-term partnerships
•
Better reputation
Threats •
Elevator regulations
•
Lower priced competitors
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•
Scare competition due to gained market share in Netherlands
1.6 COMPETITION There are five other major players in the German elevator market, approximately 30 mid-size players and the so-called cowboys. KONE is the world’s third largest elevator company behind Ot is and Schindler. (with a market share of 8.2% (units) 8.5% (value)). With the abrupt construction boom in Germany competition has become more aggressive. Due to the fall in prices, many of the mid-size players have now moved their focus from new elevator equipment towards service. Schindler is now focusing on gaining share and become a clear market leader in hydraulic elevators and Otis has lost market share in the elevator business. It is likely, that Schindler will use an aggressive marketing strategy as they have used it before when entering the Asia and Eastern Europe. Otis will most likely focus on a growth strategy in order to gain its lost market share back. KONE should not go into a price war with these major market leaders, but should focus on differentiating the MonoSpace as an environment-friendly and modernised product. They should use a low-priced strategy in order to keep up with the competition, but without going into a price war. (More of the pricing will be discussed in Section 2.6)
1.7 PRODUCT OFFERING KONE should devote their time and resources in pursuing a significant launch of MonoSpace as their new flagship product.
1.8 KEYS TO SUCCESS The keys to success are reaching the right target market with the right pricing strategy , modernized design of the product, and strategic di!erentiation strategies. Concurrently, KONE must also ensure that they can meet market demand with the elevators by coming up with the total market potential number
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2.0 MARKETING STRATEGY FOR KONE MONOSPACE
2.1 MARKETING OBJECTIVES • Successfully enter the German market. • Develop an integrated marketing approach by using the right pricing strate gy, modernised design of the product and strategic differentiation strategies.
2.2 FINANCIAL OBJECTIVES • Increase revenues of the V1 business of KONE • Assure the steady growth of the V2 business of KONE
2.3 TARGET MARKETS Market Size Potential
Units
via Sales Prediction
Projected Market
Predicted Sales per
Share
unit
1996
15,035
9.20
1383
1997
14,584
9.20
1342
1998
14,146
9.20
1301
1999
13,722
9.20
1262
2000
13,310
9.20
1225
2.4 POSITIONING AND STRATEGY KONE MonoSpace will be positioned to demonstrate the key benefits of the EcoDisc, which include energy efficiency, small modernized motor, smaller fuse, oil-free, ultra lightweight, fast speed, and no more need for a machine room. With no more machine room required, space is freed to property owners and developers which enables an increase in revenue generating space in buildings. It will also be positioned as a low-priced elevator with modern designs that come up with reliable high-performance services. We will position the product and service mix to steal the market share of the mid-market players and the small local companies.
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2.5 STRATEGIC DIFFERENTIATION SERVICE STRATEGY Redesign processes and redefine customer roles to simplify service encounters
Servicing elevators for clients is a very substantial part of KONE’s business. It serves as the lifeblood of it s revenues and still remains as their most profitable business segment. In t his strategy, we encourage the company to adopt a service program that will incorporate the suggestions and recommendations of clients in enhancing the service quality of the firm. Customer empowerment or increased customer participation is they key to consumer satisfaction. Moreover, consumers in the elevator business rely heavily on word of mouth than advertising which diminishes the risk of purchase for new customers. Set a better match in supply and demand through On the demand side: 1. Differential Pricing - Price the products low enough to break the barriers to entry and steal market share from mid-market players and small companies. 2. Complementary Service - Provide an outstanding service to clients with highly trained employees to exceed customer expectation. On the supply side: 1. Part-time employees - Hire part-time employees to do sales to steal market share from mid-market players and small companies. 2. Increase consumer participation - Create a service mix to empower customers in customising and managing services. Service Marketing Excellence 1. External Marketing - KONE should describe the normal work of preparing, pricing, distributing, and promoting the service to customers. 2. Internal Marketing - KONE should invest in training and motivating employees to serve customers well. 3. Interactive Marketing - KONE should market the employees’ skills in serving the client.
2.6 MARKETING MIX Product The MonoSpace is a new, beautifully designed and revolutionary elevator system employing the KONE developed elevator machine EcoDisc. It is a thin, lightweight magnet which eliminates the need for bulky and expensive components. It has a controlled speed commonly used by modern high speed elevators, providing a more comfortable ride than hydraulic and geared elevators. The EcoDisc fits between elevator guide rails and
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the elevator shaft wall. By placing the lift system entirely in the elevator shaft, the need for a machine room is eliminated. Key Benefits
- No machine room needed, due to EcoDisc technology - Modernized design - Extremely energy-efficient product, consuming half of the energy consumed by geared traction elevators and one-third of the energy consumed by hydraulic elevators
- Savings in wiring and fuses, less wiring and fuses needs - No need for oil, eliminating fire hazard and environmental hazards - 190 hour installation period, 60 hours less than traditional elevators - Low-rise elevator, 8-13 person elevator Price MonoSpace will be priced at an attractive price slightly below the more expensive geared traction (PS and PU ) elevators currently offered. This will allow the product to be within reach of the budget of property developers and contractors. This strategy keeps in mind the cost sensitivity of the contractors in the bidding process with property developers, placing an elevator w ith less space requirements, modern technology, and shorter installation time requirements at a slightly higher price to be easily integrated into successful contractor bids. Construction in the rapidly growing in German low-rise construction market is key to an attractively priced product relative to KONE substitutes. To keep the KONE at a stable sales price and to maintain the product image in this market, MonoSpace will not be priced differently depending on market share acquired. If a higher price point was used in the market, including the MonoSpace on contractor bids could increase the price of those bids enough to make them no longer competitive. This could lead to contractors dropping the MonoSpace from bids and including a cheaper elevator in order to become competitive again. Place/People The German residential construction market will be the primary focus of MonoSpace marketing efforts, as it is the main source of revenue for KONE and the growing segment in the German construction market. Purchase decision-makers in this market are contractors, architects, and property developers. Low-rise construction is Germany’s fastest growing construction market. Being a low-rise (12 floors or less), the benefits of the MonoSpace in low-rise residential buildings market Promotion MonoSpace will be promoted to the three main customer segments (contractors separated into small and large contractors) and promotional material will be as follows:
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Launch events will be held providing breakfast and a presentation of the MonoSpace to provide key the key benefits and information of the product to small contractors, who dominate the elevator purchase decision. This will create a pull effect of the product for a major decision ma ker in elevator purchases.
Direct mail advertisements highlighting the key benefits of the MonoSpace and the revolutionary EcoDisc.
Press Kits designed by KONE will be supplied with MonoSpace specs disks to enable integration in the contractor and architect design process, along with high value information on cost comparisons, specs, building and planning guides, press releases, and a product presentation and technical presentation.
Invitational mailings for one-on-one meetings will be marketed to to demonstrate the benefits of the MonoSpace and the differences compared to hydraulic and geared trac tion lifts.
Trade Press and Journals in construction and architectural publications once a month will be employed to create a pull of demand from key decision makers in the elevator purchasing process. Learning from the success of the MonoSpace promotional strategy in the Netherlands, the MonoSpace will be promoted using a very similar method. Targeting the influential decision makers directly through large launch events, direct mail, press kits, invitational mailings, and o
Customer Segment
Launch Event
Architects
X
X
X
Small Contractors
X
X
X
Big Four Contractors
X
X
X
Property Developers
Direct Mail Press Kits Advertisement
Invitational Mailings X
Trade Press and Journals X X
X
X
POSITIONING KONE MonoSpace will be positioned to demonstrate the key benefits of the EcoDisc, which include energy efficiency, small modernize motor, smaller fuse, oil-free, ultra lightweight, fast speed, and no more need for a machine room. With no more machine room required, space is freed to property owners and developers which enables an increase in revenue generating space in buildings.
3.0 CONTROLS The purpose of the marketing plan is to serve as an outline for the organization. The following areas will be monitored to gauge the effectiveness of the marketing plan:
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• Revenue: Monthly • Expenses: Monthly • Distribution of sales in terms of market categories • Customer Service Feedback System • Customer Complaints
3.1 MARKETING ORGANIZATION • Raimo Hätälä will be responsible for the marketing and operational activities.
3.2 CONTINGENCY PLANNING Difficulties and Risks • An entry into a new market with a declining construction industry • Adopting a product and service mix in a highly specialised and competitive industry Worst-Case Risks • Below expectations revenue results • Customer service failures • Consumers not buying the modernised design
5.0 CONCLUSION Main Strategies: Low-Priced Products, Modernized Design, and Di!erentiated Service Mix. By following the marketing plans, designed services, targeted launch options, and business strategies presented above, market entrance a nd successful product launch will be successful, resulting in increased revenue and market share for KONE.
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