KONE

1TEAM 9

KONE- The MonoSpace Launch in

Germany

Jeramy HebebrandRyan Mackie

Zeynep OrhonDigVijay Singh

2TEAM 9

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 unitsIn 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

3TEAM 9

The German Elevator Market by Type

German Elevator Market

-222 units

-20 units

-128 units

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

Hydraulic PH

Geared TractionPT

Geared TractionPU

Ty

pe

New Units Solds

1996

1995

1996 6660 1510 2930

1995 6882 1530 3058

Hydraulic PH Geared Traction PT Geared Traction PU

4TEAM 9

New Elevator Market

19%

12%

13%9%6%

6%

35%

Schindler

Otis

Thyssen

KONE

Haushahn

Schmitt&Sohn

Others

Lifts in Service

14%

11%

12%

5%

6%3%

49%

Schindler

Otis

Thyssen

KONE

Haushahn

Schmitt&Sohn

Others

Total Turnover Value

21%

19%

18%7%

6%

4%

25%

Schindler

Otis

Thyssen

KONE

Haushahn

Schmitt&Sohn

Others

The German Elevator Market - Competition

The Majors - 1995 Market Share

5TEAM 9

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

6TEAM 9

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.

7TEAM 9

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)

8TEAM 9

KONE Aufzug - MonoSpace

Regulatory approval of the new technology is a precondition of the launch. MonoSpace have been approved in all German states

9TEAM 9

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

92%

6% 2%

Hydraulic PH

Geared Traction PT

Geared Traction PU

48% of 1995 sales were residential

10TEAM 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.

11TEAM 9

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.

12TEAM 9

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)

13TEAM 9


• 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 be covered up by getting service contracts

• KONE’s sales force in V2 market is outnumbered by the sales force of major competitors by 4-5 to 1.

14TEAM 9


• 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

KONE

Documents

Transcript of KONE