Strategic marketing plan for the KONE MonoSpace product launch in Germany. Competitive analysis, positioning strategy and cultural considerations.

2. MonoSpace Launch in Germany
ACTION PLAN
prepared for:
Mr. Raimo Hätälä
KONE Aufzug New Elevator Business Director
and
Dr. Michael Mejza
UNLV Advanced Marketing Management Professor
MKT 711
prepared by:
Bart Broviak
Cole Grundstedt
Rohit Gulati
Max Smilow
December 2, 2008

3. INTRODUCTION
The goals of our plan are aimed at satisfying the wishes of KONE management,
namely Mr. Raimo Hätälä. Primarily, the plan looks to increase profits and save KONE
from the steadily declining trend of elevator sales and profits. Secondly, our goal is to
reduce the total and overall amount of cannibalization of other KONE products.
Furthermore, as a marketing team, we need to find a way to have a successful German
launch that will ultimately place KONE in the limelight for trusted and dependable
technological advancements in the elevator industry.
Positioning
In order to make our action plan a successful one, we need to ask some questions.
Who are our customers? How are we positioning this drive system, and to whom? While
in the past our elevators were marketed toward contractors and architects, the EcoDisc
will be directed toward property developers and property owners. Our rationale for this
strategic decision is based on the belief that these parties will have everything to gain
from installing an EcoDisc, whereas the parties in the former category will have little to
nothing to gain. We will position the EcoDisc as an environmentally friendly piece of
equipment that puts technology to work in order to lower overall power consumption, cut
down yearly running costs, and reduced lifetime maintenance costs. As compared to
other technologies, the EcoDisc uses up to 50% less energy. This means that the fuses
are smaller and cheaper as well. We can assure property owners and tenants that the
EcoDisc will solve the aggravating problem of dimming lights during elevator use. In
conjunction with that, the EcoDisc is a step up from the competition in terms of safety
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4. and hazard risk. Because oils and lubricants are eliminated, the EcoDisc is not only
cheaper to service, but much less dangerous. Oils and lubricants are flammable materials
that a property owner can’t trust; the EcoDisc eliminates this problem.
Channels
Unfortunately, these are all issues that neither a contractor nor an architect
concerns themselves with. They have no reason to see value in lower lifetime
maintenance costs or a decrease in energy consumption. However, they have nothing
against it either. Why would they? Our strategy aims to educate property developers on
the benefits of the EcoDisc so that they request it from the contractors and architects. As
of now, 90% of the “decision makers” for elevator purchases are contractors and
architects. We are so bold to say that with the advent of the EcoDisc in the market and
our marketing proposal, property developers and owners will become a greater
percentage of the “decision makers.”
Segmentation
What makes this customer target interesting is that we do not plan on selling
EcoDisc to many building projects that are in the works. Our main target market is
buildings that have already been built. The ideal EcoDisc buyer is a property owner or
developer whose existing elevator system is old, antiquated, and in need of replacement.
Instead of these people purchasing another new hydraulic elevator, they would purchase
an EcoDisc. Most of these developers and owners would be looking for a new system
that satisfies everything they are already familiar with; namely, a somewhat comfortable
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5. ride, medium speed, and medium height accessibility. All these things will be provided
by the EcoDisc at a competitive price.
MARKET LAUNCH STRATEGY
In keeping with our segmentation strategy, we would need to employ a marketing
strategy that both targets the property developers and owners, and maintains brand
awareness with contractors and architects. Since our segmentation strategy is focused on
existing buildings, we assume that the initial decision to retrofit an elevator system would
come from the property developers and owners. However, we cannot discount the fact
that the contractors and architects must be at least educated about the EcoDisc and
MonoSpace system. In this sense, we’re revamping the status quo and employing a
‘skip-level’ marketing strategy whereby we are creating demand directly at the end-user
expecting that to filter up the chain.
Seminar
From available choices of market resources, we chose to utilize seminars to attract
our main target and decision maker – property developers and owners. This seminar
would provide the necessary education on the lifetime cost savings of owning and
maintaining a KONE MonoSpace elevator system. This savings is realized through
lower energy consumption and fewer parts breaking (thus reducing overall maintenance
costs). We would additionally educate them on the enhanced safety of the system
through the elimination of flammable oils and lubricants.
In order to control costs for these seminars (which have a capacity of 70), we
would only send out invitations to select group of property developers and building
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6. owners. Our seminars would be extended to those who currently own and manage low-
rise residential buildings with a competitor’s elevator system installed. If they currently
have a KONE system, we would only extend invitations to those whose service and
maintenance contracts are nearing expiration and who need retrofitting. This will help
alleviate the MonoSpace from encroaching (cannibalizing) on existing V2 sales of KONE
systems.
It is our assumption that there are some property developers and building owners
that own many buildings throughout Germany. We refer to them as “big fish” and would
be valuable contracts to acquire. Our list of potential invitees would be sorted in order of
properties owned. To control costs we would take the top 700 property developers and
building owners in order to capture as many ‘big fish’ in these educational seminars. At
DM10,000/Seminar and 70 people/seminar, the “Seminar” portion of our launch strategy
would cost DM100,000. These seminars would kick-off the short term portion of our
marketing plan to raise awareness and need from the ultimate decision makers in existing
elevator systems – the building owners and property developers.
Trade Show
Following the buzz generated from these seminars, the next step in the launch
strategy is to reveal the MonoSpace system and the EcoDisc to the industry at large. To
achieve this, KONE will appear for three days at The Konstructor. KONE will have
mockups of the MonoSpace with working demonstrations. The crux of the presentations
will focus around energy savings, safety, and environmental issues as well as lifetime
cost savings. Since not only property developers and building owners will be present, a
small portion can be devoted to ease of installation and reclaimed space of the machine
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7. room for the contractors and architects. However, since KONE has moved the decision
making power from the contractors and architects by means of the educational seminar,
their needs will not be the primary focus. We will highlight the fact that the customers of
the contractors and architects (the building owners and developers) are demanding the
cost savings and environmental responsibility of the KONE MonoSpace EcoDisc system.
To help facilitate the contractors’ and architects’ design processes, part of the
marketing kit that will be handed out at The Konstructor (focusing on the “big fish” of
course) will be CD’s that include the CAD renderings of the MonoSpace so it need only
be inserted into current and proposed plans. This will help facilitate a fast adoption by
contractors and architects especially if their customers (the property developers and
building owners) are demanding it; they will have no choice but to switch to KONE
MonoSpace.
Despite KONE’s past objections to the cost benefit of the trade show, we believe
with a radical new technology like the MonoSpace EcoDisc, combined with the initial
buzz from the seminars, there will be enough response to warrant the DM300,000
investment.
Trade Press and Journals
The long-term component of our action plan will utilize advertizing in trade press
and journals. This is intended to keep the name KONE and its revolutionary MonoSpace
EcoDisc fresh in the minds of the architects and contractors. We expect the desire of
property developers and building owners to have an energy efficient elevator system to
continue unaided into perpetuity given the pro-environment push of society as a whole;
however, they may not know or remember the name of KONE when requesting bids for a
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8. new elevator system. The specifications they give to contractors and architects, though,
will lock them into the KONE MonoSpace EcoDisc only if we keep our product name
and environmental features fresh. A bi-monthly advertisement in the 2 highest circulated
journals should achieve this goal. This would cost DM3,000 × 6 plus DM2,700 × 6 for a
total of DM34,200 – a worthy investment to insure that contractors and architects choose
KONE MonoSpace when designing for environmentally responsible elevator systems
long-term.
PRICING
In determining the correct pricing strategy, we looked at the current elevator
systems being employed by our target customers. Any pricing strategy must keep in
mind what customers already pay and should be expected to pay in the future.
We believe the price should be based upon the lifetime energy and maintenance
costs savings. Since we have already determined that reclaimed space of the machine
room is not a strong selling point and is virtually irrelevant in an existing structure where
old machine rooms would only reclaim 120 square feet, or approximately 5 square
meters, (which is not enough useable space to generated incremental revenue), the
“reclaimed space” argument is definitely secondary in our strategy.
Since construction costs were similar to a hydraulic elevator system, we took the
price of a hydraulic elevator system in the Germany (DM60,000) and then added the
benefit of cost savings over the elevator life which was FF5,000 per year. Assuming a
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9. longer than average life of MonoSpace of 10 years, this equals 5,000 × 10 × 1/5 × 1.43 =
DM14,300. This would equate to a total new purchase price of DM74,300.
Augmentation
The above price reflects only the initial purchase price of equipment, retrofit and
installation. One cannot ignore the V2 component of after-sales maintenance and service
given the higher profitability. The pricing of any service contracts or warranties must
compliment the lower maintenance claim of the MonoSpace EcoDisc. Given the industry
average of 5% per annum in maintenance service, the MonoSpace system would offer a
service contract at 3% per year or DM2,230 which will cover all yearly inspections, and
any parts and labor required therein. This is a beneficial arrangement for both parties for
4 reasons:
1. This service contract option would be attractive to customers given the
smaller price percentage than what they were formally accustomed to
paying
2. It eliminates the worry from customers on what it will cost to maintain the
elevator system over its lifetime – a large concern for building owners and
property developers
3. It generates a constant and predictable revenue stream for the KONE
Aufzug V2 sales which is currently the most profitable of all its
operations.
4. Given the lower maintenance costs of the MonoSpace EcoDisc, the 3%
service charge should actually allow a higher profit margin for KONE
even though it is less than industry average of 5%.
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10. MARKET OPPORTUNITY - GERMANY
The German elevator market covers 26% of commercial business and 74% of
residential business. The German market opportunity size for elevator industry is
shrinking. It is projected there will be a 15% decline in demand for new elevator
equipment over the next five years due to low barriers to entry. However, the expected
market for existing residential buildings will remain stable at the current rate. Therefore,
we believe the best opportunity for KONE is to market the strength of the MonoSpace
EcoDisc (i.e. energy efficient, environmentally friendly, etc.) to building owners and
property developers when they go through a renovating project of one of their existing
buildings. For the renovation market, the property developer and building owners, who
are primarily concerned with the overall cost and energy efficiency, will be the focus
customers. They will understand the long-term cost saving for replacing an old elevator
to a MonoSpace EcoDisc.
SALES FORCE MANAGEMENT
The key to the plan is to successfully maintain existing business for hydraulic
technology while simultaneously promoting the MonoSpace EcoDisc to existing
properties. This should be done by increasing KONE’s sales force. By adding new sales
teams for the MonoSpace EcoDisc, KONE can better target existing customers without
cannibalizing the existing business and also without creating a morale problem amongst
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11. the existing sales force team. Some of the reasons for hiring a new sales team for
MonoSpace include:
Focus
Increasing tasks on a sales force diverts focus. KONE will increase focus and
efficiency by instituting separate sales force teams. KONE should establish a separate
MonoSpace EcoDisc team while maintaining their sales force for their existing
technologies/offerings.
Product Knowledge
By training the new sales force team, KONE can assure one-stop point of contact
for MonoSpace EcoDisc service and technical issues.
Capacity
KONE’s competitors outnumbered them four or five to one. This implies the
company has capacity to involve more sales personnel in its operations.
Under the revised sales force management, employees will be compensated on the
basis of the number of contacts rather than the dollar amount brought in to avoid any
conflict from existing or new sales force. Therefore, the compensation strategy will need
to be changed since KONE now offers product differentiation.
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12. 11
RISK AND MITIGATION
In order to establish a competitive advantage, we recommend KONE, specifically
Hätälä, implement a strategy that makes best use of the company’s portfolio of resources
and competences through a mitigated risk/reward trade-off. For example, by keeping the
price as suggested earlier, KONE will have flexibility to lower the price of the
MonoSpace EcoDisc and still maintain a larger margin than hydraulic technologies, if
required. Also, to mitigate the risks from competitors, KONE MonoSpace has an
innovational advantage and is designed to compete on value rather than be a low-cost
leader. Therefore, should a competitor counter with a tactic of cutting their prices,
KONE should hold firm as they are offering a more valuable product.
The major risk would be traditional product cannibalization. In the extreme case,
if the new market for MonoSpace sales does not result as projected by KONE, Hätälä will
still have its existing operations such as its products offering and sales force in place to
fall back on.