kone
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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
KONE Aufzug – Pricing Strategy for Monospace Launch
• 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
KONE Aufzug – Pricing Strategy for Monospace Launch
• 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
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