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KONE Marketing Plan

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The elevator industry is dominated by five companies namely Otis($5.3B) of United states, Schindler($4.0B) of Switzerland, KONE($2.2B) of Finland, Mitsubishi Electric($1.8B) of Japan and Thyssen($1.5B) of Germany. Although KONE was the third largest elevator company, it was far smaller than the market leaders, who generated twice the revenue. Toshiba and Hitachi of Japan and Goldstar of Korea were other competitors in Asian market. At this time, revenue in the elevator business was generated by a two part pricing system: new equipment ($9B) and service ($13B). All the large players sold equipment as well as provided post installation service. The volume and type of elevators sold largely depended on factors such as urbanization, population density, and government support of public housing. Choice of elevator technology depended on various factors such as travel height, speed, comfort, machine room requirements, drive systems, controls, cabin size, interior finishing and price. The number of people involved in making the purchasing decision for an elevator varied greatly based on the size and cost of the building (complex DMU/DMP). Even for the same type of building, the importance of features differed based on the specific decision maker.

For a low rise property, decision makers could include the property owner, a construction company manager, an architect, a construction company purchasing agent, or a building service manager. While owners/developers typically cared more about the upfront costs for an elevator, owners/landlords cared about the lifetime costs for an elevator but did not care much about comfort and aesthetics A lack of innovation in product development had resulted in commoditization of the market. Competition in the elevators industry was so fierce that the largest competitors ended up selling elevators at cost or below cost. By tacit agreement, elevator companies maintained high margins on annual service contract that were roughly 5% of the purchase price of an elevator. The primary drive technologies currently available were gearless (high speed), geared (medium speed) traction, and hydraulic, with hydraulic being the most popular due to its lower price. Both these technologies required a machine room to be built above the elevator shaft (PT), to the side of the top shaft (PU), or on the bottom floor (PU and PH). These machine rooms typically accounted for about one-quarter of the total elevator costs (equipment and installation).

German Market
Germany was a critical market because of its large size (15,500 total units annually) and its global reputation as a technology leader. In 1995, the construction boom that started in Germany in 1988, ended abruptly and as a result, demand for new elevators was expected to drop 15% by 2000. The majority of construction was residential with 74% of elevator installations in low-rise residential buildings. Of this, hydraulic elevators accounted for 60% of the elevator installations in low-rise buildings with geared traction elevators making up the rest. Two thirds of the geared traction units were of the more expensive (PU) type.

The major six players in the elevators market were Schindler, Otis, Thyssen, KONE, Haushahn and Schmitt & Sohn. . All these players provided24-hour service and had sales and manufacturing facilities in Germany and Abroad. The mid-sized players operated regionally and typically sold 100 to 300 elevators per year. Several smaller players operated in various cities, but they lacked manufacturing facilities and focused on the purchase and assembly of components and installation as well as local service. In Germany, smaller contractors who possessed limited technical knowledge typically built residential buildings.

Schindler is the market leader in terms of units sold as well as turnover in the German elevator market. KONE ranks fourth in this market. The competitors on the success of MonoSpace may come out with their own models but the efficiency of Kone in cost of production will give them a competitive advantage. Otis Japan had developed a prototype but the manufacturing costs were more than its benefits. Market opportunities:

The proportion of the elevator unit installed in low rise residential building was 74% in 1995 and is not expected to change over the following five years. The hydraulic elevators account for 44% and geared tractions making up the remaining 30% of the German low rise residential elevator market(74%). MonoSpace is superior to both hydraulic and traction elevators in terms of speed, load, motor size, main fuse size, energy consumption, thermal loss, oil requirements and weight. The unique selling proposition of MonoSpace is that it does not require a machine-room to operate. Also geared tractions are way too expensive compared to MonoSpace. Thus the demand for other elevators can be easily shifted to MonoSpace. Market issues:

The German construction industry is past its boom phase. New elevator prices fell between 5% and 7% in 1994-1995. Also the demand for new elevator in the market is expected to shrink by 15% by the year 2000. The demand for new commercial space was dampened by the significant over capacity.

Marketing Mix:
The company will sell the present design of MonoSpace and continue developing newer, safer and better elevators. Price:
The company will follow a perceived value pricing. The savings in installation costs is between 31500-42000 DM (Table 1) whereas the annual savings for 7 years is 24640 DM (Table 2). Therefore the elevator can be priced at 65000 DM. Even though this is higher than most elevators the benefits are far superior to its cost.

Assuming life of the elevator is 7 years DM 24640 Place:
A demonstration lift of MonoSpace will be built in all the regional offices of Kone. It will be marketed in all new low-medium rises across Germany. Promotion:
MonoSpace will be heavily promoted in trade-fairs and exhibitions. Individual presentations with architects and contractors will be arranged. An option to convert to MonoSpace will be given to customers who have recently placed orders for new elevators. Articles and newspaper advertisements will be started. Review and control:

Kone will have to update the reports till date on the unit sales and revenue generated by MonoSpace. It will actively monitor the whether the claimed savings are actually realized by the customers. Customer feedback will be taken to improve the design and functions of MonoSpace. Research on newer elevators will be continued so as to stay ahead of the competition. Marketing Organization:

The existing marketing department will be given an added responsibility of selling MonoSpace. Once revenues start flowing in then more sales people may be hired.

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