c



 
  






c c

 

  
(Hutt & Speh, 2010:559-569)(Wood, 2004:338)

Germany experience a reunification in 1988, in which the German democratic republic

joined the federal republic of Germany, its construction industry underwent a rise that
made Germany Europe¶s largest elevator market. The elevator industry achieved its
eventual peak in 1995. Regardless of the strong competition in the industry, KONE was
able to produce revenues of DM 216 million and profits of DM 13 million (Hutt & Speh,
2010:559). The construction boom ended unexpectedly in that year and the market
flooded. Demand for elevators was anticipated to fall by 15 percent (Anon, 2004a:2)

The German market is a powerfull market which possess great opportunities for entry.
Germany is a heavily populated state and has the largest economy of the European
Union. There are key political powers and enjoy high technological control in many
areas (Anon, 2011a).

c 


 

The Financial state of KONE Aufzug¶s elevator company in Germany had deteriorated
in 1996 judged against previous years performance (Hutt & Speh, 2010:561).
MonoSpace was KONE¶s only solution to present to the German market to improve the
company¶s financial position, since estimations for future improvement was in
substantial (Anon, 2004a:2). KONE had introduced the product into three countries,
Nehterlands, France and United Kingdom (Hutt & Speh, 2010:564). These launches
went well and targeted sales figures was obtained in the Netherlands but not in France
and the United Kingdom (Hutt & Speh, 2010:567). However, there were a unease that
the product will be able overpower the German market. Thus Hatala considered to
implement a successful entry strategy for KONE¶s MonoSpace into the German Market
that would position MonoSpace appropriately in the mind of the consumer and allocate
the company to put down a image and impression that would be long lasting in the
German Market. Regarding German¶s flooding elevator market, the strong completion,
consumers that are price sensitive as well as a company goal to improve their current
financial position, it is clear to identify that KONE¶s success of being launched in the

c
German market would rely on favourable results to be obtained. Pricing and positioning
strategies would have a major influence on MonoSpace¶s long-term prediction for KONE
(Anon, 2004a:2).

Competitive elevator companies Schindler and Otis stated losses due to elevator price
falls of 5% to 7% in 1994 and 1995 and their turnovers of roughly 11 and 13 percent
(Hutt & Speh, 2010:570). Indications that Schindler was focued on gaining market
share which lead them to become the market leader in hydraulic elevators. Otis alleged
objectives to decrease losses in the new elevator business and this had lead them to
loose focus and lose market share (Hutt & Speh, 2010:570).

The foundation of this pricing and positioning challenge was caused by the immediate
stop in the construction boom and the decrease in demand for elevators in the market
(Anon, 2004a:3).

c  c



(Hutt & Speh, 2010:561-562)(Wood, 2004:73).

^  
  ± General contractors, architects and property developers, in the

German residential market that are seeking space savings on a more modern cruise
ship, weight savings, more space for architechtural freedom, cost savings, energy
savings, noise reduction, heat discharge, environmental friendliness and a
comfortable elevator drive.

^ It is important for KONE to examine the consumer market because this will give
them a better understanding ofî

^ Customer characteristics and needs ± customers are looking for elevator that aquire
less space, are cheaper, faster and better which is highly differentiated from
competitor elevators.

^ German culture ± German Cuisine¶s, Sports, Academic landmarks, religion and
music.

^ KONE can use this to bring the customer¶s attitudes, behaviours, needs and
expectations in relation to the MonoSpace offer.

À
^ KONE managers consider that the final elevator decision in the German residential
market is made by the general contractor, then the architect and lastly the property
developer.

c  

!"

(Wood, 2004:46,78).

^  
 
#
General contractors, Architects and Property developers.

^ Business Relationships inside and outside of the business.

^ KONE have strong connections and relationships with suppliers and channel
members.
^ They have 25 sales branches situated locally where salespersons account to a
specific branch manager. The branch manager then report to the business division
directors and the regional directors (Hutt & Speh, 2010:559).
^ KONE is determined in accentuating its long-term relationships and safeguarding
their reputation amongst their suppliers (Hutt & Speh, 2010:568).
^ KONE is not very dependent on their suppliers and channel members, but they
depend on their long-term relationships for the growth of their company and to
survive
^ KONE makes use of advertisements in the form of elevator newspapers, journals,
architecture newspapers and journals which are national and local. This build on
KONE¶s international business development (Hutt & Speh, 2010:568).

^ KONE managers consider that the final elevator decision in the German residential
market is made by the general contractor, then the architect and lastly the property
developer (Hutt & Speh, 2010:570).

c  $

%
%
&'
'(î &&& ((( ) * 




The German Market is skrinking by 15% by the year 2000. The Elevator market in
Germany is controlled by residential construction. In 1995 the fraction of elevator units
that was established in low-rise residential buildings was 74%. Low price hydraulic
systems was accounted for about 60% of the German market in low-rise elevators (Hutt
& Speh, 2010:569). The estimated German market in 2000 is 4000 modernising units
which is approximately 26% of 15 500 units in the year 1995 and 13 000 new units

Ô
which is approximately 85% of 15 500 units. Given that part of the anticipated market
will be modernizing their projects, which cannot exploit MonoSpace most considerable
strengths, it would be best to split KONE¶s marketing strategy into two parts for
MonoSpace to achieve increase market share. KONE held market shares for New
Elevators in units at 8.5%, lifts in Service 4.9% in units and had a overall total revenue
value market share of 6.7%. This put them 4th in the German elevator industry.
KONE¶s market share is a fundamental sign to know that there is a problem or
opportunity arising. 6.7% of total revenues in market share in Germany is not very
good. This is only a very small part of KONE¶s revenues that they generated from
Germany without the introduction of the MonoSpace. This could mean that they¶r brand
name is acknowledge in Germany but that their target customers are preferring
something new and different and from what their competitors are offering into the
elevator industry. The example of the launch of the MonoSpace in Netherland is a good
guide to use because their prices was reasonable for all their offerings and their gained
40% market share which is excellent. The MonoSpace in Netherlands was focused on
individual customer meetings which gace KONE a good idea of what the market
wanted, the number of estimated customers and purchases in the form of money spend
and units. KONE has access to the complete German market demand for elevators.
Elevator prices was estimated to fall with 5 ± 7% in 1994 and 1995.

c  +
"
)'

To ensure that KONE keeps in touch with their targeted segment of General
contractors, Architects and Property developers as well as the Germany market trends it
is important to conduct quantitative research to examine customers perceptions,
attitudes, behaviours and predictions and purchases and number of customers for the
MonoSpace (Wood, 2004:343). This is in the form of questionarres, personal interviews
and telephone interviews, since the Netherlands focused on individual customer
meetings, and that is the direction MonoSpace Germany should follow. Through this
relevant problems, opportunities and threats can be addressed which could relate to
customer and channel satisfaction. MonoSpace is seeking customer intimacy to
examine customer demands and needs towards establishing marketing efforts, product

½
offerings and improvements accorting to specific customer trends. Primary and
Secondary research will be done to maintain new elevator development, the planning of
public relations, activities and presentations and to get a grip on the competitive position
and circumstances and observe MonoSpace¶s progress towards their objectives (Wood,
2004:343). Finally, feedback will be petition for through KONE¶s web site and through
representatives and salesforce/persons.

c ,

-
 
 (Hutt & Speh, 2010: 559-560).

^ Repair and sale of reconstructed electrical motors.

^ Manufacture and sale of equipment cranes, steel, chemistry analyzers, wood
handling systems and maritime equipment.
^ Manufacturing and Sales of Gearless or Traction (PT), Traction (PS), Traction (PU)
and Hydraulic (PH).
^ Pricing include : PH is DM 60 000, PT is DM 75 000, PU is DM 80 000 and PS is
DM 120 000 ± 200 000.
^ PH contribute to 8% of KONE¶s losses while PT, PU and PS contribute only 5%.
^ Standardized low-rise passenger elevators (78% of revenue), medium-rise elevators
(15% of revenues), high-rise elevator systems (10% of revenues), scenic elevators,
hospital elevators, freight elevators, escalators, autowalks and elevator components.
^ New Equipment carrying 38% in revenues and.
^ Services divisions carries 62% in revenues with its maintenance contracts obtaining
78%, modernization of current existing elevators 22%.
^ Consumer need are satisfied through the MonoSpace product line because it is
cheaper, comfortable ride, controlled speed, extremely energy efficient, requiring no
oil, quicker installation time, occupying 8 persons, can be used in a building of 12
floors or less, yielding considerable extra usable space.
^ MonoSpace has a 70% of sales.
^ Pricing of MonoSpace in three countries Netherlands is DG 69 000, France is FF
180 000 and the United Kingdom is £30 750.
^ MonoSpace obtained Market Share of 44% in the Netherlands, 14% in France and
20% in the United Kingdom.


c .

! 
 

(Hutt & Speh, 2010:559)(Wood, 2004:46)

^ KONE have strong connections and relationships with suppliers and channel
members.
^ They do have 25 sales branches where salespersons account to a specific
branch manager. The branch manager then report to the business division
directors and the regional directors.
^ KONE is determined in accentuating it long-term relationships and safeguard
their reputation amongst their suppliers.
^ KONE is not very dependent on their suppliers and channel members, but they
depend on their long-term relationships for the growth of their company and to
survive.

J
c


! 
/

c
c
0"")0
0 0

The MonoSpace should meet the terms of the German traditional laws and regulations
that governs the quality of the product, the labels, installations, safety procedures,
standards and codes. MonoSpace will comply to Germany¶s standards of elevator
installations. Political legal can be very important to KONE¶s profitability and increase in
market share for it plays a vital role the success of MonoSpace in another country than
its local and regional areas. There are existing elevator codes in the Europe market
according to EU standards, which states that elevator installations should be installed
with a machine room. MonoSpace did not fulfill this. There are difficulty in transforming
regulations, but this varied from country to country (Hutt & Speh, 2010:564).

c


)")
)

'(î &&& '& ) 0"12
$13"45)")53) '0

Since the German marketing shrinking, KONE should be aware of the economic factors
that could affect the success of the MonoSpace.

^ Supply and demand ± This is vital because a high demand for MonoSpace could
mean that KONE can supply it to their customers and receive estimated profits and
market share at a specific price. But if there is a low or no demand for MonoSpace
then KONE cannot supply anything for a profit. Supply and demand will be affected
by the shrinking of the German market which may mean that customers may not
have enough money to demand the product and this could lead to huge price
deductions.
^ Interest rates ± This affect the customer purchasing of MonoSpace. When interest
rates are high, customers may not borrow from the bank to pay for the installation of
a MonoSpace and sales will not occur for KONE. This is possible because of the
shrinking German market, interest rates could increase slightly.
^ Inflation ± A increase inflation will mean that the MonoSpace price levels will
increase and customers may not be willing or able to buy it due to too high prices.

Î
 MonoSpace should be priced at a low enough price level for its first launch in the
German market, because it is important to first obtain high market share.
^ Unemployment ± The more people that are unemployed in Germany the less money
flows through the economy because of the decrease in purchases of goods and
services.
^ Foreign exchange rate ± KONE is situated in Finland, which operates with the same
currency as Germany (Euro¶s). Thus it will not cost KONE more or less to penetrate
the German market.

c
$
)"0
("6"0"*
%
)0 *

^ MonoSpace requires no oil, unlike the hydraulic elevators. This ensures that it is a
more environmental friendly product and abolished the possibility of environmental
hazards and fires.

^ MonoSpace commit themselves to act in a way that is beneficial to the society e.g
making ethical business decisions.

c
+
)'0 ")0
3)
(Hutt & Speh, 2010:559-564)

^ KONE engaged in enormous effort of obtaining better technological factors than their
competitor Otis from Japan to develop the MonoSpace.

^ Research was conducted in various ways to enhance every aspect of the prototype
that was previously introduced.

^ Technology was gathered from motor geometry and new different materials to build
this light weight, thin, cheaper, energy efficient and environmental friendly product
MonoSpace.

^ Technology is a strong point in the German market and this poses as an advantage
to KONE with their MonoSpace, because a lot of effort was put into designing this
elevator with extreme highy acknowledged technology.

^ Customers, Suppliers, distributers, MonoSpace Marketing efforts and processes will
react positively and embrace to this new technology.

^ MonoSpace technology is effected by the EU standards and elevator codes of
installations with machine rooms.

ë
^ This industry is however dependent on new and improved technology and
technology is the only way that competing companies will be able to offer
differentiated products to their customers in this industry.

^ This technological revolusionisation will ensure that substitute products will be offset
for at least a medium sized period and that the only factor with which KONE will
compete will be its price levels according to their competitors price levels. This will
give them a jump start with obtaining market share in Germany.

^ KONE invested roughly 1.5% in 1995 in new product development which required
research. Their competitors are investing three times more due to substantial
prices, products and market share. This technology will ensure KONE to invest
more in their business through fisrt obtaining market share. The highest part of
spending on development and research is over for now, KONE can enjoy the pure
pleasure of launching their MonoSpace and improving on it.

c


)"0
00
%

'(î &&& )'565%)'0% %  )"* "5)5

. % ('")5% '0

With the shrinking economy of Germany, there are some demographic trends that need
to be taken into account when planning to launch the MonoSpace:

^ !"'
 ± Germany has been observering fewer births for the past 30 years.
There have been fluctuations since 1975 but the average newborn infants per
woman is in the region of 1.3 children. This has lead to conclude that for the past 35
years the age bracket of children have been lesser than that of their parents
^ " " ± Immigration to Germany have been high and this has prevented the
total population from reducing in size consequently.
^ "3
7())* ± This has gone up constantly and had moved to 77 years for
males and 82 years for females.
^ All these factors have lead to a 4th trend which has major consequences. The
proportion of young individuals in the total population has decreased and older
individuals have increased. This has lead to there being only two individuals of an


 workable age for every individual that is over the age of 60. This could have the
result of less younger people being employed in highly acknowledged business
positions. The new generation will be able to develop new techniques and use the
new technology, but there will be fewer of them that are able to do it.
^ All these trends will have an effect on the consumer preference for the MonoSpace
product, the demand for it and the switching to other products. KONE will have to
keep this in mind when estimating how big they want to become in Germany with
their products. They will properly have to look into opening a branch in Germany
with individuals that they employed from their regional and national base which are
able to demonstrate their product offerings and market accordingly.

c
2
(""4
3) (Wood, 2004:52)

^ Competition in the German elevator market is Schindler, Otis, Thyssen, Haushahn,

Schmit & Sohn and then KONE (Hutt & Spech, 2010:569).
^ Otis had launched a prototype of a machine-room-less elevator which was based on
a linear training motor, but it did not succeed commercially because its price
premium was higher than its assembly cost savings and its possibilities of
generating revenue. (Hutt & Speh, 2010:561).
^ The main competitors in the German market is 30 Mid-size players and 150
cowboys.
^ The Mid-size players are established to be 30 on number offering new equipment
sales series of 100 to 300 elevators per year and some of them produce hardly any
key constituents and most of them contract their manufacturing outward. They
operate regionally (Hutt & Speh, 2010:569).
^ Cowboys are the smaller companies that operate locally. They influence the
elevator industry aswell. (Hutt & Speh, 2010:570).
^ There are two sectors in the elevator industry namely the new equipment sector and
service sectors. The competition in the elevator industry is intense, especially when
it comes to pricing, quality and technology offerings. The larger companies usually
sold their equipment at a price that was below or at the cost to price-sensitive

c
 customers. Companies that originally installed the elevator were saught as service
contracts.
^ In the German market the four largest construction companies enjoyed 20% control
of the market and just about 20 00 small contractors battled for signing contracts in
the remainder of the market (Anon, 2004a:2).
^ KONE has a competitive advantage over the rest of its competitors because of its
technology that it has invested into the business. KONE knows the know-how of the
detail technology they used to make the lift. This competitive advantage will help
decrease the advantages that Otis, Schindler and Thyssen have over KONE.
^ If they decide to implement low prices, this will also give them an advantage
because they can ask what ever price they want to because they are the only
company with his MonoSpace in which customers are interested in. They can set
their prices low because their business model is economically viable e.g revenue,
customer acquisition, retention costs and the time taken to obtain the customer, their
constribution margins are relative enough for them to cover their fixed costs and
KONE¶s operating cash cycle characteristics for capital investments and the level of
margins to obtain are looking relatively stable. The only problem here is that on
procurement process takes 8 to 15 months to be finished, which is a long time and
this could count as a disadvantage. This means that there are inventory piled up in
working capital which are not yet sold and this could effect the time taken to pay
employees and resellers. This all depend on how long the customer takes to pay
the company for services, installations and equipment (Mullins, 2010:107).
^ KONE has the highest market share in the Netherlands

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