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KONE: MonoSpace
Case write-up
KONE is an elevator company with a new and innovative product to entering the market. This company is faced with the problem of what they want to charge and how they are going to position this newest product without cannibalizing their existing product lines. Another problem the company faces is how and to whom they should market this new elevator application. The company can rule out marketing to the high rise gearless traction market because their technology doesnЎ¦t apply to this market, as of now. Although they are not able to market to this group the benefits of gearless traction can be used in comparison to the geared and hydraulic elevator systems. One problem that was learned from the preliminary markets was that customers worried that KONE would be able to price gauge them since they were the only ones with this sort of technology.
The existing products offer the customer a number of options. Depending on who is making the buying decision they can base the purchase on up-front costs, lifetime savings, or quality of the equipment.
Strengths:
„h No machine room that creates greater architectural freedom and more usable revenue-generating space
„h Compare to gearless technology: controlled speed, ride comfort, lower maintenance
„h Cost savings: energy efficient, less expensive electrical wiring and fused, and no oil is used
„h Lower overall construction time
Weaknesses:
„h only can be used on 8 to 13 person elevator
„h used for 12 floors or less (if machine room is to be omitted)
Positioning of this product is very important. They could market it in-between the hydraulic and the geared traction or they could position it as top of the line. If they were to position the ecodisc just above the hydraulic elevator the customer would receive all the benefits listed. I think that they should keep the hydraulic as their low-end model. The reasoning behind this is that why give the customer all the added benefits of the ecodisc for a low-end price. If the product is to be positioned at this level I believe that they would cannibalize their existing geared traction line. Why wouldnЎ¦t a customer upgrade to the ecodisc from the hydraulic? They would stand to gain the most value of the purchase. This would only be defeating the purpose of the new technology.
With the ecodisc being positioned above the gear traction the person in the market for a new elevator has one more option to consider depending on their needs. If they just want something to put in the building at the lowest price they have the option of the hydraulic elevator. Also, if this is the option they are choosing why would you recommend the ecodisc as an alternative. They are just looking for the cheapest alternative, not the added benefits that the ecodisc can provide.
Even though the German market consists of 60% hydraulic elevators I donЎ¦t think ecodisc is the next best alternative from the companies standpoint. This number could be attributed to the fact that the general contractor made the final elevator decision 50% of the time and they may have been looking for the cheapest option.
You also have to consider that 40% of the customers are in the market for geared traction. The interesting thing to note is that about 26% of these are of the more expensive PU type. As of now only 2% of KONEЎ¦s German sales come from this more expensive elevator. (See table 1) This shows that not everyone is looking for the cheapest alternative or they may have design issues that KONE would be able to eliminate.
Positioning the ecodisc as their top of line product seems to be where they should focus their attention. Besides that, like we talk about in class you really donЎ¦t want to be in the middle. Consumers usually want a product at the bottom or at the top. If this option is used it would also eliminate the concern of cannibalizing their existing product line because it gives the customer choices.
Table 1
Concerning pricing the company seems to be in the best position at showing the overall benefits of installing and running the ecodisc. They can approach this in a number of ways. They could show the construction company the money saved by not building the machine room. Also, they could appeal to the architect by giving them more creative freedom in designing a building without having the limitation of including a machine room. The next alternative would be to appeal to the property developer who is looking to resale the property. They would be interested in passing on value to the person that would be buying the building. With this being said I believe that the same approach could be used for both the property owners and the property developers.
I think that KONE should market the ecodisc as an alternative to the existing geared traction elevators. Even though this is a smaller market I believe that some people will always be in the market for the lowest price alternative and why sell themselves short by offering it as an alternative to hydraulic systems. If the customer wants to upgrade to the next best alternative they are able to buy the geared traction. If they were to position it in the middle they would lose the sales of the geared traction. If you price the geared traction higher you would completely lose this market. I mean why would someone buy a more expensive system when they can get all the benefits of the ecodisc for a lower price (quality, over-all costs, and lifetime costs). I believe this is why they did so well in the Netherlands. They offered ecodisc as a substitute to the hydraulic system. The ecodisc sales in the Netherlands show that the positioning and the pricing could have been better. This would also eliminate the worry that customers have regarding price gauging. If they are worried they still have other options and KONE will be able to supply the alternative.
Regarding who to market to I believe they should market to the property developer that is looking to sell, the owner, and the architect. As you can see from Exhibit 1 this group seems to benefit from the ecodisc the most. This seems to the best approach because these groups of people stand to gain the most benefit form the installation of the ecodisc. The reason I have not chosen the construction company is because the savings donЎ¦t seem to outweigh the benefits. I donЎ¦t