B2B Marketing: Kone Case

Cite this Blog as:

HOLMES, E.B., 2012. B2B Marketing: Kone Case. University of Edinburgh Case Studies, [blog] 24 Apr 2012. Available at: <http://uebs-cases.blogspot.co.uk/2012/04/b2b-marketing-kone-case.html> [Accessed 8 Jul 2012]. (Don't forget to modify the access date.)

1. Kone: The MonoSpace (c) Launch in Germany
2. HBS: 9-501-070 Rev. 2005
3. By Das Narayandas, Gordon Swartz
4. Assume DM (Deutsch Mark) to US Dollar exchange rate: 1.43DM/USD 
5. Assume FF (French Franc) to US Dollar exchange rate: 4.92FF/USD
6. Worldwide Elevator Industry (figures from 1995)
7. consolidation from late 1970s-1980s
8. two sub-sectors
1. new equipment: $9B (price competition to obtain installed base)
2. service: $13B  (high margins of 5% elevator purchase price)
9. 80% of service contracts flowed from new elevator sales
10. 20% went to small, service-only, regional competitors attracted to lucrative service business
1. lower price
2. faster service
11. Elevator Cost
1. 50% equipment
2. 50% installation
12. Elevator Purchasing Key Stakeholders
1. property developer: up front costs
2. building owner: long term purpose
3. construction contractor
4. architect
5. elevator consultant
6. major tenants 
13. Elevator Design Parameters
1. height, speed (power requirement, price)
2. cabin size, drive system, interior finishing (ride-comfort, price)
14. Sales by Elevator Drive Systems
1. gearless traction (10%) 
1. required for >25 floor buildings 
2. lower maintenance costs
3. machine room always on top
2. geared traction (30%)  
1. too slow for >25 floor buildings
2. three machine room configurations
1. PT (top of shaft)
2. PU (adjacent to bottom of shaft)
3. PS (adjacent to top of shaft)
3. hydraulic (60%)
1. suitable only for <6 floor buildings
2. 50% cost of geared traction
3. hydraulic oil flammability issue?
4. machine room adjacent to shaft bottom
15. early 1990s 5 players
1. Otis (US) owned by United Technology Corporation
1. market share leader
2. $5.3B revenue up 14% from previous years
3. $511M operating profit up 21%
4. Process re-engineering 1990s
5. 1992: developed linear motor driven elevator, but it was prohibitively expensive. Commercial failure.
2. Schindler (Swiss) 
1. $4B revenue stagnant in 1994-1995
2. $67M EBIT in 1995 only half of 1994
3. 87% elevators and escalators
1. 60% Service
4. Expressed Strategy: equal market share in Europe/America/Asia
1. margins over volume
2. avoid price wars
3. Kone (Finland) 
1. $2.2B from 16,500 V1, 425,000 V2 
2. "Kone" means "machine" in Finnish  
3. established 1910, originally repaired or rebuilt motors, expanded to conduct steel and equipment manufacturing, industrial (wood-handling) and chemical systems
4. Business Divisions
1. V1: New Equipment Revenue Slices
1. low rise (75%), medium rise(15%), high rise (10%)
2. scenic, hospital, freight, escalators, auto-walks, components
2. V2: Services
5. R&D ratio: 1.5% of Revenue
6. 2 headquarters
1. Helsinki (Finland)
2. Brussels (Belgium) 
7. Sales by Location
1. 53% EU 
1. Aufzug, Germany largest market (10% of total). 25 sales branches
2. V1: 23 full time, 20 half-time salespeople
3. 13 of these were branch managers, 7 sold V2 as well
4. outnumbered by competitors' sales forces 4-5 to 1
1. North
2. South
3. East
2. 29% North America
3. 10% Asia
4. 4% Australia, All other countries
5. 4% Non-EU Europe
8. Sales by category
1. 48% residential
1. 92% PH
2. 6% PT
3. 2% PU 
2. 52% commercial
1. PS 
9. Strategy: Create a need. Sell equipment at a loss (between 5-8%) in order to create an installation base. Then service the elevators at high margin. Design the elevators so that only you can service them. Lock in is achieved.
10. Target European, low-rise residential elevator customers with new monospace offering. Target Amsterdam because of positive perception there. (low risk of regulatory hassle)
1. more energy efficient
2. less bulky design (no machine room)
11. Target Geared Traction Elevators on Monospace price advantage.
1. lower cost to customers (both initial and ongoing)
2. differentiated offering
12. Sales Strategies by location
1. Netherlands: in person customer meetings
2. France: TV ads and letters to existing customers directing them to the ads
3.  UK: Price sensitive market. Push differentiation as tech. leader
4. Germany:  request for bids sent to potential customers. Follow up in person. Expert demeanor essential
13. Don't upset market leaders, but make a statement
1. Otis could "buy Kone in cash". Wasn't going to be destroyed by Monospace, and could drop its own offerings' price to compete
2. Competitors: "Stunned silence" vis-a-vis Monospace release
4. Mitsubishi Electric (Japan)
1. 36% of Japanese market, market leader in many Asian markets
2. $27.8B revenue (group)
3. 22% Consumer Products
4. 21% Data Processing
5. 20% Semiconductors
6. 18% Industrial equipment and automation
7. 24% Heavy Electrical
1. elevators
2. escalators
3. conveyors
4. transformers
8. $1.8B operating profit
9. 1996 opened new Asian factory, doubled production in 2 existing Asian factories and engaged in 2 JVs
5. Thyssen Aufzuge (Germany), owned by Thyssen AG
1. $1.5B revenue
6. Toshiba (Japan)
7. Hitachi (Japan)
8. Goldstar (Korea)
16. 1996 Elevator Demand
17.