Nature of the Situation:
KONE Aufzug is the Germanic branch of KONE from Finland. During November 1996 Raimo Hätälä, the New Elevator Business director, was planning to launch a new product in the low-rise building market.
The elevator industry in Germany was highly competitive and mature. From 1995, when the construction boom ended abruptly, until 2000 they expected the demand to shrink by 15%. This provoked the prices to fell between 5% and 7% in 1994 and 1995, generating loses for Schindler and Otis (two of the six major competitors in Germany).
The German low-rise building market was divided, as in other European countries, in geared traction technology (PU and PT), and hydraulic technology (PH) that accounted for 8% and 92% respectively. KONE’s new product, MonoSpace, was mainly characterized for its new technology, the EcoDisc, which provided a more comfort ride, did not need for a machine room, and reduced energy consumption. Before the launch of MonoSpace in Germany, it was test marketed in France, United Kingdom (U.K.) and The Netherlands. In the latest, MonoSpace was a complete success. It gave higher profits and 62% of the low-raise market (up from 52%). But in France only 40 units were sold of the 300 expected and in U.K. no units were sold during the first month after launch. Results that gave Hätälä cause for concern.
Finally, a pre-launch had been done: During November 1995, 4 PH customers converted their orders to MonoSpace and from January to June 1996, 30 MonoSpace elevators where arranged to be installed. All of them were asked to “keep quiet about the technology”.
Decision to be made:
Since the pricing and positioning strategy of MonoSpace will have a significant impact in KONE’s European and global image, Hätälä has to decide with extreme caution each one of them. We will analyze price in deep.
To set a price we have two alternatives, (1) to follow the indications at...