2017

Kone Case Write-up

Arianna Gutierrez
Dekonti Sayeh
Stephen Shin
Visharad Kapoor
Anwesha Roy
 1. Decision making unit consists of:
Property Owner
Construction company manager
Construction company purchasing agent
Architect
Building Service Manager
For property owners, value drivers are space efficiency, low maintenance costs, and dependability. Since
they are attached to the elevator for the entirety of its operational life, they have the widest range of value
drivers. However, they are not overly concerned with speed or comfort.
The value drivers for the Construction company managers depend on whether the architectural design of
the building has been fixed, and whether design changes can be made. If the location of the elevator
machine rooms is already set in the architectural design, the manager would only be concerned with
finding the correct elevator package to fit the application. The purchasing agent would want to find the
appropriate elevator package at the cheapest upfront cost. Both of them would be less concerned with
long-term maintenance costs since they would not manage that post-installation.
If the design is not yet frozen, both the Construction company manager and purchasing agent would do a
cost analysis to decide whether a compact solution like MonoSpace (that allowed them to monetize freed
up space) was worth the additional cost versus a traditional traction/hydraulic system with a machine
room.
The architect's main value drivers are space utilization and monetization of available real estate. They
want the most compact elevator so that they can optimize the rest of the building design. They also find
value in aesthetics of elevators such as color of interiors.
The building service manager would be most concerned with lifetime operating cost, quality of post-sales
services, maintenance frequency, and reliability.
Based on the value driver analysis above, the most important parties for market (1) are construction
company managers, construction company purchase agents, and to a lesser extent building service
managers. For market (2), the Architects and the Property Developers play a more important role since
the value proposition of no machine room requirement can significantly influence their elevator choice.
The construction company manager and purchasers are still involved since MonoSpace offers lower
construction costs.

2. Based on information provided about decision makers in the low-rise elevator customer section, we have
identified the following customers. Because the property developer segment is so small, we are focusing
on the architect and general contractor customer segments.
 Forecasted number of units sold to each segment

Vertical segments % 1996 1997

Architect 40% 2,788 2,699

General Contractor 50% 3,485 3,373

Property Developer 10% 697 675

The size of each segment was estimated using information about the size of the German market, growth
(stalling) of the German market, and the proportion of new elevator sales that comprise low rise building,
as shown in exhibit 1.
There are two options that can be selected as the reference price: either a hydraulic traction elevator
because this elevator has has the highest market share in Germany (92%) or the geared traction elevators,
because these performance closer to the MonoSpace elevator.
According to the case, general contractors and property managers make their decisions on cost. Therefore,
it makes the most sense to use the hydraulic elevator as a reference price for these customers.
Additionally, the case states that general contractors and property developers will avoid making changes
to architectural drawings as these drive additional costs. As a result, the product will obtain higher
adoption if the MonoSpace elevator is first selected by architects. On the other hand, architects are more
concerned with aesthetics and ride comfort, so we assumed they are more likely to select geared traction
elevators than a hydraulic elevator. Therefore, for the architect segment, the top shaft elevator will be
used as the reference price.
Based on this breakdown, the EVC and WTP were calculated based on the following (see Exhibit 2, 3, 4,
and 5):
Contractors: We assumed that savings from construction and labor were calculated at 27,000 DM.
Operating cost savings were ignored because since contractors are not owners, they will not be
motivated by long term operating costs. We do not take into account switching costs. Therefore,
EVC = reference price + savings = 87,000 DM. However, we have to consider that once
architects begin specifying buildings without a machine room, these portion of the savings
 (approx 24,000 DM) will go away, resulting in a WTP of 63,000 DM. The average WTP over
these two years = 75,000 DM
Architects: They do not pay anything for the actual construction of the project and will likely
have no switching costs. Therefore, the reference price = EVC = WTP = 75,000 DM.
Property developers: We anticipate that property developers have the same concerns and
experience the equivalent savings as the general contractors and will have a WTP of 75,000 DM.

3. For pricing of Monospace for contractors in Germany, we took into consideration different factors before
reaching to our conclusion.
Previous launches
Previous launches of Monospace had an equivalent (and slightly more expensive) price than the hydraulic
and traction geared elevators. KONE's reasoning was that a significant portion of the savings comes from
not having a machine room as well as the high fuel efficiency. Given these advantages of Monospace,
managers at Brussels suggest that Monospace be priced above existing prices in the market if KONE held
less than 15% of the market share and in line with existing pricing levels if KONE otherwise.
Customers segments
While higher price for Monospace may come across as natural to architects or property owners, it may not
be the case for contractors. If Monospace was priced higher than hydraulic or geared traction elevators, it
may become an unattractive choice for them because contractors are concerned about the upfront cost
rather than space efficiency or savings from operating costs (electricity, oil etc). Hence, it is not
recommended to set the price significantly above hydraulic and traction types for this customer segment.
Price difference between hydraulic and geared traction elevators and Monospace should be kept at a
minimal to make it an attractive choice to the contractors.
To elaborate, if Monospace was priced higher than the usual price for low-rise residential market,
selecting Monospace will increase the price of the contractor bids, making it no longer competitive. This
would result in contractors from not picking Monospace and resorting to the traditional types that are
cheaper in the market.
Would product differentiation of Monospace allow for a higher price? This may be the case for architects
(cosmetics) or property owners (fuel efficiency). However, we believe that there is not enough merit for
contractors to pay a higher price whose main concern is the upfront cost.
Competition
As Monospace is a more advanced product, setting the price close to hydraulic and geared traction
elevators will make it an attractive choice to switch to. We project that this will lower the sales of both
hydraulic and geared traction elevators in the market while increasing the demand for Monospace. And
since Monospace is an exclusive product to KONE, this will significantly increase the market share of
KONE in Germany.
Conclusion
We believe that for contractor segment, Monospace should be priced close to current prices of hydraulic
and geared traction elevators. The weighted average price of the hydraulic and geared traction elevators is
61,300 DM (calculation below).

Elevator types for low-rise residential buildings

hydraulic Traction PT Traction PU

Price 60,000 75,000 80,000

Proportion 92% 6% 2%

Weighted Avg Price 61,300

Also, our price should not go over the WTP that we calculated in Question 2 for contractors, which is
75,000 DM.
Therefore, our price should fall in the range of 61,300 DM ~ 75,000 DM. Hence, our choice for the price
of Monospace is (i) 70,000 DM.

Appendix

Exhibit 1:

Elevator sales in Growth 96.8%

Units sold of: 1988 1995 1996 1997 1998 1999 2000

New elevator sales 8,000 15,000 14,520 14,056 13,606 13,171 12,750

Residential Elevator 3,840 7,200 6,970 6,747 6,531 6,322 6,120

Exhibit 3

Architect

Top Considerations Aesthetic

Reference Price (DM) 75,000

1st year 2nd year

Savings (DM) 0 0

Total Savings (DM) 0 0

Switching Costs (DM) 0 0

Suggested Price (DM) 75,000 75,000

Exhibit 4

Contractor

Top Considerations Cost

Reference Price (DM) 60,000

Savings from installation (DM) 3,000 3,000

Savings from machine room

Total Savings (DM) 27,000 3,000

Switching Costs (DM) 0 0

Suggested Price (DM) 87,000 63,000

Average WTP (DM) 75,000

Exhibit 5

Property Developer

Top Considerations Cost

Reference Price 60,000

1st year 2nd year

Savings from installation 3,000 3,000

Savings from machine room

Total Savings 27,000 3,000

Switching Costs 0 0

Suggested Price 87,000 63,000

Average WTP 75,000