Assignment: Kunst 1600 Case Analysis

ASSIGNMENT
KUNST 1600 CASE ANALYSIS
PROFESSOR DR. JOFFY THOMAS

Submitted by
SHEFFIN R SAM
EPGP- 10- 067
INTRODUCTION
Kunst Vacuum Pumps based out of Minneapolis was acquired recently by US Division of Alter
GmbH. Kunst manufactures high-end vacuum pumps for use in high demanding laboratory, health
care, and industrial applications. During the previous fiscal year, Kunst sales soared to a 75-year record of
$120 million. Atler acquired Kunst the previous year in order to penetrate new segments in the U.S.
market. Importantly, Atler management believed that Kunst product lines and market segments were
complementary to their own (e.g., compressors and pumps rely on similar technologies) and that Kunst
shared Atler’s commitment to superior craftsmanship. As a test case, Atler requested that Kunst take a
1.6 CFM compressor Kunst 1600, reconfigure it as a vacuum pump, and market it under the Kunst
brand name to previously untapped market segments. If this approach was successful, Atler would begin
to transfer a broad range of products to Kunst for marketing. On the other hand, failure might cause Atler
management to doubt the wisdom of the Kunst acquisition.
Kunst division’s vice president, Will Metz, had named Evan, a senior product manager to head up a team
charged with finding new segments for and then commercializing the1600. Evan had to take two critical
decisions for Kunst 1600:
i. target high potential market segment(s)
a. home refrigerator repairs (60,000 units)
b. light commercial refrigerator repairs (40,000 units)
c. residential AC repairs (125,000 units)
ii. to develop a value proposition for the Kunst 1600 for each segment targeted.
OBSERVATIONS
KUNST 1600 major Quantifiable values:
 It is injection-molded aluminum pump so it has fewer working parts
 Aluminum made so it is lighter than all competes
 a reconfigured compressor outfitted with a screen over its input nozzle to catch contaminants.
 it is a compressor, therefore it can run longer and cooler than conventional vacuum pumps.
 In contrast to conventional pumps, the Kunst 1600 is oil-free
Price elements associated with Kunst 1600:
 Savings due to pump durability: As Kunst 1600 life is 2-3 times more than traditional vacuum
pumps, this will reduce the buying cycle for repair firms and savings by 2-3 times.
 Savings due to the elimination of oil changes: As Kunst 1600 is oil-free therefore it will save-
- $8 per oil change.
- 30 minutes of labor work per oil change (labor rate = $30 per hour).
- The cost associated with clean up oil mess resulted during an oil change ($0.5 soap + $0.15
towel = $0.65 per clean up activity).
- The cost associated with disposal and recycling of used oil ($5 per gallon).
Additional Value Place holders and elements tot quantified:

The additional value placeholders between Kunst 1600 and its competitors are-
Durability: 2-3 years more durability than competitors due to injection molded Aluminum body resulting
less corrosion.
Weight savings: Weight difference impacts on technician preference, Kunst 1600 model is lighter than
pumps used in residential AC repairs but slightly heavy than light commercial refrigerator repairs.
Brand value: Kunst consider its brand is well known in market and will have advantage of the same.
But in reality for the Kunst 1600 chosen segment (residential AC repair and light commercial refrigerator
repair) the Kunst brand is unknown and have little value.
Expected value of Oil dumping fines: Kunst 1600 model can get rid of oil changes and subsequently
hefty oil dumping fines of $2150. But as per the details only 10% illegal oil dumping are caught and
fined, rest do the dumping at free of cost.
Customer Value Model for Different Target Segment:

Among different value placeholders (durability, weight savings, Brand value & Oil savings) only oil
saving is major differentiator for Kunst 1600.
i. Cost of savings per oil change for “Residential AC” segment:

Cost savings per oil change = Oil price + labor cost + clean –up supplies + Oil disposal cost
= $8 + ($12 * 0.5) + ($0.5 + $0.15) + ($5 *0.25)
= $15.9
(NOTE: 1 Quart of oil = 0.946 lit; 1 U. S. gallon = 3.785 lit. Therefore, 1 Quart = 0.946 /3.785 =0.25)
Average oil change frequency is weekly (50 jobs per week) and there are 1000 jobs done per season.
Total frequency of oil change per season /year is 20 times.
Cost of savings per year for oil changes = $ 15.9 *20 = $ 318.0
ii. Cost of savings per oil change for “Home Refrigerator” segment:
= $4 + ($15 * 0.5) + ($0.5 + $0.15) + ($5 *0.125)
= $12.775
Average oil change frequency is weekly and hectic weeks of summer are for 12 weeks. Total frequency of
oil change per season /year is 12 times.
iii. Cost of savings per oil change for “Light Commercial Refrigerator” segment:
= $4 + ($24 * 0.5) + ($0.5 + $0.15) + ($5 *0.125)
= $17.275
Average oil change frequency is per month and works for 12 months. Total frequency of oil change per
year is 12 times.
Kunst 1600 customer value is summarized as below -
Residential AC Home Refrigerator Light Commercial
Ref.
Cost of savings per
$ 318.0 $ 153.0 $ 207.3
year for oil changes
RECOMMENDATIONS
As per the outcome of marketing research Kunst 1600 would not help to do additional jobs for
“Residential AC” and “Home Refrigerator” repair segment. Only “Light Commercial Refrigerator” repair
segment would enable the contractor to do additional repair jobs.
Incremental profit per year for “Light commercial Refrigerator” =

(No. of the additional job per week * Avg. profit per job)* weeks per busy session
= (2*$ 30) * 12
=$ 720
As the Kunst 1600 life is minimum of 6 years and which is much higher than the competitor’s model life
between 2-3 years. Therefore we have to calculate Differential price per year per repair segment.
Differnitial Price per year per segment:
For Residential AC:

Differential price per year = (Competitor pump price / expected life in years) – (Kunst 1600 price/
Expected life in years)
= ($ 250 /2.5) – ($ 500 / 6)
= $ 16.67
For Home Refrigerator:

= ($ 150 / 3) – ($ 500 / 6)
= (-) $33.33
For Light Commercial Refrigerator:

= ($ 200 / 2) – ($ 500 / 6)
= $16.67
Comparing all total value for “Light Commercial Refrigerator” repair segment is highest among the the
three segments.
TOTAL VALUE FOR LIGHT COMMERCIAL = $ 207.3 + $ 720 = $ 927.3
Also, there is a positive differential price per year. If we add differential price for 6 years Total value for
Light Commercial would be= $ 927.3 + ($ 16.67 *6) = $ 1027.32
Considering all these values and price elements Kunst 1600 management should target “LIGHT
COMMERCIAL REFRIGERATOR” repair segment.

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ASSIGNMENT

KUNST 1600 CASE ANALYSIS

PROFESSOR DR. JOFFY THOMAS

Additional Value Place holders and elements tot quantified:

Customer Value Model for Different Target Segment:

i. Cost of savings per oil change for “Residential AC” segment:

Incremental profit per year for “Light commercial Refrigerator” =

Differnitial Price per year per segment:

For Residential AC:

For Home Refrigerator:

For Light Commercial Refrigerator:

TOTAL VALUE FOR LIGHT COMMERCIAL = $ 207.3 + $ 720 = $ 927.3

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