1. What are the major, quantifiable value and price elements associated with the Kunst 1600 1. Reduce operating costs If value can be shown in the way of reduced operating cost of the Kunst 1600 as compared to that of the other pumps in the various segments, customers are willing to consider to moving to the new Kunst pump
B. Increase the number of jobs that can be done by the Kunst pump per week
2. Construct a customer value model for the Kunst 1600 in the residential AC, home refrigerator, and light commercial refrigerator repair market segments
AC repair segment
* USP -- Kunst 1600 did not require oil changes. Haggling between owners and technicians on who should do the oil changes could be avoided which was of interest to the owners and technicians * Operations costs analysis( If done by a maintenance worker)
Labour: $ 12 / hour
Time required for oil change: 30 minutes
Oil: $ 8 / quart
1 quart oil required per oil change
Souring soap: $ 0.50
Towels: $ 0.15
Disposable charge : $ 5 per gallon (1 gallon = 4 quart)
a) Total operating cost / oil change = (12*0.5) +8 + 0.50+ 0.15 = $14.65
Disposable cost = 0.25x5 = $1.25 per oil change per quart
Total operating cost (cost of changing oil) : = 14.65+1.25 = $ 15.9
Let us consider an oil change per month.
Savings when KUNST 1600 is used = $15.9 x12 = $190.8
Note: For the residential AC repair segment the number of oil changes per year is not clearly define by the technicians. There is a disagreement between owners and technicians regarding who should change the oil. Some change oil every week while others did only once in a year.
b) Assuming 1 oil change per job (as per manual recommendation)
In a typical season (1000 jobs) = 1000 x 15.9 =15900 $ per season
c) Considering average life of pump as 2.5 years (as per dealer data)
Total oil change cost per life of pump = 2.5 x 15900 = $ 39750
Life time of 1 Kunst pump is 6 years which equates to more than two number of 3 CFM (i.e 6/2.5 nos.) pumps that needs to be used.
Total oil change cost = (6/2.5) x 39750 = 95400$
d) Initial extra investment of 1 kunst pump over the 3-CFM pump = 400-250 = $ 150
e) 4 pumps to be used simultaneously (to complete in 30 min) = 4x150 = $600
Customer can achieve operational savings of $95400 in moving to the Kunst pump with an additional investment of $ 600 over a period of 6 years
Savings per year = (95400-600) / 6 = $ 15800
Home Refrigerator Repair Segment.
Labour: $ 15 / hour
Time required for oil change: 30 minutes
Oil: $ 4 per pint of oil per change
Disposal charge: $ 5 per gallon (1 gallon = 8 pint)
$ 4 per pint of oil per change
Souring soap: $ 0.50
Towels: $ 0.15
a) Total operating cost / oil change = 15*0.5+4+ 0.50+ 0.15 = $12.15
Disposable cost = 0.125x5 = $0.625 per oil change
Total operating cost per oil change: = 12.15+0.625 = $ 12.775
Number of oil changes per year = 12
Total operating cost( cost of changing oil) = 12.775 x 12 = $ 153.3
Savings when KUNST 1600 is used = $153.3
Light Commercial Refrigerator Repair segments
Labour: $ 24 / hour
Time required for oil change: 30 minutes
Oil: $ 4 per pint of oil per change
Disposal charge : $ 5 per gallon (1 gallon = 8 pint)
$ 4 per pint of oil per change
Souring soap: $ 0.50
Towels: $ 0.15
a) Total operating cost / oil change = 24*0.5+4+ 0.50+ 0.15 = $16.65
Disposable cost = 0.125x5 = $0.625 per oil change
Total operating cost per oil change: = 16.65+0.625 = $ 17.275
Number of oil changes per year = 12
Total operating cost (cost of changing oil) = 17.275 x 12 = $ 207.3
Savings when KUNST 1600 is used = $207.3
B. Increase in the number jobs per week that can be achieved using KUNST 1600.
From the case details we see that there is no time savings in the case of residential AC repair segment and the Home refrigerator repair segment.
But in the case of light commercial refrigerator repair segment KUNST 1600 brings in a time saving based on its technical ability to work at low pressure levels.
Time saved = 10 minutes per job
Additional jobs per week = 2
Additional Revenue generated per week = 2 x 200 = $400
Profit per job = $30
Additional profit generated by KUNST 1600 per year = (2x30) x 12 = $720
Purchase cost analysis
Cost of KUNSIT 1600 = $500
Typical lifetime = 6 years
Residential AC repair segment:
Cost of competitor 3CFM model = $250
Typical life time = 2.5 years.
Cost difference in acquisition = (250/2.5)-(500/6) = $16.6
Note: Technicians claim that they will need 4 KUNST 1600 to complete the job in the same time taken by 3CFM pumps.
Cost difference in acquisition = (200/2)-(500/6) = $16.66
Overall Value addition of KUNST 1600
Contributing factor | Residential AC Repair | Home Refrigerator Repair | Light commercial Refrigerator repair | Savings from Oil change | 190.8 | 153.3 | 207.3 | Savings from Time efficiency | 0.0 | 0.0 | 720 | Total Saving | 190.8 | 153.3 | 927.3 | Difference in purchase cost | 16.7 | -33.3 | 16.7 |
The focus Segment:
Through the market research that was conducted, Will and Evan realised that though their parent company, Alter GmbH and Kunsit Vacuum Pumps were very popular in their respective markets, they were not at all identified in the proposed market segments. Hence the best way forward would to make a strong footed entry in one segment.
Based on the above financial analysis, the segment that offers best value to customer would be the “Light commercial refrigerator market”. In this segment KUNSIT 1600 could exhibit sure value addition in terms initial investment, additional jobs and the related profit and the overall revenue.
Value Proposition in the Light commercial refrigerator repair segment:
Technicians were convinced about KUNSIT 1600’s ability to work efficiently at lower pressure levels. This ability could reduce the vacuuming time to 10 minutes on a typical job. Thus they could do at least two additional jobs in a week. They were also happy about the oil free pump at hand which saved them from the mess of oil periodic oil changes. These were definitely additional values compared to any other competitor products available in the market.
