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COMMERCIALIZING THE KUNST 1600 DRY PISTON VACUUM

PUMP
Teaching Note

James C. Anderson *

James A. Narus

June 2003
*

James A. Narus is Professor of Business Marketing, Babcock Graduate School of

Management, Wake Forest University. James C. Anderson is the William L. Ford
Distinguished Professor of Marketing and Wholesale Distribution, and Professor of
Behavioral Science in Management, Kellogg Graduate School of Management,
Northwestern University. He is also the Irwin Gross Distinguished ISBM Research
Fellow at the Institute for the Study of Business Markets (ISBM), located at Penn State
University, and Visiting Research Professor, School of Technology & Management,
University of Twente, the Netherlands.
Please note that we prepared this case as the basis for class discussion rather than to
illustrate either effective or ineffective handling of an administrative situation. We
disguised all of the company names and some of the information on marketplace
conditions.
Send correspondence to:
James A. Narus
Babcock Graduate School of Management
Wake Forest University
Suite 150, One Morrocroft Centre
6805 Morrison Boulevard
Charlotte, NC 28226-3551 USA
+1.704.365.6717 (telephone)
jim.narus@mba.wfu.edu (e-mail)
2003, James C. Anderson and James A. Narus. All rights reserved.

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COMMERCIALIZING THE KUNST 1600 DRY PISTON VACUUM
PUMP
Teaching Note
Use
We designed the Commercializing the Kunst 1600 Dry Piston Vacuum Pump
case and its companion, Gaining a Foothold with the Kunst 3500 Dry Piston
Vacuum Pump case for use in a Business Marketing course in either an MBA or
Executive Education Program. Several of our colleagues have used it in
undergraduate courses as well. Alternatively, you might use the Kunst 1600 case
for a final exam. Instructors can use the case along with our book, Business
Market Management: Understanding, Creating, and Delivering Value and/or
our Harvard Business Review article, Business Marketing: Understand What
Customers Value.1
The Kunst 1600 case study provides students with an opportunity to
construct a basic customer value model and then to use results to select a target
market segment for a fundamentally new product. Once they choose a target
segment, we ask students to write a potent value proposition or positioning
statement for the Kunst 1600 for that segment. Finally, students use case
information to formulate a marketing program for introducing the Kunst 1600 in
their targeted segment.

Synopsis
Evan Stone, a senior product manager at Kunst Vacuum Pumps, along with
the Divisions Vice President, Will Metz, are in the process of making crucial
decisions concerning the commercialization of a new vacuum pump in the United
States (U.S.). Management of Kunsts new parent company, Atler Gmbh, has
requested that Kunst take an Atler 1.6 CFM compressor, reconfigure it as a vacuum
pump, and market it under the Kunst brand name to previously untapped market
segments. Given the size of the residential air conditioning (AC) repair segment
relative to other potential segments (home refrigerator repairs and light commercial
refrigerator repairs), Alter management has placed pressure on Evan and Will to
begin their commercialization efforts there. Evan and Will are not so sure and
decide to perform a value assessment to test this and other assumptions about the
marketplace.
To gather data to build a value model, Evan collects available technical and
cost data, conducts focus group interviews with repair firm owners and technicians
in three cities, and accompanies technicians to job sites to run side-by-side tests
to compare the Kunst 1600 with other pumps. During the marketing research
James C. Anderson and James A. Narus, Business Market Management:
Understanding, Creating, and Delivering Value, Upper Saddle River, NJ:
Prentice Hall, Inc. (1999), ISBN 0-13-522657-0) and James C. Anderson and James A.
Narus (1998), Business Marketing: Understand What Customers Value, Harvard
Business Review, November-December, pp. 5-15.
1

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process, the Kunst R&D laboratory engineers provide useful technical data from
scientific tests of pump durability and performance. Lastly, to resolve discrepancies
in some marketing research results, Evan interviews wholesaler managers to gain
their perspectives on vacuum pump acquisitions, prices, and reliability.
As the research progresses, Evan and Will learn that the new, potential
market segments operate differently from the scientific and health care laboratory
segments with which they are most familiar. Most importantly, they discover that
repair firm managers and technicians are likely to make their pump selection and
usage decisions based on unproven rules of thumb. For example, in deciding
what size of vacuum pump is needed for a given repair job, residential AC and
refrigerator repair contractors adhere to an industry heuristic known as the Rule of
Seven that links vacuum pump and refrigeration system capacities. The rule
specifies that pump CFM times seven yields the maximum refrigeration system
capacity (in tons of air) on which a given vacuum pump should be used.

Case Preparation Questions

Instructors should use the following questions as the basis of class
discussions.
1. What are the major, quantifiable value and price elements associated with
the Kunst 1600?
2. What additional value placeholders, elements not presently quantified, merit
consideration in your value model?
3. Construct a customer value model for the Kunst 1600 in the residential AC,
home refrigerator, and light commercial refrigerator repair market segments.
4. Using your value model, select a target market segment(s) for
commercialization efforts. Justify your choice.
5. Write a value proposition for the Kunst 1600 for the target market(s).

Analysis of Case Questions

1. What are the major, quantifiable value and price elements associated
with the Kunst 1600?
From a quantitative perspective, the superior value and price of the Kunst
1600 can be attributed to these three elements.
Value Elements:
Cost savings due to the elimination of oil change expenses and
messiness -- Most students will point this out quickly. However, note that most
owners and technicians trivialize oil change related costs.
Incremental revenue and profits As in economics, incremental revenue and

profits refers to new income that can be attributed to greater product efficiency.
In this case study, this occurs in only one segment light commercial
refrigerator repairs. In all other segments, repair firm revenues remain the
same regardless of which pumps are used. Because these normal revenues
appear on both sides of the fundamental value equation, they can be netted
out and disregarded.
Price Element:
Increased pump durability -- The Kunst 1600 lasts 2 to 3 times longer than
the incumbents in most segments. This means that repair firms will have to buy
more conventional pumps than Kunst 1600s. This impacts the price a repair
firm has to pay for conventional pumps (i.e., 2 to 3 times greater) and not the
number of jobs it can complete! In the economic sense, there is no incremental
profit merely greater price.
2. What additional value placeholders merit consideration in your value
model?
For the most part, there are few differences among conventional pumps and
the Kunst 1600. Here are a few placeholders that students can evaluate.
Weight differential The Kunst 1600 is lighter than pumps currently used in
residential AC repairs and heavier than those used in home refrigerator and light
commercial refrigerator repairs. These weight differences may impact
technician preferences.
Durability of parts As the Kunst 1600 is constructed of molded aluminum, its
parts may be subject to less corrosion and thus last longer.
Brand equity Currently, Kunst and Atler have little brand equity in the
potential market segments. This may put them at a competitive disadvantage
with long-established rivals.
Expected value of oil dumping fines You can either treat this as a
placeholder or include the expected probability of fines into your cost savings
category for the Kunst 1600 in the value model. You would calculate the
expected value as the sum of company and individual fines times probability of
being caught times the amount of oil dumped per year. There is limited case
information that enables you to do such calculations, but this will be difficult to
pin down in that any calculation will involve assumptions about how often the
contractor illegally dumps the oil. That is, the contractor would likely collect the
used oil in a container at the shop rather than disposing the quart or pint of used
oil each time.
3. Construct a customer value model for the Kunst 1600 in the residential
AC, home refrigerator, and light commercial refrigerator repair market
segments.
Exhibits 1 and 2 contain the components needed to construct a customer
value model for the Kunst 1600. Exhibit 1 contains the word equations, with
substitution of numerical estimates, and summarizes important assumptions from
the case study. Word equations are a crucial aspect of building customer value
models in that they enforce clarity in the definition of each value element and the
assumptions that are made in expressing each element in monetary terms. Word

equations benefit supplier managers by compelling them to examine the definition

and particularly the assumptions they are making for each element. Word
equations benefit customer managers by building up in an easily understandable
way exactly how an estimate for each value element was obtained.
Exhibit 2 presents the summary results for the customer value models for the
residential air conditioning (AC), home refrigerator repair, and light commercial
refrigeration repair market segments. In order to equate the different life times of
the competing pumps, the model is presented on a per-pump, per-year basis.
Finally, Exhibit 2 contains value placeholders, which are value elements that are not
presently expressed in monetary terms. Inclusion of value placeholders conveys
that those elements are worth something to the customer, and leaves open the
possibility that some specific amount might be ascertained in the future.
Note that estimates in customer value models will likely vary as a function of
assumptions made. Although commendable, considering taxes and depreciation
and calculation of net present values are not necessary to complete this analysis.
Our intent is to keep the customer value model as simple as possible, which makes
the results more persuasive to customer managers. We can always add more
complexity to the models, when this is necessary. Critically, as in this case example,
such levels of precision often have negligible impact on the ordering of segments in
provision of customer value.
Consider adding the calculation of value-in-use to the bottom of your
spreadsheet. Value-in-use is a term Adam Smith introduced in his book, The
Wealth of Nations, in 1776. It captures the superior value minus price that one
offering delivers above and beyond that of an incumbent brand.
You can derive it from our fundamental value equation as follows:
Fundamental Value Equation: Vk - Pk Vi - Pi
where k = Kunst 1600 and i = incumbent brand
Total Value-in-Useki = (Vk - Vi ) - (Pk - Pi )
4. Using your value model, select a target market segment(s) for
commercialization efforts. Justify your choice.
Here are some of the points that students should make when explaining their
choice of target segment(s) for the Kunst 1600.
Given Kunsts status as a new acquisition, Evan and Will should target a
single segment at this time. Politically and strategically, they need to come
up with a success story fast. Given that this is a small firm, they should
focus their limited resources on the segment that offers the most feasible
chances of success. They can use this segment as a foothold to penetrate
other segments later on perhaps with other Atler products.
Of the four segments, the one offering the greatest potential is a light
commercial refrigerator repair. This is the only segment where all three
value/price elements (incremental profit, cost savings from oil changes, and
durability) come into play for the Kunst 1600. The fact that the Kunst 1600

enables firms to do more jobs per week is the pivotal factor in that owners
and technicians trivialize changing the oil and overestimate the lifetimes of
conventional pumps.
The value-in-use per year (i.e., $943.97) and value created per year
($927.30) are significant and far greater than that created in the other
three segments.
The incentive to buy the Kunst 1600 in this segment is significant (i.e.,
around $844 per year).
The Kunst 1600 reduces repair job time by 10 minutes and increases the
number of job possible by 2 per week during the summer months.
The Kunst 1600 eliminates the hassle of oil changes for these largely
independent operators.
There is no likelihood of fines due to illegal dumping of oil.
The competition will probably not be as strong in this segment as it will in
other segments, namely residential AC repairs.
Although it is highly attractive in terms of size, the residential AC repair
segment is not feasible because of perceptual barriers and the fact that the
Kunst 1600 may be underspecified (1.6 CFM pump in a 3-6 CFM
application). Target another Atler product at this segment!
The home refrigerator repair market may be viable long-term however, the
Kunst 1600 may be overspecified for the application (1.6 CFM pump in a 1
CFM application). The Kunst 1600 does not create incremental jobs here and
pumping only takes 15 minutes.

5. Write a value proposition for the Kunst 1600 for the target market(s).
In two sentences or less, the Kunst 1600 value proposition to the light
commercial refrigeration repair segment should be something along the lines of:
The faster draw-down performance of the Kunst 1600 enables your firm to
complete more jobs in the busy season and earn more, while eliminating the oil
change mess and hassle. Stress that value propositions do not have to cover all
points-of-difference, and instead should focus only on the most significant ones.
Points to consider in reinforcing the value proposition are:
Repair firms can increase profits by around $720 per year by reducing
pumping time 10 minutes per job and gaining 2 new jobs per week.
This $720 in incremental profits is far greater than the incremental price for
the Kunst 1600.
On average, users would reduce oil change costs by $207 per year.
There would be no oil change mess and hassle.
The average payback period for the Kunst 1600 is around 8.5 weeks (less
than one season).
Although some students might want to consider the differential price advantage
due to the greater life expectancy of the Kunst 1600 in the residential AC and
light commercial segments in their positioning statements, we do not
recommend this. The expected life of the Kunst 1600 pump may be overstated,
because of assumptions made that might not hold in practice, making this a
questionable benefit. Further, because Kunst will rely on a network of

wholesalers to market the 1600, they do not want to emphasize a benefite that,
if true, would lead to the wholesaler selling fewer pumps. This might lead to
reluctance on the part of the wholesaler to aggressively market the new Kunst
1600 relative to other pumps that are not as long-lasting.

Exhibit 1
Word Equations for Kunst 1600 Value Elements
Cost savings per oil change = Oil price + Labor cost + Clean-up supplies + Oil
disposal cost
Labor cost = Hourly rate of individual changing oil x Hours of time required
per change
Clean-up supplies = monetary amount of scouring soap used + price of cloth
towel
Oil disposal cost = recycling charge per gallon of oil x number of gallons
recycled
For Residential AC Repair segment (using maintenance worker):
Cost savings per oil change = $8 + ($12 x .5) + (.15 + .50) + ($5 x .25)
= $15.90
Cost savings per year for oil changes = Cost savings per oil change x Number of oil
changes per year
= $15.90 x 20
= $318
For Home Refrigerator Repair segment:
Cost savings per oil change = $4 + ($15 x .5) + (.50 + .15) +($5 x .125)
= $12.775
Cost savings per year for oil change = Cost savings per oil change x Number of oil
changes per year
= $12.775 x 12
= $153.30
For Light Commercial Refrigerator:
Cost savings per oil change = $4 + ($24 x .5) + (.50 + .15) + ($5 x .125)
= $17.275
Cost savings per year for oil change = Cost savings per oil change x Number of oil
changes per year
= $17.275 x 12
= $207.30

Incremental profit per year = (Number of additional jobs per week x Average
profit per job) x
Weeks per busy season
The Kunst 1600 would not enable the contractors to perform any additional jobs in
either the residential AC repair or home refrigerator repair segments. Only for the
light commercial refrigerator repair segment was it found that using the Kunst 1600
would enable the contractor to perform additional jobs.

Exhibit 1 (continued)
Word Equations for Kunst 1600 Value Elements
For Light Commercial Refrigerator:
Incremental profit per year = (2 x $30) x 12
= $60 x 12
= $720
To move from the total value of the Kunst 1600, given by the preceding two word
equations, to the value-in-use of the Kunst 1600, we must also include the price of
the alternative pumps. Value-in-use is an economic term that equals the theoretical
maximum price that a customer would be willing to pay. When the expected lives
of the offering differ, this must be taken into account, and can be expressed as the
differential price per year.
Differential price per year = (Incumbent pump price/Expected number of years)

(Kunst 1600 price/Expected number of years)

An assumption to question here is the given expected life of 6 years for the Kunst
1600. A point to make is that this estimate was likely obtained from accelerated
use lab tests. Estimates obtained in this way can be problematic when one or more
assumptions made in the accelerated use lab tests do not hold in the actual use of
the Kunst 1600 in the given applications (e.g., careless handling, throwing the pump
into the back of the truck).
For Residential AC:
Differential price per year = ($250/2.5) ($500/6)
= $100 - $83.33
= $16.67
For Home Refrigerator:
Differential price per year = ($150/3) ($500/6)
= $50 - $83.33

= - $33.33
For Light Commercial Refrigerator:
Differential price per year = ($200/2) ($500/6)
= $100 - $83.33
= $16.67

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Exhibit 2
Customer Value Models

Kunst 1600 Value (per year)

Element

Residential AC
Repair Segment

Home
Refrigerat
or
Repair Segment

Light
Commercia
l
Repair Segment

Oil Change
Savings

$318.00

$153.30

$207.30

Incremental Profit

$0

$0

$720.00

Total Value

$318.00

$153.30

$927.30

Differential Price
(per year)

$ 16.67

Total Value-in-use
(per year)

$334.67

- $ 33.33
$119.97

$ 16.67
$943.97

Value placeholders:
Weight: the Kunst 1600 weighs 16.5 pounds versus 6 CFM pump (30.0 pounds), 3
CFM pump (20.0 pounds), 1.5 CFM pump (15.0 pounds), 1.0 CFM pump (10.0
pounds). Thus, depending on comparison, weight is an advantage or disadvantage.
Social benefit of not having to do a dirty little job. Owner operators will value this
the most (i.e., smaller firms.
Doesnt look like a vacuum pump (-)
Environmental stewardship (because pump uses no oil)
Rule of Seven (-)

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