Commercializing the Kunst 1600 Dry Piston Vacuum Pump©

James A. Narus James C. Anderson *

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.

 Commercializing the Kunst 1600 Dry Piston Vacuum Pump

Evan Stone, a senior product manager at Kunst Vacuum Pumps, was excited as he
lifted the prototype of a dry piston vacuum pump out of its shipping carton. Management of
Kunst’s new parent company, Atler GmbH, had decided to test its ability to penetrate new
market segments within the United States (U.S.). Whereas Atler marketed the 1600 under its
own name as a platform product to the scientific laboratory and health care segments, Kunst
would sell it as a derivative product in previously untapped application segments. The
division’s vice president, Will Metz, had named Evan to head up a team charged with finding
new segments for and then commercializing the 1600. Evan looked forward to the challenge.
Success would bring recognition from Atler’s senior management. As he placed the steel gray
device on his desk, Evan recited to Will all the product information he could recall.

“The Kunst 1600 Dry Piston Vacuum Pump is a fractional horsepower, injection-
molded aluminum pump, with a pumping speed of 1.6 cubic feet per minute (CFM). The pump
weighs 16.5 pounds. The Kunst 1600 is a reconfigured compressor outfitted with a screen
over its input nozzle to catch contaminants. Because it is a compressor, the Kunst 1600 can
run longer and cooler than conventional vacuum pumps. This enables the Kunst 1600 to
function more efficiently at lower pressure levels than competing products. And, the fact that
it is injection-molded means that it has fewer working parts than more traditional models. In
contrast to conventional pumps, the Kunst 1600 is oil-free. Kunst will sell the 1600 to its
network of wholesalers for $400, with a suggested resale price of $500.”

“Will, this product along with the Kunst reputation for precision, reliability, and

durability will make us the ‘Mercedes ’of vacuum pumps in the U.S.”, Evan confidently
predicted. Yet before Evan could begin to market the Kunst 1600, he had to make some
critical decisions. First, Evan had to identify and target high potential market segment(s). He
planned to do so by determining in which segment(s) the Kunst 1600 stood to deliver the
greatest value. Evan speculated that the residential air-conditioning (AC) repair segment
would offer the best opportunity. Second, Evan had to develop a value proposition for the
Kunst 1600 for each segment targeted. At this point, he wasn’t sure whether to stress the
fact that the pump did not require oil changes or that it had a projected lifetime of 6 years.

BACKGROUND

Based in Minneapolis, Kunst Vacuum Pumps is the recently acquired U.S. Division of
Atler GmbH. During the previous fiscal year, Kunst sales soared to a 75-year record of $120
million. The firm manufactures top-end (i.e., 6 or more CFM) vacuum pumps for use in highly
demanding laboratory, health care, and industrial applications. For example, in the lab,
engineers rely on Kunst pumps in freeze-drying, vacuum oven, and distillation processes. In
high tech industries, operations personnel employ Kunst pumps in the production of cathode
ray tubes and computer chips. From a technical standpoint, Kunst pumps provide a “deeper
draw” (i.e., they can evacuate chambers down to almost a perfect vacuum) and are more
efficient at lower pressure levels than competing models. Scientists, engineers, and health
care professionals highly regard the Kunst brand name. Not surprisingly, Kunst holds a 60%
market share in laboratory, health care, and industrial applications.

Kunst Vacuum Pumps’ parent firm, Atler GmbH, is headquartered in Frankfurt,

Germany. Last year, Atler revenues exceeded € 5 billion. Founded in 1875, Atler produces
diversified lines of high-quality and high-precision measurement instruments, testing
equipment, compressors, and monitoring devices for hospitals and scientific laboratories. The
firm has a reputation in Europe for its scientific discovery prowess, its reliable and accurate
products, and its competent technical service.

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
 2
technologies) and that Kunst shared Atler’s commitment to superior craftsmanship.
As a test case, they requested that Kunst take a 1.6 CFM compressor, 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.

Evan and Will saw this as a golden opportunity for Kunst to grow sales and profits by
penetrating new market segments, such as AC and refrigerator repairs. As contrasted with
existing Kunst segments, technicians used vacuum pumps in these applications to
“dehydrate” a refrigerant system during repairs. Rather than “sucking out” moisture from
coils, valves, and motors, a vacuum pump actually lowered the pressure of the system so that
water particles would “boil off” and then be exhausted. The process had three major benefits.
First, it eliminated water droplets that could freeze into ice crystals. The accumulation of ice
retards the flow of refrigerants, ultimately slowing and stopping the cooling process. Second,
moisture over time combines with refrigerants to form hydrochloric and hydrofluoric acids.
These acids quickly corrode copper coils, valves, and motors. Vacuuming vaporizes these
acids. In a traditional vacuum pump, system oil traps the acids. When a technician changes
the oil, he or she removes these acids. In an oil-free pump like the Kunst 1600, the acid
vapors are directly exhausted into the atmosphere. Third, vacuuming indicates whether or
not there is a leak in the system. If a technician cannot draw down the pressure of a system,
then there is a high probability that there is a crack, often small in size, in a coil or valve.
Cracked coils are perhaps the most common cause of AC and refrigeration system failure.

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. In this way, the rule of seven provides rough
demarcations for market segments. For example, experts recommend a 1-1.5 CFM pump for
home and light commercial refrigerator repairs (e.g., small restaurants, bakeries, and ice
cream shops). For residential AC repairs, technicians suggest a 3-4 CFM pump. In his
preliminary investigations, though, Evan was unable to find any documented scientific support
for the rule.

Market research indicates that the annual U.S. sales potential for vacuum pumps in
each of these market segments to be as follows: home refrigerator repairs (60,000 units),
light commercial refrigerator repairs (40,000 units), and residential AC repairs (125,000
units). About 15 vacuum pump manufacturers actively pursue business in these segments.
Most firms are small in size (i.e., less than $50 million in annual sales) and limit their efforts to
one or two market segments. In recent years, several German and Japanese manufacturers
have entered the U.S. marketplace. The leading producers of 1-6 CFM vacuum pumps include
AirMaster, Pump Wizard, Toledo Pump and Valve, and Vacuum Technologies. Pictures of the
Kunst 1600 and AirMaster vacuum pumps appear in Exhibit 1. Manufacturers use heating,
ventilation and AC (HVAC) wholesalers to reach residential AC firms, and AC and refrigeration
(AR) wholesalers to sell to refrigerator repair firms.
MARKET RESEARCH STUDY

In order to prepare for the introduction of the Kunst 1600 and acquaint himself with
new applications segments, Evan decided to initiate a market research study. He began by
summarizing his initial beliefs about the marketplace. Evan was certain that the research
would validate them.

• I feel confident that the residential AC repair market offers the greatest opportunity for the
Kunst 1600. Annual sales have topped 125,000 units and are growing at 15% per year as
the population expands, particularly to the “Sun Belt.” Furthermore, I predict that AC
contractors stand to gain the greatest value from the Kunst 1600.
 3
• Although most residential AC contractors use anywhere from 3 to 6 CFM vacuum
pumps for repairs, I believe that we can make a convincing argument for the
Kunst 1600. Most AC system nozzles and vacuum pump hoses are one-quarter inch in
diameter. At that diameter, “resistance” retards the vacuuming process to the point
where a 1.6 CFM pump takes about the same length of time to evacuate a system as does
a 6 CFM pump.
• The most important benefit that the Kunst 1600 provides in all potential market segments
is that technicians will not have to change the oil! All vacuum pump manuals recommend
that technicians change the oil after each repair job. Each oil change typically takes a
quart. At $8 per quart for specialty oil, that can be quite costly on an annual basis.
Furthermore, it takes a technician around 30 minutes to change the oil on a 3 CFM pump.
Given that the typical AC repair technician is paid a rate of $30 per hour, the labor costs
associated with changing oil must be staggering.
• Changing oil is a messy nuisance for every technician. Each time a repair technician has
to clean up this oily mess, he or she uses $.50 worth of a solvent-based scouring soap and
$.15 of a specialized cloth-fiber based towel.
• To protect the environment, most U.S. cities require proper disposal and recycling of all oil-
based liquids. The average charge for recycling used oil is around $5 per gallon.
• The Kunst 1600 is made from injection-molded aluminum. It won’t rust like vacuum
pumps made of steel. Furthermore, the Kunst 1600 has far fewer internal parts than
competitive models. I predict that the Kunst 1600 will take more physical abuse (e.g.,
being tossed into trucks and getting rained on) and be far more durable than traditional
vacuum pumps. Our research engineers tell me that it should last at least 6 years in the
field.
• Because it is constructed from aluminum, the Kunst 1600 will weigh 5 to 10 pounds less
than competing products. Technicians will appreciate the weight savings.
• Potential customers will be willing to pay a price premium to obtain a vacuum pump with
the Kunst brand name on it.

In order to gain “hands on” experience in these markets, Evan decided to test his
beliefs with an extensive research study. The study would feature a series of 2 focus groups
with AC and refrigerator repair firm owners or managers and field in-depth interviews with
several repair technicians in each of three cities. A private marketing research firm would run
the focus groups in Philadelphia, Atlanta, and Los Angeles. Evan selected these cities to
reflect differing regional repair environments across the U.S. In each of the focus groups,
participants would get the opportunity to examine the Kunst 1600 prototype and product
literature. Evan planned to spend a day with each repair technician making repair calls. On
each job site, Evan would encourage the repair technician to run a “side-by-side” test of the
Kunst 1600 and their own pump. If other segments emerged, Evan would repeat the process
for each.

RESEARCH FINDINGS

When the research had been completed, Evan reviewed the major findings with division
vice president, Will Metz. “Will, the most important thing that I discovered is that AC and
refrigerator repair is an art that technicians practice rather than a science that engineers
meticulously execute. Many repair technicians have never completed rigorous training
programs and few states certify technicians. Personal opinions, preferences, and ‘rules of
thumb’ dictate how repair work is completed. Let’s review the research findings.”

Residential AC Repair Segment

The size of the AC repair firms participating in the research study ranged from single
owner-operators who worked out of the backs of their pick-up or panel trucks to operations
that employed 25 technicians and maintain 15 trucks in the field. On average, participating
firms had three trucks. Contractors assigned one vacuum pump per truck and kept one or
two extra pumps back at the office in case of pump failure. All residential repair contractors
 4
owned vacuum pumps between 3 and 6 CFM in capacity. The 3 CFM models were
the most popular. They reported that 3 CFM vacuum pumps sell for around $250
while 6 CFM pumps cost about $320. Participants estimated that a pump typically lasts 5
years.

Participants report that AC repair work is highly seasonal, lasting for about 20 weeks
between late April and early September. In the Southern U.S. the season is longer and in the
Northern states shorter. The typical repair technician completes 10 jobs a day, 5 days a
week, for an average of 1000 jobs per season. In the peak of the season, they may work
seven days a week. Job revenue and completion time varies widely; however, the average
revenue per job is $350 with a net profit before taxes of $70. The typical job takes about an
hour to complete. Contractors pay repair technicians an average of $30 per hour.

Because technicians had to carry the pumps to unusual locations at job sites, they felt
that the lighter the pump the better. They stated that the typical 6 CFM pump weighed
around 30 pounds and the typical 3 CFM pump 20 pounds. They thought it was great that the
aluminum body of the Kunst 1600 made it lighter than competitive models, however, they
wondered if the aluminum would make it more vulnerable to breakage. Others thought that
the acids exhausted from the Kunst 1600 would accumulate causing the aluminum housing to
corrode rapidly.

Focus group and field interviews confirmed that a vacuum pump is used for around 30
minutes in the typical repair job. Technicians maintained pumping time is not “idle” time in
that they use it to complete other repair tasks, load equipment on their trucks, write up
customer invoices, and develop a personal relationship with the homeowner. Thus, reducing
vacuuming time would not necessarily reduce total job time. Additionally, technicians stated
that vacuum pumps rarely failed on the job and if they did, they would radio the office and a
manager would drive another pump out to the job site. Lost time due to pump failure was
seen as negligible.

The focus groups and interviews revealed that owners and technicians were not
concerned about vacuuming precision. In the words of one technician, “As long as the needle
on the pressure gauge is close to zero, I feel that I’ve done a reasonable job.” They also
asserted that even if a technician failed to draw pressure down to an acceptable level, that
the AC system would probably work acceptably for a few more months if not the entire
cooling season. When the system broke down again, no one would be able to link the failure
to a poor vacuum pumping job.

Evan was surprised to learn that most repair firm owners considered vacuum pumps to
be “disposable operating supplies”. Many did not even keep track of pump purchases. As
one owner put it, “At $250 apiece, a vacuum pump is equivalent to the revenue from one
repair job.” Another operator put it this way. “If a pump lasts 5 years and my repair person
uses it to complete 5000 jobs, then a 3 CFM vacuum pump costs me around $.05 per job
while a 6 CFM pump costs $.06. Frankly, I’m more concerned about having to pay $30 per
hour for labor. And, I can’t find enough trained repair persons at that wage to keep up with all
the jobs I have coming in!”

Discussion of oil changes yielded contradictory and confusing results. Owners and
technicians alike agreed that vacuum pump instructions called for oil to be changed after
every job. However, to a person they stated that changing oil that frequently was
unnecessary and that in fact, no one ever did. Instead, they estimated that the average
technician changed the oil once a week. Some technicians even claimed to change the oil
only once a season.

At this point, disagreements between owners and technicians surfaced. Owners

contended that it was the responsibility of each technician to check his or her equipment out
each day and make sure it was in good operating order. However, they emphatically stated
that they would never pay someone $30 per hour to change the oil. Instead, owners felt that
the technicians should do the work “on their own time”. If worse came to worse, owners said
 5
they would assign the task to a part-time, maintenance worker ($12.00 per hour).
The contractors agreed that $8 per quart of oil, $.50 for scouring soap, and $.15 for
towels were reasonable estimates.

Repair technicians saw changing the oil as a “dirty little job”. It took about 30 minutes
to complete. Many felt that it was up to the owners to get the oil changed. As one technician
put it, “I show up for work each day on time and do first rate work. It’s up to the owner to
provide equipment and tools in good working order. They should have the oil changed for
me.” Technicians said that when they did change the oil they used about one quart of oil for
3-6 CFM pumps. They agreed that they used plenty of soap and paper towels cleaning up the
mess after an oil change. Most residential AC repair firms contracted with disposal firms to
recycle oil.

Importantly, the fact that the Kunst 1600 did not require oil and oil changes caught and
sustained both owner and technician interest. That is, until either the focus group moderator
or Evan informed them that the Kunst 1600 had a 1.6 CFM rating. Citing the Rule of Seven for
support, every participant stated that the Kunst 1600 was “too small” to handle residential AC
repair jobs. The typical technician commented, “It would take me 2-3 hours to complete a job
with a 1.6 CFM pump. If I wanted to get done in a half hour, I would have to use 3-4 of them
simultaneously.”

When informed that the quarter inch nozzle on most AC systems would create
resistance and equate the time it took a 1.6 CFM and a 6 CFM pump to evacuate a system,
none of the focus group participants were convinced. In the words of one contractor, “This
runs counter to my 25 years of experience, not to mention the Rule of Seven. No one in the
industry will believe you.” To Evan’s further disappointment, the side-by-side tests of his
resistance theory proved to be inconclusive.

Study respondents identified Pump Wizard as the top brand in the industry for over 40
years. They volunteered the fact that Pump Wizard had designed its vacuum pumps
exclusively for the residential AC repair marketplace. No one expressed any dissatisfaction
with any aspect of Pump Wizard vacuum pumps. Participants said that AirMaster and Vacuum
Technologies currently offered competitive models of equal quality. All three firms priced
their 3 CFM pumps at around $250 and their 6 CFM pumps at $320.

When the moderator or Evan showed study participants the prototype of the Kunst
1600, they universally stated, “Why this doesn’t look like a vacuum pump at all.” In fact,
most competing models resembled hand-held vacuum cleaners that most families had around
the house. And, when asked what their overall opinion of the Kunst brand was, the vast
majority of respondents said that they had never heard of the name. Participants
overwhelmingly concluded, “This pump would be better suited for home and light commercial
refrigerator repairs.”

Home and Light Commercial Refrigerator Repair Segments

Following up on the residential AC participants’ suggestion, Evan repeated the market

research procedure for the home and light commercial repair segments. He gathered the
following information. An individual owner-operator runs the typical home or light commercial
refrigerator repair firm, working out of the back of a pick-up or panel truck. Firms tend to
specialize in either home or light commercial repairs. Larger firms that do contract work for
appliance retailer chains may have up to 15 repair technicians working for them. A
refrigerator repair technician uses a 1 to 1.5 CFM vacuum pump. Participants in the study
thought that a 1 to 1.5 CFM pump might have a five-year lifetime.

On home refrigerator jobs, technicians typically use a 1 CFM vacuum pump for around
15 minutes. Participants did not see any benefit to reducing this meager amount of
vacuuming time. Home repairs generate an average of $90 in revenue, with a net profit
 6
before taxes of $10. The typical technician completes 7 jobs a day. Work is spread
out evenly across the year. Repair firms pay technicians about $15 per hour.

Light commercial work might entail fixing a refrigerated dessert carousel at a

restaurant or a refrigerated display case at a bakery or ice cream shop. Each job brings in an
average of $200 in revenue, with a net profit before taxes of $30. Technicians do about 5 jobs
per day and receive $24 per hour in wages. Light commercial work occurs throughout the
year; however, emergency repairs skyrocket during the summer and there are often more
jobs available than a given repair firm can handle.

A light commercial refrigerator-repair technician typically uses a 1.5 CFM vacuum pump
for 30 minutes. Repair firm owners consider this to be “idle time” as there are fewer tasks to
perform in refrigerator repairs and technicians must complete them sequentially. In this
application, Evan’s side-by-side tests revealed an unexpected finding. The Kunst 1600’s
ability to work more efficiently at lower pressure levels enabled technicians to reduce
vacuuming time by 10 minutes on the typical job. During the 12 hectic weeks of summer,
technicians would be able to convert the time saved into revenue by completing at least two
more jobs per week.

Home and light commercial refrigerator-repair technicians change the oil on their
vacuum pumps typically once a month. They use one pint or $4 of oil per change. As most of
these firms are owner-operated out of the back of a pick-up or panel truck, they find changing
oil to be an annoyance. On average it takes a technician 30 minutes to change the oil on a 1
to 1.5 CFM pump. Technicians change the oil during working hours between jobs.
Participants found the $.50 cost of scouring soap and $.15 of towels per clean-up to be
reasonable estimates.

Due to their small size, refrigerator repair firms rarely contract with oil disposal firms
and are more likely to pay the $5 per gallon disposal charge at municipal recycling centers.
Allegedly, refrigerator repair technicians are more likely to “toss used oil in deserted
dumpsters” than counterparts in other segments. Evan noted that the fines for dumping a
gallon of oil average around $150 for the individual plus $2000 for his or her company.
According to an environmental action committee study, only about 10% of these violators are
caught and successfully prosecuted.

Respondents named AirMaster as the number one brand of 1 to 1.5 CFM pumps. An
AirMaster 1 CFM pump costs $150 and weighs 10 pounds and a 1.5 CFM pump $200 and 15
pounds. None of the refrigerator owners or technicians was familiar with the Kunst brand.

Resolving an Inconsistency in the Findings

Evan was perplexed by one major inconsistency in market research findings. If

respondent predictions of vacuum pump lifetimes were correct, annual sales of vacuum
pumps would never be so high. To resolve this discrepancy, Evan interviewed 9 managers
from HVAC and AR wholesalers that market vacuum pumps. According to wholesaler
managers, most repair firms do not keep track of their vacuum pump purchases and
overestimate pump lifetime. On the other hand, wholesaler managers claimed that they
meticulously tracked customer firm purchases via their electronic point-of-sale systems. They
stated that with “reasonable care” and frequent oil changes a 3-6 CFM vacuum pump used in
residential AC repair work might last an average of 2.5 years. A 1 CFM pump used in home
refrigerator repair lasts about 3 years. And, a 1.5 CFM vacuum pump employed in light
commercial refrigerator repairs lasts about 2 years. However, as one wholesaler manager
sagely observed, “Many repair technicians do not take good care of their pumps and change
the oil as often as they should. Acid build up corrodes internal parts and physical abuse
causes the pumps to fail prematurely. But hey, that’s fine with me – I get to sell more
pumps!”
 7
CONCLUSION

“Those are the major findings, Will,” Evan said. “The market research certainly hasn’t
supported my initial beliefs, yet there still may be an opportunity for the Kunst 1600. Given
what we know now, what segment(s) do you think we should target?” As for devising a value
proposition, Evan thought that one contractor’s comment summed up the challenge, “If you
can’t show me how your vacuum pump is going to increase the number of jobs I can do per
week or cut my operating costs, I don’t want to hear about it!” As he stared at the minimalist
painting of a windmill on his office wall, Evan wondered how he could best convey the
superior value of the Kunst 1600 to targeted prospective customers.

DISCUSSION QUESTIONS

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).

Exhibit 1

Kunst 1600 and AirMaster Vacuum Pumps

Kunst 1600
8

AirMaster Pump