Commercializing Goods

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 DM9 billion (U.S.$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 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.