Marketing Excellence Caterpillar
Caterpillar was founded in 1925 when two California-based tractor companies merged. The name “Caterpillar,” however, dates back to the early 1900s when Benjamin Holt, one of the company’s founders, designed a tractor crawler with wide, thick tracks instead of wheels. These tracks prevented the machine from sinking into California’s deep, rich soil, inspiring one observer to say it “crawled like a caterpillar.”
Holt sold the tractor under the Caterpillar brand, and after the merger, the company became the Caterpillar Tractor Company. Caterpillar Inc., or CAT, is now the largest manufacturer of earth-moving equipment and engines in the world, selling hundreds of different machines for eight industries: residential, nonresidential, industrial, infrastructure, mining and quarrying, energy, waste, and forestry. Their distinctive yellow color has helped make the brand a U.S. icon.
How did a small tractor manufacturer become one of the biggest companies in the world? Caterpillar grew steadily at first, hitting a few critical milestones including the use of its trademark farm treads on Army tanks in World Wars I and II. Huge postwar construction contracts and strong overseas demand kept sales strong through the mid-20th century, as did innovations like the diesel tractor and rubber-tired tractors.
Things changed, however, when the early 1980s recession hit Caterpillar hard and international competitors like Japan’s Komatsu gained market share. High prices and inflexible bureaucracy nearly sent the company into bankruptcy. In 1982 alone, it lost $6.5 billion, laid off thousands of employees, closed several factories, and suffered a long United Auto Workers strike.
In the 1990s, Caterpillar recognized that it desperately needed to change, and under new leadership it pulled off one of the biggest turnarounds in corporate history. Several factors played a role:
• Caterpillar boldly fought the United Auto Workers and outlasted two strikes and seven years of disagreements.
• The company decentralized and restructured into several business units, each responsible for its own P&L.
• It invested $1.8 billion in automating and streamlining manufacturing with a combination of just-in-time inventory and flexible manufacturing. Caterpillar became more efficient and competitive, though it also was forced to lay off more of its workforce.
• The company made research and development one of its biggest priorities, investing hundreds of millions of dollars in new technologies, products, and machines. As a result, CAT construction trucks became more high-tech, competitive, and environmentally friendly.
Today, Caterpillar ranks first or second in every industry it serves. Its products are unmatched in quality and reliability, and the company remains focused on innovation with a $2.5 billion annual R&D budget. New products are launched every year. Recent innovations include hybrid diesel-electric tractors—the first of their kind—and lower-emission engines with ACERT clean-diesel technology that also improves fuel efficiency.
Caterpillar’s product range is immense. From a small 47-horsepower skid steer to an 850-horsepower tractor and a massive 3,370-horsepower mining truck, the firm develops products that serve each market and region’s specific needs. In China, for example, a market critical to its future, Caterpillar has divided its product strategy into three segments: World Class, Mid-Tier, and Low-End. The company is focused on innovating high-tech machinery for the growing World Class segment and leaving the Low-End segment to local competitors that will eventually be consolidated.
Another reason for Caterpillar’s dominance is its business model. The company sells it all: machines, services, and support for a wide range of industries. It accomplishes this feat through its extensive Global Dealer Network—specially trained independent CAT dealers who provide services on a local basis, giving the global company a personal feel despite its size.
Feeling local is important considering that 56 percent of Caterpillar’s business comes from overseas, making it one of the United States’ biggest exporters. The company has been a leader in building roads, bridges, highways, and airports all over the world. In developing cities like Antamin, Peru, for example, which is abundant in copper, large mining companies spend hundreds of millions of dollars on CAT machinery and services each year. As many as 50 different kinds of CAT bulldozers, front loaders, excavators, and special mining trucks help clear roads, clean up spills, and dig for copper. These massive trucks are all manufactured in Decatur, Illinois, shipped in pieces, and assembled at the job site.
Caterpillar maintains more than 500 production facilities and retailer locations in 180 countries and saw sales hit $55.7 billion in 2013. Deere & Co. and Komatsu are its closest competitors, each with about half its sales. As the company moves forward, it remains focused on providing customers with the best products, the best service, and the best value proposition.
1. What were some of the key steps that made Caterpillar the industry leader in earth-moving machinery? Explain how Caterpillar’s products differ from competitors’.
2. Discuss Caterpillar’s future. What should it do next with its product line? Where is the future growth for this company?
3. Using segmentation strategies, what are the target market(s) for Caterpillar? How does this relate to their brand management strategies?
4. Who are the top three competitors of Caterpillar, and what are their advantages/disadvantages with respect to their competitive product/service strategies?