Redefining the Competitive Arena

Elisabetta Bell
September, 8, 2010
Preparing for the Upturn

Key Messages
The competitive landscape is changing and
becoming more aggressive.
Marketing can play an important role to help
achieving business goals.
We need to move to a Solutions Organization
and to be successful we need to build a strong
Marketing Organization
The right talent is critical for success.
Right people, right skills, right place.
5th People Conference | Leading the Transformation
Santiago, Chile | September 7-10, 2010

Burning Platform
Competitive landscape is rapidly changing
We are losing market share, differentiation and
competitive advantage
PINS are declining worldwide
Our business model depends on capturing market
share and harvesting profits
Need to use Marketing at a strategic level
and not just tactical
Use Marketing to create differentiation
Competitive Intelligence is essential to effective
strategic positioning
5th People Conference | Leading the Transformation
Santiago, Chile | September 7-10, 2010

Burning Platform

Declining PINS

Potential
Disintermediation
More aggressive Competition

Entrance of new non-traditional

competitors
5th People Conference | Leading the Transformation
Santiago, Chile | September 7-10, 2010

Times have changed ..

Facts from the past 5 years prior to 2009
Caterpillar as the market leader
Rental revenue has grown by 178% and locations by 21%
CUE concept implemented and driving used equipment sales
growth - 117%
POPS-C increased by 13%
Number of 5 stars workshop
13,100 x active CSAs
Market Position

BCP

Excav.

Earth.

Paving

Mining

Quarry

Ratio of Cat Unit PINS to Nearest

competitor

0.9 x

2.1 x

2.3 x

2.0 x

3.3 x Komatsu

3.0 x Random

CNH

Komatsu

Komatsu

Dynapac

5th People Conference | Leading the Transformation

Santiago, Chile | September 7-10, 2010

Declining PINS

5th People Conference | Leading the Transformation

Santiago, Chile | September 7-10, 2010

Market Shifting to Developing World

Machines: Worldwide Delivery Trends
Rolling 12 Months

Markets growing
fastest where we have
lowest PINS

Note: Delivery Data Actuals: thru Feb 2010 & Forecast: March RBM - Mar 2010 thru Dec 2012

5th People Conference | Leading the Transformation

Santiago, Chile | September 7-10, 2010

Big Shareholder Win vs. S&P and Competitors: 92-09

S&P500 Total Shareholder Return 92 to 09

30%

TSR
25%

Paccar

20%

(16.7% TSR)

Caterpillar

15%

Volvo
Komatsu

10%

Deere

(10.5% TSR)

Cummins

(7.9% TSR)

Emerson

(14.5% TSR)

(11.5% TSR)

(15.5% TSR)

Solid performance
over the long term

(9.0% TSR)

5%

Percentile
0%
5%

13%

21%

28%

36%

44%

52%

60%

68%

76%

84%

92%

-5%

Median TSR = 2.8%

Median TSR = 7.1%

Median TSR = 10.8%

-10%

5th People Conference | Leading the Transformation

Santiago, Chile | September 7-10, 2010

Median TSR = 16.2%

100%

Recent Slippage vs. S&P and Competitors: 0609

S&P500 Total Shareholder Return 06 to 09

50%

TSR
40%

30%

Eroding
performance
peak to trough

20%

10%

Cummins
(17.5% TSR)

Caterpillar

(1.6% TSR)

5%

11%

17%

23%

29%

35%

41%

47%

Volvo

Paccar

(-14.5% TSR)

(- 4.1% TSR)

53%

Deere
(6.4% TSR)

(0.2% TSR)

0%

-10%

Emerson Komatsu
(1.9% TSR)
58%

64%

70%

76%

82%

88%

94%

-20%

-30%

-40%

Median TSR = -19.6%

Median TSR = -7.3%

Median TSR = 0.9%

5th People Conference | Leading the Transformation

-50%

Santiago, Chile | September 7-10, 2010

Median TSR = 10.3%

100%

Percentile

Why is this happening?

Aggressive Competition
Decreasing Product Differentiation
Eroding price-value perception
Disjointed customer experience
Eroding Customer Loyalty
Quality
Availability
Tactical rather than strategic focused
Failure to target the customers of tomorrow
5th People Conference | Leading the Transformation
Santiago, Chile | September 7-10, 2010

What is Our Business Model ?

5th People Conference | Leading the Transformation

Santiago, Chile | September 7-10, 2010

The Caterpillar Business Model

Executed in Close Partnership with our Dealers

5th People Conference | Leading the Transformation

Santiago, Chile | September 7-10, 2010

Business Model HARVEST

Aggressively pursue parts and services

Unmatched Dealer Support

5th People Conference | Leading the Transformation

Santiago, Chile | September 7-10, 2010

Industry specific solutions

Right value: Life Cycle vs. Utility
Easy to do business with
2nd and 3rd owners
Solve customer problems
Dealer capabilities
Sales / marketing focus
Use of information technology
Growth markets

We Plant, Others Harvest

5th People Conference | Leading the Transformation

Santiago, Chile | September 7-10, 2010

Traditional Competitors

Product differentiation is declining when compared to traditional competitors,

placing pressure on product margins and pricing power
CSF: PRODUCT

5th People Conference | Leading the Transformation

Santiago, Chile | September 7-10, 2010

New competitors

5th People Conference | Leading the Transformation

Santiago, Chile | September 7-10, 2010

Need to move from product centric to customer centric

We will not be able to make

competitors irrelevant in the
eyes of the customers by
focusing just on the product.
The goal is for Marketing to manage profitable
customer experience and relationships and capture
value in return.
5th People Conference | Leading the Transformation
Santiago, Chile | September 7-10, 2010

What are we doing about it?

Caterpillar has taken steps moving toward
integrating marketing within the organization to
drive solutions for our customers needs.

The end goal is to become a world-class

marketing organization improving our capabilities
benchmarking best in class practices both
internally and externally.
5th People Conference | Leading the Transformation
Santiago, Chile | September 7-10, 2010

World Class Marketing companies

Follow emerging trends to find the highest profit
opportunities
Drive a stronger positioning vs. competition and
improve price-value perception
Target the customers of tomorrow
Provide memorable customer experience
Strategic focused rather than tactical

5th People Conference | Leading the Transformation

Santiago, Chile | September 7-10, 2010

Research shows .
The Marketing Leadership Council research shows that companies that
emphasize gathering competitor information outperformed their peers in
revenue growth, gross margins and sales. In addition, information-focus
firms experienced greater market share and earnings per share.

CEOs that believed in the importance of competitive intelligence and

used the information were able to increase revenue considerably even
during uncertain economic times.

5th People Conference | Leading the Transformation

Santiago, Chile | September 7-10, 2010

Marketing Landscape:

Marketing Strategy

Players

Creating sustainable advantage

Arena

Implementation
Tools

Copyright Dr. Sridhar Balasubramanian, UNC Chapel Hill

5th People Conference | Leading the Transformation

Santiago, Chile | September 7-10, 2010

Marketing Leads by ..
Providing deep customer and market
understandingMarketing converts
insightadvantage
into value for
Driving competitive
targeting the right
the corporation and
customers with
the
right
solutions
becomes a driver of
Increasing share
of wallet
Revenue
and Profit
Enabling processesGrowth
and systems

5th People Conference | Leading the Transformation

Santiago, Chile | September 7-10, 2010

Strategic vs. Tactical role

Integrating with other areas of organization

Provide company-wide customer insight

Drive effective decision making
Focus on driving preference through loyalty.
Achieve differentiation

5th People Conference | Leading the Transformation

Santiago, Chile | September 7-10, 2010

Whats in it for Us

Offer Differentiated Solutions

Increased Market Share
Increased Customer Loyalty
Maximized Resources
Increased Profits

5th People Conference | Leading the Transformation

Santiago, Chile | September 7-10, 2010

Next Steps
Move from functional marketing to strategic marketing
Commit to improving with us
- Willing to adapt to marketplace changes
- Understanding of marketing principles
- Developing marketing functions
- Leading a culture that supports solutions marketing

Dealer transformation is key!

5th People Conference | Leading the Transformation
Santiago, Chile | September 7-10, 2010

How can Marketing and HR work together?

HR and Marketing touch the entire organization

Need to work together to identify necessary initiatives to
drive this important change to solutions
HR needs to support with talent recruiting, development
and retention
Align strategic processes to support marketing efforts
Work together around the change management
framework to drive transformation

5th People Conference | Leading the Transformation

Santiago, Chile | September 7-10, 2010