Marketing 18th Edition by William Pride,Ferrell

Exercise 2

Caterpillar Inc. Crawls Over the Competition with Product Development
Caterpillar Inc. is a global manufacturer of construction and mining equipment, machinery, and engines. The company is best known for its more than 300 machines, including tractors, forest machines, off-highway trucks, wheel dozers, and underground mining machines. Many of these machines are sold under the Cat brand, which consists of a Cat logo with the yellow pyramid over part of the "A." Since Caterpillar's machines and equipment are by far their most popular products, the organization must continually develop new products, modify existing ones, and spread awareness of its offerings to maintain its global competitive edge.
The development of new products at Caterpillar involves a series of stages. Overseeing the product development process are product managers. Under their direction, the Caterpillar division will brainstorm ideas for new products or discuss ways to modify existing ones. The company screens relevant product ideas and then undergoes concept testing and business analysis to determine the likely demand and feasibility of the proposed ideas. When it comes to actually developing the product, quality is everything for Caterpillar. Creating high-quality products is embedded in Caterpillar's Code of Conduct as one of its highest values. Therefore, the company has adopted the quality control process of Six Sigma to detect, correct, and reduce problems before the product is released.
After a working product is developed, Caterpillar releases the product on a limited scale and, should these test markets prove favorable, commercializes it on a national or global scale. This allows Caterpillar to gauge not only customer reaction to the product but also work out any manufacturing issues or problems that occur before launching it on a massive scale. When Caterpillar released its Cat CT660 Vocational Truck, it first released the truck into limited markets to make certain that it met quality standards and avoided major glitches. Once it passed these inspection processes, the Cat CT660 Vocational Truck was made available for large-scale shipment.
Not all of Caterpillar's products are new. Many of the company's machines and much of its equipment are modified to meet changing customer needs or adhere to new governmental requirements. For instance, after being criticized for violating the Clean Air Act in 2000, Caterpillar began modifying its engines to be more eco-friendly. Previously, the company's engines were releasing too much pollution into the air, so Caterpillar created Advanced Combustion Emissions Reduction Technology (ACERT) engines to reduce the amount of gases released. Caterpillar's ACERT technology surpassed federal regulation requirements. However, tighter gas emission laws are requiring Caterpillar to modify its products once more. To meet new requirements, Caterpillar has partnered with Tenneco Inc. to create the Clean Emissions Module (CME) to reduce emissions even further. These modules are being placed in Caterpillar's ACERT engines. Caterpillar also refurbishes old machines to increase their life spans, a type of functional modification.
Caterpillar has extended its product line into several different areas, including apparel, watches, toys, and jackets. Line extensions have both benefits and potential downsides. If the line extension has little to do with the core product, then the extension could fail or, even worse, contaminate the brand. On the other hand, line extensions can allow companies to branch out into other areas and increase brand awareness. For instance, Caterpillar-branded toy trucks and tractors allow consumers to become familiar with the Caterpillar name at a young age.
Caterpillar has begun taking its line extensions a step further by licensing the Cat brand name to create Cat-branded lifestyle stores across the world. When first considering Cat-branded stores, Caterpillar was uncertain whether consumers would accept items like apparel and footwear in a retail environment. The company test-marketed the stores over a two-year period with outlets in the United Arab Emirates and China. Caterpillar has since decided to open stores on a wider global scale. The company has licensed its brand to Wolverine World Wide Inc. for Cat footwear and Summit Resource Imports/ SRI Apparel for Cat-branded apparel. Although it is riskier to create a product extension that is vastly different from Caterpillar's core products of machinery and equipment, Caterpillar expects to profit from these licensing arrangements with increased revenue and global brand awareness.
Caterpillar is a company that must continually develop and manage its products to maintain its leadership in the construction industry. Its success at product management will likely lead the company to take advantage of future opportunities in the global market.
Why is Caterpillar so careful to test-market its products prior to commercialization?