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In: Operations Management

Caterpillar Inc. Crawls Over the Competition with Product Development Caterpillar Inc. is a global manufacturer of...

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 trac- tors, 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 prod- ucts, the organization must continually develop new products, modify existing ones, and spread awareness of its offerings to maintain its global competitive edge.
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 busi- ness 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 reac- tion 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 govern- mental requirements. For instance, after being criticized for violating the Clean Air Act in 2000, Caterpillar began modi- fying 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 partnered with Tenneco Inc. to create the Clean Emissions Module (CEM) 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 dif- ferent 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 com- panies 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 consid- ering 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 2-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 machin- ery 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 con- struction industry. Its success at product management will likely lead the company to take advantage of future opportu- nities in the global market.32 Questions for Discussion 1. Why is it so important for Caterpillar to develop new products on a regular basis? 2. Why is Caterpillar so careful to test-market its products prior to commercialization? 3. What are some of the benefits and risks of Caterpillar’s line extensions?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

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Expert Solution

Answer:- It is quite significant for Caterpillar to come up with the new product regularly in order to compete effectively in the construction industry. It is very important to reflect the highest degree of quality ion the product which is the main essence of the organization .from so long. But the company should also focus on accommodating new and latest technology by coming up with the new products which are required and demanded by the customers

Answer:- The company has established the highest standards of quality as its core business strategy and code of conduct. The company is quite successful in developing an image of offering the reliable and higher quality products and this can be ensured with the help of test marketing of the products as it will facilitate the organization to evaluate the interest of the customers in the product along with the chances of finding any undesired or unnoticed malfunctioning of the product.

Answer:-

The main benefits of having the line extension are the ability to provide a greater number of products which can improve the brand awareness among the customers. Thus by having these line extensions, the company can aim at having improved brand awareness and loyalty among the customers. There can be some risks too of having broadened line extension as the customers may lose interest in the product and some product may lack the higher standards of quality. If there is a reduction in the customer’s interest in the product, it will hamper the brand image of the company and this could result in failure of that product line. The similar issues can be faced in case of lower quality products. If the line extension products which are developed by the vendors lack the similar quality standards as of the company then it would hamper the organization as a whole.


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