In: Operations Management
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
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.