Businessmodel of Caterpillar

Customer Segments

Caterpillar has a niche market business model, with a specialized customer segment.

It sells the majority of its machinery and power systems to independently owned and operated dealers and Original Equipment Manufacturers (OEMs) to meet the demands of their customers and the end users.

Key end markets include infrastructure & building construction, mine & quarry machinery, forestry, paving, tunneling, industrial, waste processing, electric power, petroleum, marine and rail-related end markets.

Value Proposition

Caterpillar focuses on delivering valued, quality products, services and solutions to its customers that provide them the best economic proposition for their business. This value proposition, enabled by their unmatched customer support, creates the largest global field population, highest customer loyalty and attractive profitability through the business cycle.

The company offers five primary value propositions:

• Integrity – The company delivers what it promises and believes in being trustworthy and complete fair service.
• Excellence – It takes pride in its quality, have an intense, acute focus on its customers, acts with a sense of urgency and achieves excellence through the Caterpillar Production System and 6 Sigma.
• Teamwork – It utilizes the unique talents of its available resources and collaborates with employees, dealers, distributors and suppliers to create value.
• Commitment – The company is committed to deliver class-leading services and is personally accountable to meet its client’s goals.
• Sustainability – It creates and captures value through sustainable products, services, solutions and operations. The company follows a ‘Vision 2020’ target where they aspire to be recognized as the leader across all verticals, helps succeed its clients through its products, services and solutions; offer competitive advantage through its distribution system and supply chain, drive superior results through its business model and consistently rewards its stockholders.

Channels

Caterpillar has a distribution network and supply chain that is world class, which provides a significant competitive advantage.

The company distributes principally through a worldwide organization of dealers, 48 located in the United States and 127 located outside the United States, serving 182 countries and operating 3,593 places of business, including 1,274 dealer rental outlets.

Reciprocating engines are sold principally through the dealer network and to other manufacturers for use in products. The FG Wilson branded electric power generation systems are sold through its worldwide network of 290 distributors located in 145 countries.

Some of the large, medium speed reciprocating engines are also sold under the MaK brand through a worldwide network of 19 distributors located in 130 countries.

Some products, primarily turbines and locomotives, are sold directly to end customers through sales forces employed by the company.

Customer Relationships

Caterpillar lays special emphasis on customer service, quality and building strong relationships.

It has dealers in over 180 countries that provide expert service and knowledgeable advice to the customers and end users to enhance every aspect of the operation so as to increase efficiency.

The company’s dealers do not deal exclusively with its products; however, in most cases sales and servicing of its products are the dealers’ principal business.

Some products, primarily turbines and locomotives, are sold directly to end customers through sales forces employed by the company. At times, these employees are assisted by independent sales representatives to deliver effective customer service.

It runs Caterpillar University which offers classes, e-learning and development opportunities to sharpen the skills of its dealers, suppliers and most importantly its customers.

Key Activities

Caterpillar’s business model entails manufacturing and selling of construction and mining equipment, diesel and natural gas engines, industrial gas turbines and diesel-electric locomotives worldwide.

Key Partners

The company has partnered with industry, government and academic institutions around the world to leverage world-class expertise and speed up the pace of research and development

Key Highlights

• 28 strategic partner schools
• More than 50 affiliated schools for research and talent

• Affinity and technical partnerships Government and industry research partnerships

• Energy Technologies Institute
• DARPA (Defense Advanced Research Projects Agency)
• S. Department of Energy
• Diesel Technology Forum
• NASA
• Sandia, Oak Ridge and Argonne National Laboratories
• InnovateUK
• European Union Research Executive Agency
• OCEARCH ### Key Resources

Caterpillar’s main resources are its human resources. They include over 105,700 persons employed across the globe including 58,000 outside the US.

The company has 500 facilities including manufacturing, marketing, logistics, service, R&D and related facilities at various locations including the US, Belgium, Brazil, China, France, India, Hungary, Indonesia, Poland, Russia, UK and Singapore among others.

Cost Structure

Caterpillar operates in a highly competitive market with a focus on high product quality along with a superior shareholder return.

The company has substantially reduced its operating costs through enhanced restructuring and cost reductions plans implemented in recent years.

Its biggest cost driver is cost of sales, a variable expense. Other major drivers are in the areas of sales/marketing, research/development, and administration, all fixed costs.

Revenue Streams

Caterpillar has various revenue streams including:

• Sale of machinery in infrastructure and building construction applications, and mining and quarrying applications
• Sale of engines, turbines, diesel-electric locomotives and related parts across industries serving power generation, industrial, oil and gas and transportation applications
• Financing provided to retail and wholesale customers for purchase of various Caterpillar products