CAT To Market Lower Cost, “No-Frills” Equipment In China

Caterpillar Inc., Peoria, IL, said it will begin expanding its sales of lower-priced machinery in developing markets, without undermining its reputation as a premium-priced brand, according to CNN Money.

The company said their product’s durability and reliable performance allows them to sell at the highest price ranges in the U.S. and Europe. But, CAT’s quality proposition hasn’t been an instant hit in developing countries, such as China, where many cost-conscious buyers continue to opt for less expensive brands with fewer performance features and enhancements.

To capture these customers, CAT intends to launch alternative brands with “no-frills” machinery, priced below its regular equipment. Analysts say it’s an unprecedented move for the company as it tries to adjust its position in emerging markets to capture more of the anticipated surge in demand from the increases this year in government-sponsored spending on roads, bridges, railroads and other infrastructure.

CAT is specifically aiming for the mid-price equipment market in developing countries. In China, that segment accounts for about half the construction equipment sold annually. Company executives hope their middle-market lines will distinguish themselves enough to convince customers to move up to CAT-brand equipment, allowing the company to scale back or discontinue the alternative brands.

The strategy does include a significant risk for CAT, critics say. It faces a host of tough and growing competitors, especially in China, that specialize in mid-market machinery. Moreover, analysts say there are no guarantees that enough customers will switch to higher-priced CAT models to make the strategy pay off.