Caterpillar is a well-known construction equipment manufacturer. They are known for making tractors that are both powerful and sophisticated.
Recently, they have made a dramatic change to the pricing of their tractors. Previously, they priced the tractor based on the number of features it had.
For example, a tractor with more features would cost more than one with fewer features. This was the standard in the construction equipment manufacturing industry.
By unbundling the price of the tractor, Caterpillar has shifted away from this standard and now prices each component of the tractor separately.
What does this mean? Well, now you can pay per component based on how advanced or powerful that component is. A less advanced component will cost less than a more advanced one!
This surprise move by Caterpillar has sparked discussion about why they did this and if other manufacturers will follow suit.
Why did Caterpillar decide to do this?
Caterpillar has seen a steady decline in the average selling price of their tractors over the past few years. While this may not seem like a big deal, it actually is.
The average selling price of a Caterpillar tractor has dropped nearly $10,000 in just over ten years. This means that farmers are buying fewer machines, and each machine is costing them less.
Why is this happening? More and more farmers are deciding to buy used tractors instead of new ones.
This is due to the fact that new tractors are very expensive and don’t really pay off until a farmer has used them for several years. By that point, they are pretty worn out and need to be replaced.
By purchasing used machines, farmers can save quite a lot of money, but they run the risk of getting a machine that isn’t working well.
Will this affect the market for used tractors?
In the past, Caterpillar has sold their tractors with a package of components called the PowerShift transmission, FarmStar satellite guidance, and Alamo 10R GPS navigation.
With the new models, buyers will have to purchase these components separately, as they will no longer be included in the tractor price. Many people rely on used parts and tractors when making their purchase, so this may affect the used tractor market.
Although many people are not happy with this decision made by Caterpillar, it is probably for the best. By unbundling the cost of the tractor and its components, buyers can choose what features they want and what features they do not. This will likely decrease the cost of purchasing a new tractor!
Unbundling may become more common in the coming years, so watch out for more surprising changes in equipment pricing.
What are the benefits of unbundling?
Unbundling allows companies to leverage the value of their products by offering the components or services as separate offerings.
For example, Apple offers the iPhone at a high price but charges additional money for things like storage and wireless service. By doing this, they make more money than if they sold just the phone at a lower price.
Unbundling allows companies to understand the true value of their product. By selling components or services at different prices, they can identify what part of the product is most valuable and market that.
Unbundling allows companies to enter new markets and revenues by offering less expensive versions of their products. This can draw in new customers who may not be able to afford the full product, but can still get some use out of it.
What are the drawbacks of unbundling?
Unbundled pricing can backfire if you do not tailor your offering to the needs of your audience. If buyers in your market cannot easily assemble the components you are selling separately, then a discount for the bundle may not be attractive.
For example, if Caterpillar were to offer a lower price on the tractor without the accompanying tools, then buyers would have a hard time using the tractor. It would be impossible to farm without the necessary tools to dig and till the soil!
Another drawback of unbundling is that it can lead to lower sales overall. If buyers cannot afford the highest price point of what you are offering, then they may choose to go with a competitor. Or, they may choose to buy only one component instead of all of them due to budget constraints.
Who else is doing this, and what are they doing?
Companies are unbundling the cost of their products by creating services around their products. For example, Amazon offers a free Prime trial with the purchase of their devices to entice you to use their Prime services.
Google offers a suite of free services with its devices that help you stream content and manage your device. Apple charges a higher price point for its devices to offset the cost of all its free services.
Unbundling gives companies more ways to monetize their products and attracts new users to their other offerings. By giving out free apps or offering a free trial on services, more people will utilize them and become familiar with them.
Users will begin relying on these other offerings and possibly spend money on them down the road because they already like the company’s products.
Will this work long-term?
Only time will tell if this move by Caterpillar will be a success or failure. While it is clear they have started to shift the pricing of their tractors, it is not clear how much they will charge for each part.
Many companies have tried to do this before, but none have truly succeeded in creating a seamless transition from purchasing the entire tractor to just the components you want.
Some even failed to make this transition and had to go back to selling the full tractor again. This is why some experts are skeptical about whether or not this move will work long-term.
Only time will tell if consumers respond well to the new pricing structure or not. However, it seems as though Caterpillar has done their research and prepared for any possible responses from consumers.
Should I try this with my business?
In the construction industry, Caterpillar has a large presence. The manufacturing company produces heavy machinery used by many companies.
Recently, Caterpillar has made a bold move to change the way their product is sold and how users interact with it. By changing the pricing structure of their tractors, they have opened up new opportunities for buyers and sellers.
For years, manufacturers have been bundling features onto their products to increase sales and profits. Sellers would charge more for some features or options because they cost more to make or provide extra benefit to the user.
Unbundling the features of a product means separating out all of the options and only charging for what is actually used. This change can have a big impact on the cost of using a piece of equipment or machinery.
What would happen if I didn’t offer a warranty?
In the past, tractor manufacturers included the cost of warranty coverage in the initial purchase price of the tractor.
This meant that if there was a problem with the tractor, the owner would have to pay for a repair or replacement part out of their own pocket.
By unbundling the price of the tractor and offering a warranty as an additional paid service, Caterpillar allows customers to choose whether or not they want warranty coverage.
If someone does not think their new tractor will break, then why pay for a warranty? This gives people more confidence in their purchase and supports their decision to buy.
Unbundling also allows Caterpillar to set different prices for each component (tractor + warranty). By pricing the warranty at a lower cost, they are able to attract more customers by offering something “free.
