John Deere Hbs # 9-577-112

Deere Company had the largest market share in the light crawler tractors. Their market share mostly came from domestic market. Caterpillar dominated the market for heavy construction and mining equipment. Unlike Deere, Caterpillar had a large market share overseas. Deere had a distribution network that was second only to Caterpillar.

Light crawlers, JD350 and JD450, were very successful Deere products. The new heavy construction tractor, JD750, was unique to Deere because it significantly larger than previous products. JD750 was technologically advance to it competitors. Significant amount of investment has already been made on developing JD750.

Deere should enter the heavy industrial equipment market. Deere is strongest in the farming segment. Deere should target this segment because some of these small farming contractors have started using agricultural equipment in nonagricultural applications. Since these people already knew Deere and their reputation of being reliable and having strong engineering excellence. Deere should look to leverage its reputation and engineering work, especially the hydrostatic transmission, to new market.

In order for Deere to penetrate the new market, they must stay away from direct competition with Caterpillar. Deere should focus on other smaller companies such as Komatsu and Terex because Caterpillar has better cost structure (assuming 50% tax) that Deere. New products need to be priced a little higher than those of the competition because design is more fixed than price. Price can be varied over time. The focus should to offer reliable and innovative products at a slightly higher cost. In case Deere enters the heavy equipment market, Caterpillar should start using the hydrostatic transmission (no patent protection) and lower their price to compete with Deere. Deere sacrifices efficiency by taking on a non-specialized market, which is visible from cost to price ratio (45% for JD450 and 80% for JD750).