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Deere and Company was faced with many issues in the years to come. They were

entering a market, which was dominated by Caterpillar and needed to price their products to

ensure success. The competitive landscape of the industry includes seven competitors, Deere¶s

biggest competition being Caterpillar. The small (under 100 horse power) and large (over 100

horse power) tractor markets have different leaders. Deere and Company dominated the small

tractor market with 50-60% market share, with International Harvester ranking second with only

10% market share. Case ranked third in the small tractor market, having the strongest

competitive position. Caterpillar ranked fourth in the small tractor market although they had

focused more towards the larger tractor market and was not very successful in the small tractor

market. Caterpillar dominated the large tractor market with 50-60% market share and above all

competitors in their parts division. The second ranking competitor was International Harvester

followed by Case, Fiat-Allis, Komatsu and Terex of GM. Komatsu was seen as an inferior

product, as it copied Caterpillar and offered large tractors at a lower price with firm list prices.

Terex was testing a hydrostatic transmission but was seen as highly innovative but had little

impact on the market.

Deere wanted to enter the large tractor market, which was dominated by Caterpillar.

Caterpillar held over half the market share in this industry and had the D-5, D-6, D-7, D-8, and

D-9 and was looking into creating an even larger D-10 in the industry. The D-7, D-8 and D-9

had been reengineered in 1976 but the D-4, D-5, and D-6 had not been reengineered. The D-6

would be the largest tractor that could accommodate a hydrostatic transmission. Caterpillar had

an extensive distribution network, but Deere & Company saw theirs as comparable. Caterpillar

had a well-known, reliable product but had older technologies than Deere and Company. The
comparative products to Deere¶s JD750 and JD850 were the Caterpillar D5 and D6 respectively.

In comparison the D5 and D6 had not been remodeled recently and contained older technologies

such as a regular transmission and parts that had to be replaced often because of their extensive

use.

Deere¶s desired position while entering the large tractor market was to have

technologically advanced product, which would add value to the customer by providing

extensive benefits to the company. Deere & Company would be offering a fully automatic

hydrostatic transmission. This transmission would save customers time and increase

productivity because operators would not have to worry about shifting and could focus on

maneuvering the machine. Also, the other beneficial technologies included better maneuvering

in tight spaces, increased machine traction, and engine power. Another great feature was that the

steering clutches and steering brakes were not existent and done by hydrostatic pressure. The

absence of these parts would decrease costs, as these parts would need to be replaced often.

Deere believed that this product would lead to up to 15% higher productivity. By adding this

value to customers, they are more likely to switch from the Caterpillar product to the Deere &

Company product. Komatsu doesn¶t perform as well as Caterpillar in the industry because it

offers a similar product at a lower cost, but with Deere & Company the innovative technologies

add value to the piece of equipment that is being purchased. Because of this significant

difference in the technology and product I believe that Deere & Company is positioned well to

enter the large tractor market.

I would recommend that the price of the JD750 to be priced a little higher than

Caterpillar¶s equivalent. This is because the innovative technologies make it a superior product

to Caterpillar¶s D-5. The JD750 also has better standard features boasting 110 horsepower as
opposed to the D-5, which only has 105 horsepower. The JD-750 also has more standard options

such as vandal protection and the ROPS canopy that Caterpillar charges extra for. The JD750

has better technology that will save time and money for the customer. The JD750 has a

hydrostatic transmission that prevents power train slippage, which allows it to work with

different operating conditions. This transmission also allows it to be fully automatic which

allows the customer to be focused on controlling the tractor instead of focusing on shifting. The

Dual-Path hydrostatic is fully automatic and has the state of the art design. The JD750 also did

not have the same braking and clutch system, which would allow for less repairs. This new

design would add great value to the company, as it works better in different environments and

project conditions, is more efficient, and allows the driver to focus on the task at hand. Because

of this we need to price the JD750 higher than the D-5. With the proper sales person the

customer will be able to see the added benefits of the JD750 and will be more willing to pay a

higher price than the Caterpillar D-5. We have seen Komatsu enter the market and price below

Caterpillar giving customers the idea that it is the inferior product. We do not want our

customers to think that this product is equivalent to the outdated D-5 because it is superior in

technology. We also need to raise the price because we don¶t have a patent on the hydrostatic

transmission. This leaves room for others to copy the product in the future, and as the

technology becomes more common we can lower the price in accordance to our competitors. By

doing so we are being proactive instead of reactive, we are setting the price and others will

follow. The current list price for the JD750 is $59,785, with a net price of $45,138 and a cost of

$36,110. The Caterpillar D-5 is listed at a list price of $61,117. I would price the JD750 at

$64,000. This will give customers the impression that our product is more advanced and quality
made. This compliments that fact that a product that has better technology should be priced

higher.

I believe that by doing so we can give distributors a higher discount on the merchandise,

which leaves more room for them to profit from selling our products. With a price $64,000 we

could give the dealer a 25-30% discount letting them have room for negotiation with customers.

This would give a net price of between $44,800-$50,000, which would still allow us to maintain

profits. As the technology became more common we could lower the prices and discounts

accordingly.ccIf we were to price the JD750 higher than what was proposed and higher than the

Caterpillar D-5 we would have to make sure that we could keep our distributors content. By

selling them at a higher price and giving the dealer better discounts it would give them incentives

to sell our products because they would retain larger margins. Because this product is highly

specialized we would want our dealers to be trained to know the value of the great technology

and would probably offer this line to our exclusive dealers. Deere & Company has a truly

innovative and superior product and the price needs to reflect the quality and beneficial

technology that it encompasses.