USING SERVICES MARKETING

TO DEVELOP AND DELIVER

INTEGRATED SOLUTIONS AT
CATERPILLAR IN LATIN AMERICA

Holger Pietzsch, _Caterpillar, Inc.

Valarie A. Zeithaml, University of North Carolina

'An~ indus~rial ":'a~ufac_turer that has not awakened to the fact that it must become a
service business 1s 1n serious peril today.' 1 .

Jose "Pepe" Brousset, Marketing and Operations Director of the Latin America Commercial Divisio
(LACD) of Caterpillar, Inc., called the:division's Dealer Advisory Panel to order in the spring of 200
with the message that the company's five-year growth targets could not be met unless the organizatic
moved from a product focus to an integrated customer focus. His plan was that LACD would pilot t1
development and deployment of a plan for services that could be sold with Caterpillar's heavy equi
ment in the form of customer service agreements (CSAs). The· initiative was a direct-consequence
Caterpillar's enterprise strategy known as Vision 2020. This strategy stipulated that ~owth of_~e dist
bution system of the company would be a critical success factor for the future: S~ec1fi~all~, V1~10n 20
specified that "[Caterpillar's] distribution system will be the global benc~ark dehvenng mtegrai
business solutions [our emphasis] to customers." A key performance metnc of this str~tegy was th~ v
ume of service business generated through CSAs. CSAs had been offere~ ~y Caterpillar dealers m.
b th an difficulties encountered had led·to doubts about the ·ab1hty of !he company to m,
past ut -~ ~sfs These difficulties included the lack of consistency across LatmAmencan count
money WI · . .
1 t d benefits of the CSAs.
inability to deliver, and ina~1hty to calcu : : c;;d~:1 companies, embraces what might best be t~n
Caterpillar, like many highly success dpsu liers work as a team to provide what they behe,
a product focus. The company, dealers, an p~ th orld Their formula for success can be st
the most extraordinary product support system in e w . . . .
briefly: . h l<! p' em running. When they wear out,
t Design and build t em. ee
Find out what products customers wan dy else b .
rebuild or recycle. Do it better than any o .
. es " Harvard Business Review, October
h A e of smart Servic ,
. "Four Strategies fort e g .
,G. Allmendinger and R. Lombreglla, . ... f Caterpillar, Inc. It was written!
. rican Commeroal D1v1s1on o . er effective or ineffect1
ices of the Latin Ame_ · . ather than to illuSt rate eith · A Zeithaml o1
This case was prepared under th~ ~uspl as a basis for class d1scuss10;. ~zsch of Caterpillar, Inc. and Valarie .
Holger Pietzsch and Valari~ A. ~eit ~m Copyright 2008 by Holger ,e -
handling of an administr~t1ve situatio~-Hill.
Unive-rs_ity of North Carolina at Chape
 706
large mining customers, and other
Services Marketing

. d"ffi t story Except for the comp any's very · h

d any types of serv,ice~ t at created
Services were a 1 eren · . . th t involve m ;: . '·
large users with whom dealers hacf strong relati~nship_s, a ted a customer focus wit~ se~1ce., .. . .
integrated solutions, the company- had not consistently _ad;~ Ian using the best practices m the service
Pepe Br~usset's goal was to develop, d~~loy, and ptloow ~ustomer service· agreements a~ an a~er~ge
industry to redefine the CSA value proposition and_ to h to be limited to CSAs m ac~evmg
o/c per year between 2006 and 20 I 0. While service di_d not a~e tbrol.lgh these agreements Was the
3o o . . h· t dehver service . 1 d.
this goal he strongly believed-that leammg ow o l h. ready for the challenges mvo ve m
' - · d ·ts dea ers ips · P 1h
best approach to making both the company an i . b of the Dealer Advisory ane t at
. . . d. I to convince the mem ers - .-.
delivering service. His unme iate goa was _: . .. .
this plan was also in their best-interests.

·CATERPILLAR: THE COM~AN..., _

· ' · · · . . ack-t e tractor. Shortly after, the first Caterpil-
On November 24, 1904, BenJamm Holt teSted the firS t tr yp d Th Holt Manufacturing Com-
. h d I A ·11925 CL Best Tractor Co. an e
lar trademark was copyng te • _n pn ' · · the 1930 ,s the East Peoria, Illinois, plant had
pany merged to form the Caterpillar Tractor Company. By 0 pened its first ·overseas
become one of America's major industrial complexes and by 1951 the company
manufacturing facility in the United Kingdom. . · • t Some of the highlights, as
Figure 2, on page 682, shows the history ()f Caterpillar from that pom on. .
shown in the exhibit, include (1) the addition of Caterpillar to the Dow Jones _In~uStrlal
ing Navistar, in 1991; (2) the naming of Caterpillar as one of Fortune Magaz~ne s mo~t a .
A=::i ;~~a:_
P
_

nies in 1997; (3) and Caterpillar becoming the world's largest pr?ducer of diesel ~ngin~s in 19~9.
By the year 2000 Caterpillar manufactured more than ~00 different mo~els mcl~dmg engmes and
turbines from five horsepower to over 22,000 horsepower m 88 manufa_ctunng locations. Seventy five
perc~nt of products were made in the U.S., w~ile 50% of sales were outside the U.S. In 2006, total sales
of Caterpillar products exceeded 41 billion dollars. ·

~aterpillar Products
Caterpillar provides a wide-range of products that are used in many different industries. The major-
ity of machine applications address earth-moving needs including excavation, loading, and carrying
of material. Skid steer loaders, backhoe loaders, wheeled excavators, and compact wheel loaders (see
Figure 1) perform the work in urban and general construction. Articulated trucks, hydraulic excava-
tors; scrapers,- motor graders, and track-type tractors are used in larger earth-moving projects such a:
road, airport;· or heavy construction tasks. Wheel dozers and material handlers operate in demoliti01
:ind waste appl'ications. Mining operations are more complicated and require a multitude of equipmer
ncluding off-highway trucks and underground mining equipment. Wheel loaders are key machines i
he materiaJ-~andling process of quarries or industrial applications. Caterpillar diesel_ engines are use
n highway trucks, boats, locomotives, or oil platforms. Finally, a large range of power generations se
1rovides electricity in a variety of applications.

:aterpillar Services ·-
>espi~e ~e fact that _Catery,illar is largel~ a _ prod~5t firm, the ,co~pany offers several services that co:
lem~nt !t&prpducts. ~argely, th~s~ _services constst of services that refurbish d- 1..:.... d engi
[)mponents · "l.k _ ,, _ d. . fin . _ . - - . use mac1w1.e an
mto 1 _e new, con 1tlon,_ anc_m g and msurance. sei;vices £ · t s equ
Lent rental, and logistics services. - _ or equ1pmen owner ,
 -··- --~ ,._u1.c::rp111ar ,n Lot· A .
'" merica 7

Motor Grader
Skid Steer Loadei

Articulated Truck
Track Type Tractor
Wheel Loader

Off Highway Truck Back Hoe loader Hydraulic Excavator

FIGURE I Examples of Caterpillar Products

- ..
CATERPILLAR: THE DEALERS ·
Caterpillar prides itself on enduring and close relationship with its dealers. In 2006, over 180 inde
dent dealers around the world represented the company's products, managing customer relations
servicing the equipment, and proViding parts throughout tlle lifetime oftlle equipment. Dealers inv,
millions of dollars in parts inventories, warehouses, service shops, tools, information technology
rental fleets. Collectively, the dealerships employed more people than Caterpillar itself. Many di
were family-owned businesses but some were much larger-with reve~ues exceeding a billion_dc
For example, one Caterpillar dealer, Finning International, operated m Canada, South Amenc~
Europe and provided work for more than 12,000 employees. . .
c t ·11 d fi rm a distribution channel unmatched m the mdus~, and the dealer netw
a erpt ar ea1ers _o .. · d No other heavy equipment manufacturer
one of Caterpillar's p~cipal competltl~e a vanta~:- of customer contact points. Many deale
comparable coverage Ill te~s of quantity .W:,~e~an1alf a centurY and have established long I
have represented the Caterpillar brand for m times over generations.
relationships with their customer bases-some · .

.. LANDSCAPE .. . . .,, . to
fi th v· ion 2020 objective
COMPETITIVE h most important reason or .e is
th rial for comp
~ides ~e goal of increasing ~~ven:,e:~ ~:ating up and tlle company saw e poten
mtn ~ n.11C'f"~ was that competition ·
 Sales (in millions)
708 Services Marketing
13.8
--------------;K;:e:y~E;ve;.nt; headquartered
Year ·nar Tractor company
Holt and Best merge to form Caterp• 35.1
1925 . . . . . the entry
in Peona, llhno1s any accelerat1n 9
I M torgrader comp 24.1
1928 Acquisition of the Russe O st
into the rod construction .. oming the world's large re to
Caterpillar starts to use Diesel engines, ge product color from g y
1931 diesel manufacturer, Oecison made to c an 58.4
High-way Yellow . ric power generators 128.4
First line of Marine engines and elect . facilities by so% 394.3
1939 · es manufactunng
Expansion program increas . d Kin dom 533~0
1946
1951
First overseas plant opens in the Unite g 1,524.0
1955 Australia subsidiary announced f hiatus 2,127.8
1966 Sales in USSR resume after three ~dd~ho US for the first time 5,043.2
Sales outside the US exceed sales ms1 e e 9,160.0
1970
1976 Piracicaba plant opens in Brazil d ( decessor of Caterpillar
Caterpillar Leasing company forme pre .
1981 6,472.0
Financial Corporation) . . . 1932 Employment
Company suffers loss of $180 Million, first loss since .
1'982 -7,380.0
reduced by 29 percent. . ·11 r Inc
Name change from Caterpillar Tractor Company to Caterp~ a . 8,294.0
1986 10,435.0
Caterpillar Logistics Services Inc. formed .
1987
New trademark (logo) introduced . . r 10,182.0
· '1988
Caterpillar added to Dow Jones industrial average, replacing Navista . 18,925.0
1991,
- Fortune magazine names Caterpillar-one of the most admired companies
f 1997
in the world · · _ . _. · -. 19,702.0
Caterpillar becomes world's largestproducer of diesel engines 41,517.0
'1999 ,
. 2006 Jotal sales exceed 41 Billion dollars_· , _
,/

FIGURE 2 The History of Caterpillar

0
capture the growth and profits that Caterpillar assumed it would achieve. Competition came. fro~ a
mmber of different places. Third party service providers that allowed customers to outsource their entlre
leet management for both Caterpillar and non-Caterpillar equipment were emerging. Compared to Cat-
rpillar's nationally-organized dealer network, these service companies operated internationally, allow-
1g customers to work on construction projects all over Latin America without having to engage with
mltiple Caterpillar and non-Caterpillar service providers. While their service offerings and competen-
es were generally less sophisticated than those of Caterpillar dealers, they were developing successful
1st~~er_relationships wit~ certain m~ket se~ents. Fluor, a Fortune 500 company, through one of its
1b~1d1~es-·~eco ~rov1des total service solutions, and has successfully grown its fleet management
lSilless ill Latill Amenca.
Othe~ co~pe!itors, ~ftermarket s~~pliers and distributors, were commercializing "will-fit" parts that,
m_gh 1nfenor ill quah~ and durab1hty, were sold at significantly lower price points. While offering no
vices, these companies held about 30% to 50% of the aftermarket · art
Thtsands of small local workshops also offered repair service:!n~g from simple repairs tc
np ex ones. Many of them had been established b £ C
h customer acceptance, but none had the fin . Y ormer . aterp~ar dealer mechanics and enjoye<
ny customers also had their own mech . an~a1:eserves to lilVest m large outlets or market co~ei:3.ge
aU workshops and customer mechaniam~w . c they used_ for both maintenance and repair ~ ti~
cs difficulty keepmg up with the increasingly sophisticate
 , - - .. .....,'fu ut::u ooth specialized l
~y of them f ~ on servicing older machines. too s as well as expertise. Consequently
FinaJly, competitive manufacturers like Komatsu J hn D
deaJer networks in Latin America. While largely foe~: eer~, and Volvo had established their own
equipment, they often had the same customers be g on therr own ~achines rather than Caterpillar
turers. Owners of mixed fleets carefully con .d c~us: owners had equipment from different manufac-
rions before purchasing new equipment ma~ ere ! e perfor:n_iance of the product support organiza-
, g service capab1hty a key factor in new purchases.
THE CATERPILLAR-DEALER RELATIONSHIP
As a company, Caterpillar for a significant portion of its b • . · . . ·
independent dealers. Tuey are r "bl ti . . . . usmess Interacts with end users through its
types of services provided p desptonsd1 e ~r IIlltia~g and supporting customer relationships and the
As a corporation Cate · ·11ro ,uch and service offermgs could
. vary sigru
· ·ficant1y between de alers .
.' rpi ar s ea quarters and factones rely on regional marketing profit centers
(MPCs)_ to work with th~ dealer _network for product commercialization and distribution (see Figure 3).
The mam MPC for Latin Amenca (LACD) is situated m· Mi · · lh b M · th
. allll,
Canbbean, and Central and South America Several smaller comm · l te a regiona u to serve exico,
· d"stn• t ffi e
. , . . ·
also located m the dealer s temtones for ongoing support LACD's m k ..;- erc1a ams m
fit 1 c
t h o ces 1are
. . . . • ar euug pro · cen er as emp oy-
ees ID both product d1v1s1ons and product support divisions. These employees work as liaisons between
headq~ers and the deale':', o~enng the skills and knowledge of Caterpillar to their functional coun-
terparts ID the dealer organizations for strategic and operational issues. LACD's region includes over
twenty d_1fferent dealers (generally one per country) whose organizations themselves are usually divided
1Dto eqmpment sales, parts sales, and equipment service. Depending on customer needs, all three parts
of the dealerships may interact individually with the _customer. Figure 3 shows the relationship among
Caterpillar, the MPCs, and the dealers.
This organizational division both in the MPCs and in the dealerships themselves fostered expertise
and consistency within divisions, but over time has created functional silos that had different priori-
ties and performance goals. For example, while the product support organization was responsible for
increasing the sales of CSA, they were not the department responsible for machine sales, where the
primary sales contract was set up. The machine sales people were not required to include CSAs in offers
to customers and, in fact, were not inclined to do so because in many cases they were not fully informed
about CSAs (including information about what the dealership was capable of promising) and were not
awarded incentives for selling them. ·
Product support-including global and fast availability of spare p~s, local dealer _expertis~, repair
facilities and skilled technicians-were key differentiators for Caterpillar. Both Caterpillar and its deal-
ers prided themselves on their "built-to-last" philos?p~y and commitment to keep customers' equipment
up and running at the lowest possible cost. Sophisttc~te~ proc~~ses, tools, software, and c?mponent
rep Iacement programs h a d m ade maintenance and reparrs mcreasmgly
. faster and more effective.
Peuormance
-e. · the dealer organizations were typically
measures m · r or opera-
. . focused on cost, revenues,
tions to maximize the offering, but few on customer profitab1hty odr customer service quka_ 1ty percep-
. c ·11 d dealers regularly measure parts turnover, wor m progress,
t10ns. For
t. ·1· example,
. f both ~terpi
chamcs andarreparr
an. profitabTty
11 . These measures generated savings in cost and
1me utI 1zatton o me ' . f: ti or revenue increases. ·
st
time, but were not linked to cu o~er sans _aecm::t is maximum up-time of their equipment. Idle equip-
c , t · portant service requrr f d ·
ustomers mos . d b tremely costly for customers, due to the 1oss o pro uction
n ent or equipment _hem~ repa~re c~Ot:e;x ieces of machinery requiring the repaired equipment for
e.g., for a gold mine), idle trme O p
 . . I
I

...
I I
I I
I I

•
I I
I
Strategic/tactical planning
•
I

ci. ci.
C.
C. ::,
(/)
,:; -ci
.e:, e
a.. 0..'
. . • I
I

...
I

...
I I I
I I I
I I
Strategic/tactical planning
•
I

. . .. .... ,... .. ... .,.., /f •

a r .... I ' , /' :

Sales Rental Product Support : \ l ~/',.._. ,..

:
' ' ~~·~~~~~
· ~tW:P~~ Tc:2~?fFCIJ!~

Simplified illustration

GURE J The Caterpillar-Dealer Relationship

eratio~s (e.g. trucks in absence of a loading excavator), and·potential ·penalties for late delivery of the
Jject (e.g., for road construction companies)., .· . - . - -- - , .
Given these risks many larger customers (own1ng·five machines or-more) developedtheir own prod-
t support infrastructure including service ·shops, the hiring, ~mployment and training of technicians,
:I the development of maintenance and repair procedures. Being a product company, Caterpillar seg-
:nted the marketplace simply in terms of products and industries. Sales and product organizations
re set up by the type of products that customers owned (e.g.,-excavators, wheel loaders, power sys-
1s), and dedicated te~ms were developed for particular industries such as mining, general construc-
t1, or heavy construction. ·

On the product support si~e, custome~~ co~ld be classified into three segments which could be viewe?
terms of the benefits they sought: (1) do 1t myself," (2) "work with me," or (3) "do it for me/' "Do it
 ,....-Se,vicesMcrtet;
0- 8; v-•• ng to Develop and ~Net'
"-•- Integr~ Solutions
at Catapitlar in Latin America 711
cuswmm were defined as owners that
fo( t o ~- Many of them were large and loy~ced ~j°?ty of their product support activi-
ues_ oWJl day·~ product support but used dea~ ~ - Do it with me" customers took care of
~ julll~ tradrtwnal construction customers f; .
1~ for more complex repair needs. Many
e11 mto th1s category " Do •
aailY used •
lU"" •
~l.or competitive
·•
resources to satiify thei · • 1t myself' customers gen-
customers fell into this segment. r product support needs. Most small and/or
Jdef}tiJicatton of customers that fell into these segments .
• le assumptions conceming the customer's total . was possible but complex and required mul-
up e£ . repair needs. Some custo . Id 1so fall .
inore than one segment, pr; emng dealer services the. . mers cou a mto
repairs on older equipment. or ir newer machines but performing their own

GENER/U- '~ONSTRUCTION CUSTOMERS

Bee~ Caterpillar's product line w~ so diverse, its customers varied greatly in size and requirements.
For its very ~rgest ~ers--typ1cally t~ose who purchased mining and construction equipment-
dealers prov1ded_~1zed ~d full service. The most important considerations for these customers
included product1v1ty and up-time-having equipment in working condition 100°/o of the time. Custom-
ers paid for CSA and repair services to achieve these goals and were typically very satisfied.
This group of customers, however, was not the segment from which further growth of market share
was expected in the future. For this r e ~ the LACD division chose to focus on the general construc-
tion customer.
General and utban construction companies and subcontractors of major construction projects used
Caterpillar type of equipment for its versatility rather than its productivity. These smaller customers
also had to manage short-tenn affordability and cash flow limitations, contributing to a situation where
they postponed preventive and small repairs as long as possible. Lack of emphasis in these areas some
times resulted in costly repairs and these unplanned downtimes were disruptive to customer _opera~ons.
However because these customers considered machine up-time as less nnportant for therr business,
they wer~ less willing to pay for premium parts and parts avail~bility, and often migrated to a patchwork
of internal or external lower-priced suppliers for product !eparr and support needs.

CU~OM~~-SyPP,P,rr ~(;REEMENTS '(CSAs)

ka ed services into customer service agreements (CSAs}-
Over the years, Caterpillar dealers had pac g . that customers wanted and that dealers could
flexible contracts that could include virtually any lsedrvbich~sghly customized in content, length, and c.o st-
prov1'de . These customer services
. agreements . cou acts e t h re customers outsourced the enttre . macbine
many involving total maintenance and repair contr w te were sold separately from the machines at
. • t The agreemen s
Pfoduct support of all of their equ1pmen · ler oduct support organiz.ations. CSA for l~ger cust~m-
purchase and were delivered through the dea _pr th .sks and costs of unpJanned machine down~e
ers had dem.onstrated significant benefits regardtnihe :~rrent degree of customization and compl~ty,
th
and resulted in high levels of custon:i~ Ioy~tyhe dealer's operational efficiency to serve e growmg
however, 1·1m1'ted th.e CSA
· marketab1htytruction
an t market. M CSAs) were pur-
number of customers in the general conslled prevent1·ve maintenance agreements (P ' . . of
. 11 · lved the provis10n
h~e smaller and simple contract;, c~tive maintenance contracts bas1ca y n;~·vered through dealer
c, ~ d by many small customers. rev ined service interV~l~ ?11d were ev~sual machine mspec-
superior Caterpillar oils and fitters at pr~orne technician acttvtties, such as
field technician who traveled to customer sites.
 712 Services Marketing d. cussioOS with the customer, were not
. and feedback is t neceserallY offered and executed
. . of the macbine,
tion, monitoring of the condition b t were no
tra services u . ce intervals themselves, went unno~
built explicitly into the contracts. 1b~Y were de;.•preventive maJII~ erators and machines and did not
consistently. Many of these extra servtces, anbni .ans interacted witb ~p 0 nsequently, many decision maker
ticed by business owners because field tee c~d the contracts-
th
eexnents and did not renew ut
always come into contact with th~ who puregiuze the benefits of e af into a dedicated business. Th e
and purchasers of the equipment did not reco (U[Iled ptv{ CSA contra~ s ocesses that provided re e</
CSA.s once expired. Some dealers, however, bad . tnJCks and proactive pr . gu(ar
had dedicated PM technicians, specialized PM service e 0 ~tial issues, and reconnnended ~lullons.
feedback to customers on the condition of thetr ~c~; product support sales reps and_ dehvered by the
CSA.s were typically sold by either the maciune . p 0 wth in the mid 2000s, the ~dustry was suf.
service organization. Given unprecedented cons~ctton grl ecks in fulfilling CSA protmses. Facing this
fering from technician shortage resu1tmg . ID• c_apacity bott en
t t 0 sell CSA.s if they were concerned that 1he
situation, the sales organizations w~re somettmes rel~cta; ddition to these concerns, the dealer sales
service organization would not debver o~ the pro~useb:Se~ upon tangible product differentiation than
force was generally more comfortable selhng solution~ 11 · d differentiate. .
d
advocating intangible services that are harde~ to explain, se an eat business than non-CSA customers.
. CSA customers generally demonstrated higher _loyalty rep . d in the field b technicians
A key driver of their loyalty seemed to be the quahty of service proVlde Y . 01. (e.g.,
accessing the machine at regular intervals for preventive ma~te~~e tasks such as c~gmg 1_and filteni
as well as some diagnostic services called "condition momtonng ). Dealers had different philosophies
regarding the degree to which field technicians were trained and empowered to act upon recommended
repairs that they identified as a result of their preventive maintenance work. Most dealers used entry-level
technicians for the basic work on preventive maintenance contracts; they were then responsible to relay
the ~chine condition information to the product support sales organization for follow-up and quoting on
additional work that could be done to improve the condition of the machine. Other dealers had decided to
empower the~ technicians for a larger portion of the process. Generally customers appreciated both the
speed of service as well as the quality of the resulting machine condition advice.

THE SERVICES .MARKETING, INTERVENTION

The recent and consistent growth of the Latin American e . .
of competitive equipment distributors-all of them sellin conomies ha~ attra~ted an mcreasing number
of them had a limited product support infrastructure at the! lower pnce pomts than Caterpillar. Most
ment team decided to leverage Caterpillar's p d sposal. As a consequence LACD manage-
s str
decisions-before, during and after the mach· ro uct hupport ength as a differentiator in all customer
· d • .' me pure ase R · ·
~g P~0 ucts but had l~•ted experience in designin and· ~co~g ~t Caterpillar excelled in mak-
:006 mv1ted an _expert ID the services marketing fie!~ t dehvenng solutlon services, Pepe Brousset in
O
,erv1ces marketmg course in his graduat attend the dealer adviso
lfere available 1hat could hel 1he e program and recognized that m . ry panel. He had taken a
'lbat services indus1ries kn P b comp~y and believed that ha . any different concepts and tools
Especially useful to the : : out serces marketing and servi::g expert spend a day describing
md impact of each gap on 1h: ::~ t e gaps m~de/ ofservice quaf1:1'1ty Jibwould open their eyes.
omer expenence, brand po ·t· z : e model explains the nature
Th G s1 iorung and . . . .
e aps model of service quality and most th ' service d1:fferent1at1on.
:Veloped ?r described by Valarie Zeithaml Po f er elements of Services M k .
cGraw-H1II; the most extensive work that t;; tessorhat
earn asUNC Chapel Hill · ;hr ee_tmg
found 1s alsomentioned
the C in this pa per have been
on the topic. o-author of Services Marketing,
 case 8: Using Services Marketin g to Develop and Deliver lnteg l

i,r0ces tnarketing
. . . compnses
· a collectio . rated Solut'ions ot Caterpillar- in .
-,jce c;apab1bttes reqwred to cl n of tools and Latin Americo 71 l
SustoJ!l•r·
sei • d fin d .
e e service standards
ose those
. gaps. Other
methodol .
og1es to assess
' Tb• dealer advisory panel embra , :'hd mtegrated si:rv. concepts covered w and address the critical
to Caterpillar to grow its services b':· t e concept of s~:"s marketing comm;,: st~rvice blueprinting
smess. Figur esmarkef a ton. '
- es 4 and 5 show the gaps
mg, and decided to adapt the concepts
model
concepts.

\ID!llability:
Ability to perform the
promised service
dependably and
accurately.
~surance:
Knowledge and courtes1}( - ~tEKI. J.ei:vic.t___ _____ _,_
of employees and their --
ability to convey trust ~•v . ·

and confidence.
[ijangibles:
Facilities, equipment, and
appearance of personnel.
~pathy/Relationshlp:
Gann~, individualized
attention the firm
provides its customers · --~~-
~sponsiveness: . __t~i-~~~.~
<
o.. . Res"'."'siveness "prompt seivice"
<> Relationship "ind· "d I
" 1v1 ua treatment'
Reliability "delivering on promise"
J3 "
Assu'.ance "inspires trust and confidence"
<> Tangibles "selVice physicality"
service
············ : ·· ·:········· ························ ······· ······· · ·····- ····· ·

Willingness to help
customers and provide
prompt service;.

FIGURE 4 The Customer Gap

1.oilbmnl, Parasw,n,an• and Berry, D_ehvering
• • Quahty
. Service: Balancing Customer Perceptions· and Expectations.
·

T~E-~ERVICE QUALITY -PROJECT IN LACD -.- .... ·

, • .·« ,,. ' '

:;terpillar and the dealer advisory panel decided to .cond~ct a pilot program f~r CSAs by working
ough_the gaps model in three dealers in Latin America. These dealers were chosen because they were
;spo~s,ble for key countries or territories in LACD and had shown promising customer and services
~cus m ~revious initiatives. Thefr combined sales exceeded 1 billion dollars and their strategic plans
dA_identtfied
core teamCSAs
was as a key success
fonned consisting factor for future·from
of members growth.
Caterpillar LACD, corporate staffers from
~eona, and the pilot dealerships. Each pilot deafor_ assi~e_d project le~ders from their dealerships that
erved as members of the core project team- Jn1ttal trauung on. servtces markettng and its elements
W«t,_ held at LACD headquarters in Miami on the key steps and proce~ses and then follow-up occurred
withm the dealerships with district support from Caterpillar. Caterpillar LACD core ·team members
Were respo "bl . •t - the · dividual functtons they represented such as product support,
. I. emsL111A ·CD 111
marketin ns1 d e ,or action also assumed the overall coordmatton
. . of the 1roplementatton
. ·
P an and g, an communication.
d . hi. n: ·th the ·consultant and strategic
· · advisor.
·
l manage the re1ations p wi .
 714 Services Marke.ting __ _______
·-·-·-
. _________ ___._________ ----------------t·-~u;tomers
1cat1ons O .
municat1ons
Expected .!!~~~~-----------------·-·········-·-E·xternal commr:ci service mid cc::r expectations
, ' - Lack of in_tegra ement of custo . .
. i,.a. - Inefficient m~nag . . ,
ilJ · . over promising_ ·ntal comm~~,~~~~<?!'~---------------
.•.,• . 1nadequ_~~~-~~~~~-------···-···-
-·-···········-··A·-··t·-·; ·i;;;.;,1ce dellvel'Y ource policies
cu . human res d
~- _Deficiencies in pply and deman
,fl· . to match su
, . • Fa1 1ure f lfilling roles
- customer not diaries/channe1~-----------------·-·
. __ - Problem~_~i!~-~~~~~~-~------·-···-·-·-·~---~andards
---·-·····-·-···· Ice designs an s
customer driven _serv
_ Poor service design fined standards
-Absence of custo~er de 'dence and servicescape
- Inappropriate physical ev1 ---- ---·-·· ·-·-···-·-·-·-·-·-·-·-·-·
·-···-·····-···-·-·-·-· r expectations
---·-·-·· ·--c~mpa-~y~;-~~d;rstanding of custome
_ Inadequate research· . .
- Lack of upward comn:iurncat1on
· _ Insufficient relationship focus
Perceived service ______ -·-·····-~-!~~~-E:~~~~~--~ervice -~~??.Y.~_rX ... ---·-·-·-·-·-·-·-·-·-· ·-·-·-·-· ,

FIGURE S The Service Quality Gaps Model

Zeithaml, Parasuraman, and Berry, Delivering Quality Service: Balancing Customer Perceptions and Expectations.

GAPS ASSESSMENT WiTH THREE .PILOT

·"'" ..- ,~ -« , <- • ,-.., '· '
DEALERSfilPS.
After learning about the gaps model, members of the core team conducted a general assessment of each
service gap based on feedback from the dealer advisory panel and other sources such as marketing
research conducted both by Caterpillar itself and the dealers. They identified the following key issues in
each of the four provider gaps.
The Listening Gap (Gap I) ·
Using ~xisting surveys ~onduct~d br Cat~rpillar called "customer value ·~~eys,': ~he team grouped
survey
. , items by
. the
-e. service
• quality
. . d1mens1on
. shown in Figure 5• Each d"1mens1on·was
· then mappe d on
an nnportance1peuormance matnx shown m Figure 6. _..
The research ?rovided several key findings: ·
• Responsiveness was the most influential factor on custo ·l · . ·
pared to other factors. This dimension required ur.gent tt m:r oyalty and underperformed as com-
a ent10n.
• Empathy (Relationship), Reliability, and Assuran tr k .
. importance. They provided competitive differentiationc~ t ac ed above a':erage in perception and
nant _element of the value proposition. All of them h u_ n~ne of them were positioned as a domi-
s ow s1gruficant t . .
Customer performance perception of tangibles w hi h b -po ential for nnprovement.
customer IoyaIty. as g ut had re1att·ve1Y low impact on the overall

ro address these issues, the t~am concluded that (·1) . . _·

d d· . service rel b1·1 ·
iee e nnprovement; (2) product differentiation and qu· ·1.ty Ia tty, responsiveness and relationship
a 1 could not 0 ffiset these issues;
' and (3) dealer
 case 8: Using Services Marketing. to Deve1op and Del'
,ver Integrated Solutio
ns at Caterpillar in Latin America 715

Opportunity
.• R~sponsiveness .
Strength

• Relationship

Aven~ge
IM PORTANCE •
· Reliability
•

• Assurance
•

..
:0.65
'

.. .
- ,

Limited e Tangibles
Action Maintain
J . PERFORMANCE
Av~rage = 8.1

FIGURE 6 The Importance/Performance Matrix

·product _s?pport operations ~d marketing capabilities· ~layed an equal\~ important role in addressing
these cntical customer requrr~ments. The team also rec;ognized that customer surveys were sporadi-
cally perfo?11ed ~d only parttally designed for the purpose of service ,quality feedback. In support of
Caterpillar s services strategy, the LACD service operation manager recognized tbat the customer value
survey measures were inadequate for capturitlg and addressing customer satisfaction .with individual
interactions. The customer value surveys fell into the category of "relationship surveys" OOld were con-
ducted annually. Post-interaction customer surveys, which captured customer reactions immediately
after service calls, were thought to .be.necessary to prioriti;ze operational improveJllent projects in the
areas that were truly valued by the customer. Also, dealers and Caterpillar employees in the regions
lacked the tools to interpret the results. of surveys and to translate them into specific strategies.
Segmentation was also a key issue. Toe tell!Il _estimat~d that accelerated growth could be best
achieved by developing and communicating.attra~ltv~ service packages to small customers. Analysts
of various factors identified characteristics of certam groups of small customers tbat were good t,\fgets.
Overall satisfaction and loyalty indicators of some customers were _s1gmficantlyfbettellr and_thcsthA ren~~~
· · · t' these dealers had a.higher share o wa et w1 ese .
rates were notably higher. At the same ime, t - r. contact allowed d~alers to identify
. rience and constant cus ome ~'
customers, and the con1tnuous ex_pe . . These customers wollld be ideal to focus on as. the
quote, and win many repeat repair opportunities.
. ' .

• .• · d Standards Gap (Gap l) · ·

Service D~s1gns an . . . th t <lards and measures gap. First, curr~ntly
Th . . .· f" rtant issues tn e s an · . • · Of · d
The proJect 1dent1fied a number O . unpo ·. . d. d tnarketed based upon the l!IllIDg, piece mm '
very few CSAs were created, brand!:d, posino:e ·' :vided to customers. CSAs wer~ .cre~ted i~than a_d
risk reduction, .relationship, or convente~c~ ~J !fte~
across customers within dealen:htps. W• : ;
hoc manner; they varied across dealershi:;d been promised to custoro_ers and ex~ecta1ton~ ~=fits of
variability, it was never quite. cl~arlwhatople felt very comfortable sellmg_theha~f ; s1:'iiely because
not met. Second while machine sa espe b t what to offer and pronuse ID t e '
the heavy equip~ent, they were unsure a ou .
 . As. Further, L , ~ ~ .:,1;,1uug ~aterials d"
716 Services Marketing delivered on the C~ions could be offered. Thud, perfo~d not
not the employees who ssible and what op mer driven. ance
st
salespeople were derstand what was po ed and not cu o d and measurement to standards w
exist for them totyp~cally operationally uhoctu~ustorners expe~te romises involved the fact that c:st not
tandards were . . on w a . rnakillg p . d h s om.
s I had different opuuons . 0 difficulty in 1 t1·tt"le complicate t e process of sett· -
Dea ers b sis ne th t trave d •ffi 1ng
captured except on an ad-hoc a de~lers, meaning a and measures mad_e it . t cu1t to know What to
jJ.A •

ers were often located far: fromth bsence of standard~ ere organized in silos-sales, product su
standards. Among other things, e a curred. Dealerships w d rarely planned together. Finally each P-
h problems oc h ther an • h . ' of
promise customers w en . istently with eac O ltures and laws, making t e shanng of Pra
port, parts-and interacte~ mcons different in structure, cu , c-
the Latin American countnes was
tices less than ideal. Gap ·
S ice Performance .
Provider Gap 3: The erv . . G 3 F1·rst there was an madequate supply of quali-
.d t fled m ap · ' d · d
Th re were a number of major issues i en i · .,.. hn•· ciaos were also selecte , tra1ne , and rewarded
e find new ones J. ec . . .
. fled mechanics and few sources to . · . 0 to their interaction or communication skills
Art t10n was not give . . dd. . '
for their technical performance. en 'b. . es to customers and 1n suggestmg a 1tional work
which could become very important in descn mg issu ·
that should be done on machines. . . ng parts service and sales departments made the
The lack of t~am'":ork and commlumcattn a:;:unicate ~bout what should be done, what had been
provision of servtce difficult. Forma ways O co . d.d h 1· bl
. h d d h
accomp1is e , an ow we11 1 ·t·- had been performed did not exist.
.
Dealers
· ·
1 not1 have a re 1a e system
·
for keeping track of which customer machines had reached their service 1nterva s, t e contractual tune
for service. The scheduling process for field technicians was complex and based on cumbersome sys-
tems, which further complicated timely and responsive technician appointments. . .
Customers contributed to the difficulties in this gap. When they called for service, they often did not
tell the dealers where their machines were physically located on the customer's property. Many custom-
ers actually forgot to inform the dealer that their machines had reached the service interval and were
due for service.
Supply and demand often did not match, as most customers wanted machines maintained and
ins~ected with little advance notice or after business hours. During peak construction session (e.g., in
spnng and early_ summer) the industry frequently suffered from technician shortages. Equally of con-
cern were slow ttmes when few customers needed or wanted ·
. 11y the ac tuaI mspect10n
Fma . . and recomm d f repatrs.
·
10
consulted and stored by customers) w fu en. a n reports provided as part of the CSAs ( and eagerly
. ere . nctiona1 but unattractively presented.
~ro~der Gap. 4: The Communication Gap
..,aterp1llar promotion material almost ex .
h . b c1usive1y focused .
e proJect egan, there were no brochures O d . on product features and benefits. At the tuni
o sell C~As both externally and internall rJ vert1semen~s describing CSAs which limited the abili~
ould deliver something for which there :e·re ~temtall~, customers could not be certain that Caterpilla
)mers could not compar d1·ffi . 0 ang1bles rep .
>'ffi e erent options or pa k resentations or written descriptions. Cus
I erent types of CSAs were c ages and ev 1 . . . '
escriptions that easily expl . ~med ~nd described the sa a uate those against alternative service.
Internally, these materia1:::ui1:~ difference in value. me way and carried no specific slogans o
od_how they differed. The absence ave helped employees
'.atton or over-promising Th I k of clearly defined se . understand what the service offering.s wer1
· e ac ofw · rv1ce fe tu rn
· ntten conunun· . a res occasionally led to over-custo
1cation 1 · · r,
a so confused the verbal commumcatJO
 0
orce }lad no consistent selling pr -·-··~ terpmar in Lat· Am .
ocess or '" errco 7 l7
UL '-

ates fi . Thi
'(Ile s csA 0 ffertngs. s created an uncle message that 1 .
,1J1181 . . . ,,.,,. . " .. . . ar competitive positio:tned and differentiated the indi-
~ tONS" ' ·· ·
~
· .:.."J:t;;..11,lJii"
:.. . • .
· ,· l
' ~,..,... .
)'loVI
;~-the team had learned the basics abo t
u
.
service qu
•:
r "'!'•
.. -J:tl"hMQ -
serviceth qual!ty ~ap for the ~ee pilot dealers, they were re:i ,ty delivery and assessed the state of each
and debvenng CSAs m the three dealerships. The kn;
to develop a plan for developing, design-
ver and that they faced many challenges. They also kny whthat they had a great deal of ground to
d ployJ1lent ofCSAs was essentta
co . 1. As they met to pla thew . t at LACD' s successful development and
. eost on their minds. n err next steps, they laid out some of the issues
111 What else did they need to learn-in Gap 1 about customer needs and · .
:11formation from the customer value surveys, but this information d"d exptecltaltithons? They had general
w . . d . th CSA Wh 1 no te em what features cus-
toftiers·expecte mh e dsd. at were they and how could they find out? In particular, how could
they ~d out what t e~ nee e to know to established standar~s in Gap 2?
Should they offer different CSAs to the different segments of general construction? What would that
imply for res~arch, standards, and implementation? -
. What standards and measures should be set in Gap 2 to deliver to customer expectations? How for-
•mal' should they be? How should they create and design the new CSAs? How should they get everyone
fu the dealerships to learn about them and get On board to deliver them? · . . .
How should the dealerships overcome all the Gap 3 issues that they faced m order to.msure consis-
tentWhat
delivery? · · · • · 1 1 d
internal and external materials were necessary to commumcate the CSAs to sa espeop e an
customers? What else would be needed?

. )

bill .
fJ lh,, . . , .
'
.. .