Cat GC Dealer Week l October 12-15

Dealer Success, Market Segmentation and Why Cat GC

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 THIS MEETING IS BEING RECORDED.
• Your presence in this meeting provides your consent to be recorded.
• If you do not want to be recorded, please exit the meeting now.

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 Jason Kaiser – Welcome Video

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 Market Segmentation & Why Cat GC

Graham Scandrett
Cat Retail Electric Power Solutions
Product Strategy
Email: Scandrett_Graham_T@cat.com

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 Cat® Electric Power
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 What is Changing in Our Industry?
 Global Market is Changing
o Utility grids are stabilizing.
o Global utility grids improving
with roughly 40% less utility
outages observed since 2015.

DataBank, “Getting electricity: System average interruption duration index (SAIDI and SAIFI) (DB16-19 methodology)”, © 2019 The World Bank Group, All Rights Reserved.
 Stationary Standby Applications
o Market migration to stationary standby applications.
o Average 199k units per year growth since 2014 for standby applications versus
126k annual growth for peak shaving, prime, or continuous applications.
o Research sites “strengthening demand for a consistent power supply coupled
with elevating costs associated with power interruptions across the commercial
environments will boost the standby generator sets market.”
o Global connected assets data indicates average annual standby usage of
80 hours based on 210 global units.

GMI, “Global Genset Market, 2030”, © Global Market Insights, 2019, Pages 76-77, 82
 Reducing Prime Power Operation • Utility grids stabilizing – less
o Many customers require Prime ratings for stationary standby applications. frequent, shorter disruptions.
o Introducing Limited Hour Prime ratings using optimized stationary standby iron aligns with market trend.
• Standby applications growing
o Connected assets data indicates at least 20% of EP Retail global Prime rating sales are installed in
Stationary Standby applications averaging 183 hours per year. • Lower hours per year
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 Caterpillar Investing for Profitable Growth

• C18 Power Density

• C32 HD
• Cat GC 1

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 Understanding the REPS business less than 1500kVA

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 Industry Qualifiers Order Winners

A vast number of customers. Produce acceptable quality Access to widespread,

product with acceptable cost and cost-effective
High fragmentation by applications, needs and lead time. distribution.
geography. Translate market requirements into Optimal priced product
suitable product designs and to attract and engage
Customers are usually small businesses. A few large configurations. distribution.
purchasers, for example telecoms operators.
Efficient aftermarket organization.
Most customers are infrequent purchasers.

Customers are difficult to identify: anyone can be a

customer.
• Fragmented market
Many customers do their own product research.
• Mostly infrequent purchasers
Competitive lead times and local inventory are key. • High customer count
• Many have knowledge or
With smaller standard sales, many customers can conduct their own research
drive in and drive away with a product.
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 SEGMENTING AN OPPORTUNITY

Needs, wants and expectations

Segmentation is a way to help sellers serve markets more effectively by identifying common
traits in groups of users and meeting those with targeted products, services and communication.

These traits are primarily behaviors and characteristics of customers, for example: product
usage level, price sensitivity, lifestyle, purchase drivers / motivations.

The thinking is that it’s more profitable to treat groups differently than to treat them all alike. The
most successful brands carefully shape their business model and cost structure around the
segments they serve.

It’s important to distinguish segments from sectors (telecoms, banking, healthcare, construction,
government, industrial etc). Although some of these have their own defined product needs,
many customer behavioral patterns cut across them all.

CRITICAL MARKET ESSENTIAL UTILITY MARKET

SEGMENT MARKET SEGMENT SEGMENT
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 CRITICAL SEGMENT
Customers Highly sensitive to power loss.
A relatively small number of customers but typically high value and
complex projects.
Buyers are often corporate professionals.
May know little about power systems.
Risk averse.
Litigious.
Brand-sensitive.
Process-driven.
Customers are often handled as key accounts.

Time-consuming, complex and often involves many interactions with

Buying consultants, contractors and customers, each with their own very specific
Process needs.
Consulting engineers are often key customer influencers.
Suppliers are often bidding against several other competitors.
Often high levels of project risk, both engineering and financial.
Sales won and lost are easily tracked by suppliers in CRM systems.
Support for customer = mainly “do it for me”.

Hyperscale data centers, healthcare, major buildings,

Key Sectors banks, mining & other prime applications.
“The application is very, very critical because if you ever have a generator failure and
you have a loss of life then Caterpillar will be joined in this loss I can guarantee you.”
Customers
Cat® Electric who are highly sensitive to power loss.
Power Hospital Facilities Manager, North America.
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 ESSENTIAL SEGMENT
Customers Seeking quality products that meet their needs.
Take a long term view of the product.
Often more awareness and engagement with gensets than
customers in Critical segment.
See a common interest, relationship is important.
Open communicators. Regular contact.
Seeking products that meet their needs. Won’t pay extra for
something non-essential.
But still brand-aware.

Many (usually corporate buyers) operating a formalized bidding process

Buying with a shortlist of several suppliers. Bid specs are drawn up using in-
Process house specifications from previous projects, industry guidelines or with
consultant input. Bidding suppliers who make the process easy for the
customer win favor. Over time, many customers establish sole
suppliers whom they have grown to know and trust.
Support for customer = mainly “do it with me”.

Rental, construction, fleet owners who like product consistency and common
Key Sectors maintenance across fleets and who build relationships with key suppliers.
Some data centers, for example co-location, also commercial standby
customers who are sensitive to power quality.
Many contractors in North America are in this segment.

“We want a supplier we can trust and we always go back to the ones we know.”
Customer, Spain
“If a supplier offers sets which work well, with assistance and maintenance support,
Customers
Cat® Electric Power with a long term view who seek value for money we’ll rarely change suppliers.” 16
Customer, Italy
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 UTILITY SEGMENT
Customers Focus on initial price, availability and reliability.
Often high levels of engagement with generator sets.
Not particularly sensitive to packager brands, but often keenly
aware of component brands (engine / alt / panels).
Not usually interested in aftermarket services from authorized
dealers: if the core components are recognized brands, they will
source the parts from wherever they are available at lowest cost.

Many do their own research and know what they want.

Buying
Aim to buy as much value as their budget will allow.
Process Tough negotiators: will bargain value away and play rival quotes off
each other.
Many customers want to drive in and drive away with a product.
The price does the talking: not particularly interested in a relationship.
Support for customer = mainly “do it myself”.

Key Sectors Utility generator sets are installed in a huge range of sectors, right across
the spectrum.
In Europe and parts of the Middle East and SE Asia, contractors make up a
big part of this segment.
In high hours standby regions where there is strong familiarity with
generator sets, for example Africa, a high proportion of end users are in
this segment. Telecoms applications are increasingly seen as Utility
segment.
“Today in electrical contracting, price rules.”
Focus
Cat® Electric on initial price, availability and reliability
Power Contractor, UK
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Defend and Grow Critical,
ATTACK ESSENTIAL
 Attack the Essential Market Segment
 Target Customers
o Value world-class support
o Lower utilization applications (Stationary Standby applications)
o Reliable performance for less critical operations Main Competitors
o Contractors preparing bids / tenders
 Differentiation
o Power capable base offering without built-in capability
o Standby and limited prime ratings for Stationary Standby applications
o Optimized options targeted to meet, not exceed, customer requirements
 How we Deliver Value LARGELY DRIVEN BY
o Best-in-class distribution support Public bid & tenders
o 2-year warranty with aftermarket solutions (CVAs, connected assets)
 Right to win LOWEST PRICE & BRAND VALUE
o Right price for configurations representing highest market opportunity Most important criteria
o Caterpillar brand affordable for pass-through customers (contractors)
o Consistent availability if required specification Configuration meets their needs but
does not exceed their
 What are the Tradeoffs?
requirements
o Configurability
o Installation time & ability to re-install at a new location
Consistent availability of required
o DTO offerings Contractor
specification
o High hour applications B
 Owner Mentality AFTERMARKET MINDSET
o Affordable short-term investment (Focus on Capex) Peace of mind
o Ability to win bid/tender with reputable genset brand
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ESSENTIAL SEGMENT OPPORTUNITY
 EUROPE-CIS
Electric Power Customers Persona

Cat Models $250M Opportunity >$412M Opportunity Cat GC Models

Critical Market Segment (20% of $1.25B EUR-CIS Market) (33% of $1.25B EUR-CIS Market) Essential Market Segment

DRIVEN BY LARGELY DRIVEN BY

Word of mouth Public bid & tenders

VALUES THE ASSURANCE LOWEST PRICE & BRAND

Provided by premium brands such VALUE
as CAT® Most important criteria

BELIEVES Configuration meets their needs

but does not exceed their
Contractor HIGH QUALITY
+ RELIABILITY requirements
A Contractor
+ DURABILITY
+ TOTAL COST OF OWNERSHIP Consistent availability of B
---------------------------------------- required specification
= VALUABLE
AFTERMARKET MINDSET
AFTERMARKET MINDSET Peace of mind
Total Cost of Ownership

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 AME
Electric Power Customers Persona

Cat Models $374M Opportunity >$393M Opportunity Cat GC Models

Critical Market Segment (25% of $1.47B AME Market) (27% of $1.47B AME Market) Essential Market Segment

DRIVEN BY LARGELY DRIVEN BY

Word of mouth Public bid & tenders

VALUES THE ASSURANCE LOWEST PRICE & BRAND

Provided by premium brands such VALUE
as CAT® Most important criteria

BELIEVES Configuration meets their needs

but does not exceed their
Contractor HIGH QUALITY
+ RELIABILITY requirements
A Contractor
+ DURABILITY
+ TOTAL COST OF OWNERSHIP Consistent availability of B
---------------------------------------- required specification
= VALUABLE
AFTERMARKET MINDSET
AFTERMARKET MINDSET Peace of mind
Total Cost of Ownership

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MARKET RESEARCH
Our Right To Win Starting From A Strong
Foundation?
 Global Survey (Key Customer Buying Factors)
What are the most important criteria you consider when purchasing a genset? Key takeaways

Key buying ▪ Genset & Engine brands together

factors Average importance, on scale of 100 (%) equate to over 36% importance with
price the next highest at 10.5%.
Genset Brand 21.4
▪ Availability is more of a qualifier than
Engine Brand 14.8 a differentiator.
Price 10.5
Reliability 8.0 ▪ Lower installation hours, local
support, and fuel consumption are
Durability 7.8
least important.
Warranty 7.6
Alternator Brand 6.4
Package Aesthetics 5.5
Availability / Lead Time 5.4
Lower Installation Hours 4.4
Pre-commissioning support 3.3 Customer survey:
Respondents with >50% of purchases in 7.5 -
Post-commissioning support 2.7 250kVA segment. N = 124
Fuel Consumption 2.4 Respondents with >50% of purchases in 251 -
750kVA segment. N = 82

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 Global Survey (Key Customer Buying Factors – Pairwise Matrix)
Brands Awareness1 (%) Interaction1 (%) Global PINS2 (%) Pricing Score
Lower/Higher

79 33 5

84 67 10

51 22 7

46 17 1

44 13 3

60 29 1

1. Customer survey, respondents with >50% of purchases in 251-750kVA segment. N = 82

2. PSR competitor data, 251-750kVA powerband
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 Q&A

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 NA Dealer Spotlight Cat GC – Milton

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Cat GC ROW Training Module 1
Quiz – Monday
 Cat GC ROW Training Module 1 – Question 1

Q: When did Caterpillar enter the electric power business?

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 Cat GC ROW Training Module 1 – Question 1

Q: When did Caterpillar enter the electric power business?

A: 1939

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 Cat GC ROW Training Module 1 – Question 2

Q: What kVA output was the first genset package offered by Cat electric Power?

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 Cat GC ROW Training Module 1 – Question 2

Q: What kVA output was the first genset package offered by Cat electric Power?

A: 75 kVA

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 Cat GC ROW Training Module 1 – Question 3

Q: What is the estimated installed capacity of Cat generator sets globally?

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 Cat GC ROW Training Module 1 – Question 3

Q: What is the estimated installed base of Cat generator sets globally?

A: 333 GW

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 Cat GC ROW Training Module 1 – Question 4

Q: What is the estimated opportunity that we are currently missing out on in the less than
1500 kVA generator set business due to customers unwilling or unable to pay for
unnecessary features?

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 Cat GC ROW Training Module 1 – Question 4

Q: What is the estimated opportunity that we are currently missing out on in the less than
1500 kVA generator set business due to customers unwilling or unable to pay for
unnecessary features?

A: 80%

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