Deere & Company: Industrial

Equipment Operations
Pricing the JD750
Group 11
Ankit |Pallawi| Shikha| Ameya |Pratik
 Pricing options considered for pricing JD750
Option1: Cost plus mark-up
The fixed and variable costs associated
with manufacturing JD750 are
considered.
Mark-up is assumed using the cost-
price ratio provided in the case (Exhibit
4)
Option 2: Competitive Pricing Option 3: Feature based pricing
Comparable products in the 100 Hp In the 100+ Hp segment the different
equipment of multiple companies are features offered in similar products are
considered. The horsepower based considered, the popular product in the
pricing is compared for competitors segment is taken to be CAT D-5
Above the head on pricing a premium From Exhibit 7 features were
is affixed to the hydrostatic considered but the major
transmission differentiation in the product is the
hydrostatic transmission. The
perceived benefits were affixed values
to arrive at a price
 Option 1 : Cost plus markup
Costs USD (000s) Depreciable years Total cost (000s) Assumptions Factory cost breakup %
Engineering 1,600.00 10 16,000.00 JD has 10% market share Materials 63%
Capex for tooling and equipment 16,666.67 3 50,000.00 All tractors manufactured were sold Direct labour 6%
Advertising expense 300.00 1 300.00 All costs before 1976 were sunk costs Other variable 5%
Factory equipment 2,000.00 1 2,000.00 Fixed 26%
Total fixed cost 20,566.67     Total 100%
   
Total factory cost 79,102.56

Sales forecast  
Years 4
JD750 + D-5 sales per year 5500
Market share of JD 10% The Cost per tractor is $35,956
JD750 sales per year 550 The net price per tractor is $44,945
Total JD750 sales 2200
Cost forecasts (000s) The list price per tractor is $59,529
Cost per tractor 35.95571
Cost/Price ratio 80%
Price per tractor 44.94464
Discount 24.500%
List price 59.52932
 Option 2: Competitive Pricing
   
CAT D5
MODEL: OPERATOR
BASE PRICE= PAYMENT(10000 FUEL Deprecia
61000 HR) 50000   COST 21000   tion 54000

ADDED BENEFIT FOR JD750 IN MONETIZED TERMS

IMPROVED EFFICIENCY = (10+15/2) I.E. 12.5%

OPERATOR    
PAYMENT(10000 FUEL ADDED
HR) 6250   COST 2625   BENEFIT 8875

PRICE BASED ON
COMPETITOR
PRODUCT 69875    

Assumption: The wage for operator is assumed to be $5 per hour (Min. wage in 1976 is $2 per hour)
 What is a suitable price for JD750?

Option1: Cost plus mark-up Option 2: Competitive Pricing Option 3: Feature based pricing

• The net price arrived at is • The net price arrived at is
$59,529 $69,875
• The benefits considered are the
savings in fuel and operator
wage expenses
• Comparing with the D5, it is
impossible to arrive at a feature
level pricing as different
features are priced differently
in different segments and the
hydrostatic transmission is not
provided with any other
product

• The pricing derived from option 2 would be suggested as it comes with a clear value proposition around
which a campaign can be built to build traction with customers.

• Pricing it lower than similar models(CAT D5), as derived in option 1 might raise doubts in the customers’ mind
regarding the quality of the product as has been observed in the case of low cost Komatsu products