As a result of the merger between the Holt Manufacturing Company and the C. L. Best Tractor Company, Caterpillar Inc. was born in 1925. For almost 100 years, the company has become stable in the heavy construction industry. The success didn’t come easily, but through great product, excellent service, and appropriate decisions. Learn what makes Caterpillar great today!
Caterpillar – At A Glance
|Company Name||Caterpillar Inc.|
|Founded||April 15, 1925|
|Headquarter||Deerfield, Illinois, U.S.|
|Annual Revenue||$41.74 Billion (FY 2020)|
Caterpillar SWOT Analysis
Caterpillar is one of the biggest names in the construction equipment industry. They must ensure they exploit all their strengths and opportunities to sustain their position. Besides, they must be well aware of the weaknesses and the threats. Hence, A Caterpillar SWOT analysis is highly relevant for them to make any decision. The company can lead the industry by analyzing the key factors (strengths, weaknesses, opportunities, and threats).
Strengths of Caterpillar in SWOT Analysis
A company’s strengths are its areas of success. These are the factors that keep the company in the industry and competing against the competitors. Caterpillar is a pioneer in the construction machinery industry and has its share of strengths. Today, in the Caterpillar SWOT analysis, we will discuss a few.
Robust Dealer Network: Unlike most companies with fragile dealer communities, Caterpillar has ensured a strong dealer network, earning them millions. The community plays a vital part in higher sales of Caterpillar products. Additionally, dealers also market the products, which helps the company to build brand awareness. But what means the most is the demand for CAT products, which are boosted by the presence of excellent dealers.
Presence of Effective Automation: Caterpillar has automated many of its activities over the past few years, and they are sensing the convenience. Along with the upgrade in quality, the company has ensured they can increase and decrease production when needed, which triggered higher efficiency. Besides, they have also introduced self-driving machines, which helped them stable during the Covid time.
Customers Love Them: The company will surely shine if the customers are happy with the company. Caterpillar is a sparkling example. Caterpillar ensures that its customers are always satisfied with everything, from queries to support and reliability. Their commitment to keeping the relationship with their customers ensured a strong bond with the brand. According to Mining Technology, the company is a leader in customer satisfaction in the Asian market.
Weaknesses of Caterpillar in SWOT Analysis
Unlike the strengths, the weaknesses are the elements that pull a company down. Despite being a Fortune 100 company, CAT has a few shortcomings they should not take lightly. In the next section of the Caterpillar SWOT analysis, we will discuss a few.
Losing Market: Recently, Caterpillar has been losing its market share in several regions. Especially, they are losing the most in the Asian market. Mainly because of the increased price of the machinery and additional costs, the price of the products has increased. Besides, in 2022, the company experienced the highest amount of selloffs.
High Inventory: Caterpillar has move days inventory compared to any of its competitors. This is causing the company to incur the most costs. Furthermore, more investment is also needed. The company’s inventory turnover increased by one day (136 days from 135 days) in 2022, which is concerning. It can be quite risky for the company in future growth.
High Churn Rate: People leaving Caterpillar is a common scenario. This situation is causing the company a lot of money each year. CAT spends a lot of money on training and developing its employee, and when they leave, the total investment is lost. Comparably has given Caterpillar 67 out of 100 in employee retention rate.
Opportunities for Caterpillar in SWOT Analysis
Strengths and weaknesses are the internal factors over which the company has control. However, there are other factors, too, known as external factors. A company has no control over these factors, and opportunity is one of them. The only thing a company like Caterpillar can do is exploit these opportunities to ensure success. The next section of the Caterpillar SWOT Analysis is all about the prospects.
Practice New Pricing Strategy: As Caterpillar introduces many modern technologies, it can adapt to a new pricing strategy. The company will get better benefits if it practices a differentiated pricing model. The differentiated pricing strategy will allow loyal customers to pay less compared to newer ones. This will highly increase customer retention. And we all know that keeping the present customer is more important than getting newer ones.
New Market Possibilities: With a new government agreement, Caterpillar has gained the opportunity to emerge in new markets. The chances came from winning a contract with the US Department of Defense. This $641 million deal will not earn much money but will open many gates to ensure the company stays successful in the industry.
Decreasing Cost of Transportation: Transportation costs decrease yearly, and Caterpillar can take this opportunity into action. With the decreasing cost, the company can lower its total operation cost and target a bigger profit margin. Additionally, the company can price the product lower, which will increase the sales of the machines they sell. Either way, Caterpillar’s revenue, and profits will increase significantly. Caterpillar has plans for that!
Threats for Caterpillar in SWOT Analysis
Just like the external environment can be quite beneficial, it can be risky too. The threat aspects of a business come from the external environment; if taken lightly, they can destroy a business. Take Nokia and Kodak as examples. If Caterpillar remains careless about its threats, it may lose its leadership in the industry; hence, they need to register those issues. Accordingly, in the next section of the Caterpillar SWOT Analysis, we will discuss those.
Global Economic Instability: Caterpillar relies highly on the construction industry. Construction is very expensive, so a good economic condition is highly important. However, in the current situation, when we have just experienced a global pandemic and now a significant war, the stability is disturbed. In 2020, the construction industry had the biggest hit. However, according to Deloitte, the industry made a decent return. The war between Russia and Ukraine is a big threat that may cause Caterpillar to lose a decent amount of market share.
Tigh Competition: Caterpillar is not running a monopoly business. The company is in stiff competition. Some of Caterpillar’s competitors are Komatsu, Volvo, and John Deere. Among all the competitors, the company remains the largest market share holder with over 13% share. The closes one is Komatsu, with a 10.4% market share. Caterpillar maintains its lead in the industry and remains 73rd on the Fortune 500 list with over 20 products.
Liability Laws: Caterpillar operates in different countries. According to FACESET, the company operates in over 193 countries. Just like this allows the company to generate revenue from everywhere in the world, the company is exposed to different types of laws. And this can be a threat, as laws are constantly changing. The change in policies can bring detrimental effects on the performance of the company.
Caterpillar SWOT Analysis Overview Template
Conclusions & Recommendations for Caterpillar
Industry experts provide recommendations that can help Caterpillar advance its market,
- Keep the customer satisfaction high, so that consumers don’t move to the competitors.
- Maintain a reliable dealership network for increased sales and enhanced branding.
- Focus on the lost market share and take the necessary steps to regain that.
- Reduce production costs by reducing days inventory. This will increase profit margins.
- Ensure employee satisfaction to reduce the high churn rate.
- Bring a new pricing strategy to help the loyal customers.
- Keep the global economic crisis into account and take action accordingly.
- Be updated with the dynamic policies and laws so that the company doesn’t get into legal issues.
Caterpillar is synonymous with construction vehicles. Anywhere construction is going, you are supposedly witnessing a CAT working there. The products’ reliability and capabilities have made the brand global stable. Yet, the company is losing shares due to increased production costs; hence, an appropriate decision must be taken.
Therefore, this Caterpillar SWOT Analysis is a great insight that the company board can consider. Here we mentioned all the negative and positive aspects so we can understand where the company is now and where it can go. If the right steps are taken, Caterpillar will sustain its global lead for several years.