1. Caterpillar Channel Relations
Make Your Dealers Your Partner
Donald Fites, HBR (March-April 1996)
Distribution Channel Strategy
L. P. Bucklin
Spring 2000

2. Contractual Characteristics of Caterpillar’s Distribution System
Exclusive distribution--62 in the US
Employ only a single channel type
Foster dealerships as independent, private companies
Exclusive dealing--90% of products sold by dealers are Caterpillar
No contract termination date, but either party may terminate in 90 days

3. Distribution as a Strategic Asset
Recognition of after-sale service as a critical need in the end-user buying decision
Provide two way product information flows
Design channel to facilitate service
Enable dealers to provide the bulk of part requirements “on the spot”
Replace all parts, around the world, in 48 hours
Design machines for serviceability

4. Caterpillar’s Golden Rules
Foster mutual trust through
Share gains as well as pain
Strive for consistency
in relations
in policies
in communications
Treat all dealers with uniform practices
Recognize independence and uniqueness
Build products to fit distributor capabilities

5. Governance Policies for Building Trust
Develop system for channel co-government with dealers
Maintain dealer profitability, at supplier expense if necessary (note Mexico example)
Focus product development upon channel targets, skills (construction)
Insure dealer continuity/management
Continuous consultation to raise efficiency

6. Reducing Conflict in Tightly Controlled Channels
Careful reseller selection for compatible goals
Development of bilateral governance programs
Build decision interface across members
Coordinated data exchange for improved forecasting, inventory control, parts supply
Joint supplier-distribution project teams
Develop expectations on marketing programs, performance, efficiency
Focus upon category management
Act consistently in distributor’s interest

7. Reviewing Dealer Performance
Review dealer marketing and financial performance annually
Provide consulting advice to help dealer with aid of all dealer financial ratios
Frequent communication from top level and line management
Build close personal ties to overlay business relationship, strive for private ownership

8. Caterpillar Rules Build dealer trust and profit
Through fair dealing with resellers
Use only a single channel, close communications
Share profit opportunities
Employ consistent policies
Sharing of limited channel decision power while maintaining coordination
Develop programs to help resellers improve operations and profits