Case Study

USING SERVICES MARKETING TO DEVELOP AND DELIVER INTEGRATED

SOLUTIONS AT CATERPILLAR IN LATIN AMERICA
Group 8, Section B | Marketing Management - II | 19-Dec-2016
Case Summary
Caterpillar is a tractor manufacturing company headquartered in Peoria, Illinois. The following
exhibit shows the highlights of some major events.

It provides a wide range of products used in many different industries. Major machine
applications address earth- moving needs, urban and general construction, earth moving
projects, material handling of quarries and industrial applications, diesel engines and power
generators. The company also offers many services that complement its products. This includes
refurbish used machine and engine components into like new condition, financing and
insurance services for equipment owners, equipment rental and logistic services.
The principal advantage of this company over its competitors is its dealers which form a
distribution unmatched in the industry. But at present, it faces a danger of not meeting its five
year growth targets unless it moves from a product focus to customer focus.
The vision of the company is to develop and deploy a plan for services that could be sold with
Caterpillar’s heavy equipment in the form of customer service agreements (CSA). It is currently
facing the difficulties including lack of consistency across Latin American counties, inability to
deliver and calculate costs and benefits of CSAs. The company has used the Gap model of
service marketing to figure out the nature and impact of each gap on customer experience,
brand positioning and service differentiation. The company decided to conduct a pilot program
for CSAs by working through the gaps model at three dealers in Latin America. Each dealer
assigned project leaders from their dealerships that served as members of the core project
team. After completing the assessment of service gap, the key issues of the four gaps were
identified. The company after analyzing is planning to develop, design and deliver CSAs in the
three dealerships by covering the gaps identified.

Question 1
What else do you need to learn in the Listening Gap (Gap 1) about customer needs and
expectations? LACD had general information from the customer value surveys, but this
information did not tell them what service features customers expected in the CSAs. What
were they and how could they find out? In particular, how could they find out what they
needed to know to established standards in the Design and Standards Gap (Gap 2)?

Gap 1 is the difference between customer expectations and company perceptions of those
expectations. Customer expectation is what the customer expects according to available
resources and is influenced by cultural background, family lifestyle, A-I-O (Attitudes, Interests,
and Opinions), personality, demographics, advertising, experience with similar products and
information. In a customer orientated strategy, delivering a quality service for a specific product
should be based on a clear understanding of the target market. Understanding customer needs
and knowing customer expectations could be the best way to close the gap. In the given
scenario, Caterpillar’s understanding of customer expectations only included data from Surveys.
To find out what they needed to know, their understanding of the Listening Gap should have
included the following:-

 Adequate customer research by Caterpillar

o Sufficient customer research by the company
▪ Taking to customers, taking feedback from front-end employees who are
dealing with the customers
o Research focused on Service Quality
▪ Output Quality
▪ Functional Quality
o Adequate use of Market Research
▪ Thorough segment-wise market analysis
 Upward Communication
o Interaction between management and customers
▪ Reduced interactions due to presence of independent dealers
o Sufficient communication between contact employees and managers
o Optimal number of layers between contact personnel and top management
▪ Reduction in the number of levels of management
 Strong Relationship Focus
o Proper market segmentation
o Focus on relationships rather than transactions
o Focus on relationship customers rather than new customers
▪ Stranger > Acquaintance > Friend > Partner
 Adequate Service Recovery
o Encouragement to listen to customer complaints
o Make proper amends when things go wrong
o Ensuring appropriate recovery mechanisms
 Fig. Gap Models of Service Quality

Source: Parasuraman, A., Zeithaml, V.A., Berry L.L. 1985. A Conceptual of Service Quality and its Implications
for Future Research. Journal of Marketing 49, 41-50.
Question 2
Should they offer different CSAs to the different segments of general construction? What
would that imply for research, standards, and implementation?

Yes. Customer Service Agreements are flexible contracts that include virtually any services
customer wanted and the dealers could provide. Caterpillar should offer different CSAs to
different segments of general construction as per their needs and requirements.

Values & Reasons to

Personality believe

Brand Essence

Benefits
Discriminator

Customer Insight

Competitive
Target
Environment

Fig. Brand Key Model

We may use the “Brand Key” model to explore how Caterpillar can differentiate itself in the
Services segment.

COMPETITIVE ENVIRONMENT

Third party service Aftermarket Suppliers Competitive

Local Workshops
providers & Distributers Manufacturers
• Allowed customers • Inferior will fit parts • Established by • Had their own dealer
to outsource entire at significantly lower former Caterpillar networks namely
fleet for both price points dealers enjoying high Komatsu, John Deere
Caterpillar & non- customer acceptance & Volvo
Caterpillar products but had no large
outlets

TARGET

Customers who purchased mining &

construction equipment
• Dealers provided customized and full
service
• Paid for CSA and repair services
• Segment showed no future growth
General & Urban Construction companies
• Due to short term availability and cash
flow limitations, they postponed
preventive small repairs
• Willing to pay for premium parts and
parts availability

CUSTOMER INSIGHT
It highlights the latent need behind a customer buying CSA and also finds out why a customer
would not buy it.

• Owners want to outsource majority of support activities to dealers

Do it myself • Loyal and large companies fell in this category

• Customers who take care of daily

support but use dealer services for
Work with me complex needs
• Medium sized traditional companies fell in this category

• Use internal or competitive resources to satisfy product support needs

Do it for me • Small or general construction customers fell in this segment
BENEFITS
Differentiating benefits are as follows:-
1. CSAs are highly customized in content, length and cost

2. Covered cost of unplanned machine downtime and risks

3. Preventive maintenance agreements (PM CSAs) for small customers

4. Speed of service and quality of resulting machine condition advice are

appreciable

VALUES & PERSONALITY

Core values of the company are:

Reliability Assurance
Perform promised Inspire trust and Tangibles
service dependably confidence to Service physicality
and accurately customers

Empathy Responsiveness
Individual attention Willingness to provide
to customers prompt service

REASONS TO BELIEVE
 Existing brand name of Caterpillar
 Caterpillar dealers form a distribution channel unmatched in the industry and the dealer
network gives them a competitive advantage.
 Customer Loyalty due to quality service provided by field technicians and
recommendations given on the machine conditions.
DISCRIMINATOR
Use of trained expertise to deliver promises with prompt customized services and quality
machine condition advice

BRAND ESSENCE
The essence can be captured in “Prompt Customized Service”

RESEARCH, STANDARDS AND IMPLEMENTATION

 Caterpillar should differentiate CSAs for each customer segment.
 They must perform Adequate Research to understand customer expectations (Gap 1)
from CSAs.
 Dedicated teams must be put in place for the CSAs.
 This also need to be integrated with their Product offerings (Bundled options etc.).
 Caterpillar should ensure clear and transparent pricing of these agreements with
detailed terms and conditions.
 Proper training and awareness of all Sales people including those involved solely in
selling Products to be ensured
 Capability development of personnel has to be looked upon for serving the customers as
per the CSAs

Question 3
What standards and measures should be set in the Design and Standards Gap (Gap 2) to deliver
to customer expectations? How formal should they be? How should LACD create and design
the new CSAs? How should they get everyone in the dealerships to learn about them and get
on board to deliver them?

The company should make use of both Hard as well as Soft Standards to deliver to the
Customer Expectations.
 Hard Soft
On time delivery
Standards Standards Interpersonal skills of
-Number of field technicians
equipments left
- Listen
- Number of late or
missed service - Take ownership of
request processing call
- Ship to target - Be knowledgeable

Responsiveness
- Provide human
Problems fixed after assistance when
first time customer reports
problem
Product compliance to
requirements
Resolution of
- Order accuracy
problems
- Resolve problems at
Machine inspection first visit
and monitor condition
- Communicate and
of tractor
give adequate
- Increased number of instructions
personal visits - Take all the time
necessary

Caterpillar LACD should create and design the CSAs such that they are able to address the
Service Design and Standards Gap (Gap 2). The Gap 2 occurs due to the following:-
1. Poor service design
a. Unclear, undefined service design
b. Badly designed service design
c. Unsystematically process of new service development
2. Absence of customer defined standards
a. Standards are not defined respecting customers’ demands
 b. There is no procedural management focusing upon customers’ demands
c. Lack of formalised processes needed for installation of adequate goals of service
quality.
3. Inappropriate physical evidence and servicescape
a. Failure to develop perceptible values in accordance with customers’
expectations
b. Service ambience is not created to suit the needs of customers and employees
c. Inadequacy when innovating the ambience and undertaking necessary
reparations

The company may make use of SERVQUAL surveys to understand the customer’s relationship
with the company (soft measurements) and determine the appropriate standards.

WHO are you trying

to reach?

HOW should you WHERE should we

trying to communicate?
communicate?

WHAT do we need
WHEN
to communicate?
communication
needs to take
place?
To avoid ambiguities and possible misperceptions of service, Caterpillar should opt for more
Formal standards to enhance the delivery of their offerings. This will ensure uniformity across
all dealers and locations and may improve the image of the company w.r.t. CSAs.
To get everyone to learn about CSAs and get on board to deliver them, Caterpillar may adopt
the following techniques:-
 Provide Regular Communications to Dealerships
 Offer Training and Education
 Create Systems and Online Portals
 Ask for Feedback and Input from Dealerships
 Revise existing systems based on Feedback

Question 4
How should the dealerships overcome all the Performance Gap (Gap 3) issues that they faced in
order to insure consistent delivery?

The service performance gap is the discrepancy between the development of customer-driven
service standards and actual service performance by company employees. This gap means that
quality specifications are not met by performance in the service production and delivery
process. The reasons for the emergence of Gap 3 are the following:
 Oversights in the human resources management:
o Bad reputation
o Unclear roles and conflict of interests
o Poor system of evaluation and praising
o Lack of team work, inadequate jurisdiction
 Poor cooperation of customers
o Customers do not understand or do not know what their role and responsibility
in the service process are
o Customers make a negative influence among themselves
  Problems with servicing agents:
o Conflicts concerning aims and performances;
o Problems with the control of quality and consistency;
o Conflicts concerning jurisdiction and controls
 Badly harmonized offer and demand
o Failure to soften the demanding extremes;
o Poor choice of customers/segments;
o Excessive reliance upon the price when balancing the demand.

To overcome this gap, they must ensure that:-

 The CSA specifications / standards are not too complicated
 The employees agree with the service standards and therefore fulfill them
 The standards are in line with the existing corporate culture
 Efficient management of Service operations
 Presence of Technology and systems to facilitate performance according to
specifications

Fig. Inverted Services Marketing Triangle

Question 5
What internal and external materials were necessary to communicate the CSAs to salespeople
and customers? What else would be needed?

Communication is the most visible or intrusive of marketing activities but its value is limited
unless it is used intelligently in conjunction with other marketing efforts. In a service setting,
marketing communications tools are especially important because they help create powerful
images and a sense of credibility, confidence and reassurance. Prospective customers may need
information and advice about what service options are available to them, where and when
these services are available, how much they cost and what specific features, functions and
service benefits they offer. Because services are performances rather than objects, their
benefits can be difficult to communicate to customers, especially when the service in question
does not involve any tangible actions to customers or their possessions. The implications of
such difficulties and advertising strategies are discussed in the figure below.

Fig. Advertising Strategies for Overcoming Intangibility

Effective service marketers are good educators who can use a variety of communication media
in cost efficient ways, not only to promote their firm’s value propositions but also to teach
prospects and customers what they need to know about selecting and using these services. In
addition to having strong leadership that focuses on the customers, it takes a strong
communication effort to shape the culture and get the message to the salespersons. Multiple
tools ranging from Internal Marketing and training to core principles must be used to build the
service culture.

Address
Service
Intangibility

Manage
Internal Manage
Marketing Service
Communica Goal: Service Promises
tion Delivery
equal to or
greater than
promises

Manage
Manage
Customer
Customer
Expectation
Education
s

Fig. 5 major approaches to overcome Service Communication Channels

Caterpillar can adopt the following techniques to communicate the CSAs to the customers and
salespeople:-
 Build awareness of and interest in the service offering (through Circular, Brochures,
Websites etc.)
 Build preference by communicating the strengths and benefits of CSAs
 Compare the service with competitors’ offerings
  Encourage trial by offering promotional incentives
 Reduce uncertainty and perceived risk by providing useful information and advice
 Provide reassurance and familiarize customers in advance of use
 Recognize and reward valued employees (and customers)

Additionally, Caterpillar needs to focus on the following:-

 Pricing structure of these Customer Service Agreements (CSAs)

 Detailed documentation of Terms and Conditions
 Service Standardization
 Incentives to dealerships and contract customers
 Obtain Customer Feedback / Testimonials
 Document and cite positive performance statistics

Fig. Marketing Communication Mix for services

Question 6
Draw a Blueprint for the case.

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