ACERT 1

Caterpillar Confidential: Yellow

Pricing Plan ACERT Technology Engines

Rod Topel

Industrial Engine Marketing

Caterpillar Confidential: YELLOW

Tier 3 Price Strategy

• Look at Tier 3 as a key opportunity to increase price and differentiate products

• Activities that support this plan– 6 Sigma Methodologies applied to develop plan– Competitive 6-9 liter study completed– On Highway Truck experience 30+% HD

engines (C11 up) and 15% increase MD (C7/C9)– Experience with key IPS accounts 15% increase


Key Issues Considered

• Command 15% premium compared with tier 2 on a price per model, not a $/hp basis

• Consistent strategy across models and rating tiers– Capture premiums for higher power D/E ratings– Provide some relief for lower A/B ratings

• Align the C6.6 vs. the C7• Better price alignment with 10-15 liter models • Recognize the significant positioning of the C18


List Price Philosophy ACERT Products

8000

8500

9000

9500

10000

10500

11000

A Tier B Tier C Tier D Tier E Tier

Assumes 10% Power Change up/down from C


List Price Plan - Real Example

220002250023000

2350024000245002500025500

2600026500

A Tier B Tier C Tier D Tier E Tier

C13

C13 ACERT List Price Plan

-4%

+8%


List Price Philosophy / Examples

• Increase the C rating by 15% vs. Tier 2Tier 2 at $10,000 = $11,500 Tier 3

• D $/hp = C $/hp (price increases straight $/hp) 300 hp C rating $10,000 = 330 hp D rating $11,000• E = D price (same $ price) 330 hp D rating $11,000 = 350 hp E rating $11,000• B price = C price less ½ $/hp difference

300 hp C rating $10,000 = 270 hp B rating $9,500• A = B price (same $ price)

270 hp B rating $9,500 = 250 hp A rating $9,500


Plan Adjustments C7 ACERT

• 3126 lower rating have historically been priced to maintain market position at a loss

• C7 A/B ratings will be at the same dollar price as the C rating

• C6.6 will be priced more favorably than the C7 at 250 hp and below

• Plan is to migrate 250 hp and below to C6.6


Plan Adjustments C9 ACERT

• Two C ratings 325 hp and 350 hp– 325 hp $16,830 ($51.77/hp)– 350 hp $18,120 ($51.77/hp)– Offers alternatives based on power need

• List price adjust based on Cummins data• List price increase at 325 hp is only 9%


$0

$5,000

$10,000

$15,000

$20,000

$25,000

A B C C D

C9 Ratings

Dollars TIER 2

TIER 3

List Price Change – C9 all ratings

14%14%

3%6%



$0

$5,000

$10,000

$15,000

$20,000

$25,000

A B C D E

Tier 2

Tier 3

9%9%

14%

24%24%



$0

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

A B C D E

Tier 2

Tier 3

12%12%

15%24% 24%


Plan Adjustments C11/C13 ACERT

• Price the C11 and C13 C tier rating at the same $/hp as the C15

• List Prices more realistically reflect marketplace

• Results in smaller increase on these models at the C rating tier

• Based on 2003 sales mix, the overall increase is maintained at 15%


C18 ACERT Engine

• C18 fills the void left by the 3408• C18 is an outstanding alternative to 3412E• Very competitive with Cummins QSK19 • C18 C rating = C-16 +15%

– C18 provides 100 hp more– C18 $/hp is lower than C-16

• Deep discounting (typical of C-16) is not acceptable


Impact to Existing Customers

• Transaction price should increase 15% • For current business D/E ratings, the variance will

increase to cover the difference• For accounts using A/B and in the case of C11 and

C13, the C ratings, the variance will decrease• Dealer profit opportunity by taking 15%

– List price increase engine only, not attachments– Some price increases are less than 15% providing profit

opportunity


Impact to Existing Customers

• Tier 2 discount programs can not be automatically transferred to ACERT product– Focus programs can not just be updated with

ACERT pricing arrangements– TOPS need to be reviewed to ensure that

objectives are being met– ACERT value will not be diluted due to increased

volume opportunities


List Price Increase – C rating

$0$5,000

$10,000$15,000$20,000$25,000$30,000$35,000$40,000$45,000

Engine-HP

Pri

ce

TIER 2TIER 3+15%

+9%

+13.9% +15%

+15%

No C rating price increase above 15%

+15%


List Price $/HP Change – C rating

$0

$10

$20

$30

$40

$50

$60

$70

Engine-HP

$/H

P

TIER 2TIER 3

+15%12.1% +8.0% +11.1% +11.8%

-1.4%


Percent Weighted Price Increase

16.30% 16%13.80%

15.90%

19%

0

0.05

0.1

0.15

0.2

0.25

C7 C9 C11 C13 C15

Here one can see the impact of the new ratings strategy based on 2003 sales mix

*based on 2003 volume


ACERT Industrial Price List

• Common format, systems & headings C7 – C32• All “Industrial” no more “Mobile Equipment” • Notable changes

– Instrument panels – optional attachment– Supports – optional attachment– Flywheels – optional attachment– Flywheel housings - mandatory attachments

• Unique Feature Codes to differentiate from Tier 2


ACERT Industrial Price List

• Common format, systems & headings C7 – C32• All “Industrial” no more “Mobile Equipment” • Notable changes

– Instrument panels – optional attachment– Supports – optional attachment– Flywheels – optional attachment– Flywheel housings - mandatory attachments

• Unique Feature Codes to differentiate from Tier 2

Watch the Flywheel and HousingThey are no longer part of the

Engine arrangement and must be Added for comparisons to

Tier 2 engines


Key Values for ACERT Technology

• Meet or exceed tier 2 performance• Proven reliability – 3 million hours of experience• Easiest changeover from Tier 2 reduces engineering cost• Positioned for Tier 4 to minimize future engineering cost• Global supportability because of our electronics

experience• OEMs can leverage the ACERT Technology recognition in

promoting its products

Caterpillar Confidential: Yellow

Sell the 15% Increase and theCompetition will follow

….. We Have the Power To Lead

ACERT 1

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