1. Overview of equipment rental service industry and major players
The equipment rental service industry is a capital-intensive and cyclically strong traditional industry. The global scale in 2019 is expected to exceed US $ 90 billion. The leasing market is mainly concentrated in developed countries, with North America accounting for more than half of the global market. According to the 2018 report of the American Leasing Association, the lease penetration rate in 2017 has exceeded 50%, which means that more than half of the new machine sales are digested by the leasing industry.
In addition to the stimulus brought by the economic recovery, including key cost drivers such as capital costs, energy prices, employment rates, housing and non-residential construction expenditures, changes in people's consumption concepts have also brought new opportunities for industry development. After the financial crisis in 2008, the role of equipment itself in business operations has gradually changed, and end customers have begun to realize that leasing equipment, compared with owning equipment, may be the most economical business operation model for a long time in the future.
Independent equipment leasing agencies have always been the main players in the equipment leasing service market and the largest end customer group for equipment manufacturers. As can be seen from the distribution chart of global leasing service organizations in Figure 1, most of the participants are independent brands, and North America has gathered the most important players in the global market. In Bohouhui's "Asset Services" series of articles, it has been introduced that United Rentals has become the world's largest independent equipment rental service company through a series of mergers and acquisitions, accounting for about 15% of the North American market share. With the evolution of the rental service business model, new players have begun to enter the market, the most important of which are manufacturers' equipment rental and third-party equipment rental agents. They hope to tap new value growth from the mature rental service market.
Equipment manufacturers have entered the leasing service market one after another. They hope to use the original distribution system and customer base to meet the needs of customers for short-term leasing, while converting more equipment sales opportunities from the leasing customer base. Caterpillar (hereinafter referred to as "Caterpillar") was one of the earliest manufacturers to lay out the rental service business. It announced in 1997 that it would enter the rental service market with the unified market logo of "Caterpillar Rental Store" and is currently the only owner Vendor leasing service system for independent brands and independent stores.
We call it the enabling “system” because these stores are owned by Carter ’s dealers (except one directly operated by Carter). Carter provides dealers with a complete training, operation, evaluation and certification system. Of the leasing business. Carter is like a SaaS platform for a huge rental business, empowering its dealer network. As of 2017, Caterpillar's rental service business generated revenue of approximately US $ 3 billion. It has 1,429 stores worldwide, and Caterpillar rental stores operated by 23 dealers in North America were selected as North America's Top 100 rental service providers.
2History of Caterpillar's rental service business
1. Opportunity to enter the rental service market
Carter decided to enter the equipment rental service market systematically in 1997. Carter ’s management announced in 1997 that the company ’s goal is to increase its sales revenue from US $ 19.7 billion to US $ 30 billion over the next decade. To achieve this goal, Carter needs to focus more on the industry and expand the range of customers it serves. The equipment leasing business has brought major opportunities for Caterpillar. At that time, Caterpillar Chairman and CEO Diamond said: "In North America alone, equipment leasing, an industry with a production value of only $ 5 billion 10 years ago, has already This will increase to US $ 20 billion, and this number will double again in the next decade. "
At the same time, Carter realized that the rental service business was also very suitable for the newly introduced minicomputer series products at that time. According to market research, for this type of equipment, customers prefer to lease rather than purchase. Carter believes that the leasing service business can help Carter and its dealers connect with new customer groups, such as small contractors. By establishing contacts with customers early in their development, Carter will have the opportunity to deepen customer loyalty and preference for the brand, and ultimately increase the market retention of Carter equipment. Taking the improvement of ownership as the core goal and business foundation, through a diversified combination of after-market business models, it can ensure that Carter and its dealer system maintain long-term sustainable profitability.
2. Strategy 1.0: Caterpillar Rental Store | Unified brand strategy empowers rental business start
Prior to this, some dealers of Caterpillar spontaneously launched the equipment rental service business, but at that time some competitors had appeared in the market. They quickly established a service network and unified brand that can cover the whole country through large-scale regional mergers and acquisitions. Mentioned United Rentals. Therefore, Carter believes that the leasing business has a unified brand is an important step, and laid the tone for the future Carter leasing service strategy. At the beginning of the brand design, Carter decided to give the new rental service a brand new "identity", that is, global and long-term; a new "culture", to establish the first requirement to meet customer needs, and adjust the existing The operating model of the retail business. This means that the brand strategy must receive the highest level of support and broad stakeholder participation.
Challenges in brand promotion
After many discussions and investigations, Cat Rental Store ? ? with yellow and black Carter standard colors came into being (see Figure 2). It meets several considerations in brand design: uniform, concise, friendly, unique and vivid. The new brand positioning is to enable small individual contractors to immediately enjoy the best resources. In order to create an identity that can be recognized and recognized globally, dealers first need to agree to change the identity of their existing rental business and unify them under the name of Caterpillar Rental Store. Behind the logo change represents Caterpillar's focus from manufacturing to retail and service.
The promotion of this new business concept, even within a relatively close Carter distribution system, still faces many challenges and doubts. At the same time, differences in languages and cultures in different regions have brought more difficulties and uncertainties to the promotion of the entire rental service business.
When Carter first launched the leasing service brand strategy at the annual meeting, it basically ended in failure. Distributors cannot see the benefits of investing in the leasing business or transferring the existing leasing business to a unified Caterpillar rental store. After Carter's reflection, he thought it was not a question of concept and business model, but a question of presentation.
The secret of value presentation
At the 1997 annual meeting, Caterpillar made a 1: 1 model of the Caterpillar rental shop for dealers to experience the store service in person in accordance with the rental business instruction manual prepared by it. When dealers saw the details of stationery, advertisements and decoration, as well as the operation details of employees wearing uniforms, answering the phone, entertaining customers, etc., they realized the cultural concept advocated by Caterpillar Rental Store, which is closer to customer needs. So, I began to imagine that my customers would also receive services in such a well-designed scenario, and the dealer's acceptance of joining Carter Rental Services immediately increased from 5% to 30%.
The opening of the pilot store in Colorado, USA, further promoted the acceptance of Carter Leasing Services among dealers (see Figure 3). Wagner dealers abandoned the original leasing business brand and used the Caterpillar leasing store logo. In the months after the opening, the dealers who came to visit were endless, and everyone saw the feasibility and profitability of the one-stop service business model.
Since then, Carter has also started the practice of pilot stores in Latin America, Europe and other places. Once the pilot stores are established in a certain area, the Carter brand team will set up a local supplier network for logos, licensed products, equipment labeling, etc. The expansion of dealer leasing stores provides market and brand support.
Today, Carter has a complete set of brand standards and service systems, which are released to dealers worldwide through the Carter intranet service port. The service port contains the most complete specifications, as well as operating rules combined with regional language and cultural customization, downloadable electronic libraries, tools and formatting templates, and recommends local certified service providers. And through visual graphics and data to show the status of the dealer's facade in operation, let the dealer see how other stores operate, and share the success stories of other partners, forming an atmosphere of mutual encouragement and healthy competition.
Brand empowerment is system engineering
Throughout the development process of Carter's leasing service brand building, we see that good brand services can really empower new business startups. The Carter Brand Department's empowerment of new business is not only to design an attractive trademark, but also to work together internally and externally to develop a comprehensive set of standards, guidelines, tools and service networks. In an increasingly global market, brand management will rely to a greater extent on well-designed systems to enable brands to develop, grow and be recognized by the market. This may be one of the reasons why only one Carter manufacturer in the world has an independent rental service brand for 20 years.
3. Strategy 2.0: Leasing and second-hand integrated platform | unified management to achieve a win-win situation
After obtaining the distribution system's recognition of the rental service value and unified Caterpillar rental store brand, Carter believes that in the face of the rapid expansion of competitors, the best way is to use Caterpillar's existing strong dealer network to go from zero to zero In the first stage, the existing network is directly used as the basis for stacking leasing services.
In 20 years, Carter has more than 1,429 stores worldwide, and the overall rental income has reached 3 billion US dollars. In North America alone, it has more than 500 stores, ranking third in market size, with a market share of approximately 5%. Compared with the average compound growth rate of 11.5% for independent rental service providers in the past 15 years, the global compound annual growth rate of Carter Leasing Services is only 7%, and there is no small gap.
However, for a huge distribution system with more than 2,000 stores around the world, it is not always easier to manage a new business than to develop from zero to one. "Synergy" is the biggest challenge facing Carter Leasing Services, such as:
How to manage the collaboration between the existing business and the new business within the dealer. For example, when the vacancy rate of the rental fleet is too high for a period of time, should the sales investment of the rental business be increased or should the assets be immediately put into retail inventory for disposal;
How to deal with the coordination of cross-regional services between different dealers. For example, when faced with the need for cross-regional operations for large rental customers, how to break the original distributor regional restrictions and provide one-stop service to large customers;
How to balance the coordination between Carter's internal sales system and the new rental service sector. For example, the manufacturer's pricing and promotion policies for dealers' retail machine prices and rental machine prices are different.
This series of problems has seriously affected the profitability and sustainable operating capabilities of dealer leasing services. Without profit, it is difficult to expect dealers to continue investing in leasing services with a long-term perspective. Especially when the year is not good, dealers often choose not to increase investment or even reduce the scale of the lease. Long-term and stable rental services are critical for Caterpillar rental stores to gain customer trust in the market.
Therefore, through strategic planning in 2017, Carter reorganized the vision of the leasing service business and updated the business portfolio and performance measurement standards. The most obvious change is the merger of the leasing service and the second mobile phone service into a unified from the organizational structure. Under the management framework.
New business vision
The updated leasing service business vision is mainly reflected in satisfying the needs of customers, realizing the growth of Carter and dealers in the leasing service market share, and expanding the service content according to the demand to form a sustainable competitive advantage.
Kurt Norris, the new head of Caterpillar Global Leasing and Used Equipment Services in 2017, said: "We see more and more customers choose to lease rather than buy. They want flexible and convenient solutions, so we build customers The required rental service capacity is becoming an independent demand, not just a supplement to retail. "
It can be seen that the strategic planning of 2017 has further improved the strategic positioning of the rental service business, and has deeper thoughts on why Carter must enter the rental market and how to win market share (see Figure 4).
The strategic arrangement of combining the leasing service and the second mobile phone service is no longer a supplement to the traditional sales model, it needs to have its own independent value. By extending the contact time with customers forward and backward, it achieves the purpose of more accurately understanding customer needs and insight into market changes, and adversely affects product development, production management and marketing strategies, and ultimately realizes the use of equipment for the entire chain of customer business A win-win situation with increased efficiency, profitable dealer leasing business, and increased Carter sales revenue.
The rental service business is crucial, and it will only become more important. The growth of the leasing service business means three growths for Carter: customer growth, revenue growth, and loyalty growth. Tom Pellette, President of Carter Global Construction Machinery
New business portfolio
Carter divided the leasing service business into two different modes: leasing business and leasing service. Two different business models aim at different equipment types, different customer needs and different competitors.
The leasing business is the leasing model that Carter and its dealers first practiced in the market. Before Carter officially entered the leasing service market, dealers had launched auxiliary leasing services in the retail business, such as some arrangements for rent-for-sale. The lease-sale business is a more systematic leasing service based on this .
It mainly meets customer needs for products, product application knowledge, product support, and later purchase options. Generally, long-term lease contracts are signed for large equipment;
This model is usually directly embedded in the sales organization of the dealer, mainly by providing a multiple pricing strategy to maximize the holdings of the Carter equipment market;
Dealers face higher capital costs and financial risks, and equipment assets for lease and sale business are often the largest assets on the dealer's balance sheet;
The main profit of this business comes from equipment sales income, rental income and accessories service income;
Usually the competition comes from other equipment manufacturers.
Rental service
The main target is the independent rental service provider, usually a short-term rental contract for small equipment, oriented to provide cost-effective solutions and services;
The distance of the store and the complete range of products (including equipment of other partners) are the key to the customer ’s choice of service;
This model requires an independent business entity to operate, emphasizing the maximization of asset use efficiency;
Generally speaking, it is desirable to extend the service life of leased fleets to maximize return on investment and reduce risks;
The main sources of profit are rental income, auxiliary income and equipment disposal income.
In addition, the strategic upgrade in 2017 emphasized the adjustment of the product structure of rental equipment. Carter rental stores should properly configure third-party auxiliary equipment to enable customers to experience one-stop services in the store and increase customer stickiness. Carter has set up a cooperation plan for third-party equipment manufacturers for this purpose, providing dealers with more cost-effective and more adaptable third-party equipment procurement options.
New metrics
For two different business models, Carter provides two complete sets of instruction manuals and qualification certifications. The contents include business operation guidelines, corresponding financial reporting systems and budget systems, training and qualification certification systems for personnel in different positions, and even detailed selection guides for rental asset management digital systems. Carter will release updated versions and training at the annual rental annual meeting, so that dealers can more effectively master business operations and continue to improve. The core change after 2017 is that Carter redefines the key success factors / core metrics for the two business models and rewards resource allocation (such as sales discounts) based on the completion of the metrics.
The revised measurement indicators are divided into two categories, a total of 4 indicators:
Indicators from the perspective of customers and dealers to improve demand-led growth and dealer profitability;
The win-win indicator of dealers and Carter enhances shareholder value and market share.
The leasing business pays more attention to the control of 3 time nodes:
Core control indicators for buying points, lease periods and selling points
The indicators of the leasing service business are based on five aspects:
Independent organizational structure
New customers
Challenge the leasing product structure
Increase customer coverage
Optimize services and operations
The purpose of setting measurement indicators is to guide behavior patterns that are more in line with goals and achieve more effective profit patterns.
Two mobile phone services
Second, the mobile phone business is included in the leasing service, which allows Carter and dealers to serve more customers more effectively during the entire life cycle of the equipment, and has the opportunity to further improve Carter's overall performance. From the micro level of dealer leasing business operation, the merger management of the second mobile phone service business provides direct help to dealers to provide more professional guidance and operable quantitative tools for the disposal of rental equipment. Regardless of whether it is a rental sale or a rental service model, equipment disposal income is a very important source of profit, which will directly affect the profitability of dealers. In addition, the second mobile phone sold through the Carter certified second mobile phone project will bring secondary accessories and service income to dealers.
to sum up
Looking back at the development process of Carter's leasing service, we can summarize the logic of entering the leasing service industry into the following four points (see Figure 6):
Industry growth and profitability;
Multi-dimensional business model competition;
Carter and its distribution system already have a good foundation;
The application of equipment in rental scenarios will effectively drive product development.
The third point fully embodies Carter's empowerment role in the dealer leasing store system, and is also an important competitive barrier for Carter to occupy a place in the highly competitive rental service market. Through a series of adjustments, Carter is gradually catching up with the pace of independent players. Since 2017, the rental income of Caterpillar rental services has increased by more than 20% per year. Last year, Cat dealers opened more than 40 new Caterpillar rental stores worldwide.
Stones from other mountains can attack jade. Bohou Capital believes that by understanding the historical process of Carter's leasing service, the points worth learning and thinking are as follows:
Implications 1. Vendors face decentralization. Under the general trend of ownership to use rights, leasing service companies can more easily understand customer needs and obtain industry trends because they can serve customers more closely. At the same time, long-term business transactions may make customers rely more on leasing service companies to choose equipment. Leasing service companies will have stronger bargaining power and dilute the brand value of manufacturers. In addition, dealers will also face the problem of being disintermediated. Therefore, the leasing business layout is both siege and defense, and it needs to be deployed as a strategic business by manufacturers and dealers.
Revelation 2: The empowerment model requires systematic implementation. Carter's empowerment is a powerful system built from a series of support such as product development, brand management, operation, evaluation and certification, as well as second-hand and third-party alliances. This puts high demands on the empowerer's own strength and the company's foundation. At the same time, the comprehensive strength of the Carter distribution system has an absolute advantage in the entire field of equipment manufacturing. The strong combination of the two still encounters many challenges and uncertainties in the beginning and subsequent development. For other manufacturers, the Caterpillar empowerment model cannot copy the hard suit, and can be piloted from a certain region or category of products based on its own endowment and regional characteristics, and adapting to local conditions. You can also refer to the models of other international manufacturers, such as Volvo's franchise model, Kubota's joint model, or dealer-only financial support model (John Deere / Komatsu).
Revelation 3: Diversified business portfolio is the core. From Carter's experience, we can see that leasing, sales, spare parts services and second-hand services are like four corners of a table, supporting Carter's healthy and sustainable development. Equipment manufacturers are often greatly affected by the economic cycle. The four-corner linkage business portfolio can help manufacturers to more closely connect with customers, and actively respond to low-level management with customers to prevent cycle conduction delays and smooth cycle effects.
