Vol. 1 No. 3

In BMG’s opinion, we will see the U.S. and other global construction equipment markets begin to pick up when equipment rental begins to climb. Those manufacturers that recognize how important rental will be in the early stages of recovery and take pre-growth steps will have a greater chance of influencing their customers and their competitors’ customers.

What we can expect is that as each construction sector and market begins to regain new life, most contractors will face the following:

1. They will be hesitant to jump into new equipment purchases since they will need to gauge how real the return of their sector is, so rental will be their first option.
2. If they are ready to purchase new equipment, more than likely many will find one or more of the following situations:
   • New equipment financing may offer cost-prohibitive terms compared to the past.
   • Others will struggle to qualify given their recent financial past.
   • Manufacturing financing designed to move equipment will have its limits.
   • Rising costs will advocate rental.

Three Critical Actions
At BMG, we recommend three critical actions be taken by equipment manufacturers to help move new equipment quickly as each sector rebounds. 

1. Manufacturers and/or dealers must offer cut-rate financing programs to their best, financially stable customers. The competition will be stiff and probably very aggressive. Sell even more on an ROI basis.
2. Manufacturers and/or dealers will achieve greater early success if they offer strongly favorable rental and rent-to-own programs for those contractors that are unwilling or unable to jump into new equipment purchases.
3. Manufacturers and/or dealers must offer multiple equipment packages that can be financed or rented for one monthly cost.

Pre-Sell Programs Now
Those companies that develop these finance and rental programs now and begin promoting them yet this year will be the first to benefit the most as each construction sector improves. 

This pre-sell program approach requires some non-traditional thinking since most manufacturer motivator programs today have a short-term attitude—many just 30 days or through the quarter. Most companies employing these short-term “motivators” typically wait until the last deadline passes to announce the next short-term incentive program, essentially killing any ongoing momentum. And, contractors and dealers have become so conditioned to these programs that they have generally lost much of their value.

Unlike these short-lived motivators driven to fulfill immediate sales quotas, we recommend announcing and promoting these programs for six months or more before a sector is expected to improve so that when different construction sectors pick up, contractors are already aware of and familiar with a company’s financing and rental programs. These programs can be well defined upfront and the actual financing terms can be adjusted each month or updated at the time a contractor is ready. 

The goal of such programs, especially for manufacturers that might not be a contractor’s primary source for equipment, is to be there and ready when that opportunity finally arrives. In fact, the program can be packaged and promoted to contractors through the manufacturer or the dealer whereby they are signed up, qualified and ready to go at a moment’s notice. While not legally binding, these agreements can provide a key to forecasting and help keep the dealer or contractor focused on the brand.

There are several other advantages to working an advanced program like this:

• Express your interest in the contractor’s business and either build a new relationship or enhance an old relationship before entering into a competitive situation.
• Sell the contractor on your equipment, dealership and manufacturer when he has more time to listen.
• Identify early what equipment needs he will have immediately and the type of program he will desire and qualify for.
• Lock the contractor into your equipment before that need hits with some type of early sign-up bonus.
• Provide idle salespeople with the motivation to see customers and prospects, and share something of value while promoting a manufacturer’s brand and new or existing equipment.
• Financing incentives could start strong in the early months and then begin to reduce each month as the sector begins to pick up, encouraging some contractors to move quicker.

As different construction industry sectors begin to improve, many contractors that need equipment will look to rental programs as their first option until they feel confident the market has returned. With pre-promoted and pre-sold programs, manufacturers and dealers can lock in those existing customers and often tap new prospects anxious to be ready when the opportunities to rent or purchase new equipment arrive.

When the recovery comes, be out in front instead of in the pack chasing existing and new contractors. It’s a win for the manufacturer, dealer and contractor.

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Global Shift Keeping Used Construction Equipment Pricing Strong
Troy Scroggins, Marketing/Research Director           
tscroggins@growwithbmg.com

Over the last few years, the used construction equipment market has become far more global as more North American used construction equipment heads overseas. In fact, today India is the number one country for U.S. used equipment followed by several European and then Latin American countries. A few years ago, the biggest market had typically been Mexico for obvious reasons.

This somewhat surprising shift has begun to significantly change the used equipment business and the pricing patterns of old. Helping to drive this shift, of course, has been the phenomenal growth of Ritchie Brothers internationally and the ever-growing success of Web-based used equipment sales and auction services, including Iron Planet and the used equipment sections on many larger equipment dealer Web sites.

The growing demand has helped drive regional auction companies to become national auction companies, national auction companies to become international auction companies, and gave birth to internet-only used equipment companies.

The growth and acceptance of buying used construction equipment over the Web was the biggest change that allowed the used equipment industry to become a global marketplace. Contractors liked the concept of looking online to see what equipment was available and what they might get for their own used construction equipment.

Foreign Bidder Volume Rising Fast
In 2002, Ritchie Brothers added online bidding at its live auctions. Since then, it has sold more than $2 billion worth of equipment this way. In 2007, the company sold $600 million through online bidding. Iron Planet has also had success selling used construction equipment through the internet. It sold $169 million in the first half of 2008, a 70 percent increase over the same time last year.

Online auctions have helped increase the number of people from different U.S. states, Canadian provinces and countries that participate in auctions. It is not uncommon today to have at least one registered bidder from over half of the states and provinces. The number of registered international bidders this year has varied from 25 to 45 different countries per auction.

Since the beginning of the year, auction companies have reported that around 25 percent of their sales are going to international online bidders. This year, Ritchie Brothers’ online registration is averaging about 30 percent of the total registered bidders. However, an auction in the Netherlands had an online attendance of almost 84 percent. Equipment from this auction was mainly shipped to Eastern Europe, Romania and Poland. This shows that purchasing used construction equipment globally has become accepted across many different regions of the world, and its popularity is expected to grow.

According to many of the large auction companies, today it is common for more than 40 percent of used equipment to be delivered outside the state in which the auction is held. One of the larger auctions held this year had 62 percent of its equipment delivered outside of the local area, including 34 percent that was delivered outside the U.S. The most common foreign destinations for this equipment were India, Nigeria and Europe.

Pricing Now Driven Globally
Given today’s global market, typical used equipment pricing dynamics and fundamentals have expanded. Despite considerable new and used equipment dumping during the past couple of years due to the extreme construction slowdown, high fuel prices, and California’s new emission laws forcing contractors to accelerate their fleet turnover, prices have not taken their typical tumble as expected.

Propping up these prices in general is the continuing global demand for used construction equipment. There are certain regions that have enough demand to consume the extra equipment currently in North America. The largest one is India, followed by some countries in Western and Eastern Europe and Nigeria.

As a result, there is now a global price for various types of used construction equipment, and these prices are typically higher than expected. This global demand has, however, created a greater variance between different types of equipment. Currently, earthmoving equipment, aerial platforms and cranes are experiencing level or better than average prices, while other equipment, such as rough terrain forklifts, is encountering lower than normal prices.

Conducting solid research before pricing used equipment is a wise move these days, especially if you can benefit from selling that equipment on the national, North American or global market versus in your backyard.  

Used Global Market Benefits Manufacturers Well
The growth of a global used construction equipment marketplace is having a direct affect on manufacturers in other ways as well. Even though the majority of the used construction equipment comes from contractor and rental companies’ fleets, manufacturers can still sell trade-ins, returns and demonstration equipment through dealers, direct to contractors or at auctions, online services and through their own Web sites.

In addition to altering the price a manufacturer may receive, foreign used equipment sales will probably alter the support many manufacturers will need to provide as the volume climbs. Now, models or features that are intended for the U.S. market may end up overseas. Although most manufacturers sell and service their products throughout the world, better communication may be needed to keep all business units current on the different features, parts and service requirements the company offers.

The growth of the global used construction equipment market can also be very beneficial to manufacturers for the following reasons:

• It can help your equipment maintain good resale value, which is a key purchasing point for many new equipment buyers.
• It expands brand awareness and perceptions overseas.
• Manufacturers can receive a higher value for their trade-ins, customer returns and demonstration units.
• Manufacturers can work with other company divisions around the world to help sell their trade-ins, customer returns and demonstration units.
• With a stronger used equipment market, dealers will buy and sell more new equipment.

Take Advantage Now
Although global demand is keeping prices on most used construction equipment level or above average, this doesn’t mean the market won’t have a slowdown or that prices won’t start to fall. The global economy has been resilient while the U.S. economy has weakened, but the European Union recently reported that its economy has contracted for the first time since the early 1990s, and Japan and the U.K. are on the verge of recessions. China has even shown signs that its economy is slowing down.

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When was the last time your company dusted off your corporate or product brand and developed new strategies and tactics to support your current company goals? For most companies it’s been far too long, especially given the rapidly changing dynamics within the North American and global construction markets.

Time has probably been spent creating strategic alignment internally through new manufacturing processes, purchasing alliances, sales strategies and other internal actions. But does your company’s branding still accurately reflect the unique personality of your company and products today, or is it time to redefine what your brand represents? We’ve seen much change in the past few years within various construction sectors, especially with the high volume of mergers and acquisitions on the manufacturer, distribution and contractor levels.

Key Questions

1. How relevant is your branding today to that of your customers?
2. What changes within your markets have occurred in the last 3-5 years?
3. Through the eyes of the customer, how does your company relate to their needs and against your competition?
4. Through the eyes of the customer, what image and perceptions do they have of your company?
5. How has your company evolved in the past 3-5 years with regards to customer and market trends?
6. What do your sales force and sales channels say to customers about your company today?
7. How consistent are the answers and what percentage of your customers agree with them?

The answers often surprise most management, especially since they are the core of your perceived reality within the marketplace today.

Define Brand
A "brand" often includes a whole set of experiences that influence how the world sees and responds to a product, service or an organization. In essence it reflects the personality of a company and its products as described below. 

• The brand definition
• The awareness experience
• The buying experience
• The user and service experience

It’s important to realize that rebranding is not a new logo, stationary or corporate colors—although they can play a part in a rebranding effort. Rebranding is the perception of the experience the end user identifies with, e.g. innovation, performance, quality, integrity, value, support, confidence, attitude, commitment, communication, responsiveness and more. 

Critical Rebranding Steps
Before redefining your branding, consider some of these critical steps:

1. Realize the history behind the brand and determine what elements need to remain in your new strategy.
2. Leverage existing brand equity and goodwill. However, never assume everyone is already familiar with what your company and brand stand for.
3. Become intimate with your sales channels and customers. Listen and learn what they value and need and tailor your message around it.
4. Be sure to research competitive branding efforts to be able to demonstrate a clear difference.
5. Analyze and package your research results so they clearly define a rebranding direction.
6. Define the cornerstones of your brand and company—these are advantages that the market should understand. Keep them relevant. 
7. Never think that you are too small or too large to rebrand.
8. Keep the rebranding group small, otherwise there will be serious delays and a defused focus with failure to achieve the ROI necessary on this project.
9. If feasible, focus groups or key customer feedback efforts can help quickly validate your potential new rebranding strategy.
10. If the rebranding is presented to a committee, be sure to present a new branding strategy with a full analysis of the critical research conducted and its findings which led you to the new branding strategy. Avoid the all too common mistake of failing to explain why the value of rebranding is so critical and how it provides a competitive edge within your construction markets. 
11. Develop and execute a well-conceived launch plan and keep driving it internally and externally, since many current efforts throughout the company should be and will be affected by a strong rebranding effort.

Well organized, a rebranding effort should not be an overwhelming task. The numerous benefits, if done well, far outweigh the time and energy required and will move your company closer to your sales channels and customers today, resulting in solid growth. Remember who your target audience is and what is most important to them. 

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