During its new product introduction to North American farm equipment dealers, Claas introduced not just its latest product line up but a new branding campaign as well. The “Be Brighter” campaign goes beyond the new color scheme of Claas’ latest combine introduction. Eric Raby, Class of America president and general manager, told dealers the goal is to double the amount of business they do together over the next 5 years. During the meeting, Farm Equipment had the opportunity to sit down for a one-on-one interview with Raby to talk about the new branding and changes to the combine, the company’s expectations for its dealer network and his plans for growing the North American market for Claas.
Farm Equipment: During the meeting you introduced the new combine, along with the color scheme change from yellow to green. Why now for the color change? I know it’s been talked about for a while.
Eric Raby: Yes, it has. It came from our continued initiative to move the brand forward in North America. We’re continually talking to our dealers and our customers about that direction. There’s many components there: our target market, our branding, our advertising, our dealerships. Something that continued to pop up, though, was that our combine — one of our flagship machines — was a different color. We all knew why it was that color, with all the history and heritage behind it. But the combine has gone through such a dynamic change since then, we saw this as an opportunity to take that next and final step and change the color. It gives us a chance to showcase the combine as being more than just an update, but a new machine.
At the same time, it allows us to improve in our branding and cohesiveness. It’s kind of hard to have that conversation about our green machines if we still have a yellow combine sitting there. If you look at us globally, North America was an anomaly within the Claas group. This allows us to come together.
FE: How have dealers responded to the branding and color change?
Raby: It’s been very positive. Some dealers say, “Oh, that’s interesting,” and some say, “Finally!” I don’t think it was a surprise to anyone. It wasn’t a question of if, it was when.
FE: So in the 2020 model year, everything will be green?
Raby: We’ll continue with model year ’19, which ends at the end of September for us. That’ll be the end of the yellow combines. For model year 2020, we’ll start up green combine production. We recently built just under 50 pre-series machines, and they went down the same assembly line. We’re ready.
FE: With the engine switch on the new combine, will technicians need to be recertified?
Raby: Not necessarily. This actually helps us because it really just removes one engine variant that we don’t have anymore, which is Caterpillar. We’ll continue to service them, and we’ll continue to provide parts for them; so, customers need not worry that we’ll support what we build.
The Mercedes engine on the bottom and the top models of the combine range is the same as it was before; we’ve just replaced the Caterpillar models in the middle with the same Man engine that we use in the forage harvester. Same manufacturer, same parts, just a little different configuration.
FE: Are there certain markets where you’re looking to introduce the smaller tractor over the others?
Raby: Yes, but over time. We’re currently starting at the higher end of the range now, from 200 horsepower on up. However, if you look at Claas globally, we have a very broad range of tractors, so we’ll continue to look down the road as our distribution and market penetration develop.
FE: You’ve talked about growing the market here in North America. What’s being done to strengthen the North American market?
Raby: Number one is really taking a look at the products that we’re successful with now and making those even more successful in terms of not adapting the product to the market, but developing the product for the market. Testing for the combine is much more prevalent in North America now than it has been in the past. So though this represents a global combine, there’s a lot of features on it that were born out of the requirements we have in North America: large grain tank capacity, wider headers, quick crop change over, those type of things.
Another thing is that if you look at the United States, it is one of the largest — if not the largest — forage harvester market in the world. So, with Claas being the global market leader on forage harvesters, we see this as a very important market. But in terms of tractors, which is a new product offer for us, the market is huge. Europe is obviously a large market, as is Russia, Ukraine and other parts of Eastern Europe, but North America represented a big opportunity coupled with an already significant presence, which led us to the obvious, “OK, we’ve got a distribution channel there, so let’s move forward, but in such a way that holds true to our brand’s position of premium and worth it.”
So, now that we’ve got excellence in parts and service, and training, we have all that we need to make a start. It makes sense for us, now that we’ve got those basic requirements covered in terms of support, to start expanding our portfolio. This is not the end of the road — there will be more products over the course of time right here in North America.
“We’re looking for people who value the relationship they build with the customer: not transactional relationships, but partnerships. We are a premium brand, which means we have premium features; in most cases, a premium price also comes along with that. We need to ensure that the dealer understands what that means and is able to justify that to the customer in terms of quantifiable value, not price. That’s why we’re looking at being the business-minded manufacturer for the business-minded customer…”
— Eric Raby, President & General Manager, Claas of America
FE: What’s your approach to the North American expansion?
Raby: First off, what we do is look at areas that present a higher opportunity from an industry perspective; areas that are uncovered. With forage harvesters, there are very few — we have most of those areas covered. Combines are the same way.
Tractors and hay tools are a different story. There’s some opportunity there. But, again, if we’re going to adhere to our philosophy, we have to think, “How do we combine those products together and look at a holistic business plan with either an existing partner wanting to expand, or a potential new partner?”
So, what we do with distribution development is use industry data to put together a pro forma business case looking at the projected revenue, the margin, absorption, parts per unit, revenue per employee, all those KPI’s that drive a successful business. Also, because we have set up our own operations in some areas, we understand what the requirements are not only from a start-up standpoint, but at one year, 3 years, 5 years, even 10 years, for physical or virtual expansion. We ask, “Are we able to serve all our markets not just adequately, but exceptionally, with the existing facilities/capabilities we have?”
As part of our distribution development trajectory planning, we use a mapping program to look at customer tendencies differently. We no longer put a dot on the map and say, “OK, here’s the dealer’s building, let’s draw a 50-mile circle around that.” The way we approach it is to look specifically at drive times, and we do that by a customer segmentation. For instance, if we have a baler and hay tool customer, and if they want their product now, they set themselves a 30-minute maximum drive time to get one — that’s a maximum drive time, not distance, because speed limits change and boundaries change. With a tractor, maybe that gets up to 45 minutes; with a self-propelled forage harvester or combine it could be an hour. That’s not just the time it takes for the customer to drive to the facility, it’s for the technician to get from the facility to the customer if it’s remote service.
So, we look at the map from a time standpoint — it won’t be a circle we draw, it’ll be more of a spider web. Then we overlay geopolitical maps: in Canada it’s the census and sub-census levels, and in the U.S. it’s counties. And if it covers 50% or more of those geopolitical areas, we will assign it to the Dealer. We use data from the Assn. of Equipment Manufacturers (AEM) and then say, “This is your market potential. Here’s the sales. Here’s the segments that you participate in. What do we need to do to help make sure that our business case comes to life?”
Another thing, too, is we have a program called Profit Builder that we have implemented with our dealers. It allows them to make investments to improve certain areas and we offset some of those costs through the program. It takes into account not only quantitative goals that we set in conjunction with them, but also qualitative goals, one of which is branding. We realize that, in a lot of cases, we’re not going to be the only brand in the dealership. But based upon what portion of their business is attributed to Claas, we work with them to have adequate branding for that scenario.
FE: So you want the branding at the dealership to represent how much business they’re doing?
Raby: Roughly, yes. If they want to do more, of course, that’s great.
FE: But if 50% of your business is Claas business, it should be clear you’re walking into a Claas dealership.
Raby: Right, but keep in mind that we have a lot of history to navigate in terms of branding and in terms of what our partners’ current business makeup looks like. Crawl, walk run is our mantra on branding within Dealerships and we will work with them to achieve our mutual goals on that subject. We’re also starting to extend our branding beyond brick-and-mortar facilities. If we take a look at the surveys we’ve done with customers, the brick-and-mortar solution is not a question in their mind, but they are looking for alternative ways to shop — like, “Amazon delivers my dog’s food, can I get my parts that way?” We directly ship products now, too, and I think that’ll continue to rise. Obviously that transaction is through a dealer, but we help facilitate the logistics of getting that part to the customer.
FE: What’s another example of something you could do to expand virtually?
Raby: One would be the “On-Your-Farm” parts. We started this program many years ago and do parts replenishment through our dealers directly to customers. We also have ‘drop points’ that we could also expand. We’ll have facilities that aren’t dealerships, but for us to directly ship parts to, so if we have a customer population in a remote area, we can drop parts there on a daily basis. We look at all those logistics and say, “What can we do on behalf of the dealers to directly ship parts from one of our facilities? Is that more economical or timely?” But I don’t think it will ever totally displace a person saying, “I need this part right now,” and driving 30, 45 minutes to a dealership to get that part.
Another example is digitization, looking at the telematics we have on the machine. We’re starting to get much better at predictive analysis. So, say, if a bearing is starting to get out-of-sync, the machine will pick that up immediately. But the thing is, these machines are creating so much data for us, we need to step back and say, “Who’s our air traffic controller?” What can we do to not only predict a failure but to correct it before it becomes an actual debilitating failure?” When we ask those questions, the whole system has the potential to work more smoothly; we can’t do this 100% of the time, but we try to as much as we can.
FE: What makes a good Claas dealer? Is there certain criteria you look for in potential new dealers?
Raby: First and foremost, of course, we’re looking for people who value the relationship they build with the customer: not transactional relationships, but partnerships. We are a premium brand, which means we have premium features; in most cases, a premium price comes along with that. We need to make sure that the dealer understands what that means, and is able to quantify that to the customer in terms of value, not price. That’s why we’re looking at being the business-minded manufacturer for the business-minded customer — we look at the dollars and cents, acres and bushels, hours and gallons and criteria like that to create much more of an objective discussion. If a dealer can do that, that’s step one.
Step two is the ability to provide an intense amount of training to their staff. If you talk to most of our dealers, they’ll say two things: we have really, really good training, and we have a lot of it. It’s important — these machines keep getting bigger and more complex, and the customers’ threshold for downtime diminishes. We’ve got to make sure that our people on the ground can take care of issues very quickly. It’s an investment in terms of time and resources, but it makes all the difference.
FE: Where do you see that dealers need to improve the most in their business operations?
Raby: The biggest thing is being proactive in going after customers that they haven’t dealt with before. This is where we are as a manufacturer. It’s not just the product. What is the total value proposition? What can we do to help dealers be confident that we’ve got their back?
We survey every customer who received a new machine after their first year of ownership, and then again after their second year. With every product, they measure us as a manufacturer and they measure their dealer. We shared this year’s overall metrics with dealers last week, and it’s amazing how many dealers asked, “Hey, can I get my specific data? I’d really like to dig into that.”
FE: I’ve heard that, going forward, there’ll be an expectation that dealers will carry the full line of Claas equipment. Right now, there are some that just sell hay tools, for example. How are you rolling out that initiative? What are the expectations for it?
Raby: The reason we’re in this situation is because Claas came to North America with different products through different distribution channels at different times. We started out with independent dealers for balers and hay tools, we had Midwestern and West Coast Case IH Dealers or New Holland dealers sell the forage harvesters and obviously the Cat dealers played an important role in the combine. The point is, we created that fragmentation on our own.
Our expectation is that we’re going to see a doubling of the business with our dealers. Now, some of that is going to be organic growth for the products that they already sell; some of it will come from products that don’t sell well for us today but will grow. But we want to make the case to our dealers to take on more of our product. Our number one goal is to make sure we’re supporting them, and if those relationships are strong, we’re able to have these discussions.
I think now we’re getting out of the, “We’re a hay tool dealer here, and a combine dealer here,” mentality. It’s not what we want; we don’t want to be the same as everyone else, but there are some common denominators in our industry that we’re now able to take a look at, that we haven’t dug as deep into before.
FE: For those dealers who are just, say, hay tool dealers — either because personally they don’t want to take on the whole line, or their mainline doesn’t want them to — will they be dropped? Or will you ‘grandfather them in?’
Raby: We want to show them why more business with Claas is better by earning our way in. However, there are situations where we can solve some issues: if they have us and another major line, this is a way for us to effectively separate the businesses into two? We’ve had some circumstances like that, but not that many, yet.
FE: Like this year’s Dealership of the Year, Ag World and Ag Authority? Ag World is AGCO, Ag Authority is a number of lines, specifically Claas.
Raby: Right, that’s a good example of this coming to fruition. It has to make sense for the business, and the dealer has to say, “OK, I’ll continue to run my back office as one but can see that separation of the customer-facing parts of our brands can be differentiated.”
You see that with car dealerships now. Like, I’m an Audi, Land Rover and Acura dealer — three showrooms connected to one big shop in the back. There’s a lot of different ways to do it. Again, we want to demonstrate why we’re better and make sure the dealer understands what their responsibility is vs. what our responsibility is. We want to go into expansion development with everyone’s eyes wide open.
FE: Are you seeing more dealerships, like Vanderloop Equipment’s store in Beaver Dam, Wis., that are mainly Claas-branded?
Raby: Yes, indeed. We’ve also been creating some alternative solutions. For example, in Nebraska and Saskatchewan, there were instances of Cat dealers — dealers where we had customers with our machines — exiting the ag business completely. So, we went in and set up our own retail operations. Now we have 4 locations in Nebraska and more 4 in Saskatchewan, all very Claas-branded.
At the same time, something that is a bit unique for manufacturers based in North America: we’ve gone to some of our stronger Claas partners in other parts of the world like BayWa, MirTech Harvest Center and Royal Reesink. BayWa is the largest Claas dealer in Germany and they just opened their third location in Alberta; MirTech is the largest Claas dealer in Russia and just opened their fourth facility in the Mississippi Delta; and Royal Reesink is our distributor in the Netherlands, Kazakhstan and some other countries that recently purchased the a majority share of two of our Canadian dealers, Tingley’s Harvest Center and Hepson Equipment. Those are all very Claas-branded facilities and we’re glad to have our international CLAAS partners join us here on this continent.
FE: Do you see any differences in how they operate their stores in Europe vs. here?
Raby: It’s a bit of a blend. All of the direct management and personnel are either American or Canadian but with more European leadership at the board level.
I would say that the dealers come to the marketplace obviously knowing a little bit about North America, but we try to engage with them at a deeper level. To help get them off and running, we have an advisory board. We, from North America, and they, from Europe, meet with dealership management teams on a regular basis to compare notes. I’ve definitely noticed that the European owners have brought over a very strong affinity to Claas and a very mature means of marketing the brand.
But it’s been really, really good. I think we’ll continue to look to expand with other dealers around the world. It’s really kind of the opposite of what you see other dealers do — For instance, with Titan or RDO, they’ve gone from here in North America to markets in other parts of the world.
FE: Do you see Claas opening more Claas-owned retail operations?
Raby: The preference is to find a third-party or independent dealers because we value the affinity and direct connection to the community that local presence provides. It really drives business forward.
But there will be many cases where we may look to invest with someone in the area. We’ve done joint ventures before and we’ve continued to look at those as opportunities, but having our own distribution is not a strategy, just a solution in some instances. All of our recently expanded distribution has come through other parties, so we are holding true to our focus.
FE: The new Training Academy — will that be for dealers, employees or both?
Raby: All of the above. We’ll continue with the technical training that we do now, and employee training. We also do a lot of safety training throughout the year. Additionally, we will roll out curriculum on other functions like sales, parts and marketing which includes doing our own brand training, because we believe solid branding starts at home.
With our dealers, we also talk about business practices — it’s not just about sales training, it’s, “What’s the outcome of this succession scenario?” or “How do we accelerate parts and service margins in new areas with low machine population?” We will also teach strategic selling. What customers should you be approaching, and how? How do you turn yourself from being a guy who writes an order to being a trusted advisor who the customer counts on to talk about equipment with?
In line with utilizing the new facility, we also signed an agreement with one of our German suppliers a couple of months ago to start an apprenticeship program within the Academy. It’ll train people for production jobs including welders, assembly technicians and that type of skilled work which is so critical to our business.
We’re going to work with the local community colleges. We also bring a lot of high school students in every year for career days; last year we had hundreds of kids for four or five of those days. We’re really hoping to get them interested, because there’s an idea out there that if you don’t go to college, you’re a failure. But hey, have you gotten an electrician or plumber lately? Those people are making substantial amounts of money. So, we need to make these jobs look even more attractive. We’ve started looking at augmented reality on the production line and other technologies: all of our combines when they go down the production line, they hover on a cushion of air, they don’t have a rail or track. You can actually move the whole combine around with your hand. Neat things like that grab the attention of our next generations.
FE: Right, to show them that manufacturing isn’t so dark and dingy.
FE: What’s your outlook for the business for the rest of this year and beyond?
Raby: It’s a bit of a mixed bag. We’re starting to see a little bump in commodity prices, but maybe it isn’t for the reasons we want — the wet weather and flooding has played a large part in that, especially here in Nebraska. But I think for the remainder of this year and likely in the next, too, we’re going to see a fairly flat industry. There may be some peaks and troughs, but I think the U.S. market is going to continue its steady and measured recovery.
Another subject we’re looking at is that Canada has softened a little bit. Certainly not to the degree that we saw in the U.S. 4 or 5 years ago, but it has softened. The Canadian market is fairly resilient — I expect that, for any loss it took over the last 2 years, it’ll recover most of it in the next 3.
It will also be interesting to see what impacts all of the recent global trade issues end up being and how the North American market adapts to that, not only for agriculture, but in general terms as well.