Spring 2009 edition of Rural Lifestyle Dealer

AGCO Sets Separate Contract for Rural Lifestyle Market Interview with Steve Gorsuch, Marketing Director — Rural Lifestyle, Massey Ferguson, Duluth, Ga.

Mike Lessiter, Editor/Publisher

Massey Ferguson as the Flagship Brand

"AGCO looked at what it needed to improve on over the next 5-10 years. We looked at our customer segments and how they are similar or different. Instead of managing the company by brands, it was decided to manage the company based on how dealers and customers viewed themselves. With different needs, buying patterns and expectations, a separate contract was the best way to meet the needs of the rural lifestyle group. This contract serves homeowners and hobby farmers as well as small and part-time farmers, including hay producers.

"Massey Ferguson (MF) had the strongest brand in this segment as many rural lifestylers remembered their grandparents owning a MF tractor. A single-brand approach to smaller tractors maximizes recognition, provides for a stronger network overall and gives a consistent message to the customers."

A Separate Contract

"Two years ago, we started a separate MF contract, known as Compact Utility Equipment, or CUE, for the rural lifestyle contract. This offers dealers the opportunity to sell compact utility and midrange tractors up to the 5400 series and, if applicable, round balers, small squares, mowers and mower conditioners. Dealers who are primarily focusing on 100-horsepower tractors and under and the traditional hay market can maintain that focus through MF, and we can focus on them."

The Strategy for New Dealers

"The initial push was to look for current dealers who were better suited for a rural lifestyle focus as their customer base changed around them. Then, we determined the additional market opportunities and offered the rural lifestyle contract to other potential dealers.

"Of our current CUE dealers, about one-third were AGCO dealers taking on the MF line, one-third had another tractor line, and the other third were new to tractors or ag equipment, maybe a lawn and garden or ATV/UTV dealer or, in some cases, even an animal feed store. This last group was typically in some peripheral business but adding MF and changing the scope of their operation."

Dealer Profile

"Our typical rural lifestyle dealership consists of the owner, manager, and 1-2 sales people, 1-2 people in a parts operation, and 4-5 for service, setup and delivery. Most carry tractor attachments and implements, and nearly all sell complementary products such as small hand tools, power tools, chainsaws, trimmers and ATV/UTVs. Some, depending on the market, have a commercial mowing or grounds-care line.

"They typically cover a radius of 30 miles. We have a strong offering of core products and a strong incentive for them to do business with us, but we don't have everything. Dealers with limited geographies need to sell all they can in their area. What we want most are profitable dealers. They can get a good profit base when the other products they carry are truly complementary vs. offering competing products."

Growing Profitability

"While we saw growth last year in compact tractor unit sales and market share — as well as the average revenue generated per dealer — we want to see the profitability of our dealers continue to improve. This has been a tough time that's challenged dealers and manufacturers. That said, our compact sales were up in 2008, and a number of dealers increased their retail dollars and sales and improved their profitability.

"Incidentally, those doing the best have one key manufacturer. Their dedication to one brand fosters one focus and one message to customers. The salespeople are focused on the customer and not necessarily selling based on which manufacturer is offering the best retail bonus that month. And it allows for simplicity in operation — one business system, one ordering system and one set of parts."

Collecting a 'Disposal-Dollar' Sale

"Rural lifestyle dealers aren't just competing with other tractor dealers; they're competing for the same dollars spent on four-wheelers and boats — disposable dollars in most cases.

"Where dealers need the most help is understanding how to create that retail environment that draws customers in. It's different from the ag side where many have come from, where the customers know the dealership and they're easily identified by their farms. The expectations for the dealership are different, coming down to cleanliness, lot displays, the retail environment in the store.

"It's vitally important for dealers to know how to attract the first-time tractor buyers, present themselves in a professional manner, and create a retail experience that improves their own name recognition."

Training for Success

"Through the dealer's local sales manager, and in regional and national events this year, we're focusing on getting more involved in training, including product and systems training. Our goal is to enlist the best practices out there and let the dealers share what best fits their own markets.

"Two key lessons are effective advertising — something that works well in one market can have zero effect in another — and facilities. Our new five-star program will help improve all elements of the dealership while providing a good customer experience and strong after-sales service and support.

"By coordinating strong programming and improved product availability, we're helping dealers get out and meet their market needs. Further, we've enhanced their profitability by rewarding dealers that are growing their business year over year on a quarterly basis."

Specialization: Still a Challenge

"If an ag salesman is used to selling a $100,000 piece of equipment, taking the time to deal with a rural lifestyle customer can be difficult. And then there's a rural lifestyler who brings in his equipment for service during combine season and expects it fixed today because the family is coming over for Sunday dinner. You need to take care of the combines and the high-horsepower tractors that have critical needs yet still figure out a way to service your rural lifestyle customers in an acceptable manner.

"A number of areas don't yet have enough volume to support a rural lifestyle specialized dealer. Generally, it's a challenge, but there are farm equipment dealers in the North American market that do a good job across all their segments, from combines for the biggest producer to the tractors and mowers for the smallest rural lifestyler.

"If his market is of a critical size, a dealer can dedicate one or two of salespeople to smaller products. When dealers start to get to critical mass, most allocate their resources to have staff focused on the rural lifestylers, and then do extremely well. Dealers that are starting on the rural lifestyle side don't have a critical mass yet, so it is a challenge."

Saying No to Box Stores

"We want our dealers to create a retail environment and shopping experience that would offer the good things about shopping at a box store, but we want that higher level of product knowledge and service. The biggest concern when associating with a box store is that you never get the amount of product knowledge, nor specialization and don't have the sales people trained to listen to the customers' needs and to find a solution that's right for them. That's why we've made the decision not to move toward any sort of big-box retail model."

New Products Coming

"We continue to look for opportunities that fit with our brand and can improve the profitability for the dealer. While you won't see us getting into handheld power tools or ATVs, you'll see several new MF product offerings in the next 12 months, either in new lines or replacement products. There's a commitment even when times are tough, and AGCO is increasing our engineering dollars for development of future products.

"Next, it'll take investment in our distribution channel and investment in our systems, as well as continued investment in our product. These things will differentiate the players in the market."

AGCO's Advantage

"There are two things that put AGCO in a good position vs. a marketer of tractors only. First, the struggling small equipment markets have been more than offset by our professional producer and high-horsepower markets. This has allowed us and other full-line manufacturers to ride through the storms. Second, AGCO Finance is run through Rabobank, an agricultural-based bank, so our availability of funds and ability to give financing to date has not had any negative downturn or negative effects. So we feel we've still been able to remain competitive and in some cases provide industry-leading financing."

Market Importance

"The number of tractors under 100 horsepower represents 75% of the total tractors sold in the North American market. With the heritage of the MF brand and history in the market, we know we can bring value through improved product as well as improved dealers — who will be able to reach this segment even better than we are today."

For More Perpsectives from Manufacturers on the Rural Lifestyle Market, click here.