What’s in a Name?
By Heather Messing, EquipmentWatchFeatures Business Intelligence canada management rental
Brand premium and how it influences equipment pricing.
A plethora of factors go into any given piece of equipment’s price: age, condition, size, strength, market timing, and brand name, to name a few. Original equipment manufacturers invest millions of dollars each year in advertising, marketing, and brand awareness to convince buyers their name should garner top dollar compared to their competitors. Understanding how the brand names contribute to an equipment’s price can help equipment managers make decisions about which pieces to buy and what they may face when the equipment is eventually divested.
At a high level, brand premium is a measure of a brand’s perceived value. More specifically, brand premium is a metric for evaluating the relative price strength of a brand in used equipment markets at a given time. The analysis involves calculating average prices by equipment type, size category, model year, and sales channel within each period of time. The percentage difference of a brand’s average price versus the overall category’s average is the brand premium.
Putting this information to use will be unique to the equipment manager and fleet strategy. One strategy could be to prioritize purchasing brands with lower premiums on the resale channel and higher premiums on the auction channel. Others may want to focus on balancing highest average age with comparatively high brand premium since a higher average age suggests the equipment has a longer life expectancy and this combination could mean the equipment is more likely to fetch a better price upon being resold or auctioned.
One nuance to consider is that brands may enjoy various levels of premium across different equipment categories. A brand with a relatively high premium in the loaders market may not have as strong of a premium in the backhoes market.
All this being said, we are focusing our insights into how brands performed across multiple categories. How they fared on average, how often they were top or bottom, who was consistent and who performed better in auction than they did on resale.
BRAND PREMIUM FOR CONSTRUCTION EQUIPMENT
Within the construction category overall, on average Caterpillar had the highest brand premium on both the resale and auction channels. Hitachi and Sakai joined Caterpillar in the top five for both resale and auction, but from there the channels deviated. Mustang and Deere rounded out the top five brand premiums on the resale channel, while Gehl and Hamm made it into the top five list for auction.
On the resale channel, within these top five brand premiums we can observe that the average equipment ages for each OEM were remarkably close together, averaging between about six-and-a-half to seven-and-a-half years. Looking over to the auction list, we can see that the average ages were predictably higher than on the resale side and the range for the top five brand premiums was eight to 11 years.
We can also zoom out to see how these OEMs averaged over the full period. This shows us where some OEMs had better comparative brand premium on the auction channel versus the resale channel.
For example, Case had the fifth highest brand premium on the resale channel but was second on the auction channel. Case’s average age on the auction channel was on the higher end, suggesting this brand has a comparatively long useful life. On the auction channel, a combination of a higher brand premium and a higher average equipment age speak well for the OEM and make Case an attractive choice for reselling as it will return a higher value.
This is a good time to recall that brand premium represents the percentage distance a piece of equipment’s price was from the average for that equipment type, model year, sales quarter and channel (resale versus auction). What the brand premium calculation does not show is what that piece of equipment started at (its MSRP) or how far it has fallen from that original cost.
This distance from a piece of equipment’s starting price to its current price is referred to as its retained value and we can examine a few in more detail to illustrate how these concepts are related but differ.
While the focus of this paper is on brand premiums, it is important to remember that the premium of a brand name is only one factor and other considerations such as retained value are also quite important.
BRAND PREMIUM FOR LIFT and ACCESS EQUIPMENT
The broad header of lift and access includes booms, lift trucks, and scissor lifts. Our analysis included twenty-three OEMs based on their market share for each equipment type.
When viewing this broad category of Lift and access, we can see that Mayville Engineering topped the brand premium chart on the resale channel, while Hyundai beat it out for the top spot on the auction channel. Caterpillar and Hyster made it into the top five on both the resale and auction channels, while Linde completed the top five on resale and JLG did so on auction.
On the resale channel, within the top five brand premiums, we observed that the average equipment age for each OEM were between about five-and-a-half and 11-and-a-half years. Over on the auction side, we see that the average age was higher and ranged from about six-and-half to 14 years for the OEMs with the top brand premiums.
One other aspect of the overall lift and access equipment category to consider is that this type of equipment is often rented. In fact, roughly 44 percent of the lift equipment activity we observed were listings from rental companies, with almost all of this rental-company activity occurring on the resale channel.
Besides the observed differences in average age and meter reads, it is possible that factors specific to rental-company sellers are at play. For example, their equipment may be generally better maintained and therefore more desirable. Rental companies are also likely to be skilled at knowing just when to divest and replace their equipment, given that it is such a frequent part of their business operations. Whatever the specific reasons, one thing was clear: EquipmentWatch’s data showed a rental-company brand premium bump.
BRAND PREMIUM FOR AGRICULTURAL EQUIPMENT
Our analysis of brand premiums for agricultural equipment encompassed twenty-one OEMs and five general equipment types: balers, combines, corn headers, self-propelled sprayers, and tractors.
At this aggregated level, we can see that Hesston had the highest brand premium on the resale channel, while Hagie claimed that spot on the auction channel for the same period. Hesston, Hagie, Deere, and Case IH were all among the top five brand premiums on both the resale and auction channels, with Claas rounding out the top five on the resale channel and Massey Ferguson making it into the top five on the auction channel.
Massey Ferguson was one OEM that stood out for its brand premium on resale versus auction. On the resale channel, Massey Ferguson had a very middle-of-the-pack brand premium but had the fourth highest brand premium on the auction channel. Moreover, on the resale channel this OEM had an average age of 6.8 years which grew to 9.2 years on the auction channel. This higher brand premium on the auction versus resale channel and the comparatively high average age makes Massey Ferguson a compelling choice.
Another notable aspect of Massey Ferguson among the other OEMs included in our analysis is that it offers more than one type of agricultural equipment. Of the twenty-one OEMs, only five offered equipment in more than one of our broad equipment categories and claimed a robust enough market share for that equipment type to be included in our analysis. These five were Deere, Case IH, New Holland, Massey Ferguson and Gleaner.
BRAND PREMIUM: ONE IMPORTANT PIECE OF THE PUZZLE
There are many aspects to consider when deciding which specific pieces of equipment to buy and which brands to choose for that equipment. Understanding how the brand name impacts the resale price; which other brands in the same equipment type, size, and age have a lower-than-average resale price; and how these same brands perform upon liquidation will arm you with relevant information and help you make educated buying decisions.
It is also important to note that the brand premium is a calculation showing the percentage distance from the average. These calculations do not take into consideration the equipment’s original cost or how well the brand’s equipment retains its value.
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