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Why Deere & Company’s Dealer Network Is Crucial for Its Business

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May. 17 2016, Updated 12:07 p.m. ET

Why is a dealer network important for Deere?

Deere & Company (DE) markets its products mostly through independent retailers spread across North America. These retailers (XRT) understand the local market conditions and know customers on a more personal basis.

Customers tend to be extremely loyal to local dealers, as they are capable of fixing what they sell, a key requirement during equipment breakdown. Retailers are therefore capable of marketing products more effectively compared to large corporations such as Deere.

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Deere’s competitive advantage: An expansive dealer network

Deere & Company’s dealer network in North America is extensive compared to its competitors’ networks. A vast dealer network is important in the farm (DBA) equipment business due to the time-sensitive nature of farm operations in the plantation and harvesting seasons.

A farmer generally needs farm equipment to run for only a few weeks in the year to serve specialized operational needs in the farm cycle such as seeding or harvesting. Imagine an equipment breakdown during such a time. A dealer can quickly source parts, complete repairs, and get equipment up and running in a short amount of time.

Without access to an expansive dealer network, customers would have to travel long distances to reach the nearest dealer to fix malfunctioning equipment. The absence of a quick fix could be catastrophic for a farmer.

Investors interested in trading in agribusinesses can look into the VanEck Vectors Agribusiness ETF (MOO). Those interested in trading in dividend-based ETFs can look into the SPDR S&P Dividend ETF (SDY).

Major holdings in MOO include Monsanto (MON) with a weight of 8.2%, Archer Daniels Midland (ADM) with a weight of 6.4%, and Deere & Company with a weight of 6.8%.

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