- Original equipment tire market, sold by tire manufacturers directly to automobile and truck manufacturers. Goodyear is the perennial market share leader for this market while capturing 38% of this segment in 1991.
- And there is the replacement tire market. This segment has broad product lines and grades to appeal to most buyers, to provide many different types of vehicles driven under different road and weather conditions. Goodyear is the market share leader in this segment as of 1991 (Ex. 5 pg 404 – Goodyear Case).
Competition
In recent years, consumers have become more price-conscious and less brand loyal. Since car and truck owners could easily switch to a different brand for cheaper prices, price competition among tire manufacturers is fierce in the fight for market shares. The major tire producers often used network TV campaigns to promote their brands, introduce new types of tire, and pull customers to their retail dealer outlets. Through them, tire producers could increase substantial sales of brand-name replacement tires to vehicle owners. Several tire companies also sponsored auto racing events to promote the performance capabilities of their tires.
Since price was the dominant competitive appeal, tire dealers ran frequent price promotion ads in the local newspaper, on outdoor billboard, and occasionally on local TV to get attention of price-sensitive buyers. These advertising mediums also help them to establish and maintain their market shares.
In general, competition in this industry in the future will be more dependent upon innovation as issues of performance, quality, safety, and fuel efficiency become increasingly important for consumers.
Technology
For a century, the tire industry has made the same product in the same way by many of the same companies. But there have been changes, for instance, improvements in materials and changes in design have all helped to make tires cheaper, more effective and longer lasting. New designs of tires (radial tire*), the development of run-flat tires** (such as the Michelin PAX concept) will have a major effect on the design of vehicles and on the future size of the market.
* Tires are not fabricated just from rubber; they would be far too flexible and weak. Within the rubber are a series of plies of cord that act as reinforcement.
**With run-flats, a driver can travel at least 200 kilometers at 80 kilometers per hour without having to stop to change a deflated tire. That means added safety and convenience if a tire goes flat in the countryside; where services may be few and far between, and a sense of security should misfortune befall a driver in specific urban areas.
Political, Legal, and Social Economic Factors
The market for tire-derived materials, for recycling, is very promising from economic, environmental and political standpoints. Used tires should be recycled for reuse in the manufacture of new tires and other products. Tire recycling as an industry is growing in size, scope and numbers of companies engaged in. Recycled rubber can be very used to produce rubberized asphalt for road building, material for playgrounds and athletic fields, and much more… Companies are looking for solutions for their scrap that will have environmental impacts, and TDF (tire-derived fuel) could be the strongest markets for recycled tires. For your information, tire-derived fuel is composed of shredded tires, which are mixed with coal or other fuels such as wood to be burned in concrete kilns, power plants, or paper mills.
Industrial Guidelines and Trends
There are two remarkable industrial trends in the tire industry. First, decreasing growth rates for entry-level tires has caused large tire manufacturers to move operations into low labor cost environments, like China. Secondly, the demand for higher performance, increased safety concerns, and want of greater fuel efficiency have resulted in many innovative product offerings by tire manufacturers. This rise in innovation has allowed tire companies the ability to increase margins on their tires and ultimately revenues.
Structure
Goodyear Tires offers the broadest line of tire products than all of the tire manufacturers. For the original tire market, they have captured approximately 38 percent of the market share. For the replacement tire market, they are considered the market leader in replacement tires for cars, light-weight trucks, and highway vehicles.
In terms of sales, 60 percent consists of sales in the replacement tire market and 40 percent is original tire sales. For production, Goodyear dedicates 25-30 percent of its manufacturing to the original equipment tire. Then the majority, as much as 75 percent, focuses on replacement tires. Goodyear accounts for a quarter of the world’s tire manufacturing capacity and 37 percent of that is within the United States.
Financial Profile
To get an understanding of Goodyear Tire’s size in respect to dollars, in 1991 its corporate sales reached $10.9 billion. Their earnings were reported at 96.6 million dollars, in which 42 percent of those sales occurred outside of the United States.
SWOT Analysis
Marketing Programs
Objectives
The marketing program’s objective is to determine if expanding to a multi-channel distribution policy will stop the decline in market share. Goodyear has not sold the Goodyear tire brand through a mass merchandiser since the 1920’s and because of recent top management change and loss in market share, the option is up for debate again. The growing loyalty to warehouse membership, mass merchandiser, and discount tire stores have contributed to the loss in market share for Goodyear.
Constraints
The marketing program has some constraints to consider when deciding what is the best option for Goodyear Tire. Goodyear Tire has to be concerned with the reaction and result expanding to a multi-channel distribution will have on their Goodyear Tire dealerships. Right now Goodyear distributes its tire products through almost 8,000 retail points of sale in the United States and some 25,000 retail outlets worldwide. The company operates about 1,000 company-owned Goodyear Auto Service Centers and sells through 2,500 franchised Goodyear Tire Dealers in the United States, many of which are multisite operators. These retail outlets account for a major portion of Goodyear brand annual tire sales. One Goodyear franchiser states, “We went with them through thick and thin, and now they’re going to drown us.” This is not the reaction that you want from one of your main contributors (franchises) to your annual income. The reaction doesn’t matter as much as the outcome. Goodyear needs to be careful about cannibalization and creating extra competition for their company-owned/franchise stores.
Strengths
The marketing program has strengths to help them achieve their objective of stopping the decline of market share. Goodyear tire is one of the most recognized brands worldwide. This is important because when/if they expand into different channels, the consumer will be well aware of the Goodyear brand and quality. They have a large television advertising budget of 10-30 million for own brand commercials and 20-100 million for cooperative dealer commercials. This is a strength for Goodyear because it allows them the ability to advertise for their company-owned service centers more if a mutli-channel distribution policy occurs.
Weaknesses
There are weaknesses that arise with Goodyear Tire’s marketing program. Goodyear Franchisees and company-owned stores could lose sales with the addition of more channels of distribution. This is possible because of the increase in competition of stores selling Goodyear tires. Another weakness is that the new channels carry manufactures brand tires (like Goodyear & Michelin) but markets their own brand. This is because they receive higher margins for their own private label brand.
Target Markets
Goodyear has two target markets; replacement tires and original equipment. The replacement tire market is 70-75% tires sold annually, price sensitive, not the original tire, and considered a “flat” industry. The consumers have a lack of knowledge towards different tire specifications, which results in picking the cheaper tire. This also means that consumers aren’t very brand loyal. The industry is considered “flat” because of newer technology allowing for longer tread life and not needing as many replacement tires. The original equipment tire market is 25-30% of unit production, 38% of Goodyear’s segment, and is price elastic. Original equipment tires are price elastic because the manufactures can easily switch to a competitor and this creates somewhat of a bidding war between competition and car companies.
Considerations
Goodyear Tire Company has different channel, price, and product considerations to consider with this marketing program. Goodyear currently has 12 brands of passenger and light-truck tires sold under the Goodyear name that range from lower-priced tires to very expensive high end tires. This allows for a variety of options for how Goodyear can widen their distribution channels. Goodyear can provide different stores with exclusive brands (high and low end) while allowing their own dealers with certain brands. They could only allow one or two brands (high end or low end) to other channels and have Goodyear dealers have more. Also, they could provide a niche type of tire for these channels like off-roading or import tires. A variety of promotions are available for Goodyear to use with this marketing program. Cooperating with different channels in creating specials and bundles for different Goodyear tires can help create awareness of Goodyear tires being sold in more places. Putting a Goodyear salesman in some channels to help promote the Goodyear brand over other competitors will strengthen the ability to sell more tires. Large point of purchase displays and eye popping signs about the arrival of Goodyear brand tires in these new channels will increase brand awareness as well. There are a variety of different promotions available and we will talk about some of the ones we are going to focus on in our alternatives.
Statement of Problems
Primary Problem
The Primary problem/opportunity for the Goodyear Tire Company at this juncture of their business cycle is whether or not to widen their distribution. More specifically, Goodyear has the opportunity to expand their distribution through Sears Auto Centers.
Secondary Problems
If in fact Goodyear were to distribute to Sears auto centers in order to expand their market presence, how would a change affect the company’s image as they would have to change their long standing distribution policy that attracted many franchisees to the business in the first place? In consideration of this the company would need to do also realize franchisees may need to sell/push other brands as Sears may be a serious contender for owners located near a competing Sears Auto Center. On the other hand Sears customers are very loyal, so Goodyear may be tapping into a market they haven’t entered yet anyway, which would maximize profits and spread an already superior brand image. Secondly, if Goodyear were to go ahead and change the distribution policy and sell in Sears Auto Center stores, how many branded products as well as which type should Goodyear launch in the joint effort with Sears Auto Centers.
Alternatives
- Deploy a market penetration strategy that would focus on capturing a larger share of an existing market. Goodyear would focus on capturing a larger share of tire market through a broadened distribution network of Sears Auto Centers. All Goodyear branded products would be sold. (high risk)
- Stay away from changing the strong brand image and deny selling Goodyear brands to Sears Auto Centers. The direct competition could backfire and the company would avoid upset franchisees that may be forced to sell other brands to stay competitive. All around the brand image would take a major hit and the distribution policy could sway future expansion which would be avoided. (low risk)
- The third alternative would be to deploy a brand extension strategy for Goodyear in a joint venture with the Sears Auto Center that would sell a high profile tire for import cars only. This would exploit a niche market that Goodyear hasn’t directly tapped into yet and stay out of direct competition with Goodyear franchisees. Also, a new low end Goodyear brand that targeted Light-Truck tires would be introduced to expand market share where BF Goodrich is a close second.
Critical Issues
The main issues concerning Goodyear’s proposal with Sears Auto Centers are revisiting the longstanding distribution policy, how the franchisees are going to react to the decision, and which branded products are going to be considered for sale through Sears. The distribution policy is of chief concern because it changes the entire company culture. A major long standing adjustment to policy has to take place in order to create a joint venture to distribute Goodyear brands through Sears Auto Centers. This creates problems for franchisees that have been loyal to the Goodyear Company largely because of their stability and lack of radical corporate change. Franchisees are concerned that they will have to add private label brands into their product mix in order to avoid being “drowned”. Moreover, if this were to happen, will the benefits of distributing through Sears Auto Centers outweigh the costs of potentially shutting out loyal franchisee expansion (and possibly entire stores in which they depend on)? Further, as the Goodyear Company market share currently thrives through the expansion of their franchised stores, what will happen if that seizes as a result and if so how could you avoid it? In accordance with the upset franchisees, the only answer to effectively separate competition between them and Sears is to distinctively differentiate the two. The Goodyear Company must enter new markets for continued expansion to survive in the battle for market share while considering the successes of franchisees.
Analysis of Alternatives
Analysis of Alternative #1
- Strengths and Benefits
- 850 Sears Auto Centers would be utilized to strengthen the replacement tire market and expanding existing brands.
- Sears has a remarkably loyal consumer base that Goodyear currently doesn’t compete in.
- Weaknesses and Costs
- Plan places franchisees in direct competition with Sears Auto Centers
- Goodyear company culture and brand image can drastically change due to alteration of a long-standing distribution policy.
Analysis of Alternative #2
- Strengths and Benefits
- No change in distribution policies
- Unaffected company culture and brand image
- Happy franchisees
- Weaknesses and Costs
- Decline opportunity to enter into Sears loyal consumer base
- Does not address decline in market share
Analysis of Alternative #3
- Strengths and Benefits
- Avoids cannibalization of franchisees
- Enters loyalty of Sears consumer market through separate niches
- Offers exclusivity of high end import tire brand
- Taps into Light-Truck tire market more so to create separation of market share with BF Goodrich (Exhibit 5)
- Best solution for continued growth while keeping franchisees happy during a change of distribution policy.
- Keeps Sears and franchisees product mix offering different
- Weaknesses and Costs
- Cost of entering into new high end market will be expensive (i.e. advertising/promotion cost to launch)
- Competition between Sears Auto Centers and Goodyear franchisees will still exist. (Although it could create higher sales and more brand awareness)
Scale: 1 (Poor)……………….10(Optimal)
Recommendations and Implementations
Our group recommends that Goodyear sell a low-end and mid-range brand tires at Sears. The mid-range brand we would sell at Sears would be for the import cars niche market. We would also sell a lower end brand to appeal to other Sears consumers. We decided to sell these tires at Sears because Sears has a loyal customer base that will allow Goodyear to sell tires to customers that haven’t been exposed to the product due to the fact that they are so loyal to Sears that they are only familiar with the tires sold at the Sears locations. Additionally, this strategy avoids interference with the unit sales of the Goodyear franchise dealers because they will still have exclusive Goodyear tires to sell that Sears wouldn’t have. Overall, this will open a new target market to Goodyear due to the loyal customers at Sears while offering Goodyear more distribution channels.
As the success of the partnership is proven, Goodyear can expand to other retailers while still giving the franchise dealers exclusive tire brands. Good discount retailers such as Costco, Discount Tire Company, and Sam’s Club would be good examples of retailers Goodyear can expand into. Furthermore, to ensure the expansion into Sears is successful, Goodyear can add a sales representative in every Sears location to help with customer’s questions regarding the Goodyear tires. This will help consumers see the benefits of the Goodyear tires compared to similar tires, and persuade them to buy Goodyear tires. Lastly, Goodyear may also decide to implement more tires in the Sears stores as the partnership proves to be successful. As a company, the feelings of the franchisees are highly considered, but are not the deciding factor in continuing to make Goodyear the best tire in the world.
Technical Appendix
