Sr. No. 61 Saurabh Kanojia Section A

1. What is Goodyear’s position in the tire industry?a. Goodyear is engaged in the development, manufacture, distribution and sale of tires and related

products and services worldwide. b. Goodyear is the leader in U.S. passenger tire market with 15% market share in replacement market

& 38% market share in OEM market. The company has a strong track record in launching innovative products.

c. Goodyear operated with 84 plants- 41 plants in U.S., 43 plants in 25 other countries, six rubber plantation, and morethan 2000 distribution outlets.

d. It has a strong image in price focused customers and brand loyal customers.

2. How do consumers buy tires? How can the market be segmented?The buying behavior varies from consumer to consumer. Some consumer purchase tires only when there is a need to replace existing ones. They usually purchase when they have to prevent flat tires or when they have flat tires such as when they see a hole, nail or any other defect in their tires. As discussed in the case, the average time for the replacement of tires is something between 2.5 years however, about 50% purchases are made by car owners on the same day when they noticed a defect in their tires and sensed a need to replace their tires with new ones. About 42% of consumer purchases involved two tires, 60% purchases a set of four tires, 16% consumers purchase 2 tires and only 2% consumer purchases 3 tires.

SEGMENTATION OFTIRE BUYERS

Consumer Segmentbrand loyalty

retailer loyalty

price sensitivity

shops extensively?

Price-constrained Low Low High YesValue-oriented High Low High YesPrestige buyers HIgh High Low No

comfortable conservatives Low High Low No

bargain hunters Low Low High Yes trusting patrons Low High High Nopercentage of total customers in this category (1985) 26% 26% 48% percentage of total customers in this category (1992) 22% 33% 45% change decrease increase decrease

The market for passenger tires can be segmented in three ways:SEGMENTATION BASED ON PERFORMANCE AND BROAD-LINE TIRESPerformance tires were wider than broad-line tires, were more expensive, and provided better traction.In the U.S. passenger tire market, performance tires represented 25% of Goodyear’s unit sales, 30% of dollar sales, and an even higher percentage of profits.SEGMENTATION BASED ON REPLACEMENT AND OEM TIRESReplacement tires were sold to individual consumers, while OEM tires to car manufacturers. In 1991, U.S. replacement tire sales - $8.6 billion. In the United States, Goodyear’s passenger tire division derived 65% of its revenues from replacement tires and 35% from OEM tires.SEGMENTATION BASED ON BRAND CLASSIFICATION

Major Brands Minor Brands Private Label36% of unit sales 24% of unit sales 40% of unit salesHighest recognition among consumers

Minor but well-recognized among consumers

Large manufacturer used excess capacity to serve private labels.

Goodyear, Firestone, Michelin, Dunlop, General Kelly, Uniroyal, They carried names to particular

Sr. No. 61 Saurabh Kanojia Section ABridgestone, Pirelli & Goodrich Cooper, Yokohama & Toyo retailer

3. Assess the evolution of Goodyear’s distribution channels in the US tire replacement market.Goodyear has a hybrid go to market strategy combining both direct and indirect channels. Tire replacement industry used 6 main channels for distribution, from which Goodyear focused on 3. Most sales revenue was derived from Small Independent Dealers, Manufacturer Owned Outlets and Large Chains. Goodyear Distribution Channels 1) Small Independent Dealers has conflicts with Goodyear about proximity of manufacturer owned outlet, billing, pricing and need for special programs. This is a high maintenance category as evident by the Bill of Rights asking to be treated better by manufacturers.

a) Accounted for 40% of the retail sales share in US with price index being at 100% of the recommended manufacturer value. b) Only 2500 independent dealers generated a consistent level of sales, maintained major Goodyear retail displays and offered the full line of Goodyear tires. 50% sold only Goodyear’s tires ; the remaining 50% stocked at least one other brand. Goodyear’s products generated 90% of revenues. Therefore, we can say that brand loyalty is high in this channel. c) Independent dealers create value through post sales service by providing warranty check up, oil changes and other auto services. The average number of tires installed per day decreased 13% at a typical independent dealer. Average service dollars per outlet grew 92% d) Needed high attention and support from manufacturer.

2) Manufacturer Owned Outlets allow Goodyear a full control of the distribution, but creates a competition with the other channels. Outlets set the quality and value standard for performance seeking consumer as they have better training and educated personnel to evaluate the problem and provide solution.

a) High cost to maintain and high touch management oversight. This is not a core business for Goodyear but is used for educational and awareness building of customers. Necessary for education of the consumers, maintains of the product pricing and experiencing brand benchmarks. 1300 outlets carefully placed away from small dealers. b) The market share of this channel has decreased over number of year but they still represent 9% marketshare with the price index of 107% over other retail channels due to higher perceived value from the loyal customers to the brand.

3) Large Chains and Large Chain/Wholesales is the channel of distribution over which Goodyear has no control in terms of product resale and pricing structure.

a) Large Chains/Wholesalers resell to care dealers, services stations, and small independent dealers. Large Chains are resellers for independent dealers, secondary outlets and its own retail outlets. b) Large chains represented 23% of the retail market, but they practice discounting and promotion so price index is at 90%. This reduced customer perceived product value, but targeted price conscious consumers. The channel is not loyal as they sell 54% of the private labels. c) Diversion problems from wholesalers to discount outlets created a problem with independent outlets. Discount outlets use the product to conduct switch and bait technique – by attracting brand loyal customer using the product advertising and offering an alternative solution. d) Diversion was difficult to avoid due to legal restrictions that prohibited manufacturers from dictating to whom their tires should be resold.

4. Should Goodyear broaden its distribution to mass merchandisers? Should they be offered Aquatred?GoodYear should not switch to mass merchandisers, since that would hurt interests of independent dealers-not something that GoodYear can afford, with consumers showing a steady trend of becoming more retailer-loyal than brand loyal or even price-sensitive. Also GoodYear should look to increase its number of dealers. (Michelin has 7000 dealers while GoodYear has only 2500 active dealers.)

Sr. No. 61 Saurabh Kanojia Section AGoodYear should launch Aquatred. Among others, this will give them a chance to make more headway in the replacement segment of the industry, which is the segment offering more margins. Currently GoodYear sells way more OEM tires (low margin) as a percentage of its total sales than industry average. Price: Since Aquatred scores very similar to Invicta GS even in its core strength, which is wet traction, it’s basically a direct competition to Invicta GS. So it should be priced accordingly i.e. $80/unit, instead of $90/unit. This would mitigate the price concern dealers were having.Channel: More of Aquatred tires should be sold through company-owned outlets, as consumers come to GoodYear outlets specifically for the Aquatred. This will also go better with its premium brand image. But it is also important to convince existing dealers of the potential of the Aquatred brand, as the test market reveals Aquatred buyers search for information extensively before purchasing, which is a stage where dealers and retailers can play a crucial role.Promotion: Aquatred scores high on one of the most important (2nd most important) tire attributes, acc. to consumers, i.e. wet traction. So GY’s promotional efforts should be geared at emphasizing the safety factor. Price promotions should not be given once the price is reduced to $80/unit, since that might dilute the premium image of the brand. Other recommendations: The share of service in revenues of dealers is increasing and tire-related service now represents 20% of their service revenue. So GY should increase service-support to dealers. This is because even though dealers would like to be able to support themselves only on tire sales, because of the overall stagnation in the auto (from OEM data) and hence tire industry itself this is unlikely to happen soon.