Goodyear : Aquatred

Goodyear !

The Aquatred

Launch

Goodyear: The Aquatred Launch

In 1992, Barry Robbins, Goodyear’s vice president of marketing for

North American Tires, was contemplating the upcoming launch

of the Aquatred, a new tire providing improved driving traction

under wet conditions.

OVERVIEW


Case Decision Questions

Was Aquatred the right product to generate support from Goodyear’s independent dealers?

Was it the right time to launch Aquatred?

How should Aquatred be priced and distributed?


Analysis of the US Tire Industry



From early 1900s through the early 1970s, the US tire industry was dominated by 5

companies- Goodyear, Firestone, Uniroyal, BF Goodrich and General Tire.

!

The US Tire market saw consistent revenue & profit growth, and a complete absence of foreign competition.



In 1970s and 1980s, the US tire industry saw 3 major changes:

1) Radial Tires Between 1975 and 1991, radials’ share of unit sales in the U.S. passenger tire market increased from 32% to over 95%

2) Foreign Competition Imported passenger tires represented 8% of unit sales in the U.S. passenger tire market in 1972, 12% in 1982, and 22% in 1990.

3) Nature of Demand Due to radial’s longer life, and high oil prices leading to less driving, consumers replaced tires less frequently.

Analysis of the US Tire IndustryDemand for passenger tires grew sluggishly during the 1980s. While the average life of a new tire rose from 28,600 miles in 1980 to 37,300 miles in 1990, annual miles traveled per passenger car in the US grew only

slowly, rising from 9,100 miles in 1980 to 10,600 miles in 1990.


Company Background


Company BackgroundIn 1991, Goodyear

operated 41 plants in the United States, 43 plants in 25 other countries, six rubber

plantations, and more than 2,000

distribution outlets worldwide


Company Background

Goodyear ranked third in worldwide sales of new tires


Company Background


Market Analysis for Passenger Tires



The market for passenger tires could be segmented three ways



1) Based on the distinction between performance and broad-line tires

Performance tires were wider than broad-line tires, were more expensive, and provided better traction. Although

performance tires could be replaced with broad-line tires, consumers rarely made this substitution because of

the resulting decrease in handling and performance.



2) Based on Replacement and OEM tires



3) Based on Brand Classifications

-Major Brands !

!

-Minor Brands !

-Private Labels

Major brands accounted for 36% of unit sales in the replacement passenger tire market. !

Minor brands represented 24% of unit sales !

Sales of private label tires constituted the remaining 40% of the market.



The average retail selling price of a private label tire was 18% lower than the price of a comparable

branded tire


Consumer Analysis for Replacement Passenger Tires

Market


Consumer Analysis for Replacement Passenger Tires Market

The average time between purchases of tires was 2.5 years

42% of consumer purchases involved two tires, 40% involved four

tires, 16% involved one tire, and only 2% involved three

tires.



Goodyear regularly surveyed car owners concerning the criteria they used to select a tire retailer

! 1. Price 2. Offers fast service 3. Can trust personnel 4. Store is attractive 5. Offers mileage warranty 6. Brand selection

7. Maintains convenient hours



1985 1992

Price Oriented 48% 45%

Brand Oriented 26% 22%

Outlet Oriented 26% 33%



Major Consumer Segments for Replacement Passenger Tires


!

Wholesale and Retail Channels for

Replacement Tires


Wholesale Distribution Channels

The U.S. replacement passenger tire market depended on the four wholesale channels listed

below


Dealers who were strictly wholesalers, with no retail operations, accounted for 10% of Goodyear’s factory sales to independent dealers and resold their tires to

car dealers, service stations, small independent dealers, and other secondary outlets. Another 40% went to

dealers who both sold tires at retail and resold tires to other dealers or to secondary outlets. The remaining 50% went to dealers who bought tires to resell in their

own retail outlets and did not resell to other outlets.

Wholesale Distribution Channels


Retail Distribution Channels

Six major retail channels competed for market share in the U.S. replacement

passenger tire market

3) Mass Merchandisers: Mass merchandisers were retail chains that sold tires, performed auto services, and carried other

types of merchandise.

2) Warehouse Clubs: They operated large stores carrying categories as diverse as food,

clothing, electronics, tires, and hardware. Although warehouse clubs were a relatively new retail

format, they were growing quickly due to their low prices.

1) Garages/Service Stations: These were typically small,

neighbourhood outlets offering gasoline, tires, and

auto services.

4) Manufacturer-Owned Outlets: These outlets, owned

and operated by the tire manufacturers, typically sold only one brand of tires and offered a

range of auto services. 5) Small Independent Tire Dealers: Small independent tire dealers operated one or two outlets, where they sold and installed tires and also

offered auto services. 6) Large Independent Tire Chains: Also known as

“multibrand discounters,” large independent tire chains typically had 30-100 outlets concentrated

within a geographic region

.


Retail Distribution Channels

Share of Retail Sales of Replacement Passenger Tires by Channel

Goodyear’s Distribution StructureGoodyear did not sell tires in garages/service stations, warehouse clubs, or mass merchandisers; instead, the company relied on three types of outlets

Number % of sales revenue

Independent Dealers 4400 50%

Manufacturer Owned 1047 27%

Franchised Dealers 600 8%


Goodyear’s Distribution Structure

The average selling price of all tires sold by Goodyear’s independent dealers was $75 per tire. Retail margins for independent dealers averaged 28% on Goodyear tires, 25% for dealers carrying

other major brands, and 20% for private label tires. Average wholesale margins were 18% for private

label tires and 14% for Goodyear tires.


Competitor Analysis


Competitor Analysis

Michelin’s image was stronger among value-oriented and quality buyers, while Goodyear had a stronger

image among price-constrained buyers and commodity buyers


Competitor Analysis

Michelin owners were the most loyal, followed by Goodyear owners, but significant proportions of consumers who owned

major brands replaced their tires with private label brands.


AQUATRED Analysis


Key Features

• Appearance wise appealing. Caught a customer’s eye as soon as they entered the showroom

• When 50% worn, the Aquatred maintained the same wet traction as a new all-season tire

• Cars equipped with Aquatreds traveling at 55 miles per hour stopped in as much as two-car- lengths-less distance than similar cars equipped with conventional all-season radials

!


Drawbacks

• Goodyear planned to launch Aquatred with 60K mile warranty, while competitors like Bridgestone and Michelin planned to launch new tires with 80K miles warranty.

• Apprehensive dealers, as industry moving towards low price and long life tires instead of high priced premium products like Aquatred.

• Difficult to capitalize on Olympic marketing, due to lack of required inventory.


Case Decision Questions Revisited


Case Decision Questions Revisited

Was Aquatred the right product to generate support from Goodyear’s independent dealers?

How should Aquatred be priced and distributed?

Was it the right time to launch Aquatred?


1) Was it the right time to launch Aquatred?


Current Situation of Goodyear

• In 1991, Goodyear earned less than 1% income on revenue of $10.91 billion

• Private label tires constituted 80% of the sales of Goodyear’s wholly owned Kelly-Springfield subsidiary; the remaining 20% were sold under the Kelly brand.

• Brand loyalty is degrading, and private labels are cannibalising into brand markets.

• The company is facing a management crisis and innovation is the need of the hour.

• Lack of focus on innovation has forced Goodyear to indulge in price wars with competitors and private labels.


Proposed Role of AQUATRED

• To reinforce the brand equity and innovative capabilities of Goodyear, along with its financial position.

• Successfully compete with the current leader in Premium product segment-Michelin, through its own premium product.


The current market trend shows that consumers have moved towards brand aware and price

conscious natures. They view tires as a commodity and not as a

premium product. Goodyear should aim at using Aquatred to

revolutionise the consumer perception towards viewing tires as a premium product.


So, yes, Goodyear should launch Aquatred at the earliest, in order to

improve its brand equity, improve its financial condition, change consumer

perception, compete in premium product field and gain an edge over competitors.


2) Was Aquatred the right product to generate support from Goodyear’s independent dealers?


Current Situation

• 50% independent dealers sold only Goodyear while the rest sold at least one more brand, but still 90% revenues generated via Goodyear. So, high brand loyalty exists.

• Independent dealers generated almost 48% of their total revenue through services and not tire sales.

• Manufacturer owned outlets posed competition but still constituted 9% of replacement tire sales and sold at 107% of the relative price index due to higher perceived value to the customer due to better services and staff.

• Large chains sell at 90% relative price index and are not loyal, as 54% sell other brands too. This deteriorates the brand image but appeals to price conscious customer.


Conflict Management

• Conflicts arise between independent dealers, wholesalers and manufacturer owned outlets, since each of them have separate goals but are selling the same product.

• Independent dealers want high margin, manufacturer owned outlets want to create brand image and awareness.

• Data collected by “mystery shopper” indicated that inspire of conflicts, 8 out of 9 dealers recommended Aquatred to the customer.

Managing 3 core channels requires that a specialised sales force be created that conducts planning sessions and goal setting. It also needs to decide whether to give exclusive

access to the premium Aquatred to a particular distribution channel.

Since Aquatred is targeted for Quality oriented customers, distribution channels should be restricted to loyal channels to gain their trust. Specific focus on them

should be given to educate them about the differentiating features of the product so that they can

sell it effectively.


Therefore, we can conclude that Aquatred is the right product to gain the trust of the independent

dealers if they are assured high margins, exclusivity and competitive conflicts are managed

effectively through company intervention. Effective management between distribution

channels is needed. Need for expansion can be ruled out.


3) How should Aquatred be priced and distributed?


Analysis of Aquatred Market

• Among Quality, Price-conscious and Value customers, Aquatred would be appealing to the Quality oriented segment, which comprises of only 18% of the market.

• Currently, the company is facing a management and financial crisis, with immediate need for innovation and brand refreshment. The industry is in a stagnation mode. Aquatred can be the tool to increase perceived value of tires in the market.

• Points of Difference (PODs) can be relating better traction to safety and better appearance compared to competitor products


• Product Positioning should be at the top of Broad-Line segment.

• Bankable features should be Safety, Appearance, Improved Traction and Premium Status.

• Warranty can be improved from 60,000 miles to 80,000 miles to beat competition.

Product Positioning


Pricing Strategy

• The price should be high enough to ensure high perceived quality and differentiating features as a superior product.

• Prices may be reduced later, when competition enters with similar product, since patent would not serve as an effective barrier.

• No discounts should be offered to maintain the brand equity of the Aquatred towards the niche market of Quality oriented customers.


Factors under Consideration

The following factors should be considered while calculating the additional value of Aquatred over the normal tires: 1) Additional perceived value of safety 2) Additional perceived value of performance and

improved traction 3) Additional perceived value of appearance 4) Additional perceived value of exclusivity

Conclusions from “Mystery Shopper” Data

Thus, we see that dealers perceive the value of Aquatred as around 14% higher than the base price of USD 75, at

around USD 85.


Therefore, we may conclude that the initial launch of Aquatred can be done at around

$87-$91, keeping in mind that -the prices need to be reduced in future after competitor products are launched, -prices need to be varied after collecting data from dealers about consumer feedback -this range is also high enough to give the perceived superiority to the quality oriented customer.

Created by Anngad Singh, Delhi Technological University,

during an internship by Prof. Sameer Mathur, IIM Lucknow.

www.IIMInternship.com

http://www.IIMInternship.com

Goodyear : Aquatred

Business

Transcript of Goodyear : Aquatred