QDI Strategies: Market Assessments Project Example

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QDI: Market Assessments Project Example


Market Assessments:

One of our clients developed a specialty component for tires that improves the tire’s

durability and/or increases fuel efficiency, depending on the formulation (BREAKTHROUGH

VALUE CREATION). However tire manufacturers were unwilling to pay more than a few

cents to add these benefits to their tires.

In previous work, QDI established that large trucking fleets in the U.S. could measure the

improved tire longevity and fuel savings (VALUE CAPTURE is possible). We developed the

demand curve which shows that one segment of fleet managers is willing to pay a

significant premium for tires with these benefits. (VALUE CAPTURE strategy is to work with

a tire manufacturer to wants to grow share through the launch of a new line of tires.)

This presentation was used as part of work session on European opportunities. It describes

customer behavior and shows that the value from increased fuel efficiency can be captured

(DIFFERENT VALUE CAPTURE OPPORTUNITY; see the demand curve). However, the

durability savings and the tire brand specification are made by separate organizations (fleet

owners vs. tire service providers). For durability, the savings isn’t sufficient to overcome the

market structure.

Capturing the Value of a Product Innovation


European Truck Tire Market Opportunity Strategy Work Session

• Tire Component Supplier

• Demand Curve and Strategy to realize the value of their innovation


Objectives

• Estimate the demand curve for fuel-efficient, HVG tires by fleets – Identify lead market

• Understand how firms will purchase fuel-efficient and

increased durability tires – Adoption challenges – Implications for tire manufacturers

• Identify key issues for Client’s strategy

– Credibility – Country differences – Lead time

Methodology: Project

Objectives


Methodology

• Debriefs & secondary data – Review of the literature, industry contacts

• Interview companies with truck fleets – Tire Manager, Purchasing, Fuel Manager, Maintenance

– Segment by large vs. small, “for-hire" vs. captive...

– UK, German, & French firms

• Verify issues in Spanish and Italian fleets – Same segments

– Durability issues in smaller trucks

• Reviews & internal analysis – Model demand

– Adoption challenges

Methodology: Understand

Customer

Behavior


Fuel Management

• Most firms did not have a dedicated Fuel Manager

– Fleet Manager and/or Purchasing were responsible

• Purchasing as much as 90% of their fuel needs in bulk for distribution at their terminals and facilities

• Negotiating programs and pricing for on-the-road

– Discount cards As in the U.S., fuel

management does not

directly influence tire

purchasing.


Customer

Behavior


Monitoring Fuel Efficiency

• Metric – The most common metric is MPG or kml

• Measurement – On-board computers – EMC

– Tracking software

– Manual tracking • No legislation, but significant fuel costs

• Tracking – Overall fuel consumption

– Fuel use / efficiency by tractor

– Fuel use / efficiency by driver (15% of the time)

Monitor Fuel

Efficiency99%

Don't Monitor

1%


Tire Management

• Must manage a number of types of tires – Most firms have multiple types of trucks

• Vans (smaller trucks)

• Articulated (larger trucks) -Different configurations (2x3, 3x3, 4x2, 4x3)

– Many firms use different types of tires in different positions • Steer and drive vs. trailer

• Must manage tires at different stages – Identify when to regroove

– Identify when to retread (remix, recap)

• Inspected at terminals / depot – Every 1-3 weeks -- visual & mechanical

• Check tire pressure

– Measurement in mm • Minimum is 1.6mm (U.K. adopting European standard)

– Replaced -- based on tread depth, cuts, cracks


Customer

Behavior


Purchase Criteria

0

1

2

3

4

5

Price Durability FuelEfficiency

Availability RetreadValue

TreadDesign

U.K.

German

France

Basic tire purchase criteria

do not vary significantly by

country.


Customer

Behavior


Tire Dealership’s Role

• Most fleet owners could not quantify tire life – Steer, drive, trailers are different

– Articulated vehicles are different than lorries

– Route / road conditions differ

– Mileage to regroove, mileage to retread, total mileage

• The complex management is turned over to the tire dealership through a management contract – Dealership frequently performs the service on-site

– Fleet owner than manage the total cost, specifically

• Monthly cost of tires

• Monthly cost of total tire management


Customer

Behavior

The greater tire management complexity in European fleets leads

fleet managers to contract out the management to the tire dealer.

This means the benefits and costs (tire price, record keeping, lost

service work) are split between two organizations.


Role of Leading Firms as Technology Leaders

Fuel-Efficient

27%

Durability58%

Segments Size of Fleet

Two segments, representing over 75% of the large

for-hire tractors, are interested.

Most firms look for usage by the large, fuel-efficient

firms before they take any action.


Customer

Behavior


Adoption Process Fuel-Efficient Tires

• While interested in the concept, they are skeptical

– They are regularly approached with money and fuel-saving pitches that don’t materialize

• Most firms (in all three segments) wish to test the fuel savings for themselves

– Unlike the U.S., usage by larger firms was not a prerequisite

– If the tires don’t deliver the fuel savings, they will NOT purchase them


Customer

Behavior


Behavior by Segment U.K., Germany & France

10%

30%

50%

70%

90%

Fuel-MgtSystem

Fuel-EffRank

Michelin (%) Use ofSuper

Singles

Credibility ofFuel Saving

Use ofRegrooving

Credibility ofDurability

Fuel Sav.SW

FuelStorage

Fuel-Efficiency

Durability

Price

Fleet operators can be divided into 3

segments, based on their behavior.

Segments

Behaviors


Three Behavioral Segments

Fuel-Efficient23%

Durability63%

Durability Price14%

Top 100 Firms

The key segmentation is the firms’ behavior

regarding durability & fuel-efficiency

Methodology: Sizing

Segments


Behavior by Segment Fuel-Efficient

The fuel-efficient segment behaves slightly

differently by country (i.e. Germany doesn’t

use super singles).

0%

20%

40%

60%

80%

100%

120%

Fuel-Mgt System Fuel-Efficient

Rank

Michelin (%) Use of Super

Singles

Credibility of

Concept

UK

Germany

France

Methodology: Sizing

Segments


Credibility of the Concepts

-

10

20

30

40

50

60

70

15% Improved Durability 2% Fuel Savings

Sc

ore

Credibility of 10

Credibility of 8-10

The increased durability has

significantly less credibility than

the fuel efficiency.

Methodology: Measurement

of Concept

Value


Likelihood of Purchasing Fuel-Efficient Tires

0

20

40

60

80

100

70 40 30 17.5 10

% o

f T

ires P

urc

hased

Denominations Removed

Likelihood 10

Likelihood 8-10

Likelihood 5-10

Likelihood 2-10

Respondents’ likelihood for purchasing

at various price points all indicated their

answers are contingent on the test

results.


of Concept

Value


Demand Curve for Fuel-Efficient Tires Top 100 Fleets

- 10 20 30 40 50 60 70

Un

its R

em

oved

Premium per Tire

Tires

Combined demand from the UK, Germany, France, Italy and Spain.


of Concept

Value


Demand Curve for Fuel-Efficient Tires Vehicles Over 37t

- 10 20 30 40 50 60 70

Un

its R

em

oved

Premium per Tire

Tires

Combined demand from the UK, Germany, France, Italy and Spain.

In smaller fleets, the demand falls

rapidly as the price rises above 10 (Denomination removed)


Get To Know Us

• Exploratory Meeting

- No-cost discussion of the issues you are facing and our perspective

• Customized research

- Have us design a study for you

• Strategy project

- Have us design a project to address your strategic issues

Contact Information

QDI Strategies, Inc.

1580 S. Milwaukee Avenue, Suite 620

Libertyville, IL 60606

847-566-2020

www.qdistrategies.com

Steve Bassill

President

[email protected]

QDI Strategies: Market Assessments Project Example

Marketing

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