Goodyear: The Aquatred Launch

Case Study Analysis

THE EVENT

Launch of Aquatred, a new tire providing improved driving traction under wet conditions.

THE ISSUES• Right Product • Right timing• Risks and Benefits of expanding the company’s

distribution channels• Should new channel sell the Aquatred?

THE SITUATION

The Tire Industry in the United StatesBig 5 of 1900-1970• Goodyear• Firestone• Uniroyal• BF Goodrich• and General Tire

Three important changes of 1970-80s• Emergence of the radial tire to replace the older “bias”

and “bias-belted” tire constructions• Increased foreign competition• Change in the nature of demand from consumers and

car makers

The Impacts

• Demand for passenger tires grew sluggishly during the 1980s• New tire prices in the U.S. market declined• Tyre producing capacity outstripped demand• Number of mergers and acquisitions

The Company

• Operated 41 plants in the United States, 43 plants in 25 other countries, six rubber plantations, and more than 2,000 distribution outlets worldwide• Net income of less than one percent• Ranked third in worldwide sales of new tires

The Market for Passenger Tires

• Performance and broad-line tires• Replacement and OEM tires• Major brands, minor brands, and private label

Consumers in the Replacement Passenger Tire MarketBuying Decision Criteria Ranked:• 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

Customer Segments

• Price-constrained buyers• Value-oriented buyers• Quality buyers• Commodity buyers

Wholesale and Retail Channels for Replacement TiresWholesale Distribution Channels

Retail Distribution Channels• Garages/service stations:• Warehouse clubs:• Mass merchandisers:• Manufacturer-owned outlets:• Small independent tire dealers:• Others

Goodyear’s Distribution Structure• 4,400 independent dealers accounted for 50% of sales

revenues• 1,047 manufacturer-owned outlets generated 27% of

sales• 600 franchised dealers accounted for another 8% of

sales

Goodyear’s Promotion Strategy

• Three-fourths of all Goodyear tires sold in independent or company-owned outlets were sold on promotion, at an average discount of 25%

• Spring dating

The Aquatred Tire

Design

• Developed after comparing 10 different designs on performance and consumer preference.• The deep groove down the center of the tire dubbed the “Aqua

channel.”• Tread design channeled water out from under the tire, reducing

hydroplaning and improving traction in wet conditions.• In wet conditions, cars equipped with Aquatred 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. • When 50% worn, the Aquatred maintained the same wet traction

as a new all-season tire.

DATA

ADDRESSING THE ISSUES

Right Product

Aquatred doesn’t fit as the correct product for the company reasons being:• Within the company, it has heavy overlap with Invicta GS, both are

all season and robust - hence cater to the same category. In fact -in a survey it was found that Invicta GS has better satisfaction level than Aquatred. So its less likely that customers would be shelling out a premium of 10% for some ornamental change.• Michelin and Bridgestone both planned to launch new tires with

80,000-mile warranties in 1992 backed by heavy advertising. Its likely that Goodyear’s dealers will be receptive to a high-priced tire when the industry seemed to be turning toward long-life warranties and low-cost private labels.

Right Timing

The launch timing of winter Olympics didn’t really suit Aquatred reasons being:• It might spark sales of the Aquatred, but the initial

inventory of Aquatred had been made to fit domestic cars, as opposed to the smaller sizes for imported cars. This can create supply bottlenecks which could lead to customer uproar and negative publicity.• Molds to produce other sizes would not be available

until several months after the Olympics creating further uncertainty about supply.

Risks and Benefits of expanding the company’s distribution channels

• Selling tires in lower-service outlets could erode the value of the Goodyear brand, cannibalize sales of existing outlets.• Might cause dealers to take on additional lines of tires.• Fear of losing brand exclusivity by selling in every other

shop.

Should new channel sell the Aquatred?

The decision to add Aquatred to the new channels is highly doubtful reasons being:• When the product itself was not promising and

differentiable, it was likely to add confusion in the huge range for the customer.• It could burden up the inventory adding to unnecessary

cost.

Disclaimer:

These slides were created by Deepak Madan, BITS Pilani, during a Marketing internship by Prof. Sameer Mathur, IIM Lucknow (See www.IIMInternship.com)