Goodyear: The Aquatred Launch

Tire Industry

• 1900-1970 -: 5 major players in the industry , all based in Ohio. Goodyear Firestone Uniroyal BF Goodrich General Tire

Changes

1.Radial tires replacing the older bias and bias belted tires.• Gas mileage, handling ,tread wear.• Share of unit sales increased from 32% to 95 %.

2. Increased foreign competition

3.Change in the nature of demand of consumers and car makers.• Increase in oil price.

Impacts

1. Demand for passenger tires grew sluggishly.• Average life of tires increased from 28,600 to 37,300 miles • Annual miles travelled per passenger car grew from 9100 to

10000 miles.

2. New tires prices declined.

Impacts

3.Tire producing capacity outstripped demand.

4. Mergers and acquisitions.• 1986-Goodrich –uniroyal• 1990-: michelin acquired goodrich-uniroyal.• 1987-:General tires was sold to Continental.• 1988-:Firestone was sold to Bridgestone.

Goodyear

• Known as “THE GORILLA” .• By 1991,it had -: 41 plants in U.S 43 plants in 25 different countries 6 rubber plantations More than 2000 distribution outlets across the world 3rd rank in the market with Michelin being the leader

Goodyear

• In the late 1970s , Goodyear made huge investments to produce radial tires.

• Was popular for introducing innovative products. 1977-: Tiempo, the first all season radial tire .

Unit sales grew from 2% of U.S replacement passenger tires to 71 % during the period 1978-1991.

1981-:Eagle, high speed traction for sports cars.

Goodyear

• Early and mid 80s-:Huge investments in pipelines for natural gas and oil transmission

• 1986-: Sir James Goldsmith takeover. Goodyear Burdened by huge debts

• 1991:-Earnings down to 96.6 million dollars from 770.9 in 1987.

Interest payments of 1 million per day

Stanley G.Gault was appointed as the chairman of goodyear

Market Segmentation

• Performance vs. broad-line tires

• Replacement vs. OEM tires -Replacement Tires-65%

OEM Tires-35%

• Major brand, Minor brand and private label -Major Brand-36%

Minor Brand-24%

Private Label-40%

Private Label Tires

• Average retail price 18% less than a comparable branded tire.• Warranty by retailers• Goodyear’s private label tires: All American & Concorde• Cannibalization• Robbins replaced private label tires with Goodyear branded tires at

comparable prices

Consumer Behaviour

• Tire- A “Grudge Purchase”, an expensive commodity• Average tread life of 2.5 years• Important Attributes: Tread life, wet traction, handling, snow

traction and dry traction• Criteria on which consumers base their decisions: price, offers fast

service, can trust personnel, store is attractive, offers mileage warranty, brand selection, maintains convenient hours.

Consumer Segmentation

• Price-constrained buyers

• Value-oriented buyers

• Quality buyers

• Commodity buyers

Consumer Segmentation

Wholesale Distribution Channel

Retail Distribution Channel

Goodyear’s Distribution Structure

• Follows a Hybrid Distribution Structure• Goodyear did not sell tires in garages/service stations, warehouse

clubs, or mass merchandisers • Goodyear sold tires at Manufactured-owned outlets, through small

and large Independent dealers only• Goodyear's 4400 independent dealers accounted for 50% of sales

revenues, while the 1,047 manufacturer-owned outlets generated 27% of sales, and the 600 franchised dealers accounted for another 8% of sales. (The remaining 15% of sales were primarily to government agencies)

 

Goodyear’s Distribution Structure

• Franchising the manufacturer-owned outlets• Goodyear had 4,400 independent dealers, but only about 2,500

were considered active dealers in that they generated a consistent level of sales, maintained the major Goodyear retail displays, and offered the full line of Goodyear tires

• Just Tires was a new retail format under test by Goodyear. Modelled after "quick lube" stores which offered fast oil changes without an appointment, Just Tires stores sold and installed tires but did not offer any other products or services. Just Tires stores provided consumers with guarantees covering speed and quality of installation

Profit Margin

• Goodyear's independent outlets sold an average of 15.5 tires per day, including both Goodyear and other brands of tires, although most Goodyear dealers derived the majority of their sales from Goodyear tires.

• 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.

 

Goodyear’s Independent Dealers

• District Manager and Area Sales Manager• Expertise and training on issues such as financing architecture,

wholesaling, operations, and merchandising.• Certified Auto Service, which allowed dealers to attend training

classes and become certified in auto services.• The Goodyear Business Management System, a computer

system to help dealers with inventory and accounting.• National and regional advertising to support dealer sales.• Research on market trends, such as information on the popularity

of each tire, by size, in a given market.

Goodyear’s Independent Dealers

• Services not free of cost-. The cost of these services was built into Goodyear's prices.

• Discounts to Dealers

-Wholesale Allowance

-Merchandising Allowance of 1.5%

-Advertising Allowance of 4%• 50% of Goodyear's independent dealers sold only Goodyear tires,

while the other 50% stocked at least one other brand. Among the latter, some aggressively merchandised other brands but Goodyear tires still generated 90% of the revenues for most independent dealers

Independent Dealers In Industry

• Trend was to do away with the manufacturer-owned outlets• Exception was Firestone• Michelin had 7000 Independent Outlets

Promotions

• 6 three week promotions throughout the year• Consumers started buying during promotions• Sales of rest of the year decreased

SWOT Analysis

STRENGHTS

● Dedicated Independent Dealers

● Brand Recognition

● Strong track record in launching new products

● Largest market share in replacement segment

SWOT Analysis

WEAKNESS

● Michelin has stronger value oriented and quality oriented buyers and has greater brand loyalty

● Low profit and high indebtedness

● Limited distribution channels

● Availability of Goodyear products at unauthorized dealers at low prices

● Low availability in other outlets forcing customers to switch

● Knowledge levels of retailers

SWOT Analysis

OPPURTUNITIES

● New technological breakthrough

● Absence of high durability tires in the market

● Absence of wet condition tires

● Winter Olympics

THREATS

● Possibility of competitors launching same product in near future

● Further erosion of market share to foreign competitors

Product Line

Performance Radials All Season Radials Light Truck Tires

Eagle GS-C $280 Aquatred $90 Wrangler $120

Eagle VR/ZR 225 Invicta GS 80 Workhorse RIB

70

Eagle GT+4 140 Invicta GL 65 Workhorse M&S

80

Eagle GA 120 Arriva 60

Eagle ST 100 Tiempo 50

Eagle M&S 215 Corsa GT 40

CompetitionBrand Bought

Brand Replaced

Bridgestone Firestone Goodyear Michelin MinorBrands

Private Label

Total

Bridgestone 29% 4% 8% 8% 7% 43% 100%

Firestone 2 27 11 6 7 45 100

Goodyear 2 5 39 5 9 38 100

Michelin 3 3 7 44 6 36 100

Minor Brands

2 4 10 7 32 42 100

Private Label

2 5 8 5 7 70 100

Contd…

• In 1991,Michelin's image was stronger among value-oriented and quality buyers, while Goodyear on the other hand had a stronger image among price-constrained and commodity buyers.

• Both Bridgestone and Michelin were planning to introduce new tires with 80,000 mile warranties.

• Uniroyal was introducing a new tire for light trucks. • Continental Tire was known to be working on its own

antihydroplanning tire, to be called Aqua Contact, which could be launched in early 1993.

HYDROPLANNING

Annual Precipitation(U.S.A.)

Aquatred Features

• Aquatred was designed to improve traction in wet conditions.• Channelled water out from under tire, reducing hydroplaning.• When 50% worn, Aquatred maintained the same wet traction as a

new tire.• 60,000 mile warranty.• Cars equipped with Aquatred travelling at 55 miles per hour stopped

in as much as two-car-lengths-less distance than similar cars equipped with conventional all-season radials.

• The Aquatred was patented, but patent protection on tread designs was difficult to enforce.

Mystery Shopper

• A male mystery shopper visited nine independent Goodyear outlets in the Aquatred test market during October 1991.

• Eight of the nine salespersons mentioned the Aquatred during their presentations.

• Of those eight, five began their presentation with the Aquatred and three finished with the Aquatred.

• One claimed the Aquatred was 15% better than other tires; another claimed 20%-25%; and a third claimed up to 35% better traction with the Aquatred.

Contd…Store

NumberPrice with Black Sidewall

Price with White Sidewall

1 $79.95 $79.95

2 81.95 81.95

3 80 83

4 85 85

5 85 88

6 100 100

Problem???

• The distribution channel• Pricing• The Launch Time• Promotion Strategy• Consumer’s Reaction• Dealers non-uniformity in presentation and pricing

Recommendations

1. Distribution Channel• Domestic Car Manufacturers-Launch Aquatred in winter Olympic

with other car launches.• Independent Dealers- Largest channel available with 4400 dealers

across the country• Manufacturer owned outlets- As a typical customer of Aquatred will

demand only aquatred.

2. Pricing• Premium pricing strategy.• Increase retail margin by 2% for individual dealers except for

dealers who carry private label tires.

3. Promotion • Through winter Olympics • Encourage dealers to avoid discounting by giving higher margins

to protect premium product image • Training program for the sales force for uniform presentation and

price of the product

Q&A