goodyear_sol

Document Sample
goodyear_sol Powered By Docstoc
					Marketing Management                                                       Goodyear Tire




                GOODYEAR TIRE AND RUBBER COMPANY

Synopsis

In early 1992, Goodyear Tire and Rubber Company executives were reconsidering a
proposal from Sears, Roebuck & Company that was originally made in 1989. The
proposal from Sears was for Goodyear to sell its popular Eagle brand tire through
850 Sears Auto Centers in the U.S. This proposal was declined in 1989 because
Goodyear management felt that selling through a mass merchandiser such as Sears
would undermine the tire sales of company owned Goodyear Auto Service Centers
and franchised Goodyear Tire Dealers. However, following a $38 million loss in
1990 and a change in Goodyear top management in 1991, the Sears proposal
resurfaced.

Two factors apparently prompted Goodyear’s renewed interest in the Sears
proposal. First, the Goodyear brand passenger car replacement tire market share
had slipped in the U.S. Second, Goodyear executives believed that nearly 2 million
Goodyear original equipment tires were being replaced annually at some 850 Sears
Auto Centers. According to a Goodyear executive, the failure to repurchase
Goodyear brand tires happened by default “because the remarkable loyalty of Sears
customers led them to buy the best tire available from those offered by Sears,”
which did not include Goodyear brand tires.

The case links two strategic marketing decisions. First, broadened distribution
through Sears would change a long-standing Goodyear marketing channel policy of
selling primarily through company or franchised Goodyear dealers and not mass
merchandisers. Second, a product policy decision exists. That is, should Goodyear
sell all, some, or one (e.g., Eagle) brand(s) through Sears?


A. How would you characterize the competitive environment in
   the tire industry in 1991?
    1. The tire industry divides into two, broad segments: original equipment (OE)
       tires and replacement tires. The OE segment accounts for 20-25 percent of
       tires sold annually; unit sales are trending downward. The replacement tire
       segment accounts for 70-75 percent of tires sold each year; the unit sales
       trend is “flat”. Passenger car tires account for 75 percent of annual sales.

    2. Although 10 tire manufacturers account for 75 percent of worldwide
       production, three firms account for 60 percent of all tire sales sold. They are
       in order: Groupe Michelin, Goodyear, and Bridgestone. These firms
       compete in both the OE and replacement tire segments. Although Goodyear
       is second to Michelin in worldwide production, it is the perennial U.S.
       market leader in both the OE and replacement segments.


                                      Page: 1 of 12
Marketing Management                                                               Goodyear Tire




    3. Even though the OE segment is smaller, it is viewed as strategically
       important by tire manufacturers for two reasons. First, prominence in the
       OE segment provides volume related scale economics in the production of
       tires. Second, it is believed that car/truck owners satisfied with their OE
       tires on new vehicles will buy the same brand when they replace their worn
       tires. However, the case also states that passenger replacement tire buyers
       are becoming more price sensitive and less likely to simply replace their
       branded OE tire with the same brand of replacement tire. This point is
       significant for two reasons:

         It relates to “store loyalty” evident with Sears buyers mentioned earlier.

         Tire retailers can influence the replacement brand chosen from among
          those carried in their store. Disgruntled franchise Goodyear Tire Dealers
          might actually be able to switch replacement tire buyers over to other
          (private label) brands as some have threatened.


    4. Exhibits 1 and 2 in these notes show the relationship between passenger
       replacement tire market share and OE passenger tire market share and
       share of “retail points of sale”. As can be seen, there is a positive
       relationship. Moreover, the relationship between passenger car replacement
       market share and “retail points of sale” is more pronounced.

                          EXHIBIT 1
  BRAND SHARES OF PASSENGER OE AND REPLACEMENT TIRE SALES
          AND “SHARE OF RETAIL POINTS OF SALE”: 1991

                                                   Percentage Share of…
                                                                             Passenger Car
                          Passenger OE Tire              Retail Points of
        Brand                                                               Replacement Tire
                               Market                         Sale
                                                                                Market
Goodyear                          38.0%                         18.0%            15.0%
Michelin                          16.0%                         16.7%             8.5%
Firestone                         16.0%                          9.8%             7.5%
Uniroyal/Goodrich                 14.0%                         15.2%             3.5%
General                           11.5%                          4.9%             4.5%
Bridgestone                       1.25%                         13.8%             3.5%
Sears                               ----                      2.0% (est.)         5.5%

Source: Based on case Exhibits 2, 5, and 6.




                                              Page: 2 of 12
Marketing Management                                                                                                                   Goodyear Tire



       Brand                                                    P-O-S        REP MKT OE MKT
Goodyear                                                        18.0%         EXHIBIT 238.0%
                                                                              15.0%
Michelin                                                        16.7%          8.5%    16.0%
Firestone                                                       9.8%           7.5%    16.0%
        20.0%
Uniroyal/Goodrich                                               15.2%          3.5%    14.0%
   Percent of Replacement Market

General                                                         4.9%           4.5%    11.5%
Bridgestone
        15.0%                                                   13.8%          3.5%    1.3%
Sears                                                           2.0%           5.5%    0.0%                                 Goodyear


                                    10.0%
                                                                 General                 Michelin
                                                                                         Firestone
                                    5.0%       Sears

                                                 Bridgestone                       Uniroyal/
                                                                                   Goodrich
                                    0.0%
                                        0.0%                    10.0%                  20.0%                     30.0%                    40.0%
                                                                             Percent of OE Market




                                    20.0%


                                                                                                                                Goodyear

                                    15.0%
       Percent of Replacement Mkt




                                    10.0%
                                                                                      Firestone

                                                                                                                 Michelin

                                                        Sears      General
                                     5.0%
                                                                                                     Uniroyal/
                                                                                                     Goodrich                 Bridgestone

                                     0.0%
                                         0.0%                   5.0%                   10.0%                     15.0%                   20.0%
                                                                               Percent of P-O-S




                                                                              Page: 3 of 12
Marketing Management                                                         Goodyear Tire




Some observations worth noting are:

        •   Bridgestone is an obvious “outlier” in the relationship between
            replacement market share and “retail points of sale”. One explanation is
            that Bridgestone has so little share (1.25%) of the OE tire segment.

        •   Sears is unique as it does not produce tires for the OE tire segment; yet it
            captures 5.5 percent of the passenger car replacement tire segment with
            its mostly private brands.

        •   Yes, retail coverage, as measured by “retail points of sale”, is related to
            replacement tire market share. However, the nature of the relationship
            may not be perfectly linear. That is, a certain proportional increase in
            “retail points of sale” may not result in the same proportional increase in
            passenger car replacement tire market share.

    5. Competition is intense in both the passenger OE and replacement tire
       segments.     The nature and scope of competition differs, however.
       Competition in the OE segment revolves around the major vehicle
       manufacturers and supplying some or all of the tire needs for their new
       model year cars and trucks. Vehicle manufacturers typically use multiple
       sources for their tires and appear to be highly price sensitive. OE tires are
       essentially “produced to order” and may be viewed as a “commodity” by
       vehicle manufacturers. Competition in the replacement tire segment occurs
       across the marketing mix. Major tire manufacturers compete on the basis of
       “retail points of sale,” product variety and innovation, price and promotion
       (advertising, retail promotions, and event sponsorship).


B. What is Goodyear’s relative competitive position within the
   tire industry?
    1. Goodyear is the second largest tire manufacturer in the world, behind
       Michelin which manufacturers and markets the Michelin and
       Uniroyal/Goodrich brands.

    2. The Goodyear brand is the single largest brand, in terms of sales to the OE
       tire segment. Its share of this segment is 38 percent (case Exhibit 2). It is
       noteworthy, however, that Michelin with its Michelin and Uniroyal/Goodrich
       brands combined capture 30 percent of the OE tire segment (case Exhibit 2).

    3. Goodyear brand tires capture the largest portion of sales in the U.S.
       replacement tire market: 15 percent of passenger car tires, 11 percent of
       light truck tires, and 23 percent of highway truck tires. Company wide share


                                        Page: 4 of 12
Marketing Management                                                         Goodyear Tire



        increases in each category when sales of its Kelly-Springfield brand is
        included (see case Exhibit 5).

    4. One might also note that Goodyear’s relative competitive position is due, in
       part, to the following:

        •   The broadest line of tire products of any tire manufacturer: product line
            width and depth.
        •   The largest number of “points of sale” for any branded tire with
            controlled distribution; that is, company owned and franchised dealers.
        •   Price Performance Positioning: Premium pricing supported by product
            innovation and umbrella brand advertising that emphasizes, “The best
            tires in the world have Goodyear written all over them.”

    5. Nevertheless, there is evidence that Goodyear has encountered some
       problems which can be categorized as follows:

        •   Flat or downward trend in OE tire volume. Goodyear has likely felt the
            effect of plateaued unit volume in the OE segment (see case Exhibit 3).
            Unit volume growth is possible through market share gains; however,
            market share is increasingly “purchased” through lower prices to vehicle
            manufacturers. Lower prices serve to squeeze already slim profit
            margins in the OE segment as indicated in the case text.


        •   Changing retail distribution. Exhibit 1 in the case shows that tire
            company stores share of replacement tire sales declined somewhat from
            10 percent in 1982 to an estimated 9 percent in 1992. The market share
            for replacement tire sales captured by retailers not serviced by Goodyear
            (discount multi-brand independent deals, chain/department stores, and
            warehouse clubs) has grown from 17 percent in 1982 to 35 percent in
            1992. Given Goodyear’s primary distribution through company owned
            Goodyear Auto Service Centers and company franchised Goodyear Tire
            Dealers, which represent tire company stores, the company is effectively
            “closed out” of retail outlets that are capturing a larger percentage of the
            replacement tire segment.

        •   Decline in replacement tire market share in the U.S. Goodyear recorded a
            3.2 percent decline in the U.S. passenger car replacement tire market
            between 1987 and 1991. This decline represented a loss of about 4.9
            million units according to a company spokesperson. Moreover, the case
            notes that the replacement tire market, which accounts for some 60
            percent of Goodyear worldwide sales, is more profitable than the OE
            market.




                                        Page: 5 of 12
Marketing Management                                                        Goodyear Tire




C. Does it make strategic sense for Goodyear to broaden its
   distribution beyond company owned and franchised
   Goodyear tire retailers as a matter of channel policy? Why?

    1. As indicated earlier, the changing retail environment would strongly suggest
       that non-company owned or franchised tire company stores are capturing a
       larger percentage of replacement tire volume (see case Exhibit 1). The
       principal retailers gaining share are discount multi-brand independent
       dealers. These dealers more than doubled their market share (7% to 15%)
       from 1982 to 1992. During the same time frame, warehouse clubs went from
       0 percent to 6 percent. Tire company stores recorded a modest decline in
       market share from 10 percent in 1982 to 9 percent in 1992.

    2. It is also worth noting that chain and department sores actually experienced
       a decline in market share (20% to 14%) from 1982 to 1992. This change has
       direct implications for a decision to sell through Sears as discussed in part D
       below.

    3. Broadened distribution through Sears represents a change in distribution
       policy in two ways. First, Goodyear is moving beyond a form of exclusive
       distribution evident in company owned and company franchised Goodyear
       tire retailers. As such, Goodyear will (a) increase its retail density/coverage,
       (b) but possibly decrease its control over retail marketing practices, and (c)
       reduce the “exclusivity” of the brand. Second, distribution through Sears
       suggests that Goodyear is exploring a dual distribution strategy. A critical
       issue with dual distribution is that different channels reach different
       customers – an issue discussed in part D below.

    4. Broadened distribution through Sears is bound to create channel conflict and
       affect trade relations with franchised Goodyear Tire Dealers. The extent and
       severity, however, is not known, nor its franchise retailer reaction, i.e.,
       incidence of carrying more private labels and switching tire buyers to
       competing brands. Is this the time to create channel conflict when
       replacement tire unit volume is “flat?”




                                       Page: 6 of 12
Marketing Management                                                       Goodyear Tire




D. What are the strategic implications of broadened
   distribution of Goodyear brand passenger tires through
   Sears Auto Centers?
    1. Based on the case information, reconsideration of the Sears proposal is a
       defensive strategic move. Declining market share in the replacement tire
       segment, changing retail structures, and “flat” OE tire volume resurrected
       the Sears proposal. It is also noteworthy that a new management team is
       now looking at the Sears proposal. It may be that they are less tied to past
       Goodyear distribution/channel policies or strategies.

    2. From a strategic perspective, one may be directed toward the three criteria
       for choosing a marketing channel as described in Chapter 7:


           Provide the best coverage of the target market sought.

           Satisfy the buying requirements of the target market sought.

           Maximize potential revenues and minimize cost.

    Target Market Sought: What is the target market? Is it…

    …Loyal Sears’ customers with worn-out Goodyear or competitor tires?
    …Vehicle owners in general with worn-out Goodyear or competitor tires?

    If it is the loyal Sears customer, then this segment is separate and distinct from
    Goodyear dealers and represents a previously untapped segment and
    incremental tire unit sales, or a portion thereof. This segment represents 2
    million tires according to Goodyear executives.

    If the target segment is vehicle owners in general with worn-out tires, then
    cannibalization of Goodyear dealers’ tire sales is more likely.

    Buying Requirements: What do replacement tire buyers want and how well do
    retailers satisfy these wants?

    It is reasonable to conclude from the case text that replacement tire buyers are
    highly price conscious, and prefer choices (some “price-quality” ranges). It is
    also reasonable to believe that prompt and proper installation, a “pleasant” tire
    store environment, and credible salespeople are important since tire buyers
    appear to know little about the quality.

    Can Sears satisfy these wants? Sears currently captures 5.5 percent of the
    passenger car replacement tire segment. It is also noteworthy, however, that



                                       Page: 7 of 12
Marketing Management                                                         Goodyear Tire



    Sears’ share has declined from 6.5 percent in 1989 to 5.5 percent in 1991. Is this
    decline in market share indicative of Sears’ ability to satisfy buyer
    requirements?

     Revenues/Cost: Will broadened distribution through Sears generate
    incremental revenue? As stated earlier, yes it could provided the loyal Sears
    customer is the target market segment reached and the draw from Goodyear
    dealers is minimized. Unfortunately, there is no specific cost data in the case to
    assess the profit impact.

    Potentially useful calculations concern the average number of units sold by Sears
    Auto Centers and Goodyear tire dealers. As shown in Exhibit 3 below, on
    average, a Sears’ outlet sold some 10,055 replacement tires in 1991 compared
    with 2,927 replacement tires sold through Goodyear tire dealers.

                                     EXHIBIT 3
       Estimates Of Passenger Replacement Tire Sales Sold By Sears Auto Centers
                         And Goodyear Retail Outlets in 1991



    Given: 1. Sears Replacement Tire Market Share: 5.5% (Case Exhibit 5)

               2. Goodyear Replacement Tire Market Share: 15.0% (Exhibit 5)

               3. Sears Auto Centers: 850 (stated in the case)

               4. Goodyear “Retail Points of Sale”: 7,964 (Case Exhibit 6)

               5. Replacement Tire Unit Volume: 155.4 million (case Exhibit 3)

    Average Replacement Tire Volume Through Sears Auto Centers:

                       [155.4 million Tires x 0.055] / 850 = 10,055 tires


    Average Replacement Tire Volume Through Goodyear Outlets:

                       [155.4 million Tires x 0.15] / 7,964 = 2,927 tires


    3. It is also important to give attention to how the Goodyear Company, Sears,
       and Goodyear dealers might view the strategic implications of broadened
       distribution. Selected viewpoints are outlined in Exhibit 4 below in terms of
       upside potential and downside risk.




                                         Page: 8 of 12
Marketing Management                                                             Goodyear Tire




                                     EXHIBIT 4
                             SELECTED VIEWPOINTS ON
                       BROADENED DISTRIBUTION THROUGH SEARS

   Goodyear Tire & Rubber        Sears Roebuck & Company        Franchised Goodyear Tire
    Company Perspective                 Perspective                Dealer Perspective
Upside Potential               Upside Potential
1. Provides access to tire     1. Will carry the No. 1 tire
buyers who are loyal to        brand in the U.S. thus
Sears and capture some of      enhancing the “image” of
the 2 million worn-out         Sears Auto Centers.
Goodyear      tires  being
replaced at Sears
                              2. May allow for incremental
                              tire volume from vehicle
                              owners     with     Goodyear
                              brand OE tires who need
2. Provide access to 5.5% of
                              replacements       (Goodyear
annual replacement tire
                              already believes that 2
volume captured by Sears.
                              million worn-out Goodyear
                              tires are being replaced at
                              Sears)    and     who     are
                              Goodyear brand loyal.
Downside Risk                 Downside Risk                   Downside Risk
1. Could lead to strained 1. Goodyear brand tires             1. Broadened distribution
trade     reductions     with could cut into Sears private    through Sears eliminates
franchised Goodyear Tire label tires (i.e., Weather           franchised dealer
Dealers. They might:          Beater). This is an issue to    “exclusivity”. It also allows
                              the extent profit margins are   for the potential of further
                              better on private label tires   price competition.
                              (which they generally are.)
a) Begin carrying more
private labels

b) Withdraw from the
franchise and become multi-
brand independent dealers.

2. Sears replacement tire                                     2. Potential for lost sales is
market share decreased                                        very real, particularly where
from 6.5% in 1989 to 5.5%                                     Sears has a strong market
in 1991.       In fact, the                                   presence.
chain/department store tire
share has also declined (see
Case Exhibit 1). Is this the
channel (store) to be in?




                                         Page: 9 of 12
Marketing Management                                                         Goodyear Tire




E. What effect, if any, does the number of brands and specific
   brands sold through Sears have on the distribution
   decision? Why?
    1. The number of brands and specific brands sold through Sears has a very
       important effect on the distribution decision. The brand (product) policy
       decision can be again viewed from three parties: Goodyear Company, Sears,
       and franchised Goodyear Tire Dealers.

                The Goodyear Company and Sears might benefit more from having
                 Sears carry the full line of Goodyear brand tires.

                Franchised Goodyear Tire Dealers would benefit from fewer brands
                 being sold through Sears.

    2. In general, there are four brand (product) policy choices available to the
       Goodyear Company. They are:

            a) Distribute only the Eagle brand through Sears since this brand was
               part of the original proposal made by Sears in 1989. Note: Based on
               case Exhibit 9, the Eagle brand represents 12 of the 30 (40%)
               Goodyear brand models.

            b) Distribute the complete brand (product) line through Sears.

            c) Sell certain brands through Sears and others through dealers, i.e.,
               Sears gets exclusive rights to Goodyear Eagle and Arriva brands.
               Goodyear Tire Dealers retain exclusive right to all others.

            d) Provide some brand model exclusivity for both Sears and franchised
               Goodyear Tire Dealers and let both retailers carry the other brands,
               i.e., Sears gets only selected Eagle brand models; Goodyear Tire
               Dealers have the Aquatred on an exclusive basis and top quality
               brand models (e.g., Eagle GT II) and other brands, except designated
               Eagle brand models.

A cursory glance at case Exhibit 9 describes the brands and models and their tread
wear, traction, and temperature ratings which correspond to both quality and price.
As a quick point of reference, the following categorization can be derived from
Exhibit 9:

            Higher Quality/Price                       Lower Quality/Price
                1. Aquatred                               1. Decathlon
               2. Eagle GT II                             2. T-Metric



                                      Page: 10 of 12
Marketing Management                                                      Goodyear Tire




When making brand (model) decisions, one should be sensitive to the fact that
franchised Goodyear Tire Dealers would like to have a full range on the price-
quality continuum. Also, given Aquatred’s recent introduction, should this brand
retain some exclusivity?




                               MARKETING MORAL

1. To the extent that a marketing manager has alternative channels to reach
   prospective buyers, the decision facing the manager is one of selecting the
   channel that:

           Provides the best coverage of the target market sought.

           Satisfies the buyer requirements of the target market.

           Maximizes revenues and minimizes cost of distribution.

2. Dual distribution is a means to reach different market segments. However, dual
   distribution can affect trade relations with channel members and lead to channel
   conflict.

3. Market evolution evident in changing retail distribution structure often requires
   modification in a firm’s marketing channel policy.

4.   Marketing channel decisions often involve product policy decisions as well.
     When using different channels, a major product policy question is “who gets
     what?”




                                       Page: 11 of 12
Marketing Management                                                       Goodyear Tire



                                      Epilogue

Goodyear elected to broaden its distribution coverage by selling Goodyear brand
tires through Sears in March, 1992. Goodyear also elected to supply Sears with the
Arriva brand on an exclusive basis and the following brands and models: Corsa
GT, four high performance Eagle models (Eagle GT+4, Eagle GA, Eagle VR, and
Eagle ZR), and two Wrangler models for light trucks (Wrangler AT and HT).
Goodyear dealers would sell the Aquatred brand on an exclusive basis as well as the
brands/models sold by Sears, except the Arriva. All other brands/models would be
retained exclusively by Goodyear retailers. Commenting on the decision, Stanley
Gault, the Goodyear chairman and CEO, said the decision to move toward mass
merchandising channels “can only further strengthen the Goodyear brand and
Goodyear itself.”

On June 11, 1992, the California Department of Consumer Affairs accused Sears of
systematically overcharging automobile repair customers at its 72 Sears Auto
Centers in the state. Four days later similar accusations appeared in New Jersey
and several other states. On September 2, 1992, Sears agreed to pay an estimated
$15 million to settle charges in California and 41 other states, as well as settle 19
related class-action suits. Denying any charges, it was estimated that Sears would
pay over $46 million in damages. The damage to Sears’ reputation and the effect on
Goodyear tire sales was modest.

In early 1995, Goodyear executives and the tire industry analysts were still debating
what effect, if any, Goodyear’s decision to broaden its distribution through Sears
had on Goodyear’s market share. According to Modern Tire Dealer, an industry
trade publication that collects and reports market statistics, Goodyear’s share of
the U.S. passenger car replacement tire market rose 1% in 1992 to 16%. This 16%
figure remained unchanged in 1992 and 1994 according to Modern Tire Dealer.
Goodyear executives dispute this figure saying its market share rose 2% for 1994.
Either way, the 1% to 2% market share gain is less than Goodyear had probably
hoped for from broadened distribution through Sears.

(Source: Based on “Goodyear Plans To Sell Its Tires at Sears Stores,” The Wall
Street Journal, March 3, 1992; “Goodyear Brand Tires To Be Sold By Sears,”
Modern Tire Dealer – Newsfocus, March 1992; “Sears Will Pay $15 Million Settling
Charges,” The Wall Street Journal, September 3, 1992, “And Fix That Flat Before
You Go”, Stanley,” Business Week, January 16, 1995.)




                                     Page: 12 of 12

				
DOCUMENT INFO
Shared By:
Categories:
Stats:
views:89
posted:6/22/2011
language:English
pages:12