The tire industry is divided into two end-use markets, the original equipment tire market and the replacement tire market. Original equipment tires are sold by tire manufacturers directly to automobile and truck manufacturers. Goodyear is the second largest tire producer worldwide. It operates 44 tire product plants in 28 countries and 7 rubber plantations. Goodyear has the broadest line of tire products of any tire manufacturer. It is one of the best known and recognized brand names in the world. Goodyear is also one of the leading national advertisers in the U.S. Goodyear is the market leader for original equipment tires at 38%. Replacement passenger car tires account for 75% of annual sales for Goodyear. They are the market share leader in the U.S. replacement tire market. Passenger car tires account for 15%, light truck tires for 11% and highway truck tires for 23%. Goodyear brand tires have the broadest retail coverage with almost 8,000 “retail points of sale” or 20% of all US replacement tire locations. Nearly 2 million which accounts for 5% of replacement tires are being replaced annually at 850 Sears Auto Centers. Discount, multi-brand independent dealer’s market share rose from 7% to 15% between 1982 and 1992. Market share for replacement tires captured by retailers not serviced by Goodyear has grown from 17% to 35% (1982-1992). Goodyear’s market share declined 3.2%, or 4.9 million units between 1987 and 1991. Goodyear stores reported a 1% decline in replacement tire market share to 9%. 2.0CASE PROBLEM
The Sears proposal raised several strategic considerations for Goodyear. First, as a matter of distribution policy, Goodyear has not sold the Goodyear tire brand through a mass merchandiser since the 1920s, when it sold tires through Sears. Decision to sell Goodyear brand passenger car tires again through Sears would represent a significant change in distribution policy and could create conflict between its franchised dealers. Second, if the Sears proposal was accepted, several product policy questions loomed. Specifically should the arrangement with Sears include (1) only the Goodyear Eagle Brand or (2) all of its Goodyear brands? Sears would provide a great opportunity for Goodyear for several different reasons. Sears is a large National Retailer with 850 Auto Centers with potential sales on 2 million replacement tire sales annually. It gives Goodyear the opportunity to stop the bleeding of market share 3.2% loss over last 4 years. They could take advantage of Sears sponsored promotions for those consumers that have become more prices sensitive and less brand loyal. They can also position themselves as the premium national brand at Sears. 3.0GOODYEAR TIRE AND RUBBER COMPANY
Goodyear Tire and Rubber Company, headquartered in Akron, Ohio, was founded in 1898 by Frank and Charles Seiberling. The company began as a supplier of bicycle and carriage tires, but soon targeted the fledgling automotive industry. The Goodyear Tire & Rubber Company, incorporated on August 29, 1898, is a manufacturer of tires. The Company, together with subsidiaries and joint ventures, develops, manufactures, markets and distributes tires for a range of applications. The Company also manufactures and markets rubber-related chemicals for various applications. The Company is an operator of commercial truck service and tire retreading centers. The Company operates approximately 1,300 tire and auto service center outlets where it offered its products for retail sale and provided automotive repair and other services. The Company manufactures its products in 52 manufacturing facilities in 22 countries, including the United States. It operates through four operating segments representing its regional tire businesses: North American Tire; Europe, Middle East and Africa Tire (EMEA); Latin American Tire, and Asia Pacific Tire 4.0SEARS, ROEBUCK & COMPANY
Sears, Roebuck & Company, commonly referred to as Sears, is an American multinational department store chain headquartered in Hoffman Estates, Illinois, in Greater Chicago. The company was founded by Richard Warren Sears and Alvah Curtis Roebuck in 1886, as the R.W. Sears Watch Company in Minneapolis, Minnesota. Julius Rosenwald took control in 1895 and expanded its sales and profits greatly. In 1925, it began opening local
department stores. The business peaked in the 1950s and 1960s, and then began a long, slow contraction. In 2005, it was bought out by Kmart, which renamed itself Sears Holdings. In 1973, it opened a new headquarters in the Sears Tower, a 108-story, 1,451-foot (442 m) skyscraper that was the tallest building in the world until 1998. Until October 1989, Sears was America’s largest retailer, when it was surpassed by Walmart in domestic revenue. Target, Best Buy, and Home Depot have also surpassed Sears since. As of 2012, it is the fourth-largest U.S. department store company by retail sales and is the 12th-largest retailer in the United States, leading its competitor Macy’s in 2013 in terms of revenue. 5.0INDUSTRY BACKGROUND
World tire production in 1991 was approximately 850 million tires. North American production accounted for 29%, Asian production was 28%, and Western European production accounted for 23%. The tire industry is divided into two, broad segments: original equipment (OE) tires and replacement tires. The OE segment accounts for 20-25 percent of tires sold annually and these unit sales are trending downward. The replacement tire segment accounts for 70-75 percent of tires sold each year and this unit sales trend is “flat”. Passenger car tires account for 75 percent of annual sales and the remaining 25% go to commercial and miscellaneous usage. Although 10 tire manufacturers account for 75 percent of worldwide production, only three firms account for 60 percent of all tire sales sold. These three firms are 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 U.S. market leader in both the OE and replacement segments. Even though the OE segment is smaller, it is viewed as strategically important by tire manufacturers because prominence in the OE segment provides volume related scale economics in the production of tires and it is believed that car owners satisfied with their OE tires on new vehicles will buy the same brand when they replace their worn tires. It should be noted though 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 if they are significantly more expensive. Demand in this market is directly related to the average mileage driven per vehicle, therefore, the longer a tire’s tread life the less they need to be replaced.
Competition in this industry is intense in both the passenger OE and replacement tire segments. Competition in the OE segment revolves around the major vehicle manufacturers and supplying some or all of their tire needs for the new model year cars and trucks. Competition in the replacement tire segment occurs across the marketing mix. Major tire manufacturers compete on the basis of product variety and innovation, “retail points of sale,” price and promotion Goodyear is the second largest tire manufacturer in the world, behind Michelin which manufacturers and markets the Michelin and Uniroyal/Goodrich brands.
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. It is noteworthy; however, that Michelin with its Michelin and Uniroyal/Goodrich brands combined capture 30 percent of the OE tire segment. 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. Companywide share increases in each category when sales of its Kelly-Springfield brand are included. Goodyear’s relative competitive position is also due to the fact that they have the broadest line of tire products of any tire manufacturer and have the broadest retail coverage with almost 8,000 retail points of sale, most of which are company owned or franchised. 5.1Distribution
Major manufacturers of tires capitalize on their reputation and experience as producers of building strong wholesale and retail dealer relationships and networks through which to sell their brand name replacement tires to vehicle owners. The industry uses “retail points of sale” to gauge the retail coverage of tire manufacturers and their brands. Goodyear has the broadest retail coverage with almost 8,000 retail points of sale. Independent tire dealers usually carry the brands of several major manufacturers and a discount priced private label brand to give a full assortment of qualities, brands, and price ranges to choose from. Retail tire outlets there were owned or franchised by the manufacturers carried only the manufacturer’s name brands and maybe a private label discounted price line. Department stores and major retail chains (like Sears) occasionally carried manufacturers’ brand tires but usually marketed only their own private label brands. In most communities, price is the dominant competitive appeal in an intensely competitive industry. Many dealers feature and push their private label brands of tires because the profit margins are higher. Dealer sponsored private label tires accounted for 15 to 20 percent of total replacement tire sales in the US in 1991. For this reason, it would be beneficial for Goodyear to consider providing a private label brand for Sears, if they decide to use them as a retail channel, to capture this growing market. 5.2Marketing
Major tire producers often use network TV campaigns to promote their brands, introduce new types of tires, and pull customers to the retail dealer outlets. Network TV budgets commonly run from $10 million to $30 million, and their budgets for cooperative ads with dealers run from $20 million to $100 million. Print media is also commonly used extensively. 5.3Customers
Few replacement buyers are very knowledgeable about tires and many end up choosing a tire based on price and some just follow the recommendation of their local dealer. Consumers are becoming more price sensitive/conscious while abandoning brand loyalty. This is important to remember because it defeats the purpose of presence in the original equipment segment. Therefore, being in a market segment, which is not as profitable, for a reason that is no longer viable, might be a strategic error? Most replacement tire customers do not have a preference, which makes it easy for tire salespeople to switch customers to private label brands that deliver higher profit margins 6.0DECISION MAKING PROCESS
Decision to suggest Goodyear to accept the proposal offered by Sears and award Sears to sell Eagle brand tire. The decision made was appropriate. From the case, it is clear to see that Goodyear was suffering from loss in market share and profits, thus it is essential that the decision made be executed to ensure that Goodyear would regain its competitive advantage, regain its market share, and turn its losses into profits 7.0conclusion and recommendation
Goodyear defensive strategy would consist of changing their retail structure, declining market share in the replacement tire segment and have a flat original equipment volume. As for changing their retail structure they could do this by having non company owned or franchised company stores which are capturing a larger percentage of the tire replacement market. Discount, multi-brand independent dealer’s market share rose from 7% to 15% between 1982 and 1992. The reason that Sears is a good viable option is because of the declining market share in the replacement tire segment. Market share for replacement tires captured by retailers not serviced by Goodyear has grown from 17% to 35% (1982-1992) and market share loss of 3.2% over last four years. As for original equipment tire volume, the replacement tire market which represents 60% of Goodyear sales worldwide is more profitable that the original equipment market. Goodyear’s unit volume has plateaued in this segment at 38%. So I believe that only selling high performance Eagle brand tires at Sears is the best alternative for Goodyear.
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