Goodyear Case Study [PDF]

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1. Summery Founded in 1898 by Frank and Charles Seiberling with headquarters in Akron, Ohio, Goodyear is one of the reputed and famous tire brand known globally in rubber and tire industry. Company started its business by selling bicycle and carriage tires but later switched to automobile tire industries as a main focus. In 1916, Goodyear became world’s largest tire producer because it introduced Quick detachable and Universal Rim in 1903 which was widely accepted in the market and was a successful product for the company. (Karin & Peterson, 2013) Until 1990, Goodyear enjoyed the largest and highest market share and leadership in the tire industry, but second largest tire manufacturer Group Micheline acquired the Uniroyal Goodrich Tire company in 1990 for 1.5 billon and became the market leader followed by Goodyear as second largest tire manufacture. (Karin & Peterson, 2013) thus, as per the 1990 data presented in this case, presently Goodyear is second and Michelin ranks first in the global tire manufacturer ranking. Presently Goodyear has ¼ of global tire production capacity whereas it has 38% of U.S tire manufacturing capacity with eight thousand retail points of buying in U.S. (Karin & Peterson, 2013) Following brands cover 60% of global tire market share.



1. Micheline Brand - Largest manufactures in the auto tire Market with following brands Michelin



Uniroyal



BF Goodrich brand



2. Goodyear – 2nd Largest manufactures in the auto tire Market with following brands Goodyear



Kelly Spring Field



Lee



Douglas



3. Bridgestone – 3rd Largest manufactures in the auto tire Market with following brands Bridgestone Firestone



Tire industry in segregated in main two categories i.e. Original Equipment Manufacturing and After Market tire replacement Market. 25% to 30% of overall tire per unit production volume sales come from OEM each year whereas 70% to 75% comes from aftermarket tire market replacement market. Key Issues In 1989 Sear approached Goodyear regarding selling Goodyear’s Eagle tire brand which was declined by Goodyear because Goodyear company believed that such action would affect sales through its owned auto service centres and franchised dealers. However, in 1990 Goodyear faced $38 million loss in sales and in 1991 change in the top management made Goodyear to rethink and reconsider the Sear offer. (Karin & Peterson, 2013) Key issues in considering this offer are as follows:



1. It would lead to conflict among Goodyear franchised owners and would also upset them. 2. Selling through Sear will present major change Goodyear’s distribution policy 3. It is hard to decide whether Sear should sell Eagle’s all sub-brands or only certain brand. Should Goodyear let carry franchised owned dealers only on exclusive basis. (Karin & Peterson, 2013) Problem Analysis Goodyear has to maintain and sustain its market leadership position by figuring out on how to increase its distribution network while continuing and protecting its current brand and market share. Goodyear’s market share in replacement tire market segment is declining because less Goodyear brand replacement tires are rebought and also 2 million Goodyear tires were replaced at competitors Sear’s Auto centres in U.S. Decisions to be made Decisions should be based on above key issues and problem. Decisions for strategically broadening the distribution network would include – should Goodyear expand it distribution network through Sears and whether it will result in increase of sales? - how many brand should be sold through Sear, all eagle brands or few? - How to protect Goodyear franchised owners interest in this business strategy with Sear? – how would be the cannibalization if sold through



other retailers? These decisions play important role as it directly relates to the success of this action. 2. SWOT Analysis Strength - Internal factors Good year has nationwide presence having more than eight thousand retail outlets which shows Goodyear has broadest market coverage. It is second largest tire manufacturer in the world. Goodyear makes every type of tire for any type of car or truck thus having the broadest variety of tires in the tire industry. Goodyear the top advertisers on national level in U.S market. It has 12 brands that presents strong presence in the industry. Quality and high performance is assured by its presence in Auto Racing. In 1991 Goodyear had 38% of market share OEM. Goodyear has prominent market share in highway truck tires, car and light truck tires. One of the major strength of Goodyear is that it is reputed and world famous brand know for high and premium quality Weakness – Internal factors Change in top management and drop in passenger car replacement tire market share in 1990 by 3.2% which is loss of $38 million. Michelin brand has fourteen thousand sale store whereas Goodyear has eight thousand which leads to huge difference posting a major weakness. Goodyear has no strong presence in international market and it ranks third in European market. Goodyear has limited



distribution network and it does not sell its brand through mass merchandisers. Also it distribution network in replacement market is very poor which has affected it market share. Goodyear tires are highly prices whereas competitor’s prices are low which attract customers more to switch to other cheap priced brand than Goodyear. Goodyear sales lacks in explaining its tires unique features and types which leads to low sales. Opportunities - External factors Goodyear brand is globally known brand, thus, it can be quickly and certainly accepted in foreign markets as it is high quality product and widely used in U.S market. Tire industry growth depends in automobiles sales and automobiles sales are growing in Europe, Africa and Asia which give Goodyear an opportunity to expand in international market. Launch of Aquatred gives an opportunity to heavily capitalize Aquatred as it not offered by competitors. There is opportunity to sell through discounts stores, warehouse clubs and independent dealers as they represent positive market growth in tire industry for replacement tire segment which is more moneymaking compared to OEM. There is opportunity to increase sales by educating customer about the tire features because customers do not know the quality and performance results until effectively addressed their questions during sales. (Karin & Peterson, 2013)



Threats – External factors Goodyear faces heavy competition from local private label and cheap brands in the market. There is threat in OEM segment from powerful brand Micheline. Growing rate of discount tire retail stores is affecting Goodyear’s sales as Goodyear does not sell through them. Goodyear tires are being replaced by other cheap brand tires at several auto shops. Cut throat competition in price and quality in the tire market. Goodyear’s franchised dealers and distributors might start selling other tire brand because they suffer from shrinkage in profit margins. Due stable OEM growth rate, profitability is limited with high competition. 3. Chanel Policy and Distribution Network After analysing between the strength, weakness, opportunities, threats for the Goodyear company and the tire market environment and demand, it does make strategic sense for Goodyear to revise its current channel policy and broaden its distribution network beyond company owned and franchised Goodyear tire retailers. Goodyear should consider to sell its tires through warehouse clubs and discount multibrand independents dealers because the growth of these two networks eroded the Goodyear’s market share from 1982 to 1992. Discount multibrand independent dealer grew from 7% to 15% and Warehouse clubs grew from 0% to 6% from 1982 to 1992. (Karin & Peterson, 2013) Another important reason that Goodyear should broaden its distribution network is that nearly 2 million



Goodyear brand worn out tires were being annually replaced at 850 Sears auto shops in U.S. If sears carry Goodyear brand tire, these replacements can be done with Goodyear tires itself which also increase sales and brand availability in every corner of the city or state. To make distinctive competency, Goodyear can carry low – medium or high priced tires at these networks depending on the location and customer demands. Such decision to expand distribution network will have only one problem which is company owned and franchised dealers will get in conflicts and might switch to selling of other brand. This decision will hurt company owned and franchised dealers but Goodyear need to come over it limited distribution network weakness and it is possible. Goodyear can take care of their own sales outlets by passing on high margin benefit for the same brand that Goodyear will sell through new distribution channel because Goodyear’s first priority should be the their owned and franchised dealers. When they will see the benefit they get then they won’t mind Goodyear to broaden its network to other dealers. This will also cover the threat of franchised owned dealers to carry other brands. Company owned and franchised dealers would be given first priority and benefits such has exclusive rights to sell certain exclusive tires, they will get trade discounts from the company so that they have higher profit margin, marketing support from company and many more which will keep their interest up and at the same time new distribution networks will carry Goodyear brands but won’t have rights to such benefits. Goodyear should broaden its network through Sear as well by giving some of the EAGLE’s sub-brands out of 26 sub-brands to carry



in Sears auto shops. Thus, it makes strategic sense to expand distribution network which gives new opportunity to increase sales and also cover the threats by applying the logic mentioned above. Further in this it will be show by financial calculation how this is feasible. 4. Alternative Strategies Goodyear should consider to sell its Goodyear brand tires through Sear Auto Centres. This will be not exclusive distribution of eagle entire line of 29 subbrands but some of the Eagle brand which are suitable to Sears customers in regards with price and quality. Pros In case it is clearly mentioned that nearly two million Goodyear brand worn out tires are replaced at the 850 Sear auto centres in USA. Two million unit sales are a very large number which Goodyear can add to its exiting sales by selling through Sear Auto centres as a one focused market. This will in the replacement tire market which accounts to 70% to 75% of the overall annual tire sales and this segment is more profitable than the OEM segment. (Karin & Peterson, 2013) Such action will increase Goodyear’s sales and also recover falling market rate in replacement market. This will open 850 new locations for Goodyear tire availability in U.S which is expanding Goodyear’s distribution network in replacement market. Market share will be increased in two to three year with other benefits such as brand awareness and brand recognition. Goodyear tire won’t be



considered as low quality by this action as Sear is not a cheap or discount store. Good relation with company owned and franchised dealers will be maintained as Sear won’t get entire line of Eagle sub-brand whereas franchised dealers will carry exclusive rights to all variety. As they will be competing with Sears now, Goodyear will provide them with extra benefits than Sears auto centres. This way, it will be balanced and this strategy will be successful. Cons Goodyear have to face the expansion expenditure to handle new 850 networks in U.S which will need change in entire distribution network policy. Goodyear will have to bear with the initial conflicts between company and company owned franchised dealer as a result of accepting Sears offer to their tire distribution. Cannibalization conflicts between franchised dealers and sear will be also a challenged to be faced. Broadening Goodyear’s Distribution network through Warehouse Club and Discount Multibrand independent dealers This strategic can be beneficial as this retail network has potential and Goodyear did not utilised it earlier. Case clearly states in exhibit- 1 that 6% retail sales is gained through warehouse club and they were not there in the year 1982.



Pros This is untapped market for Goodyear brand tires and it was also not present in 1982. This market is also growing representing 6% of replacement tire market sales. This will allow easy availability of Goodyear tires in warehouse clubs also increasing sales, brand awareness and recapturing replacement tire market. Case mentions major reason for Goodyear to decline in its market rate was due the growing rate of warehouse club and independent dealers, thus, with this strategy market share can be raised. Again, this strategy will be successful because relation with exiting distributors will be maintained by offering the priority and extra benefits compared to this new networks. Cons This strategy will confuse customers for Goodyear brand and also create more competition. Independent dealers can sell Goodyear brand tires as per their choice price to compete with Goodyear franchise which can be a threat to Goodyear’s owned and franchised dealers. Company would require to negotiate about the stock and salving space with warehouse club which can be pain and hectic. Again initially company would have to bear conflicts between franchised dealers interest and sale cannibalization.



Do nothing but maintain the exiting distribution policy Pros Goodyear manages to control all its brands sold through its owned and franchised dealers, which shows there is no risk from these stores. Revenue received from them is ongoing. Cons Exiting distribution network is poor and not efficient enough to tackle the competition and sustain market share. Due to limited distribution network, Goodyear has lost millions of dollars of sales mainly from replacement market. Such scenario will lead to further losses in competitive environment which is not a good signal for the company. Recommendation Goodyear should to accept Sear offer and sell only low to medium prices Eagle sub-brand tires through Sear Auto Centres. Eagle brand should not be exclusively available to Sear but it will be to company owned and franchised dealers. This strategy is recommended and shall be implemented for the following reasons:  Company’s brand awareness, availability, reorganization will be increased because Goodyear brand tire will get access to 850 Sear stores nationwide in US



 Sales and revenue of company would be raised as company used this channel of before.  As the manufacturing volume will increase, company’s cost of manufacturing will be economical as Goodyear will be shipping out millions of tires to Sears annually. (Karin & Peterson, 2013)  Market share will be regained as there will be increase in annual sales through Sear customer tending to buy Goodyear tires now. (Karin & Peterson, 2013)  Major revenue comes from replacement market and selling through Sears will make Goodyear more profitable as replacement market is more profitable than OEM Risk linked with this strategy  Goodyear has never dealt with such discount independent stores earlier, so it can be challenging initially for the company to enter the such sales and distribution network model.  Company owned and franchised dealers have Sears as a new competitor in the market who is selling same product. This will initially lead to slight conflicts between these two company owned networks.  Brand goodwill can have damaged as franchised dealer and channel partners might think that company is not loyal to them.



 There can be price and cannibalization issues at the location where Sear and company franchised are located near to each other. Following financial calculation will show feasibility of this strategy Replacement market total unit sales – 155410000 (Karin & Peterson, 2013) Market share avg. – 16.3% (avg. of all three segments - 49/3 = 16.333%) Assumed avg. retailer price - $100 Net sales – 155410000 x 0.16 = 24865600 Units Net sales - 24865600 + 200000000 = $202486500 (2000000 x 100) If Goodyear implements this strategy, following will be the incremental sales Total sales - 202486500 (from above) Assumed dealer profit margin – 40% = 80994600 (0.4 x 202486500) Net sale - $202486500-80994600 = $121491900 Percentage increase in sales = 9.8% (200000000/202486500 x 100 = 9.8) Thus it can be concluded that Goodyear can go ahead and start working with Sears with a new distribution model as company will increase sale by 9.8% in the first year.



Reference Kerin, R. A. & Peterson, R. A. (2010). Strategic Marketing Problems. Saddle River: Prentice Hall.