Case study on Goodyear: The Aquatred launch

Goodyear:The Aquatred launch

Prateek Rout NIT Rourkela

HARVARD BUSINESS SCHOOL CASE

The

STALWARTS

BARRY ROBBINS, Goodyear’s vice president of marketing for North American Tires.

STANLEY G. GAULT, Chairman of Goodyear.

PRESENT SITUATION

Some of the unanswered questions regarding the launch of Aquatred Tire:- Is this the right product?- Is it the right timing for the launch?- Should the distribution channels be expanded?- Will Aquatred be sold through the new markets?

TIRE INDUSTRY

DISTRIBUTION

CHANNELS

COMPANY

BACKGROUND

AQUATRED TIRE

COMPETITIO

N

MARKET FOR

PASSENGER TIRES

AUTO SERVIC

ES

CUSTOMER

SEGMENTS

INSIGHTS ON

TIRE INDUSTRY•1900 – 1970’s

Five companies dominated the US market

TIRE INDUSTRYCHALLENGES (1/3)

Radial Tire construction > Bias & bias-belted tire construction

Advantages:• Superior tread-wear, handling and gas mileage.• Radial tires lasted for 40,000 miles whereas bias-belted tires lasted for 20,000 miles.

TIRE INDUSTRYCHALLENGES (2/3)

Increased foreign competition

Import passenger tires unit sales BOOMED:• 1972 – 8%• 1982 – 12%• 1990 – 22%

TIRE INDUSTRYCHALLENGES (3/3)

Nature of demand from consumers and car makers

• Rise in the price of oil.• Rise in cost of manufacturing tires. • Shift of sales towards smaller cars which place less wear on tires.

TIRE INDUSTRY

• Demand for passenger tires grew sluggishly• New tire prices in the U.S. market declined.• Tire-producing capacity outstripped demand.• Rise in the number of mergers and acquisitions

COMPANY BACKGROUND

STATS (1991)

• 41 plants in United States.• 43 plants in 25 other countries.• 6 rubber plantations.• 2000 distribution outlets worldwide.• Total revenue - $10.91 billion.• 105,000 employees.• Ranked third in worldwide sales of new tires.

COMPANY BACKGROUND

INNOVATIVE PRODUCTS• 1977 – Introduced the TIEMPO, the first all-season radical.• 1981 – Launched the EAGLE, the first radial tire offering high-speed traction for sports cars.

COMPANY BACKGROUND

In 1991 Goodyear was still spending $1 million per day on interest payments and earnings were sluggish.

COMPANY BACKGROUND

STANLEY G. GAULT

• Chairman of Goodyear and retired chairman of Rubbermaid.• Installed his own management team.• Sold off assets.• Increased priority on new product development.

MARKET FOR PASSENGER TIRES

SEGMENTATION BASED ON PERFORMANCE AND BROAD-LINE TIRES

• Performance tires were wider than broad-line tires, were more expensive, and provided better traction.• In the U.S. passenger tire market, performance tires represented 25% of Goodyear’s unit sales, 30% of dollar sales, and an even higher percentage of profits.

MARKET FOR PASSENGER TIRES

SEGMENTATION BASED ON REPLACEMENT AND OEM TIRES• Replacement tires were sold to individual consumers, while OEM tires to car manufacturers.• In 1991, U.S. replacement tire sales - $8.6 billion.• In the United States, Goodyear’s passenger tire division derived 65% of its revenues from replacement tires and 35% from OEM tires.

MARKET FOR PASSENGER TIRES

SEGMENTATION BASED ON BRAND CLASSIFICATION

CONSUMER BEHAVIORCONSUMER PURCHASES

• 2 tire purchases – 42%.• 4 tire purchases – 40%.• 1 tire purchase – 16%.• 3 tire purchases – 2%.• Purchases of sets of four tires accounted for 60% of all units sold.

CONSUMER BEHAVIORTIRE ATTRIBUTES

• Tread life.• Wet traction.• Handling.• Snow traction.• Dry traction.

IMPORTANCE

CONSUMER BEHAVIORCONSUMER CRITERIAS

• Price.• Offers fast service.• Can trust personnel.• Store is attractive.• offers mileage warranty.• Brand selection.• Maintains convenient hours.

IMPORTANCE

CONSUMER SEGMENTS

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

DISTRIBUTION CHANNELS

DISTRIBUTION CHANNELS

WHOLESALE DISTRIBUTION CHANNELS

LARGE RETAILERSINDEPENDENT

DEALERS

Strictly wholesalers (10%)

Strictly Retailers (50%)

Wholesalers + Retailers (40%)

DISTRIBUTION CHANNELSRETAIL DISTRIBUTION CHANNELS

GARAGES/SERVICE STATIONS

WAREHOUSE CLUBS

MASS MERCHANDISE

RSMANUFACTURE

R-OWNED OUTLETS

SMALL INDEPENDENT TIRE DEALERS

LARGE INDEPENDENT TIRE CHAINS

OTHER(Ex- FULL SERVICE STORES)

GOODYEAR’S DISTRIBUTION STRUCTURE

GOODYEAR’S INDEPENDENT DEALERS

Sales organization for independent dealers was organized into 28 districts, each with a district manager and three sales managers

Area sales manager made sure:• Dealer orders were placed properly.• Information provided about market trends. • Advices offered on operations.• Complaints are handled.

•In 1989, 70% of Goodyears independent dealers carried only Goodyear tires, while 30% stocked other brands. • In 1991, the estimates were 50-50.

Allowances:• Wholesale allowance.• Merchandising allowance (1.5%).• Advertising accruals (4%).

PROMOTIONS

“Spring Dating”

Core Events

Unique product offerings

AUTO SERVICES Services sales $38,000 per month per outlet Margins – 50% service labor & 20 to 25% parts installed. Revenues – 70% service labor & 30% parts.

COMPETITIONVS

• Better brand image among a group of buyers.• Wise spending on advertising and promotion.• Loyal customers.

AQUATRED TIRE

POP

Quality radials. Precision handling. Large dealership network.

POD Safety (lowest stopping distance) Durability (60,000 miles >> Industry average) Best wet traction. Appearance: New innovative and contemporary design.

BCG MATRIX

OBJECTIVE OF CASE STUDY

Should we launch

Aquatred?

LAUNCH ISSUES

Is this the right PRODUCT?

TREAD LIFE OF 60,000 MILES

SURVEY REVEALS:CONSUMERS WERE

MORE LIKELY TO REPLACE COMPETITIOR

TIRES

ONLY PRODUCT OFFERING WET

TRACTION

LAUNCH ISSUES

PRICING & PROMOTION?

Average selling price of a tire by Goodyear’s

independent dealer - $75

Conclusion–Reduce the price of the tire to

add some specific buyer groups.

“Aquatred” was priced at 10% premium over

Invicta Gs.

Good year’s suggested price higher than that

suggested by independent dealers.

50% of the sales revenue from

Independent dealers

LAUNCH ISSUES

PRICING & PROMOTION?

Is the decision taken by Goodyear to launch Aquatred during winter Olympics is right?

Yes Goodyear’s ads should sell “SAFETY” and not just the tires. Aquatred should be promoted in heavy rainfall regions of the country. Should give “Early bird discounts” to attract customers and give service incentives.

LAUNCH ISSUES

REFORMATION OF MARKETING CHANNELS?

How to Expand independent dealers?

TRAINING AND SUPPORT ACTIVITIES

FINANCIAL ASSISTANCE FOR NEW ENTRANTS

FRANCHISE-TO-INDEPENDENT CERTIFICATION PROCESS

How to Expand Wholesale channels?

Only limited

stock to be supplied

Limited discount

s

No Incentive

s

Only to few

wholesalers

LAUNCH ISSUES

TIMING OF LAUNCH?

Launched during the Olympics. Early bird Advantage. Heavy promotions with ads. Organize contests between the games. Opportunity to connect with huge consumer base.

Michelin and Bridgestone launch products earlier than expected. Then:• Reevaluate Prices.• Incentives to dealers for targeted sales.

Sales are lower than anticipated. Then:• Reevaluate the value conveyed.• Make use of wholesale channel.• Use in OEMs.

TIRE INDUSTRY

DISTRIBUTION

CHANNELS

COMPANY

BACKGROUND

AQUATRED TIRE

COMPETITIO

N

MARKET FOR

PASSENGER TIRES

AUTO SERVIC

ES

CUSTOMER

SEGMENTS

INSIGHTS ON

AQUATRED TIRE

Should we launch

Aquatred?

These slides were created by Prateek Rout, as part of an internship done under the guidance of Prof. Sameer

Mathur (www.IIMInternship.com)