Goodyear Tire And Rubber Company

GOODYEAR TIRE AND RUBBER COMPANY

1. Analyze the key characteristics, metrics, and parameters of the U.S. tire markets as summarized in this case.

The tire industry is divided into two end-use markets:

1. the original equipment tire market (OEM)

2. the replacement tire market

The Original Equipment Market

OEM tires are sold by tire manufacturers directly to automobile manufacturers, and they account for 25% - 30% of tire unit production volume each year. The Goodyear Tire & Rubber Company is a perennial OEM leader, in 1991 they captured 38% market share. Firestone and Michelin each held 16% OEM market share.

The Replacement Tire Market

The replacement tire market accounts for 70% - 75% of the total number of tires sold each year. Demand for this market is directly related to the average mileage driven per vehicle, and it should be noted that the better the tires are made (longer treadlife) the less they need to be replaced. Goodyear is the perennial market-share leader in the U.S. replacement tire market.

Competition

Ten tire manufactures account for 75% of the worldwide tire production. The largest is Groupe Michelin from France, who markets the Michelin, Uniroyal, and BF Goodrich brands. The second-largest producer is Goodyear. Their biggest brands are Goodyear, Kelly-Springfield, Lee, and Douglas. Finally, Bridgestone Corporation, whose major brands are Bridgestone and Firestone, is a Japanese firm and the world's third-largest producer.

Consumer Behavior

Demand for tires in the OEM is derived; meaning, tire volume is directly related to automobile production. When a consumer goes to buy a new vehicle, the sticker price of the vehicle includes the new tires, which is predetermined by the manufacturer. The consumer does not have much control at all of tires in the OEM.

When it comes to replacement tires, consumers have in recent years become more price conscious and less brand loyal. It was previously believed that car and truck owners who were satisfied with their original equipment tires would buy the same brand when they replaced them. This is still true to an extent, but surveys have shown that dealers (salespeople) were able to influence a car owner's choice of replacement tires, in relation to both brand and type of tire. Most consumers don't have strong tire brand preferences, making it fairly easy for the salespeople to influence tire purchase.

Key problems facing Goodyear

1. In 1991, Goodyear experienced a $38 million loss

2. From 1987 to 1991, Goodyear had a 3.2% decline in market share for passenger care replacement tires in the U.S. (loss of about 4.9 million units)

3. It was believed that almost 2 million worn-out Goodyear's are being replaced annually at Sears Auto Center locations by other brands of tires

4. If they choose to team up with Sears, their executives will have to reconsider the company's long-standing distribution policy

5. If they choose to sell their tires in Sears' stores, there will most likely be conflict with franchised dealers

6. The possible Goodyear / Sears partnership has already caused bad press in publications such as the Wall Street Journal

7. It's possible that the company owned and franchised Goodyear Tire Dealers might incur a loss in unit sales, especially in communities where Sears holds a strong market share

2. Develop an analysis of Goodyear's existing channel of distribution strategy. Present tables or charts which demonstrates where / how Goodyear distributes their aftermath tire products.

The Goodyear Brand was #2 in worldwide market share of tire makers in 1990, holding 20% market share, and Michelin / Uniroyal-Goodrich was #1, with 21.5% market share. But, the Goodyear brand was the market share leader in North America and Latin America at the time of this study.

The Goodyear name is one of the best known brand names in the world. Following is a list of Goodyear's Subsidiaries and the different brand names sold under the Goodyear name in 1991.

Goodyear Tire & Rubber Company Subsidiaries Brand Names Sold under the Goodyear Umbrella

Goodyear Arriva

Kelly-Springfield Tire Company Corsa

Lee Tire and Rubber Company Eagle

Delta Tire Invicta

Private-label tires Tiempo

Decathlon

Regatta

S4S

T-Metric

Wrangler

Aquatred

Kelly-Springfield & Lee Tire (subsidiaries) sell 16 tire brands and engaged in private-label marketing

Goodyear Tires are sold at various outlets and stores around the world. Some statistics relating to the number of outlets worldwide, the number of outlets in the United States, company-owned service centers, and franchised Goodyear dealers are as follows:

# of outlets

Worldwide Retail Outlets 25,000

Retail Points of Sale in U.S. 8,000

Company-Owned Goodyear Auto Service Centers 1,000

Franchised Goodyear Dealers in the U.S. 2,500

Each year worldwide, Goodyear Tire sales are pretty evenly skewed between the replacement market and the original equipment market, with a bit higher sales in the replacement market, as the pie chart below illustrates.

What are the advantages and disadvantages or Goodyear's existing channel of

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