Goodyear Marketing Case

What is the problem presented in the case?

In 1992, the Goodyear Tire and Rubber Company decided to reconsider the offer from Sears to sell Goodyear's Eagle brand tires. The reasons that Goodyear was contemplating this offer was that Sears was replacing worn out Goodyear tires at a large amount every year. The tires were not being replaced with Goodyear tires because the customers at Sears wanted to replace their tires with the best possible tires that Sears offered, and the Goodyear tires were not in the offering. The company's major options in this decision were whether to sell only the Eagle brand tires or all of the Goodyear tire brands.

How would you characterize the competitive environment in the tire industry in1991?

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.

What is Goodyear's relative competitive position within the tire industry?

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.

Does it make sense for Goodyear to broaden its distribution beyond company-owned retailers as a matter of channel policy? Why?

Currently, Goodyear's distribution strategy is an AVS or “administered vertical marketing system”. This means that Goodyear controls the flow of products from their production facilities to the end-user. This is largely due to Goodyear's power and size.

When looking at consumer behavior regarding tires, though, we see that there might be a good reason for Goodyear to sell tires at Sears. This reason has to do with the way consumers purchase replacement tires. Consumers have little choice regarding which tires come with their vehicles. They do, however, have a great deal of choice in replacing tires. Recently, consumers have become more price conscious and less brand loyal when it comes to purchasing replacement tires. Conventional wisdom dictated that once a tire was worn out, the consumer would replace it with the same brand. While this is partly true, survey data has shown that salespeople can influence a consumers choice of replacement tires. This give the salesperson control over the purchaser, who likely has very little preference for a brand of tire.

Because of this, it seems that Goodyear should want to sell tires in Sears, since people will be buying tires there anyway. No one will leave Sears to go to the Goodyears store. If Goodyear products are in Sears, however, then the likelihood of increased goodyear sales will increase.

Other factors affect this decision. It was documented that Goodyear tires were being replaced by Sears brand tires at a rate of 2Million annually. Goodyears were also seeing a 3.2% decline in replacement tire purchases.

So the answer to the question is: No, it doesn't make sense with their current policy, but the situation is such that the current policy needs to be changed.

What are the strategic Implications of broadened distribution of Goodyear brand tires at Sears?

Many of these implications have ben examined in the previous question. Goodyear is losing market share, losing money, and losing cutover loyalty.

The Goodyear bran is a very strong one. It was #2 in world sales of tires in 1990, with 20%