Goodyear Tire

Assignment Three

Goodyear Tire and Rubber Company

Marketing 440

Problem Statement

With the competitiveness of the US tire industry in 1992, Goodyear Tire and Rubber Company is reconsidering a proposal from the department store Sears to carry Goodyear Eagle brand tires. With a $38 million loss in 1990 and a change in top-level management in 1991, the Sears proposal from 1989 was being looked at again. These new top-level managers have two decisions to make: whether Sears should carry only the Goodyear Eagle brand or all of Goodyear’s tire line. Goodyear will have to look at their distribution policy and the potential backlash that could come from their independent franchised dealers.

Analysis

Key factors in competition of the US tire industry

Price plays a large factor in the tire industry. Many consumers purchase their tires based on the price, due to the fact that they know little about tires and are more focused on getting a good price in comparison to a better quality tire. Customers who know more about tires or automobiles look for quality of the tires for their vehicles. At the retail level, salesmen are pushed to sell the private label tires of a store before any other one. This is difficult to do when a customer has a brand loyalty.

To be competitive in the tire industry in the United States you must have a variety of offerings. Tire companies must have a strong portfolio offering mix to remain competitive within the industry. The United States has many different climates, with both extremes of rain to ice. By having an extensive product line, you will be able to satisfy more customers in each demographic.

Branding and reputation is another huge factor in the US tire industry. When trying to create a competitive advantage within the tire industry, branding and product reputation play a large role in creating profits. Goodyear has an excellent brand name from its extensive marketing campaigns, word of mouth, and customer loyalty. Reputation is a important factor due to the seriousness of the product offering. If a company offers a poor product, word of mouth that Goodyear tires are a poor product will hinder sales and repeat buyers. When a person has an accident due to their tires, it is very unlikely that they will purchase that same brand of tires again.

The relationship between manufacturers and retail distributors and licensed dealers is another important factor in the industry. With the industry being so competitive, this impacts the number of tires sold in the US based on what retail level is used. Customers have two retail level choices; retail distributors (Wal-Mart, Sears) or licensed dealers (Les Schwab). Most customers purchase tires from retail distributors because they do the most dealing with them, and customers who shop at licensed dealers are looking for a specific product as they have more knowledge in their purchases of tires. Based on this information quality seems to not be quite an issue with retail distributors, but more on price. These consumers are looking for the cheapest tire, with the most convenience included (redeem points or warranty extras from the store). Where as licensed dealers cater more to a customer who knows what they want for their car.

Lastly the relationship with original equipment for manufacturers is a factor in the industry. These associations account for large business for the tire companies. It’s a fixed contract, in that they agree to a set number of tires that cannot fluctuate. The manufacturer will order the tires for the completion of their vehicles. By having original tires on a car, it could lead to repeat purchases from its users. When the customers tires run out, some will see what type they have, and if they have had no problems on the road with them, they will most likely ask to get the same pair again. Original tires account for approx 25-30% of all tires manufactured within the United States each year. Second this with how you can create a brand loyalty based on the fact that you have original equipment on a customers car, you can create repeat purchases for many years to come.

Goodyear’s competitive position

Within the industry there is ten tire manufacturers that account for 75% of worldwide tire production, of these ten tire manufacturers Goodyear is the second largest. The industry divides into two markets: The original equipment tire market (car manufacturers put tires on new cars) and replacement tire market (tires become wore out and need to be replaced). The original equipment tires account for 25-30 percent of the company’s production each year and the replacement tire market accounts for 70-75 percent of the production each year. But when Michelin acquired the Uniroyal Goodrich Tire Company for $1.5 billion in 1990, Michelin became the largest manufacturer of tires in the world. In 1991, Goodyear had corporate sales of $10.9 billion and earnings of $96.6 billion, and Goodyear controls approx 20-25% of the world’s tire manufacturing capacity and approx 37% of the U.S. tire-making capacity. Although most of the company’s sales come from inside the U.S., approx 42% of their revenues come from outside America.

Many of the companies within the industry are theoretically giving the exact same product. Goodyear is able to create a better product through its tangible, core and augmented product differences. By giving a better experience for the consumer through installation, after sales service, warranties, Goodyear has been able to stay ahead of its competition.

Goodyear has been known for manufacturing only premium tires, and recently introduced mid-line tire brands to compete with less expensive replacement tire brands and private label tires. Goodyear has subsidiaries of Kelly-Springfield Tire Company, and the Lee Tire and Rubber Company. These subsidiaries allow Goodyear to create more tires at a cheaper price.

Goodyear has a low margin pricing strategy. This strategy allows Goodyear to spend money on its research and development, branding and advertising. The Goodyear blimp is one of the most recognizable advertising icons in the United States. This strategic method of advertising has enabled Goodyear to be a strong iconic figure in the US market.

Strategic