case good year tire

1Case Study: Goodyear Tire & Rubber Company

COMPANY BACKGROUNDCOMPANY BACKGROUND

The Goodyear Tire and Rubber Company was founded in 1898 by F. A. Seiberling in Akron, OH.

Goodyear specializes in the design, manufacture and distribution of tires for automotive and industrial applications.

Operate 60 plants in 26 countries for distribution to 185 countries around the globe.

Revenues are generated through five operating units based on geographic regions – North America, Latin America, European Union, Asia Pacific, and Eastern Europe (which includes the Middle East and Africa).

Cases OverviewCases Overview

Sears management had approached Goodyear about selling the

company’s popular Eagle brand tire in 1989--declined

Goodyear’s top management believed that such action

undermine the tire sales->$38 million loss in 1990 and change

Goodyear top management in 1991

In 1992 The Goodyear Tire and Rubber Company decided to

reconsider about Sears offer.


Why they consider?

Between 1987-1991, they realize that there is 3.2%

decline in market share for passenger car replacement tire in US

(=4.9M tire units) Nearly 2 million worn out Goodyear brand

tire were being replaced annually at 850 Sears Auto Centers in

Unites States

If Goodyear accept the proposal, it would represent a significant

change in distribution policy and create conflict with its franchised

dealer.

Also need to consider whether to sell only Goodyear Eagle brand or

all of its brands.

3WSOM BAFI 403 – Goodyear Tire & Rubber Company Valuation


D – Define the problem

E - Enumerate the decision factor

C - Consider relevant information I - Identify the best alternative

D - Develop a plan for implementing the chosen alternative

E - Evaluate the decision and the decision process

Decision Making ProcessDecision Making Process

Step 1: Define the Problems Step 1: Define the Problems

Decline in market share of replacement tires, and less

repurchased tires.

2 million Goodyear tires were replaced by

competition at Sears.


Step 2: Enumerate the Decision Step 2: Enumerate the Decision FactorsFactors

a) Alternative course of action Accept Sears’ proposal by changing its distribution

policy by including their own Goodyear seller, that will carry their brands exclusively, or continue sales to Sears, whilst considering which products within the product line is to be sold to Sears.

Reject Sears proposal and maintain as per before.


Step 2: Enumerate the Decision Factors Step 2: Enumerate the Decision Factors (Cont..)(Cont..)

b) Uncertainties Dealers may influence customers to buy other

brand since only a few buyers are knowledgeable enough when it comes to tires.

Brand loyalty and tires are highly elastic products. Product cannibalization, between Sears and

franchised dealers.


Step 3: Consider Relevant Information Step 3: Consider Relevant Information (4p’s Analysis) (4p’s Analysis)


Step 3: Consider Relevant Information Step 3: Consider Relevant Information (4p’s Analysis) (Cont..) (4p’s Analysis) (Cont..)


Step 3: Consider Relevant Information Step 3: Consider Relevant Information (SWOT Analysis) (Cont..) (SWOT Analysis) (Cont..)

10WSOM BAFI 403 – Goodyear Tire & Rubber Company Valuation

Step 4: Step 4: Identify the Best Alternative Identify the Best Alternative


Step 4: Step 4: Identify the Best Alternative Identify the Best Alternative


We have decided to accept the proposal, for the following reasons:

• Increasing the distribution channel would increase sales and revenue for Goodyear.

• Sears would be able to recapture the market of replacement tires for Goodyear, and regaining the 2-million tires market at Sears.

• As mentioned earlier, Goodyear relies heavily on replacement tires, and thus it would proof profitable to distribute them via Sears, as there is already a large market there.

• In addition to that, the next matter to be considered would be as to what products should be sold at Sears. Thus, we deem it best to just sell one product, which is the Eagle to Sears. This is to ensure that there is no product cannibalization between Sears and the franchise dealers, and at the same time, transfer all costs of promotion for Eagle to Sears, so that Goodyear can concentrate on the other products.

STEP 5 : DEVELOP A PLAN FOR STEP 5 : DEVELOP A PLAN FOR IMPLEMENTING THE CHOSEN IMPLEMENTING THE CHOSEN ALTERNATIVEALTERNATIVE In this case, Goodyear would have a joint venture

with Sears, allowing it to carry all its Eagle products. This would enhance its sales and minimize its cost, as the cost of promotion for the Eagle brand would be borne by Sears.

Thus, Goodyear could enhance its promotional strategy through advertisement such as television, auto racing and F1 from the additional savings, and further promote the rest.

In addition to that, Goodyear could have its own personal dealers, to help it in selling and marketing the other 12 products. This can be done by Goodyear, or franchised to franchisees willing to carry the products.


STEP 6: EVALUATE THE DECISIONSTEP 6: EVALUATE THE DECISION They must ask two questions. 1)Was a decision made?

Yes, a decision has been made and we would suggest that Goodyear to accept the proposal offered by Sears and to only sell one brand, the Eagle brand tire to Sears.

2) Was the decision appropriate, given the situation identified in the case setting?Yes, the decision made was appropriate. From the case, it is clear to see that Goodyear was suffering from loss in market share and profits, thus it is essential that the decision made be executed to ensure that Goodyear would regain its competitive advantage, regain its market share, and most importantly, turn its losses into profits.


case good year tire

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