At a Glance:

From early 1900s through the early 1970s, Goodyear was one of the topmost

dominating rubber and tire manufacturers in the U.S. tire industry. From the very

beginning of Goodyear Rubber and Tire Company, it had been known as “The

Gorilla” for its dominance of the world tires industry. The consistent growth in

revenues and profits made the U.S. tire market very attractive. In 1991, Goodyear

operated 41 plants in the United States based in Akron, Ohio. It also had 43 plants in

other 25 countries, six rubber plantations and more than 2000 distribution outlets

worldwide. In fiscal year 1991, Goodyear had approximately 105,000 employees all

around the world.

Goodyear ranked third in worldwide sales of new tires.

World Leaders in New tires (1991) Sales (in Billion $)Michelin/Uniroyal/Goodrich 10.4Bridgestone/Firestone 9.8Goodyear/Kelly Springfield 8.5Continental/General 3.9Pirelli/Armstrong 3.7Sumimoto/Dunlop 3.5

In the early and mid 1980s, Goodyear made large investment in pipelines for

natural gas and oil transmission. In 1986, Goodyear’s debt was greatly increased due

to the emotional takeover battle between the management and Sir James Goldsmith.

In 1991, Goodyear was still spending $1 million per day on interest payments due to

this high debt. High investment led Goodyear to high Exit Barriers.

In June 1991, Stanley G. Gault became the chairman of Goodyear. He installed

his own management team, sold off assets that were not directly related to the tire

business and placed an increased priority on new product development.

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Assessment of The Attractiveness of The Tire Industry:

Attractiveness of any market depends on a number of factors. To assess the

attractiveness of U.S. tire industry, we shall be using “Porter’s Five Forces” model.

Michel E. Porter was a student of Harvard University. Later on, he joined Harvard

Business School and came up with a model that assesses the attractiveness of any

market. The model is known as “Porter’s Five Forces”. The five forces are:

1. Number of players (competitors)

2. Power of customers

3. Power of suppliers

4. Threat of substitute

5. Threat of new competitors

Number of players in the Tire industry:

According to “Porter’s five forces” model, less competitor means more attractive

market.

Till the early 1970s, U.S. tire market had only five dominating tire companies:

Goodyear, Firestone, Uniroyal, BF Goodrich, and General Tire. At that time, there

were no foreign companies in U.S. market. With less competition in the market, all

the companies enjoyed a consistent growth in revenues and profits. Since the radial

tire came into the market in the 1970s and 1980s, U.S. tire industry faced few serious

changes. One of the changes was increased competition. As radial tire offered

superior tread-wear, handling and gas mileage, consumers preferred to buy radial

tires. As a result, some companies such as Michelin of France, used expertise in radial

production as a lever into the U.S. market. And the competition increased.

By 1991, four dominant tire manufacturers in U.S. were sold and acquired

by foreign companies. Michelin bought Goodrich and uniroyal in 1990.

Continental, a German tire manufacturer, bought General Tire. Pirelli bought

Armstrong. Sumimoto Rubber Industries of Japan acquired Dunlop. In 1988,

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Bridgestone, a Japanese company, bought Firestone. Goodyear was the only

major U.S. tire manufacturer that had not been acquired. After 1991, brand

shares of unit sales in the U.S. passenger tire market was as follows:

Brand . Market share (in %) .

Goodyear 15.0%

Michelin 8.5

Sears 5.5

Bridgestone 3.5

Cooper 3.5

Kelly 3.0

Dunlop 2.0

Pirelli 2.0

By 1991, numbers of the world leaders in new tire sales were six. Hence, U.S. tire

industry had all these companies competing against each other’s.

Though numbers of competitors in U.S. tire industry actually decreased through

mergers and acquisitions, we can conclude that, with more than eight competitors, the

market is less attractive.

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Power of Customers:

According to “Porter’s five Forces”, if a large number of customers have power to

switch among brands, market attractiveness goes down. It is basically the bargaining

power of customers. If the bargaining power of customer is high, the market loses its

attractiveness.

Most consumers in the replacement passenger tire market viewed tires as a

“grudge purchase”-as an expensive necessity to keep a vehicle in driving condition.

Among the seven most important criterion of retail outlet selecting, Brand selection is

in number six. Mostly they go for the pricing.

The following table shows the major consumer segments for replacement passenger tires:

Percent

Of consumers

Major Brands

Minor Brands

Private Brands

Price-constrained buyers

22% 30% 35% 35%

Value-oriented buyers 18 54 29 17

Quality Buyers 23 51 28 21

Commodity Buyers 37 18 37 45

The table shows that commodity buyers account for the largest portion of tire

market. They are the one who views brand as unimportant and tend to buy low priced

tires. Which means that they have more bargaining power. It also indicates that large

number of buyers can switch to other brands.

All these indicate that in term buyer’s power, U.S. tire industry is less attractive.

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Power of Suppliers:

According to “Porter’s five forces” model, if there are few suppliers of raw

materials, then supplier will have more power. Hence the attractiveness of the market

goes down.

The major raw material of tire industry is rubber. Since now it has no substitute.

Unlike Goodyear, which has its own six-rubber plantation, not all other companies

have this facility. They have to depend on other suppliers for rubber supply.

On the other hand, rubber plantation is limited to hilly areas. So the number of

suppliers become small. Too many buyers of rubber that is tire industries give the

supplier a scope of bargaining, which reduces the attractiveness of the market.

Threat of Substitute:

Threat of substitute means something that fulfills the similar needs. The more

similar the substitutes are, the less attractive the market will be.

There is no direct substitute of tires. There is no other product that fulfills the

same function of tires. Here the threat is low for tire manufacturers. Wooden tires can

hardly be considered as its substitute. As transport vehicles cannot run on it.

Until any new technology has been invented, tire has no such substitute.

According to this, the tire industry is very attractive.

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Threat of new competitors (Barriers to entry):

According to “Porter’s five Forces”, if there are fewer barriers to enter the market,

the attractiveness will go down. The more barriers to enter the market, the more

attractive the market will be.

Due to the requirement of high investment in this industry, the threat of new

competitors is low. New companies feel uneasy to enter the market.

Over recent years, the replacement tire market had matured and new channels had

gained share. Manufacturers have gained their economies of scale. The opportunity

potential had greatly lowered resulting in no new competitors rather mergers in a

large scale.

Since the tire market is already in matured stage and it requires heavy investment,

new competitors are less likely to enter the market. So, according to threats of new

competitors, the tire industry is attractive.

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Defining Market Boundaries for the Tire Industry:

Tires are hardly used as anything else but tires. Hence we can segment the tire

market by the followings:

1) Customer Function:

For what purpose, the customer is using the product. In case of tires, the reason

that the customer is buying the tires. If the customers are buying the tire for racing

purpose, where they would require better traction, then they should fall under one

customer segment. For this customer segment, we have performance tires.

On the other hand, if the customer is looking for a less expensive tire, which does

not require extensive traction, then they should fall under another segment. For this

segment, we have broad-line tires.

2) Customer Groups:

The market can also be segmented based on the size of the customers.

Replacement tires are sold to individual consumers. In 1991, U.S. replacement tire

sale were estimated at $8.6 billion. This segment is very important for tire

manufacturer. For this customer segment, we have come up with attractive

promotional campaigns, warranties etc.

On the other hand, OEM tire are sold to car manufacturers. In the United States,

Goodyear’s passenger tire division derived 35% of its revenue from OEM tires. Since

carmakers use volume purchases, they usually negotiate substantial discounts of tires.

So, for this segment of customers, we have to use discounts as a promotional tool.

Moreover, car manufacturers want the tire to be delivered to their production unit. So

we will have to arrange delivery system for this segment.

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The following table shows the U.S. market for passenger tires:

Units (in millions) .

Replacement OEM Total

U.S. Tire Industry 152.0 43.0 195.0

Goodyear 22.8 16.3 39.1

3) Brand Classification:

We can also segment the market according to brand classification. It includes

major brands, minor brands and private label. Major brands which carries the name of

a major tire manufacturer such as Goodyear, Firestone, Michelin, Bridgestone, Pirelli

etc accounted for 36% of unit sales in the replacement tire market. Minor brands

represented 24% of unit sales. The rest 40% tires constituted of private label tires. In

1992, 45% of tire buyers were price oriented who had little loyalty to any specific

brand; another 33% believed that the outlet was most important. The rest 22% were

brand oriented.

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Problem Identification:

Since the early days of the tire industry, Goodyear Rubber and Tire Company

had been known as “The Gorilla” for its dominance of the world tire industry.

Goodyear produces a product, which has an existing demand product market and it

has a strong commitment to the industry.

Following the oil shock in 1970’s, most of the tire companies were put into a

tight situation. In that time the case was absolutely different for Goodyear. By 1991,

Goodyear was the only major U.S. tire manufacturer that had not been acquired or got

merged. Unlike other U.S. tire manufacturers, Goodyear had made large investment

during the late 1970’s to convert its factories to produce radials. The company also

had a strong track record in launching innovative products.

Though the company had no problem with its existence as a large company or

increasing investments for new tires but the company had problems in its marketing

division. The firm faced some strategic problems. We have identified four marketing

problems faced by good year, which are the results of its marketing strategies.

Problem in Market targeting Strategy

The market scope strategy that Goodyear follows is Multi-market strategy.

They produce tires for high-end and low-end cars. It is good for a company to have a

multi market strategy as it diversifies risks. But they should consider one more

market segment, the U.S. trucking industry. Here they are omitting the bus, truck tires

market, which is a potential market. U.S. truck industry is one of the largest truck

industries in the world. So, by omitting this segment of consumers, Goodyear

basically lost a huge potential market.

Goodyear currently follows a strong commitment strategy. Most of their

resources are engaged in tire industry where they source raw materials for producing

tires, manufacturing tires and distributing tires.

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Problem in Product positioning Strategy

For the positioning purpose, Goodyear has positioned multiple brands to

diversify the risk and to enjoy the advantages of having multiple brands (more

consumers, more profits). The advantages were not absolutely non-biased cause there

were some degree of cannibalization.

Good year used private labeling (product overlap). Kelly-Springfield is the

brand, which is produced through private labeling. As it is a low-end tire, it can take

over Goodyear’s market. It had been proven in a research conducted by good year

that the consumers at first considers the price and the brand selection was the sixth

factor among the seven most important criteria to select a tire.

In past years, Goodyear had produced two lines of private label tires: the All

American and the Concorde. In 1991, Robbins replaced the All American and the

Concorde with Goodyear-branded tires at comparable prices because market research

showed that the non-branded lines cannibalized sales of branded tires.

Problem in pricing strategy

To the car owners’ price is the most important factor in case of buying a new

tire. So, we can say that the demand in this market is elastic. Good year is such a tire

manufacturer, which had made large investments in rubber plantations, natural gas

and oil transmission. These facts made them able to serve their low-end customers at

lower prices compared to other competitors. But still high-end customers want lower

prices. In 1989, Goodyear survey had shown that with no other information available,

consumers’ expected Goodyear’s broad-line tires to be priced within a six dollar

range from the most expensive to the least expensive. The research also demonstrated

that Goodyear’s point-of-sale displays did little to alter consumer’s expectations of

retail prices.

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The majority of tires wholesaled to oil companies were resold through

franchised or company-owned gas stations or service stations. Wholesaling by oil

companies had declined in recent years, reflecting increased competition at the retail

level.

Problem in Promotions

Every spring Goodyear offered dealers “spring dating,” which provided

extended financing on tire orders. Experiments with everyday low pricing in the tire

industry had been unsuccessful because price competition among dealers undermined

attempts to set consistently low but fare prices. This actually made the customers

expect to buy their tires on sale. They had created a price-conscious monster.

Problem in Distribution Strategy:

The great problem good year faced was with its distribution channels. Good

year used three types of outlets (independent dealers, manufacturer-owned outlets,

and franchised dealers). So, we can say that good year used multiple channel strategy

and they sold their tires through both exclusive and intensive distributors. The result

of this strategy was not good, cause they were directly competing among themselves,

complaints were common.

Another problem good year faced was the dissatisfaction of its independent

dealers. It was because Goodyear always claimed not to want its tires sold in low-

priced outlets (warehouse clubs, mass merchandisers, auto supply stores) but those

outlets sporadically obtained good year tires. Moreover those outlets used to give

price-based ads and frequent discounting.

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Recommended marketing Strategy for Goodyear:

According to the identified problems faced by Goodyear in marketing, we

would recommend the following marketing strategies for Goodyear:

Multi Market Strategy:

Goodyear is already following a multi market strategy. They are also

following a strong commitment strategy. But they have overlooked a significant

portion of the market that is the trucking industry. Goodyear should also cover this

potential market. Hence it will diversify the risks even more giving an opportunity to

Goodyear to compete against a number of competitors and secure its position in the

industry.

Horizontal Diversification:

We would recommend Goodyear to expand its product line and enter into the

tire market as a supplier. Since Goodyear has six rubber plantations, they can make

good money out of it. It will further diversify the market risks.

Product Positioning Strategy:

Goodyear is facing problems with its wholly owned subsidiary Kelly-

Springfield, which is a low-end tire. Here the degree of cannibalization is high.

Moreover, low-end tires with comparatively low price can take over Goodyear’s

market. So we would recommend Goodyear to follow Key Market Strategy and avoid

positioning multiple brands.

Pricing Strategy:

Since car owners go for price first, pricing strategy should be such that it

can compete well enough. Goodyear’s low-end tires compete on the basis of price,

but high-end tires are expensive. On the other hand, all the facilities that Goodyear

provides to its distributors such as “Spring Dating,” incurs additional costs that are

reflected in the tire prices causing more and more customers to buy on sales. So we

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would recommend Goodyear to cut down its extra promotional cost to reduce the tire

prices.

Distribution Strategy:

We would recommend Goodyear to have complementary channels rather than

competitive channels, where they will have multiple channels that will help each

other’s. On the other hand, we would recommend Goodyear to utilize Channel

Control Strategy so that low priced outlets do not get Goodyear tires to sell on

discount. This will help the complementary channels to help each other’s more

frequently and eventually Goodyear will have a greater market share.

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