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

In the early and mid 1980s, Goodyear made large investment in pipelines for natural gas and oil transmission. In 1986, Goodyears 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.

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 Porters 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 Porters 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 Porters 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, Bridgestone, a Japanese
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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 Goodyear Michelin Sears Bridgestone Cooper Kelly Dunlop Pirelli . Market share (in %) 15.0% 8.5 5.5 3.5 3.5 3.0 2.0 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 others. 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.

Power of Customers:
According to Porters 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 Price-constrained buyers Value-oriented buyers Quality Buyers Commodity Buyers 22% 18 23 37

Major Brands

Minor Brands

Private Brands

30% 54 51 18

35% 29 28 37

35% 17 21 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 buyers power, U.S. tire industry is less attractive.

Power of Suppliers:
According to Porters 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.

Threat of new competitors (Barriers to entry):

According to Porters 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.

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, Goodyears 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.

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

Units (in millions) Replacement U.S. Tire Industry Goodyear 152.0 22.8 OEM 43.0 16.3 Total 195.0 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.

Problem Identification:
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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 1970s, 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 1970s 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.

Problem in Product positioning Strategy

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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 Goodyears 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 Goodyears broad-line tires to be priced within a six dollar range from the most expensive to the least expensive. The research also demonstrated that Goodyears point-of-sale displays did little to alter consumers expectations of retail prices. The majority of tires wholesaled to oil companies were resold through franchised or company-owned gas stations or service stations. Wholesaling by oil

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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 lowpriced outlets (warehouse clubs, mass merchandisers, auto supply stores) but those outlets sporadically obtained good year tires. Moreover those outlets used to give pricebased 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 KellySpringfield, which is a low-end tire. Here the degree of cannibalization is high. Moreover, low-end tires with comparatively low price can take over Goodyears 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. Goodyears 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 would recommend Goodyear to cut down its extra promotional cost to reduce the tire prices. Distribution Strategy:
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We would recommend Goodyear to have complementary channels rather than competitive channels, where they will have multiple channels that will help each others. 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 others more frequently and eventually Goodyear will have a greater market share.

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