SUMMARY OF CASE ANALYSIS: ! VGOODYEAR TIRE AND RUBBER COMPANY 1. INTRODUCTION! VGOODYEAR TIRE AND RUBBER COMPANY Goodyear Tire and Rubber Company, was founded in 1898 and was the world tire production leader until November 1990 when Groupe Michelin took over after merging with Uniroyal Goodrich Tire Company. Goodyear! |s principal business is the development, manufacture, distribution, and sale of tires throughout the world. Its tires and tube sales represent 83 % of 1991 corporate sales of $10. 9 billion with corporate wide earnings of $96.
9 million. It has its owned Goodyear Auto Service Centers and franchised Goodyear Tire Dealers in supporting its distribution and sale of tires in US. Goodyear controls 20 percent of the world! |s tire manufacturing capacity and 37 percent of US tire-making capacity and sales outside US represent 42 % of company revenues. Table 1! V Worldwide Market Share, 1990 In early 1992, Sears, Roebuck and Company (Sears), owner of Auto Centers proposed to sell Goodyear! |s popular brand tire, Eagle. This has raised Goodyear! |s management consideration due to the following facts: (i) Goodyear brand tires has declined 3. 2 % in market share (4.
9 million units) for passenger cars between 1987 to 1991; (ii) 2 million worn-out Goodyear tires were replaced with other brands at 850 Sears Auto Centers. 2. THE ISSUE The declining of Goodyear market share was believed due to the growth of warehouse membership club and the discount tire retail. See Table 2 and 3 below. In addition to that, about 2 million Goodyear tires were replaced by other brands at Sears Auto Centers in the Replacement Tire Market.
Table 2! V US Market Share of Tire Replacement by Retail Outlet Type of Retail Outlet 1982 (%) 1992 (%) Traditional multi brand independent dealers 44 44 Discount multi brand independent dealers 7 15 Chain stores, department stores 20 14 Tire company stores 10 9 Service stations 11 8 Warehouse clubs 0 6 Others 8 4 Total 100 100 Table 3! V Pie chart of US Market Share of Tire Replacement by Retail Outlet The Goodyear! |s management is considering Sears proposal to sell its Goodyear! |s popular brand i. e. Eagle which basically affect it distribution policy. In summary, the above factors lead to a question that need to be addressed by Goodyear! |s management namely, ! SS Should Goodyear review its distribution and retails policy in order to re-gain market share and increase its revenue? !" 3. SITUATION ANALYSIS We need to consider a number of relevant information prior to making the decision. The information that needs to be considered is: (a) What are Goodyear! |s situation, its strength, weaknesses, opportunities and threat? Table 4! V SWOT Analysis on Goodyear Strength Weaknesses"X 94 years of experience"X 37% of US tire-making capacity"X 60% in the Tire Replacement market (Top Ten in US) "X 40% in the Original Equipment Manufacturer market"X Market leader in North America"X Broadest line of product"X Broad market brand names with 11 brand names"X Premium quality brands"X A leading national advertiser"X 8000 retails point of sale"X 1000 company owned Goodyear Auto Service Centers"X 2500 franchised Tire Dealers "X exclusive distribution policy"X lack of customer service Opportunities Threat"X Additional 850 retails channels "X 2 million Goodyear brands were replace annually at Sears"X growth of warehouse membership club stores and discount tire retails"X customers loyalty to Sears (b) What is the position of Goodyear in the Tire Industry? There are 2 types of market in the tire industry, namely; (i) Original Equipment Tire market; Original equipment tires are sold by manufacturers directly to automobile and truck manufacturer and this account for 25% to 30% of the tire unit production on yearly basis.
Goodyear! |s share in this market is 38% in 1991. (ii) The Replacement Tire Market. This market accounts for 70% to 75% of tires sold annually and Goodyear is top ten in Passenger cars, Light-truck and Highway-Truck tires with 14% in Passengers cars and 11% in Light-truck and Highway-Truck tire. Table 5, 6 and 7! V Top Ten in Passenger Car, Light-Truck and Highway-Truck Tires (c) What is the trend of the manufacturer, distribution, retail and the customers? Manufacturer found its advantages to have a broad product line for the customers. Thus, customers will be able to choose various types of tires in the distribution and retail stores. Major brand-name tire manufacturers build strong wholesale and retail dealer relationships and uses! SS retail points of sale!" to gauge the retail coverage of tire manufacturers and their brands.
Goodyear brand tires have the broadest retail coverage with 8, 000 retail points of sale. Tire Retailers, however, have expanded their business into the auto repair services and becoming total car care centers. This has boosted their sales to 38. 2 % and earnings to 45. 8%. Customers! | choice depends on the dealer! |s recommendation, as they have no strong brand preferences.
Dealers have the advantage of switching customers to tire brands and where its margin is higher. (d) What are Sears! |s strengths? Sears has 850 Auto Centers that not only provide tire services but a total auto repair services which include engine tune-up, shock-absorbers etc. 4. THE ALTERNATIVES The alternatives available for Goodyear are as follows (ii) To proceed with the review of its distribution and retail policy. This decision will subject to the uncertainties as follows: a. Whether these policies will increase sales and market share? b.
If the policy is reviewed and Sears! | proposal is accepted, how many tire brands will be distributed by Sears? (iii) To remain! SS status quo!" on the policy review, but to improve on its customer service and dealer incentive. However, this will lead to uncertainties such as: a. Whether these policies will increase sales and market share? b. Will these action will increase customers! | and dealer! |s loyalty; 5. IDENTIFY THE BEST ALTERNATIVE The best alternatives for Goodyear is to review its distribution and retail policy in order to re-gain its market share and increase revenue. (a) Whether these policies will increase sales and market share? Goodyear! |s strength in the tire industry is in the Tire Replacement Market (refer Table 5, 6 and 7 above), however, Goodyear is weak in the distribution channels due to its distribution policy and customer service.
Goodyear! |s distribution policy is affecting its sales as it concentrate more on exclusive distribution method which is restrictive and hindrance to the customers compared to the market that will go to the most convenience and easy reaching auto centers such as Sears. Its current franchise dealers are only concentrate of sales of tires and not as one-stop-auto centers; this is probably due to its present contract as exclusive franchise dealers. In order to meet customers! | need, the distribution policy and the franchise contract need to be reviewed to allow the franchise dealers to expand into one-stop-auto centers. By reviewing its distribution policy, Goodyear should expand its retail channel to include Sears, as this will add another 850 channels to the present 3500 distribution channels. With regards to the increase of sales, there is an opportunity to grab 2 million the tire replacement annually at Sears. The real threat in this tire industry is not only loosing out market share to warehouse club and discount independent dealers but to the market trend, which can accommodate the customers! | need for example the Sears Auto Centers.
(b) If the policy is reviewed and Sears! | proposal is accepted, how many tire brands will be distributed by Sears? Goodyear should not restrict on tire brands that need to be distributed, as it will again restrict the choice available to customers that are loyal to Sears. However, it is advisable to provide medium range of tires to Sears and maintain the Premium tires to the franchise dealers in order to control the quality. Instead Goodyear need to provide more incentive to its franchise dealers in terms of transfer of price, discounts and marketing support. What if? If the decision is otherwise, i. e. to remain status quo and improve its customer! |s service and dealer incentive, Goodyear will perhaps be able to increase it customers! | loyalty but not the sales as the franchise dealers are unable to accommodate other customers! | need for example the auto service and repairs.
Thus, it will still loose out to warehouse club and discount independent dealers. Decision tree: Action Responses Outcome Review policy Additional distribution channels "X Estimated additional income of equivalent to 2 million tire sales annually"X 4350 new channels (3500 + 850) Maintain status quo "X Improve customer service"X Increase dealers! | incentive Unable to tap 2 million Goodyear tire sales 6. DEVELOP PLAN FOR IMPLEMENTATION The proposed plans for implementation are as follows: (a) Product. Introduce medium tire product to Sears and maintain premium grade with franchise dealers in order to maintain Goodyear! |s quality and image. (b) Price. To offer high incentive in terms of transfer of price to the franchise dealers and standard incentive to Sears Auto Centers.
(c) Advertising and Promotion a. Strategize the advertising to notify and educate customers of the new and additional channels of Goodyear tire products in the TV and newspaper; (d) Distribution and Sales. To review the existing franchise contracts with the franchise dealers and provide more marketing support to both franchise dealers and Sears. b. To restrict distribution of tires, ie. Channels (franchise and Sears) will only be able to obtain distribution from authorized distributors and not directly from manufacturer, as this will ensure price stability.
7. CONCLUSION The recommendation is to proceed with the review of distribution policy in order to allow Sears to sell Goodyear tires and expand the franchise dealers! | business to include the on-stop-service centers. This decision will re-gain market share from the warehouse club and discount independent dealers and increase sales of 2 million tires annually as the distribution channels have increase and able to tap loyalty customers of Sears.