Marketing Management

Goodyear Tire

Synopsis In early 1992, Goodyear Tire and Rubber Company executives were reconsidering a proposal from Sears, Roebuck & Company that was originally made in 1989. The proposal from Sears was for Goodyear to sell its popular Eagle brand tire through 850 Sears Auto Centers in the U.S. This proposal was declined in 1989 because Goodyear management felt that selling through a mass merchandiser such as Sears would undermine the tire sales of company owned Goodyear Auto Service Centers and franchised Goodyear Tire Dealers. However, following a $38 million loss in 1990 and a change in Goodyear top management in 1991, the Sears proposal resurfaced. Two factors apparently prompted Goodyear’s renewed interest in the Sears proposal. First, the Goodyear brand passenger car replacement tire market share had slipped in the U.S. Second, Goodyear executives believed that nearly 2 million Goodyear original equipment tires were being replaced annually at some 850 Sears Auto Centers. According to a Goodyear executive, the failure to repurchase Goodyear brand tires happened by default “because the remarkable loyalty of Sears customers led them to buy the best tire available from those offered by Sears,” which did not include Goodyear brand tires. The case links two strategic marketing decisions. First, broadened distribution through Sears would change a long-standing Goodyear marketing channel policy of selling primarily through company or franchised Goodyear dealers and not mass merchandisers. Second, a product policy decision exists. That is, should Goodyear sell all, some, or one (e.g., Eagle) brand(s) through Sears?

A. How would you characterize the competitive environment in the tire industry in 1991?
1. The tire industry divides into two, broad segments: original equipment (OE) tires and replacement tires. The OE segment accounts for 20-25 percent of tires sold annually; unit sales are trending downward. The replacement tire segment accounts for 70-75 percent of tires sold each year; the unit sales trend is “flat”. Passenger car tires account for 75 percent of annual sales. 2. Although 10 tire manufacturers account for 75 percent of worldwide production, three firms account for 60 percent of all tire sales sold. They are in order: Groupe Michelin, Goodyear, and Bridgestone. These firms compete in both the OE and replacement tire segments. Although Goodyear is second to Michelin in worldwide production, it is the perennial U.S. market leader in both the OE and replacement segments.

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Page: 2 of 12 .0% (est.2% 4. there is a positive relationship.) Passenger Car Replacement Tire Market 15.5% 7.9% 13. the relationship between passenger car replacement market share and “retail points of sale” is more pronounced.  Tire retailers can influence the replacement brand chosen from among those carried in their store. Even though the OE segment is smaller.5% 4.0% 14. EXHIBIT 1 BRAND SHARES OF PASSENGER OE AND REPLACEMENT TIRE SALES AND “SHARE OF RETAIL POINTS OF SALE”: 1991 Percentage Share of… Brand Goodyear Michelin Firestone Uniroyal/Goodrich General Bridgestone Sears Passenger OE Tire Market 38.0% 8. First. it is viewed as strategically important by tire manufacturers for two reasons. Exhibits 1 and 2 in these notes show the relationship between passenger replacement tire market share and OE passenger tire market share and share of “retail points of sale”. Second.5% 5. This point is significant for two reasons:  It relates to “store loyalty” evident with Sears buyers mentioned earlier.0% 11.5% 3. and 6. Disgruntled franchise Goodyear Tire Dealers might actually be able to switch replacement tire buyers over to other (private label) brands as some have threatened.0% 16.5% Source: Based on case Exhibits 2.5% 1.8% 15.25% ---Retail Points of Sale 18. 5. As can be seen.7% 9. Moreover.Marketing Management Goodyear Tire 3.0% 16.5% 3.0% 16. 4. it is believed that car/truck owners satisfied with their OE tires on new vehicles will buy the same brand when they replace their worn tires. However. the case also states that passenger replacement tire buyers are becoming more price sensitive and less likely to simply replace their branded OE tire with the same brand of replacement tire.8% 2. prominence in the OE segment provides volume related scale economics in the production of tires.

0% 3.8% 15.5% 1.0% Sears P-O-S 18.0% 8.0% 20.0% Sears General Uniroyal/ Goodrich Bridgestone 0.7% 9.0% Firestone Michelin 5.0% 5.0% 4.0% 0.5% 11.0% 10.0% 40.5% 16.0% Goodyear 10.0% Percent of P-O-S 15.0% 20.0% Goodyear Percent of Replacement Mkt 15.0% Michelin Firestone Uniroyal/ Goodrich Sears Bridgestone 10.0% 0.5% 16.0% 7.5% 14.0% Uniroyal/Goodrich General Bridgestone 15.0% 20.0% Percent of OE Market 30.0% 16.5% 3.0% 10.2% 4.0% 15.9% 13.0% REP MKT OE MKT EXHIBIT 238.3% 5.0% Page: 3 of 12 .0% 0.5% 0.Marketing Management Goodyear Tire Percent of Replacement Market Brand Goodyear Michelin Firestone 20.0% General 5.8% 2.

retail coverage.25%) of the OE tire segment. Competition in the OE segment revolves around the major vehicle manufacturers and supplying some or all of the tire needs for their new model year cars and trucks.5 percent of the passenger car replacement tire segment with its mostly private brands. Competition in the replacement tire segment occurs across the marketing mix. however. 11 percent of light truck tires. 3. 2. as measured by “retail points of sale”. Major tire manufacturers compete on the basis of “retail points of sale.S. OE tires are essentially “produced to order” and may be viewed as a “commodity” by vehicle manufacturers. yet it captures 5. The Goodyear brand is the single largest brand.Marketing Management Goodyear Tire Some observations worth noting are: • Bridgestone is an obvious “outlier” in the relationship between replacement market share and “retail points of sale”. however. Vehicle manufacturers typically use multiple sources for their tires and appear to be highly price sensitive. replacement tire market: 15 percent of passenger car tires. the nature of the relationship may not be perfectly linear. However. Goodyear brand tires capture the largest portion of sales in the U. that Michelin with its Michelin and Uniroyal/Goodrich brands combined capture 30 percent of the OE tire segment (case Exhibit 2). is related to replacement tire market share. One explanation is that Bridgestone has so little share (1. Company wide share Page: 4 of 12 . That is. and 23 percent of highway truck tires. It is noteworthy. Yes. in terms of sales to the OE tire segment. Sears is unique as it does not produce tires for the OE tire segment. retail promotions. • • 5. B. a certain proportional increase in “retail points of sale” may not result in the same proportional increase in passenger car replacement tire market share. behind Michelin which manufacturers and markets the Michelin and Uniroyal/Goodrich brands. Its share of this segment is 38 percent (case Exhibit 2). The nature and scope of competition differs.” product variety and innovation. and event sponsorship). What is Goodyear’s relative competitive position within the tire industry? 1. Goodyear is the second largest tire manufacturer in the world. price and promotion (advertising. Competition is intense in both the passenger OE and replacement tire segments.

to the following: • • • The broadest line of tire products of any tire manufacturer: product line width and depth.S. “The best tires in the world have Goodyear written all over them. which represent tire company stores. which accounts for some 60 percent of Goodyear worldwide sales.” 5.9 million units according to a company spokesperson. Moreover. The largest number of “points of sale” for any branded tire with controlled distribution. Unit volume growth is possible through market share gains. Lower prices serve to squeeze already slim profit margins in the OE segment as indicated in the case text. Goodyear recorded a 3. One might also note that Goodyear’s relative competitive position is due. in part. • Changing retail distribution. the company is effectively “closed out” of retail outlets that are capturing a larger percentage of the replacement tire segment. there is evidence that Goodyear has encountered some problems which can be categorized as follows: • Flat or downward trend in OE tire volume. 4. and warehouse clubs) has grown from 17 percent in 1982 to 35 percent in 1992.2 percent decline in the U. Goodyear has likely felt the effect of plateaued unit volume in the OE segment (see case Exhibit 3). Decline in replacement tire market share in the U. market share is increasingly “purchased” through lower prices to vehicle manufacturers. chain/department stores. is more profitable than the OE market. passenger car replacement tire market between 1987 and 1991. that is. Exhibit 1 in the case shows that tire company stores share of replacement tire sales declined somewhat from 10 percent in 1982 to an estimated 9 percent in 1992. Given Goodyear’s primary distribution through company owned Goodyear Auto Service Centers and company franchised Goodyear Tire Dealers. company owned and franchised dealers. This decline represented a loss of about 4.S. however.Marketing Management Goodyear Tire increases in each category when sales of its Kelly-Springfield brand is included (see case Exhibit 5). The market share for replacement tire sales captured by retailers not serviced by Goodyear (discount multi-brand independent deals. Price Performance Positioning: Premium pricing supported by product innovation and umbrella brand advertising that emphasizes. Nevertheless. the case notes that the replacement tire market. • Page: 5 of 12 .

Broadened distribution through Sears represents a change in distribution policy in two ways. Tire company stores recorded a modest decline in market share from 10 percent in 1982 to 9 percent in 1992. First. i. 4. the changing retail environment would strongly suggest that non-company owned or franchised tire company stores are capturing a larger percentage of replacement tire volume (see case Exhibit 1). warehouse clubs went from 0 percent to 6 percent.. Does it make strategic sense for Goodyear to broaden its distribution beyond company owned and franchised Goodyear tire retailers as a matter of channel policy? Why? 1.Marketing Management Goodyear Tire C. 3. 2. Broadened distribution through Sears is bound to create channel conflict and affect trade relations with franchised Goodyear Tire Dealers. Second. nor its franchise retailer reaction.e. As indicated earlier. Is this the time to create channel conflict when replacement tire unit volume is “flat?” Page: 6 of 12 . incidence of carrying more private labels and switching tire buyers to competing brands. (b) but possibly decrease its control over retail marketing practices. These dealers more than doubled their market share (7% to 15%) from 1982 to 1992. Goodyear will (a) increase its retail density/coverage. and (c) reduce the “exclusivity” of the brand. As such. During the same time frame. however. is not known. The extent and severity. Goodyear is moving beyond a form of exclusive distribution evident in company owned and company franchised Goodyear tire retailers. distribution through Sears suggests that Goodyear is exploring a dual distribution strategy. The principal retailers gaining share are discount multi-brand independent dealers. This change has direct implications for a decision to sell through Sears as discussed in part D below. It is also worth noting that chain and department sores actually experienced a decline in market share (20% to 14%) from 1982 to 1992. A critical issue with dual distribution is that different channels reach different customers – an issue discussed in part D below.

and credible salespeople are important since tire buyers appear to know little about the quality. Target Market Sought: What is the target market? Is it… …Loyal Sears’ customers with worn-out Goodyear or competitor tires? …Vehicle owners in general with worn-out Goodyear or competitor tires? If it is the loyal Sears customer. and prefer choices (some “price-quality” ranges). Buying Requirements: What do replacement tire buyers want and how well do retailers satisfy these wants? It is reasonable to conclude from the case text that replacement tire buyers are highly price conscious. This segment represents 2 million tires according to Goodyear executives. It may be that they are less tied to past Goodyear distribution/channel policies or strategies. however. and “flat” OE tire volume resurrected the Sears proposal. one may be directed toward the three criteria for choosing a marketing channel as described in Chapter 7:    Provide the best coverage of the target market sought. It is also reasonable to believe that prompt and proper installation. then cannibalization of Goodyear dealers’ tire sales is more likely. What are the strategic implications of broadened distribution of Goodyear brand passenger tires through Sears Auto Centers? 1. or a portion thereof. It is also noteworthy. a “pleasant” tire store environment. Based on the case information. Maximize potential revenues and minimize cost. It is also noteworthy that a new management team is now looking at the Sears proposal. then this segment is separate and distinct from Goodyear dealers and represents a previously untapped segment and incremental tire unit sales. If the target segment is vehicle owners in general with worn-out tires. 2.5 percent of the passenger car replacement tire segment. Satisfy the buying requirements of the target market sought.Marketing Management Goodyear Tire D. Can Sears satisfy these wants? Sears currently captures 5. Declining market share in the replacement tire segment. reconsideration of the Sears proposal is a defensive strategic move. From a strategic perspective. that Page: 7 of 12 . changing retail structures.

055] / 850 = 10. As shown in Exhibit 3 below.5 percent in 1989 to 5. there is no specific cost data in the case to assess the profit impact.964 = 2. Sears Replacement Tire Market Share: 5.4 million (case Exhibit 3) Average Replacement Tire Volume Through Sears Auto Centers: [155. EXHIBIT 3 Estimates Of Passenger Replacement Tire Sales Sold By Sears Auto Centers And Goodyear Retail Outlets in 1991 Given: 1. Is this decline in market share indicative of Sears’ ability to satisfy buyer requirements? Revenues/Cost: Will broadened distribution through Sears generate incremental revenue? As stated earlier. Page: 8 of 12 .15] / 7. Sears.5 percent in 1991. Replacement Tire Unit Volume: 155. Potentially useful calculations concern the average number of units sold by Sears Auto Centers and Goodyear tire dealers. Sears Auto Centers: 850 (stated in the case) 4. Goodyear Replacement Tire Market Share: 15.4 million Tires x 0. Goodyear “Retail Points of Sale”: 7.4 million Tires x 0. It is also important to give attention to how the Goodyear Company.964 (Case Exhibit 6) 5.927 tires 3.055 tires Average Replacement Tire Volume Through Goodyear Outlets: [155. and Goodyear dealers might view the strategic implications of broadened distribution.Marketing Management Goodyear Tire Sears’ share has declined from 6. Unfortunately. yes it could provided the loyal Sears customer is the target market segment reached and the draw from Goodyear dealers is minimized.0% (Exhibit 5) 3.5% (Case Exhibit 5) 2. on average. a Sears’ outlet sold some 10.927 replacement tires sold through Goodyear tire dealers.055 replacement tires in 1991 compared with 2. Selected viewpoints are outlined in Exhibit 4 below in terms of upside potential and downside risk.

1 tire brand in the U. thus enhancing the “image” of Sears Auto Centers.Marketing Management Goodyear Tire EXHIBIT 4 SELECTED VIEWPOINTS ON BROADENED DISTRIBUTION THROUGH SEARS Goodyear Tire & Rubber Company Perspective Sears Roebuck & Company Perspective Franchised Goodyear Tire Dealer Perspective Upside Potential 1. 2. Sears replacement tire market share decreased from 6. It also allows for the potential of further price competition. Will carry the No. 2.5% in 1989 to 5. Could lead to strained 1. Page: 9 of 12 .5% of replacements (Goodyear annual replacement tire already believes that 2 volume captured by Sears.S. particularly where Sears has a strong market presence. Is this the channel (store) to be in? Downside Risk 1. Goodyear brand tires trade reductions with could cut into Sears private franchised Goodyear Tire label tires (i. May allow for incremental tire volume from vehicle owners with Goodyear brand OE tires who need 2. In fact. They might: Beater). Potential for lost sales is very real. million worn-out Goodyear tires are being replaced at Sears) and who are Goodyear brand loyal.e.. Provides access to tire buyers who are loyal to Sears and capture some of the 2 million worn-out Goodyear tires being replaced at Sears Upside Potential 1. 2.) a) Begin carrying more private labels b) Withdraw from the franchise and become multibrand independent dealers. Provide access to 5. Weather Dealers. Downside Risk Downside Risk 1.5% in 1991. This is an issue to the extent profit margins are better on private label tires (which they generally are. the chain/department store tire share has also declined (see Case Exhibit 1). Broadened distribution through Sears eliminates franchised dealer “exclusivity”.

Eagle GT II Lower Quality/Price 1. 2. the following categorization can be derived from Exhibit 9: Higher Quality/Price 1. Aquatred 2. i. and temperature ratings which correspond to both quality and price. Sears gets exclusive rights to Goodyear Eagle and Arriva brands. In general. Note: Based on case Exhibit 9. Decathlon 2. Sears. c) Sell certain brands through Sears and others through dealers. if any. d) Provide some brand model exclusivity for both Sears and franchised Goodyear Tire Dealers and let both retailers carry the other brands. Franchised Goodyear Tire Dealers would benefit from fewer brands being sold through Sears.. except designated Eagle brand models.e. the Eagle brand represents 12 of the 30 (40%) Goodyear brand models. i. They are: a) Distribute only the Eagle brand through Sears since this brand was part of the original proposal made by Sears in 1989. and franchised Goodyear Tire Dealers. As a quick point of reference.e.Marketing Management Goodyear Tire E. Goodyear Tire Dealers retain exclusive right to all others.. Goodyear Tire Dealers have the Aquatred on an exclusive basis and top quality brand models (e.g. A cursory glance at case Exhibit 9 describes the brands and models and their tread wear. does the number of brands and specific brands sold through Sears have on the distribution decision? Why? 1. The brand (product) policy decision can be again viewed from three parties: Goodyear Company. Eagle GT II) and other brands. traction. Sears gets only selected Eagle brand models. b) Distribute the complete brand (product) line through Sears. there are four brand (product) policy choices available to the Goodyear Company.   The Goodyear Company and Sears might benefit more from having Sears carry the full line of Goodyear brand tires. What effect.. T-Metric Page: 10 of 12 . The number of brands and specific brands sold through Sears has a very important effect on the distribution decision.

one should be sensitive to the fact that franchised Goodyear Tire Dealers would like to have a full range on the pricequality continuum. Market evolution evident in changing retail distribution structure often requires modification in a firm’s marketing channel policy. the decision facing the manager is one of selecting the channel that:    Provides the best coverage of the target market sought. However.Marketing Management Goodyear Tire When making brand (model) decisions. dual distribution can affect trade relations with channel members and lead to channel conflict. Dual distribution is a means to reach different market segments. To the extent that a marketing manager has alternative channels to reach prospective buyers. given Aquatred’s recent introduction. 4. Maximizes revenues and minimizes cost of distribution. Marketing channel decisions often involve product policy decisions as well. Also. When using different channels. 2. a major product policy question is “who gets what?” Page: 11 of 12 . Satisfies the buyer requirements of the target market. should this brand retain some exclusivity? MARKETING MORAL 1. 3.

This 16% figure remained unchanged in 1992 and 1994 according to Modern Tire Dealer. 1992.” On June 11. September 3. Either way. Four days later similar accusations appeared in New Jersey and several other states. said the decision to move toward mass merchandising channels “can only further strengthen the Goodyear brand and Goodyear itself. January 16. four high performance Eagle models (Eagle GT+4. Goodyear dealers would sell the Aquatred brand on an exclusive basis as well as the brands/models sold by Sears. 1992. “Goodyear Brand Tires To Be Sold By Sears. Stanley Gault. The damage to Sears’ reputation and the effect on Goodyear tire sales was modest. as well as settle 19 related class-action suits. the 1% to 2% market share gain is less than Goodyear had probably hoped for from broadened distribution through Sears.Marketing Management Goodyear Tire Epilogue Goodyear elected to broaden its distribution coverage by selling Goodyear brand tires through Sears in March. it was estimated that Sears would pay over $46 million in damages. Stanley. if any. Eagle VR. Goodyear also elected to supply Sears with the Arriva brand on an exclusive basis and the following brands and models: Corsa GT. Commenting on the decision.” Business Week.) Page: 12 of 12 . the California Department of Consumer Affairs accused Sears of systematically overcharging automobile repair customers at its 72 Sears Auto Centers in the state. All other brands/models would be retained exclusively by Goodyear retailers. 1992. the Goodyear chairman and CEO. March 1992.” The Wall Street Journal. and two Wrangler models for light trucks (Wrangler AT and HT). Denying any charges. Goodyear executives dispute this figure saying its market share rose 2% for 1994. an industry trade publication that collects and reports market statistics. 1992. Goodyear’s share of the U.S. “And Fix That Flat Before You Go”. In early 1995. According to Modern Tire Dealer.” Modern Tire Dealer – Newsfocus. Goodyear executives and the tire industry analysts were still debating what effect. 1992. and Eagle ZR). “Sears Will Pay $15 Million Settling Charges.” The Wall Street Journal. except the Arriva. 1995. Eagle GA. (Source: Based on “Goodyear Plans To Sell Its Tires at Sears Stores. passenger car replacement tire market rose 1% in 1992 to 16%. Goodyear’s decision to broaden its distribution through Sears had on Goodyear’s market share. March 3. Sears agreed to pay an estimated $15 million to settle charges in California and 41 other states. On September 2.

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