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Marketing Management Goodyear Tire

GOODYEAR TIRE AND RUBBER COMPANY

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proposal from Sears, Roebuck & Company that was originally made in 1989.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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Marketing Management Goodyear Tire

3. Even though the OE segment is smaller, it is viewed as strategically


important by tire manufacturers for two reasons. First, prominence in the
OE segment provides volume related scale economics in the production of
tires. Second, 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. This point is
significant for two reasons:

 It relates to “store loyalty” evident with Sears buyers mentioned earlier.

 Tire retailers can influence the replacement brand chosen from among
those carried in their store. Disgruntled franchise Goodyear Tire Dealers
might actually be able to switch replacement tire buyers over to other
(private label) brands as some have threatened.

4. 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”. As can be seen, there is a positive
relationship. Moreover, the relationship between passenger car replacement
market share and “retail points of sale” is more pronounced.

EXHIBIT 1
BRAND SHARES OF PASSENGER OE AND REPLACEMENT TIRE SALES
AND “SHARE OF RETAIL POINTS OF SALE”: 1991

Percentage Share of…


Passenger Car
Passenger OE Tire Retail Points of
Brand Replacement Tire
Market Sale
Market
Goodyear 38.0% 18.0% 15.0%
Michelin 16.0% 16.7% 8.5%
Firestone 16.0% 9.8% 7.5%
Uniroyal/Goodrich 14.0% 15.2% 3.5%
General 11.5% 4.9% 4.5%
Bridgestone 1.25% 13.8% 3.5%
Sears ---- 2.0% (est.) 5.5%

Source: Based on case Exhibits 2, 5, and 6.

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Marketing Management Goodyear Tire

Brand P-O-S REP MKT OE MKT


Goodyear 18.0% EXHIBIT
15.0% 238.0%
Michelin 16.7% 8.5% 16.0%
Firestone 9.8% 7.5% 16.0%
20.0%
Uniroyal/Goodrich 15.2% 3.5% 14.0%
Percent of Replacement Market

General 4.9% 4.5% 11.5%


Bridgestone
15.0% 13.8% 3.5% 1.3%
Sears 2.0% 5.5% 0.0% Goodyear

10.0%
General Michelin
Firestone
5.0% Sears

Bridgestone Uniroyal/
Goodrich
0.0%
0.0% 10.0% 20.0% 30.0% 40.0%
Percent of OE Market

20.0%

Goodyear

15.0%
Percent of Replacement Mkt

10.0%
Firestone

Michelin

Sears General
5.0%
Uniroyal/
Goodrich Bridgestone

0.0%
0.0% 5.0% 10.0% 15.0% 20.0%
Percent of P-O-S

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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”. One explanation is
that Bridgestone has so little share (1.25%) of the OE tire segment.

• Sears is unique as it does not produce tires for the OE tire segment; yet it
captures 5.5 percent of the passenger car replacement tire segment with
its mostly private brands.

• Yes, retail coverage, as measured by “retail points of sale”, is related to


replacement tire market share. However, the nature of the relationship
may not be perfectly linear. That is, a certain proportional increase in
“retail points of sale” may not result in the same proportional increase in
passenger car replacement tire market share.

5. Competition is intense in both the passenger OE and replacement tire


segments. The nature and scope of competition differs, however.
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. Vehicle manufacturers typically use multiple
sources for their tires and appear to be highly price sensitive. OE tires are
essentially “produced to order” and may be viewed as a “commodity” by
vehicle manufacturers. Competition in the replacement tire segment occurs
across the marketing mix. Major tire manufacturers compete on the basis of
“retail points of sale,” product variety and innovation, price and promotion
(advertising, retail promotions, and event sponsorship).

B. What is Goodyear’s relative competitive position within the


tire industry?
1. Goodyear is the second largest tire manufacturer in the world, behind
Michelin which manufacturers and markets the Michelin and
Uniroyal/Goodrich brands.

2. The Goodyear brand is the single largest brand, in terms of sales to the OE
tire segment. Its share of this segment is 38 percent (case Exhibit 2). It is
noteworthy, however, that Michelin with its Michelin and Uniroyal/Goodrich
brands combined capture 30 percent of the OE tire segment (case Exhibit 2).

3. Goodyear brand tires capture the largest portion of sales in the U.S.
replacement tire market: 15 percent of passenger car tires, 11 percent of
light truck tires, and 23 percent of highway truck tires. Company wide share

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Marketing Management Goodyear Tire

increases in each category when sales of its Kelly-Springfield brand is


included (see case Exhibit 5).

4. One might also note that Goodyear’s relative competitive position is due, in
part, to the following:

• The broadest line of tire products of any tire manufacturer: product line
width and depth.
• The largest number of “points of sale” for any branded tire with
controlled distribution; that is, company owned and franchised dealers.
• Price Performance Positioning: Premium pricing supported by product
innovation and umbrella brand advertising that emphasizes, “The best
tires in the world have Goodyear written all over them.”

5. Nevertheless, there is evidence that Goodyear has encountered some


problems which can be categorized as follows:

• Flat or downward trend in OE tire volume. Goodyear has likely felt the
effect of plateaued unit volume in the OE segment (see case Exhibit 3).
Unit volume growth is possible through market share gains; however,
market share is increasingly “purchased” through lower prices to vehicle
manufacturers. Lower prices serve to squeeze already slim profit
margins in the OE segment as indicated in the case text.

• Changing retail distribution. 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. The market share
for replacement tire sales captured by retailers not serviced by Goodyear
(discount multi-brand independent deals, chain/department stores, and
warehouse clubs) has grown from 17 percent in 1982 to 35 percent in
1992. Given Goodyear’s primary distribution through company owned
Goodyear Auto Service Centers and company franchised Goodyear Tire
Dealers, which represent tire company stores, the company is effectively
“closed out” of retail outlets that are capturing a larger percentage of the
replacement tire segment.

• Decline in replacement tire market share in the U.S. Goodyear recorded a


3.2 percent decline in the U.S. passenger car replacement tire market
between 1987 and 1991. This decline represented a loss of about 4.9
million units according to a company spokesperson. Moreover, the case
notes that the replacement tire market, which accounts for some 60
percent of Goodyear worldwide sales, is more profitable than the OE
market.

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Marketing Management Goodyear Tire

C. 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. As indicated earlier, 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). The
principal retailers gaining share are discount multi-brand independent
dealers. These dealers more than doubled their market share (7% to 15%)
from 1982 to 1992. During the same time frame, warehouse clubs went from
0 percent to 6 percent. Tire company stores recorded a modest decline in
market share from 10 percent in 1982 to 9 percent in 1992.

2. It is also worth noting that chain and department sores actually experienced
a decline in market share (20% to 14%) from 1982 to 1992. This change has
direct implications for a decision to sell through Sears as discussed in part D
below.

3. Broadened distribution through Sears represents a change in distribution


policy in two ways. First, Goodyear is moving beyond a form of exclusive
distribution evident in company owned and company franchised Goodyear
tire retailers. As such, Goodyear will (a) increase its retail density/coverage,
(b) but possibly decrease its control over retail marketing practices, and (c)
reduce the “exclusivity” of the brand. Second, distribution through Sears
suggests that Goodyear is exploring a dual distribution strategy. A critical
issue with dual distribution is that different channels reach different
customers – an issue discussed in part D below.

4. Broadened distribution through Sears is bound to create channel conflict and


affect trade relations with franchised Goodyear Tire Dealers. The extent and
severity, however, is not known, nor its franchise retailer reaction, i.e.,
incidence of carrying more private labels and switching tire buyers to
competing brands. Is this the time to create channel conflict when
replacement tire unit volume is “flat?”

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Marketing Management Goodyear Tire

D. What are the strategic implications of broadened


distribution of Goodyear brand passenger tires through
Sears Auto Centers?
1. Based on the case information, reconsideration of the Sears proposal is a
defensive strategic move. Declining market share in the replacement tire
segment, changing retail structures, and “flat” OE tire volume resurrected
the Sears proposal. It is also noteworthy that a new management team is
now looking at the Sears proposal. It may be that they are less tied to past
Goodyear distribution/channel policies or strategies.

2. From a strategic perspective, 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.

 Satisfy the buying requirements of the target market sought.

 Maximize potential revenues and minimize cost.

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, then this segment is separate and distinct from
Goodyear dealers and represents a previously untapped segment and
incremental tire unit sales, or a portion thereof. This segment represents 2
million tires according to Goodyear executives.

If the target segment is vehicle owners in general with worn-out tires, then
cannibalization of Goodyear dealers’ tire sales is more likely.

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, and prefer choices (some “price-quality” ranges). It is
also reasonable to believe that prompt and proper installation, a “pleasant” tire
store environment, and credible salespeople are important since tire buyers
appear to know little about the quality.

Can Sears satisfy these wants? Sears currently captures 5.5 percent of the
passenger car replacement tire segment. It is also noteworthy, however, that

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Marketing Management Goodyear Tire

Sears’ share has declined from 6.5 percent in 1989 to 5.5 percent in 1991. 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, yes it could provided the loyal Sears
customer is the target market segment reached and the draw from Goodyear
dealers is minimized. Unfortunately, there is no specific cost data in the case to
assess the profit impact.

Potentially useful calculations concern the average number of units sold by Sears
Auto Centers and Goodyear tire dealers. As shown in Exhibit 3 below, on
average, a Sears’ outlet sold some 10,055 replacement tires in 1991 compared
with 2,927 replacement tires sold through Goodyear tire dealers.

EXHIBIT 3
Estimates Of Passenger Replacement Tire Sales Sold By Sears Auto Centers
And Goodyear Retail Outlets in 1991

Given: 1. Sears Replacement Tire Market Share: 5.5% (Case Exhibit 5)

2. Goodyear Replacement Tire Market Share: 15.0% (Exhibit 5)

3. Sears Auto Centers: 850 (stated in the case)

4. Goodyear “Retail Points of Sale”: 7,964 (Case Exhibit 6)

5. Replacement Tire Unit Volume: 155.4 million (case Exhibit 3)

Average Replacement Tire Volume Through Sears Auto Centers:

[155.4 million Tires x 0.055] / 850 = 10,055 tires

Average Replacement Tire Volume Through Goodyear Outlets:

[155.4 million Tires x 0.15] / 7,964 = 2,927 tires

3. It is also important to give attention to how the Goodyear Company, Sears,


and Goodyear dealers might view the strategic implications of broadened
distribution. Selected viewpoints are outlined in Exhibit 4 below in terms of
upside potential and downside risk.

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Marketing Management Goodyear Tire

EXHIBIT 4
SELECTED VIEWPOINTS ON
BROADENED DISTRIBUTION THROUGH SEARS

Goodyear Tire & Rubber Sears Roebuck & Company Franchised Goodyear Tire
Company Perspective Perspective Dealer Perspective
Upside Potential Upside Potential
1. Provides access to tire 1. Will carry the No. 1 tire
buyers who are loyal to brand in the U.S. thus
Sears and capture some of enhancing the “image” of
the 2 million worn-out Sears Auto Centers.
Goodyear tires being
replaced at Sears
2. May allow for incremental
tire volume from vehicle
owners with Goodyear
brand OE tires who need
2. Provide access to 5.5% of
replacements (Goodyear
annual replacement tire
already believes that 2
volume captured by Sears.
million worn-out Goodyear
tires are being replaced at
Sears) and who are
Goodyear brand loyal.
Downside Risk Downside Risk Downside Risk
1. Could lead to strained 1. Goodyear brand tires 1. Broadened distribution
trade reductions with could cut into Sears private through Sears eliminates
franchised Goodyear Tire label tires (i.e., Weather franchised dealer
Dealers. They might: Beater). This is an issue to “exclusivity”. It also allows
the extent profit margins are for the potential of further
better on private label tires price competition.
(which they generally are.)
a) Begin carrying more
private labels

b) Withdraw from the


franchise and become multi-
brand independent dealers.

2. Sears replacement tire 2. Potential for lost sales is


market share decreased very real, particularly where
from 6.5% in 1989 to 5.5% Sears has a strong market
in 1991. In fact, the presence.
chain/department store tire
share has also declined (see
Case Exhibit 1). Is this the
channel (store) to be in?

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Marketing Management Goodyear Tire

E. What effect, if any, does the number of brands and specific


brands sold through Sears have on the distribution
decision? Why?
1. The number of brands and specific brands sold through Sears has a very
important effect on the distribution decision. The brand (product) policy
decision can be again viewed from three parties: Goodyear Company, Sears,
and franchised Goodyear Tire Dealers.

 The Goodyear Company and Sears might benefit more from having
Sears carry the full line of Goodyear brand tires.

 Franchised Goodyear Tire Dealers would benefit from fewer brands


being sold through Sears.

2. In general, there are four brand (product) policy choices available to the
Goodyear Company. They are:

a) Distribute only the Eagle brand through Sears since this brand was
part of the original proposal made by Sears in 1989. Note: Based on
case Exhibit 9, the Eagle brand represents 12 of the 30 (40%)
Goodyear brand models.

b) Distribute the complete brand (product) line through Sears.

c) Sell certain brands through Sears and others through dealers, i.e.,
Sears gets exclusive rights to Goodyear Eagle and Arriva brands.
Goodyear Tire Dealers retain exclusive right to all others.

d) Provide some brand model exclusivity for both Sears and franchised
Goodyear Tire Dealers and let both retailers carry the other brands,
i.e., Sears gets only selected Eagle brand models; Goodyear Tire
Dealers have the Aquatred on an exclusive basis and top quality
brand models (e.g., Eagle GT II) and other brands, except designated
Eagle brand models.

A cursory glance at case Exhibit 9 describes the brands and models and their tread
wear, traction, and temperature ratings which correspond to both quality and price.
As a quick point of reference, the following categorization can be derived from
Exhibit 9:

Higher Quality/Price Lower Quality/Price


1. Aquatred 1. Decathlon
2. Eagle GT II 2. T-Metric

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When making brand (model) decisions, one should be sensitive to the fact that
franchised Goodyear Tire Dealers would like to have a full range on the price-
quality continuum. Also, given Aquatred’s recent introduction, should this brand
retain some exclusivity?

MARKETING MORAL

1. To the extent that a marketing manager has alternative channels to reach


prospective buyers, the decision facing the manager is one of selecting the
channel that:

 Provides the best coverage of the target market sought.

 Satisfies the buyer requirements of the target market.

 Maximizes revenues and minimizes cost of distribution.

2. Dual distribution is a means to reach different market segments. However, dual


distribution can affect trade relations with channel members and lead to channel
conflict.

3. Market evolution evident in changing retail distribution structure often requires


modification in a firm’s marketing channel policy.

4. Marketing channel decisions often involve product policy decisions as well.


When using different channels, a major product policy question is “who gets
what?”

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Marketing Management Goodyear Tire

Epilogue

Goodyear elected to broaden its distribution coverage by selling Goodyear brand


tires through Sears in March, 1992. Goodyear also elected to supply Sears with the
Arriva brand on an exclusive basis and the following brands and models: Corsa
GT, four high performance Eagle models (Eagle GT+4, Eagle GA, Eagle VR, and
Eagle ZR), and two Wrangler models for light trucks (Wrangler AT and HT).
Goodyear dealers would sell the Aquatred brand on an exclusive basis as well as the
brands/models sold by Sears, except the Arriva. All other brands/models would be
retained exclusively by Goodyear retailers. Commenting on the decision, Stanley
Gault, the Goodyear chairman and CEO, said the decision to move toward mass
merchandising channels “can only further strengthen the Goodyear brand and
Goodyear itself.”

On June 11, 1992, the California Department of Consumer Affairs accused Sears of
systematically overcharging automobile repair customers at its 72 Sears Auto
Centers in the state. Four days later similar accusations appeared in New Jersey
and several other states. On September 2, 1992, Sears agreed to pay an estimated
$15 million to settle charges in California and 41 other states, as well as settle 19
related class-action suits. Denying any charges, it was estimated that Sears would
pay over $46 million in damages. The damage to Sears’ reputation and the effect on
Goodyear tire sales was modest.

In early 1995, Goodyear executives and the tire industry analysts were still debating
what effect, if any, Goodyear’s decision to broaden its distribution through Sears
had on Goodyear’s market share. According to Modern Tire Dealer, an industry
trade publication that collects and reports market statistics, Goodyear’s share of
the U.S. passenger car replacement tire market rose 1% in 1992 to 16%. This 16%
figure remained unchanged in 1992 and 1994 according to Modern Tire Dealer.
Goodyear executives dispute this figure saying its market share rose 2% for 1994.
Either way, the 1% to 2% market share gain is less than Goodyear had probably
hoped for from broadened distribution through Sears.

(Source: Based on “Goodyear Plans To Sell Its Tires at Sears Stores,” The Wall
Street Journal, March 3, 1992; “Goodyear Brand Tires To Be Sold By Sears,”
Modern Tire Dealer – Newsfocus, March 1992; “Sears Will Pay $15 Million Settling
Charges,” The Wall Street Journal, September 3, 1992, “And Fix That Flat Before
You Go”, Stanley,” Business Week, January 16, 1995.)

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