In January 2002, Barry Robbins, Tyring’s vice president of marketing for North America Tires, was contemplating the upcoming launch of the Aquatred, a new tire providing improved driving traction under wet conditions. The Aquatred would be positioned in the U.S. market as a replacement tire for passenger cars. The Industry in the U; States From the late 1990s through the carly 1980s, the U.S. tire industry ‘was dominated by five companies (cfr. table 1): Tyring, Fireston, Uniroyal, BF Goodrich, and General Tire. All five were based in Ohio, and were run by executives who socialized together at the same country club. Table 1 Brand shares of Unit Sales in the U.S: Passenger Tire Market 1985 1990 1995 2000 2001 ‘Replacement market Tyring 4 4 15,5 15 15 Michelin 25 7 Firestone 105 10 95 8 75 Seas e General BF Goodrich Bridgestone ‘Cooper Kelly Uniroyal Dunlop Pirelli Montg. Ward Others OEM Market ‘Tyring Michelin Firestone General Uniroyal BF Goodrich Dunlop Bridgestone Fonte: Modern Tire Dealer. The five companies had competed in a U.S. market characterized by not only consistent growth in revenues and profits but also a complete absence of foreign competition. Jn the 1980s and 1990s, ‘the U.S. tire industry experienced three important changes. The first was the emergence of the radial tire to replace the older “bias” and “bias-belted” tire construction. Compared with the older constructions, radials offered superior tread-wear, handling and gas mileage, but had a stiffer ride, While bias and bias-belted tires lasted under 20,000 miles, radials lasted over 40,000 miles. Between 1985 and 2001, radials’ share of unit sales in the U.S: passenger tire market increased from 32% to over 95%, and virtually all new cars were equipped with radial tires. ‘The second major change was increased foreign competition. Some companies, such as Michelin of France, used expertise in radial production as e lever into the U.S. market. Other tire manufacturers gained access by equipping new cars exported from their home country, Imported passenger tires represented 8% of unit sales in the U.S. passenger tire market (both original equipment and replacement) in 1982, 12% in 1992, and 22% in 2000. required seven gallons of oil or derivative products, so the cost of manufacturing fires also S increased, Automobile sales shifted towards cars that were smaller, lighter, angcfad front-wheel drive; these cars placed less wear on tes. Coupled withthe radiel’s logge fe, this meaat that consumers replaced tires less frequently. Ss These changes had four major impacts, First demand for passeagtr tires grew sluggishly during the 1990s and annual miles traveled per passenger car in the a States grew only slowly. Second, new tire prices in the U.S, market declined. The mrt price of a typical passenger tire (size P195/75R14) in the United States dropped ing in 25% from 1990 to 2000. By 2001, the average retail price of all passenger tires was shag, Third, tire-producing capacity outstripped demand. US: tire-making capacity rose re 1997 and 2000; capacity utilization fell from 87% to Ss & vad© 76% during the same period. Despite plant closings and layoffs, analysts expected the overcapacity to Inst through the mid-2000s. Fourth, the industry's economic difficulties, coupled with the tize ‘manufacturers* slow response, resulted in a number of merger and. acquisitions. By 2001, Tyring was the only major U.S. tire manufacturer that had not been acquired. Consumers in the Replacement Passenger Tire Market ‘Most consumers viewed tires as a “Grudge purchase” — an expensive necessity to keep a vehicle in driving conditions. The average time between purchases of tires was 2,5 years, but over half of all tire-buying consumers made their purchase the same day they became awate of their need for tires, Tyring regularly surveyed car owners, asking about performance attributes considered when purchasing tires. The most important tire attributes were tread life, wet traction, and price. Also brand was quite relevant, even if the major difference was between unbranded products and the primary branded products. The Aquatred Tire In 1999, Tyring started the Newex project, to develop 2 new and exciting replacement matidfte that would have a tangible, perceptible difference over existing models. Howard QfaeDonald, marketing manager for Passenger Tires, said: “We were looking for something gf opexrncenis ‘was different ~ something that a customer would walk into a showroom sg om a distance that it was different”. The Aquatred was developed after comparing 10 aif designs on performance’ ‘and consumer preference. The deep groove down the center afc tire channels water out from under the tire, reducing hydroplaning (a momentary loss ghtaction ‘due to a layer of water which forms between the tire and road in wet conditions) g6incving traction in wet conditions. It was dubbed the “Aquachannel”. Performance tcigsBbves that in wet conditions, cars equipped with Aquatred traveling at 55 miles per hhoursyiSSped in a shorter length (25 meters instead than 28,5). When 50% worn, the Aquatred mmaifSined the same wet traction as a new all-season tire. There was ra YT