Goodyear: The Aquatred Launch

Goodyear is planning launch of Aquatred- a replacement tire for passenger cars which provides
improved traction under wet conditions.

Industry Analysis

Strength Weakness Opportunity Threat

Establishment of a Converting to produce Replacement tire Increased foreign
competitive market radial tires requires huge market has matured & competition; imported
which includes major & investments new channels have tires make up 22% of
minor brands, private gained share unit sales in 1990
labels
Presence of robust Cost of manufacturing Emergence of radial Decline in new tire
wholesale and retail has increased due to rise tires from 32% to prices by more than
distribution channels in oil prices 95% from 1975-1991 25%
Difficult economic Shift towards smaller
conditions led to many cars which increases
M&A replacement time of
tires
Tire plant over
capacity by 12% from
1987 to 1990

Goodyear Analysis

Strengths Weakness
Multinational which operates in 26 countries with High debt caused due to attempt of take-over
84 plants worldwide; over 2000 distribution
channels
3rd in worldwide sale of new tires Spending 1 million/day on interest payments in
1991
Unlike others, made large investments to convert Sluggish earnings from 1987-1991
factories to produce radials
50% sales revenue obtained from well Reliance on only 3 types of retail distribution
established base of independent dealers channels
Products- Tiempo, an all season tire & Eagle Independent dealers unhappy with manufacturer
which has higher than usual profit margins owned outlets & full-service auto supply stores

Is Aquatred the right product for Goodyear? Discuss.

Aquatred is a premium all season radial tyre developed under the Newex project. Overall, launch of
Aquatred will re-establish Goodyears image as an innovation leader and reignite its brand image.
The market has slowly moved to price driven consumers and Goodyear needed a project to
differentiate the product. As Stanley Gault, Chairman of Goodyear pointed out People are wrong to
think of tyres as commodity. They want the car to stop. They want reliability.

To analyse the fit of Aquatred in Goodyear portfolio, we need to analyse the market, position of the
company, competitive advantage and the environment in the industry.

Company
 Change in management and the selling off assets that were not directly related to the tire
business reflect lack of clear strategy
Involvement in price war with private labels and other competitor due to lack of focus on
innovation
Low brand loyalty as compared to Michelin (Exhibit 8)
Low net profit of 1% on total revenue of $10.91 billion

Competitive Advantage
Innovative product with new deep groove design (Aquaplane) and reduction in hydroplaning
and improving traction in wet conditions, which is visually differentiable
Customer survey As per Exhibit 9, Aquatred buyers are more likely to replace competitors
tyres (62%) as compared to Invicta GS (49%)

Competitors
Michelin and Bridgestone were planning to introduce improved warranty -80,000 mile
Michelin was leveraging mass merchandising to bump up its sales whereas Goodyear has
negligible presence in mass merchandising or warehouse clubs
Competitors were preparing to launch similar product but Goodyear has first mover
advantage

In light of the above facts, it makes sense for Goodyear to launch Aquatred and move the tyre
market away from commoditized market and create a differentiated niche for itself.

Should Goodyear broaden its distribution to include new channels, for instance, mass
merchandisers? If Goodyear decides to add the new channels, should they be offered the
Aquatred?

The current US Tire Market distribution has 6 major players, dominated by the Independent dealers
followed by Mass Merchandisers and Warehouse clubs. As opposed to this, Goodyears focus
majorly seems to be on Independent Dealers and Manufacturer owned outlets. There is a
contradiction between the current market trends in distribution and the chosen modes of Goodyear
which needs to be corrected. We provide our rationale for the same in the following analysis.

Current Situation

US Market Distribution Channels Goodyear Distribution Channels

1991 1991
Garages/Servi Independent
ce Stations Dealers
Warehouse
9 46 6 15 Mfg Owned
12 Clubs
8
Mass 50
Merchandisers Franchisee
Independent 27
63 Dealers
Dealers
Mfg Owned Govt Agencies
Our Analysis

1) Goodyear should broaden its distribution to enter mass merchandisers and Warehouse Clubs.
The reasons are as follows:

Michelin Present through Mass merchandisers & Warehouse Clubs: Michelin was making use
of all the present distribution channels while Good year stuck to its traditional channels.

Distribution Channels across US 1991 Goodyear Michelin

Independent dealers 4400 7000
Manufacturer owned 1047 125
Warehouse Clubs No Presence 95% of 600
Mass Mechandisers No Presence Present

Lessons from Firestone: Firestone had decided to rely on only independent dealers and its
market shared slipped from 10.5% to 7.5% from 1980 to 1991.
Reduced loyalty from Independent Dealers: In 1989, 70% of the dealers carried only Goodyear
tires, while 30% stocked other brands. However in 1991 this decreased to 50%-50%.
Untapped Potential: Goodyear has not kept pace with shifts in tire distribution that have
occurred over the past two decades.
Prevailing unauthorised diversion to mass merchandisers: Goodyear cannot stop diversion of
tires to other distribution channels like mass merchandisers. There are legal restrictions
preventing this. Sears has used the tactic of Bait & Switch to draw consumers into its stores
using the Goodyear brand name and had no inventory of Goodyear tires. Thus the customers
were forced to buy other tires.
2) Goodyear should reduce its share of manufactured owned outlets. Goodyear continues to
generate 27% of its revenue from manufactured owned outlets. However from 1970 to 1991 the tire
manufacturers shifted to fewer distribution outlets as other channels provided more choice and
required lesser attention from manufacturer. We suggest Goodyear to reduce manufacturer owned
outlets.

3) Increased stronghold in Independent dealers:

Out of the 4400 independent dealers only 2500 were active. To strengthen its stronghold in this
segment Goodyear should Do proper survey and locate those dealers who are both geographically
and economically profitable to Goodyear and have secured their market. Goodyear should offer
them to develop their own ad and promotion program.

Distribution of Aquatred

Aquatred will be majorly purchased by the Quality Conscious Customers (61%). Aquatred is an
premium product which should be distributed using an exclusive distribution channel design. The
Quality buyers are conscious about the brand and tend to display loyalty towards their preferred
brands. These consumers give more importance to the high value premium image that the product
and the brand stand for, rather than the pricing of the product.

Therefore, Aquatreds focus should be on the Independent Dealers which house only selected
brands and provide installation and auto services. These dealers can provide the exclusivity that the
Quality Conscious consumers seek.
If Small Independent Dealers are not perceptive to the idea of selling a premium priced product,
Goodyear should

a) Educate them through seminars about the points of differentiation to enable them to
convince the consumers better.
b) Give contracts for distribution of Aquatred to limited number of dealers who are Goodyear
loyalists and generate the maximum amount of revenue for the company.
c) This will ensure full control over price and distribution channels and ensure the protection of
Aquatred as a premium brand until competition enters the market in 1993.

In the next two years, Goodyear should introduce a sub brand of Aquatred enter the mass
merchandising market to capture the remaining consumers and battle competition.

Mass merchandisers do not discount heavily, they only provide 3% discount over and above the
small independent dealers. Also, competitors are effectively using Mass Merchandising without
compromising on their brand image, so using this means after 2 years of introduction will not affect
our Quality Conscious Consumer base. Entering into mass market will also help hedge against huge
fluctuations of demand.

What should be the price for Aquatred?

What should be Promotional policies for Aquatred?

1) Extensive marketing program required throughout the country especially in areas with high
rainfall.
2) Strong promotion during Winter Olympics 1992 to create global awareness about Aquatred
3) The advertisement needs to focus on the aspects of its differentiating and identifiable design,
safety and 60,000 mile warranty.
4) A targeted training plan aimed at independent dealers to help them identify and pursue potential
customers and provide them correct details about Aquatred. This is needed because according to
Exhibit 10, proper Aquatred details were not being shared.
5) A free Just Tires store check-up with a purchase of 4-set Aquatred tire.
6) After the advent of tires with 80k warranties, Goodyear should increase its warranty to keep it as
a point of parity, the point of differentiation being high wet traction. This is because consumers
values tread life, the highest tire attribute. Thus also allowing its retention of quality conscious
prestige buyers.