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1992, Goodyear Tire and Rubber Company executives were reconsidering a proposal from Sears, Roebuck & Company that was originally made in 1989.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 tires through 850 Sears Auto Centers in the U.S. This proposal was declined in 1989 because Goodyear management felt that selling their tires 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 ...view middle of the document...
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.
1. A product policy decision exists. They must decide if they should sell all, some, or one (e.g. Eagle) of their brand(s) through Sears.
2. Decisions on these policy issues are further complicated by franchisee reactions to the broadened distribution and the effect of cannibalization. Broadened distribution through Sears is bound to create some channel conflict and affect trade relations with franchised Goodyear Tire Dealers. The extent and severity, however, is not known. We also don’t know how franchise retailers are going to react. If they become aggravated with Goodyear’s decisions they may start carrying more private labels and switching tire buyers to competing brands. Goodyear must decide if it is worth it to possibly anger their franchisees in order to go after the market share they are missing out by using there current distribution policy.
The tire industry divides into two broad segments, original equipment market and the replacement tires market. The Competition in both of these markets is intense, but the nature and scope of the competition is different for each of them.
In the OE segment competition revolves around the major vehicle manufacturers and supplying some or all of the tire needs for their new model year cars and trucks.
In the replacement tire segment competition occurs across the marketing mix. Major tire manufacturers compete on the basis of “retail points of sale,” product variety and innovation, price and promotion.
Original Equipment Tire Market
The OE market represents 25 to 30 percent of the tire unit production volume each year. Goodyear is the market share leader in this segment and captured 38 percent of the market share for OE passenger car tires in 1991. Followed by Firestone and Michelin who hold a market share of 16%. This market is the least profitable of the two but it is considered strategically important by tire manufacturers because it has been believed that car and truck owners who are satisfied with their original tires on new vehicles will buy the same brand when replacing their worn out tires.
Replacement Tire Market
This segment of the market accounts for 70 to 75 percent of tires sold annually (3 times that of the original equipment market). The demand for this segment is driven by average miles driven per vehicle. Tire manufacturers produce a large variety of grades and lines of tires under both the manufacturers name as well as private label brands to accommodate the needs of all different customers who are seeking tires based on price, quality, performance, etc…
Goodyear is the perennial market share leader in...