Michelin's competitive advantage through environmental sustainability and product diversification

Michelin Tires -- Marketing Analysis

Michelin has a unique opportunity to emerge from the financial recession that crippled the tire industry in 2009. Not only did the company survive this downturn, but they are better positioned to increase their market share as the industry rebounds. It was found that the company should further leverage its dedication to environmental sustainability to increase its product diversification. The company has already emerged as a leader in this pursuit and has brought to market innovative technologies that reduce fuel consumption on the vehicles that they are equipped with Michelin's tires. Michelin should work to further capital this competitive advantage. This strategy will work to carve out a niche in the short-term while better positioning the company for the inevitable increase in environmental regulations.

Company Overview

Michelin is a French owned tire manufacturer that has the highest percentage global market share controlling about fifteen percent of the global market. Michelin is a massive corporation that employs over one hundred thousand people at close to seventy different factories (Michelin, 2012). The company is active on every continent in the world and they have marketing operations in approximately one hundred and seventy countries. Michelin has one of the most competitive product mixes in the industry and markets over four thousand different models of tires. Furthermore, Michelin is also one of the oldest company is the industry with a history that dates back to 1889 at which time it was officially founded by the Michelin brothers.

Michelins vast product mix has been crafted to be able to target many narrow specialty niches such as tires for airplanes and tires for heavy equipment. Michelin has benefited through diversification of their product mix which has allowed the company to capture market share and brand loyalty. Through a diversification strategy coupled with a dedication to quality has allowed the organization the ability to offer innovative solutions for a variety of different applications. Michelin's ability to maintain high quality throughout all of their global operations can be seen as a competitive advantage and also allows the company to position itself as a premium product.

Industry Overview

The automotive industry in general is considered to be one of the most solid segments of the economies in developed countries. This industry has many subsidiary segments associated with it as well. In the U.S. market alone, if you include suppliers, car services, garages, and retailers, there are a total of about five million people who are employed in this industry not including the petrol industry that supplies the power supply to fuel the motor engines (Seeking Alpha, 2010). Thus the health of the automotive industry can be an indicator of the health of the overall economy since so much of the economy is dependent of the production and consumption of vehicles in industrialized nations. The U.S. industry alone represents about a fifteen billion dollar a year industry with over one hundred companies who compete in this market segment (Seeking Alpha, 2010). However, the top four companies generate more than seventy five percent of this revenue stream; the top companies include Goodyear, Bridgestone, Michelin, and Cooper (Hoovers, N.d.).

Figure 1 - World Market Share (Bridgestone, 2002)

After the global recession emerged, the tire industry experienced a significant downturn driven by a decrease in demand. The Dow Jones U.S. Tire stock index, which represents a conglomeration of tire companies, indicates a twenty five percent drop in total sales over the period of September 2009 through August 2010. This downturn was driven by two primary factors. First, since consumers had less disposable income they delayed replacing worn tires on their existing vehicles. Furthermore, new car sales were also down which represents another significant source of industry activity. Thus the recession had a massive impact on the tire industry across the board.

Figure 2 - Dow Tire Index (Seeking Alpha, 2010)

Diversification Strategy

There are strategies that can help an organization respond to a financial downturn. A common strategy is to reduce the size of operations to meet the new demand. Generally, one of the first departments that receives such cuts is often the marketing or advertising budgets. However for many companies this is actually one of the biggest mistakes that can be made. Marketing can be the key to success to surviving or possibly even thriving in such difficult macroeconomic conditions. Michelin is in a strong position to rely on marketing to further diversify its product positioning in order to maximize consumer value and increase market share.

Michelin has already positioned itself as a leader in innovation and sustainable development. Michelin has capitalized on its R&D investments to design tires that have a smaller eco-foot print through minimizing fuel consumption. In 2010, Michelin has released a new truck tire called "Michelin X Energy Saver Green." On average it permits the standard family car to reduce fuel consumption by 520 liters per year thanks to a better road holding (Michelin, 2012). Not only can such a niche serve for replacement tires among environmentally conscious consumers but these tires are now included as original equipment on vehicles like Mini Cooper, BMW 3 Series and Volkswagen Passat. Furthermore, Michelin's environmental efforts have already received attention and have actually received such honorary titles such as the official tire of Yellowstone Park (Schwartz, 2009).

Figure 3 - Green Energy Saver Tire (Michelin, 2012)

Given the tire industry exponential growth that the industry has experienced in recent years, the tire industry has generated over ten billion scrap tires in stockpiles in landfills worldwide (Life, N.d.). There are also many sustainability issues, both environmental and social, in the development of the raw materials such as rubber that go into making tires. Therefore, if Michelin could further diversify their operations to specifically confront these issues then this might be the foundation of a green marketing program that could help the company carve out a new niche in the market place and gain market share in several consumer segments. Furthermore, as environmental regulations are expected to grow more stringent in upcoming years, this would also position the company well for future growth. Although Michelin can heavily promote its environmental contributions, it must be careful that consumers do not perceive this as greenwashing because this has actually been shown to diminish product value. Greenwashing has been defined as the "act of misleading consumers regarding the environmental practices of a company or the environmental benefits of a product or service" (Tsai 2010).

Figure 4 - A Massive Collection of Used Tires in CA (Burtynsky, 1999)

Conclusion

After the global recession devastated the automotive industry the tire industry was also hit hard with a reduction of over twenty five percent in revenues over the course of a year. This has created an enormous amount of competition in the tire industry and industry players are rapidly to trying to evolve in the new competitive environment. In this environment, it is recommended that Michelin continue following a differentiation strategy by maintaining a dedication to environmental issues and corporate social responsibility in general. Not only can the company increase market share in the short-term, but they can also better position themselves to meet the demands that will be present in the future market conditions.