Goodyear Tire and Rubber Company operations and history

Goodyear Case Analysis

In the beginning of 1992, Goodyear Tire and Rubber Company executives decided to reconsider a proposal from Sears, Roebuck & Company which had previously been ignored. The proposal was first made few years back in 1989 and involved sale of Eagle brand tires through Sears Auto centers in the United States. Goodyear had its reasons for rejecting the proposal. It felt that taking such an action could weaken the sales at Goodyear's own service centers and many franchised centers. For one, the company had found that a large majority of its tires were being replaced at Sears Auto centers and people couldn't purchase Goodyear again "because the remarkable loyalty of Sears customers led them to buy the best tire available from those offered by Sears," and the auto center did not have Goodyear tires.

Problem Definition:

Goodyear is encountering serious problems in sales because repurchase is not possible at Sears Auto Centers and wants to know the strategic implications of accepting this proposal and selling one or some of its tire brands through Sears.

Analysis:

To find out how this decision would affect the company strategically, we first need to study the competitive environment in tire industry in 1991. In the U.S., the tire industry is composed of two main segments, original equipment (OE) and replacement tires. While OE accounts for some 20 to 25% of tire sales annually, it is the replacement segment which is the main player as it account for 70 to 75% of sales. There are around 10 main competitors in this market that control 75% of market share. But among these, the top three control 60% of the market and these are Group Michelin, Goodyear, and Bridgestone. While Goodyear lags behind Michelin in worldwide sales, it is a significant market leader in both segments in the U.S. Though OE segment is much smaller compared to replacement tires, it had always been considered an important unit as leaders believed that satisfied customers would want the same replacement tires. However they were proved wrong. It was realized that customers of replacement tires would prefer any good brand if it was more economical to them and suggested by someone they trusted like people at Sears.

Point of sales is also an important consideration. Tire dealers play a critical role in suggesting the right brand. It is important that they mention Goodyear as a possible alternative or allow customers to opt for Goodyear brand as replacement tires instead of making their own suggestions.

From various Exhibits in the case, we can make some important observations about various players in the market.

1. Sears enjoys an important place in the replacement market. While it doesn't produce its own tires, it still accounts for 5.5% of car replacement tire segment by selling private labels.

2. Fierce competition exists in both segments of tire industry. But the nature of competition is not the same in both segments. While competition in OE is driven by vehicle manufacturers, competition in replacement tires is a more general and wide-ranged in scope. Vehicle manufacturers are both quality and price sensitive and choose the most reliable yet economical brand for their newly manufactured cars. But replacement tire segment competes on all components of the marketing mix. Price, promotion, place and product all plays critical roles in customer's final decision of purchase.

Exhibits also reveal Goodyear's position in the Tire industry.

1. It is clear that Goodyear is the second leading tire manufacturer in the world.

2. Goodyear's OE segment sales and market share reveal an important point. While Michelin has to use both Michelin and Uniroyal/Goodrich brands to capture 30% of OE segment, Goodyear manages to capture 38% with only one large brand.

3. In the replacement market, Goodyear tires enjoy a comfortable leading position as it has 15% of passenger car tires market, 11% of light truck ties market and 23% of highway truck tires market.

The strategic implication of broadening the distribution network and selling through Sears is an important consideration. Should Goodyear go ahead with this idea and if yes, why and if not, why not? Goodyear will be exploring a new distribution option and this can have effects in two critical ways:

a. By choosing to sell through Sears, Goodyear will be relinquishing its brand exclusivity. It will also have to become more sensitive to retail marketing practices and may lose control over its own retail policies.

By going with Sears proposal, the company will be accepting a dual distribution option. But this option also means catering to a different clientele. Different channels cater to different kind of customers.

Selling through Sears may at first appear like a defensive move. Some may even question the loyalty of the new management to old policies and strategies of Goodyear's. however before any final decision is made, the company needs to consider important things like sales made through Sears and compare them with sales of replacement tires made by Goodyear tire dealers.

From the case we find out that

Sears has 5.5% of replacement tire market share

Goodyear's market share of replacement tires is 15%

Sears Auto centers in the U.S. are 850

Goodyear's auto centers and franchises are 7,964

The replacement tire volume is 155.4 million

Some basic calculations will now reveal the volume of sales through these two channels.

Replacement Tires Sold Through Sears Auto Centers:

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

Replacement Tires Sold Through Goodyear Outlets:

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

SWOT analysis

Goodyear is the leading tire manufacturer in the U.S. And thus enjoys a good reputation with the customers and retailers. It has 15% market share of replacement tires segment which gives Goodyear upper hand in the proposal.

Goodyear's distribution network is wide but exclusive which means customers might find it difficult to replace their Goodyear tires since they first need to locate a Goodyear outlet. Goodyear also does not enjoy a very stable relationship with its retailers which can be detrimental in the long run.

The tire industry in the U.S. is highly robust and there are great opportunities for expanding market share since customer loyalty is tied to convenience and price. Goodyear has the chance to take even more market share by expanding its distribution network.

But Goodyear cannot ignore the fierce competition that exists in the tire industry. Michelin is ahead of Goodyear in worldwide sales and it is not impossible to catch up with Goodyear in the U.S. too.

Positive 1: by selling through Sears, Goodyear will be able to capture the tire buyers market which is loyal to Sears. This way it can have access to a large number of customers which it previously could not attract through its own dealerships.