Goodyear Tire and Rubber Company - Assignment Example

Analysis: Goodyear Tire and Rubber Company Strategic Issues and Problems In 1989, Goodyear Tireand Rubber Company declined a proposal of Sears, Roebuck and Company to retail their tires. However, there came a $38 million loss in 1990 and a change in Goodyear top management in 1991. For these reasons, the proposal is again being studied for reconsideration. There are two main issues that caused this reconsideration: (1) there was a 3.2 percent decline in market share for passenger replacement tires between 1987 and 1991, and this decline represented a loss of 4.9 million tire units; and (2) almost 2 million worn-out Goodyear brand tires were being replaced every year at some 850 Sears Auto centers in the United States. Reconsidering the retail of Goodyear tires by Sears also meant that Goodyear has to review their distribution policy. Goodyear now faces several problems and a few dilemmas. Should we allow Sears to retail our products Should we only license them to market the Eagle brand Which brands, and how many should we allow Sears to carry Distribution through Sears would definitely increase the sales of passenger replacement tires of Goodyear. But what would the repercussions of this be on the company-owned and franchised Goodyear tire dealers How much loss would they incur The Replacement Tire Market The replacement tire market is responsible for 70 to 75 percent of tires sold every year. Passenger car tires are 75 percent of annual sales. The average mile driven per vehicle affects the principal demand for this market. Each 100 mile shift in the average number of miles traveled per vehicle there is a result of 1 million unit change in the sales of the replacement car tire market, and this is supposing that a tire has an average treadlife of 25,000 to 30,000 miles. Because of the longer treadlife of new tires, worldwide unit shipments have remarkably decreased. In 1987, a total of 204.8 million tires were sold. Of these, 151.9 were replacement tires. The following year (1988), a total of 209.4 tires were sold and 155.3 million of these were replacement. There was a decline of sales in 1989: only 205.1 million tires in total were sold and 153.8 million were replacement tires. It further declined in 1990 with only 199.5 million tires in total; of these were 152.3 million replacement cars. It did, however, increase the following year (1991) out of the 205.3 million tires sold, 155.4 million were replacement tires (Peterson and Kerin, 2007). Retail Tire Marketing Independent tire dealers normally carry brands of several major manufacturers and some discount-priced private label brands. This is to offer buyers a wide range of choices. It is usually more advantageous for manufacturers to have a broad product line to appeal to different customers with different vehicular requirements, and price affordabilities. Sears, for instance, usually carries manufacturer's brand tires and markets their own private-label tires. Most buyers buy from the retail store that they trust, and only a few really know about which tires are best. Most just follow the advice of the storeowners or salespersons that they usually do business with. For these reasons, Goodyear is considering the offer of Sears to retail their Eagle products. Goodyear Tire and Rubber Company The principal activity of the company is to develop, manufacture, market, and distribute tires and rubber products. Goodyear has maintained the leading market-share in the U.S. replacement tire market. This is until Michelin acquired Goodrich Tire Company, the second largest U.S. tire manufacturer in late 1990. 83 percent of Goodyear's corporate sales were composed of tire and tire tubes in 1991. Along with this, the company also owns Kelly-Springfield Tire Company, Lee Tire and Rubber Company, and Delta Tire. And in addition, Goodyear also produces private-label tires. 20 to 25 percent of the world's tire manufacturing industry, and in the U.S. tire industry, they control about 37 percent. About 60 percent of these sales were of replacement tires. As the best known brand name in the world, Goodyear maintains several brand names under its wing. These are: Arriva; Corsa; Eagle; Invicta; Tiempo; Decathlon; Regatta; S4S, T-Metric; Wrangler, and Aquatred (Peterson and Kerin, 2007). Factors to consider in the acceptance of Sears' Proposal" Advantages Disadvantages Total sales of replacement tires for Goodyear would considerably increase as consumers are adapting to the trend of going to the more popular retail outlets. Franchisees may be critical because their market share may remarkably decrease as Sears would definitely take a chunk of their market shares. Goodyear would be part of the brand names that Sears carries, and would thus, be a part of the sales of the Company. Company-owned Goodyear Tire dealers would incur a loss in sales. Goodyear executives would need to review and revise their distribution policy Plan of Action Goodyear Tire and Rubber Company has two major options: to accept the offer of Sears to carry the Goodyear Brand; and to decline their offer and just let the current Company-owned branches and franchisees market their brands. The courses of action open to Goodyear if they market their brands are: 1. Offer only the Eagle brand, 2. or offer the Eagle brand along with the other mid-priced brands such as Decathlon and T-Metric which has lower treadwear and traction performance. The advantages and disadvantages of each plan of action would be as follows 1. Accept Sears proposal and offer only the Eagle brand. Advantages: Sears customers who are looking for Goodyear tires will only have the option to one of the models of the Eagle Brand; thus, other customers who are in need of a different Goodyear brand would still go to the company-owned auto centers and franchisees. The Eagle Brand sales would further increase. Disadvantages: If a customer prefers a different brand of tire other than the eagle brand of Goodyear, the customer may just opt to get another brand (other than the Eagle brand Goodyear is carrying) rather than go to a different Goodyear dealer. Sears would take a big chunk of the Eagle Brand market share of franchisees and company-owned retailers and auto centers. 2. Accept Sears proposal and off the Eagle brand along with the other brands Advantages: Goodyear will benefit from the already big market share of Sears in replacement tire sales; and their customers would have a wide range of choices between the Goodyear brands with a variety of prices to choose from. Sears would also benefit because loyal Goodyear customers would have the option of getting replacement tires from them. Disadvantages: Sears would drown out other Goodyear retailers and company-owned auto centers and retailers, and franchisees. Goodyear would benefit more if a bigger percentage of the sales come from their company-owned shops rather than from Sears. Goodyear would have to review their distribution policy. 3. Reject Sears proposal once again Advantages: Goodyear loyal customers would continue to buy their replacement tires from the existing Goodyear dealers and franchisees. There will be no need to review or change distribution policy. Disadvantages: Sears are increasing in their percentage of market share in the replacement tire industry. Goodyear will continue to lose sales to Sears customers who are loyal to them and refuse to buy elsewhere. 2 million Goodyear tires are being replaced in Sears every year. If they refuse, this trend may continue, and Goodyear would continue to incur losses. Recommendations The previous analysis indicates that Goodyear is the leading manufacturer in the tire industry. Meanwhile, Sears is also leading in the replacement tire retail industry. The information above suggests that there is more to lose for Goodyear if they decline the Sears proposal once again. This paper recommends that Goodyear Tire and Rubber Company accept the proposal of Sears to retail their tires. Goals and Objectives 1. Goodyear should accept the proposal of Sears to retail their tires. 2. Goodyear should distribute to Sears the Eagle brand, and in addition, the T-Metric and Decathlon brands for price variety. 3. Goodyear should focus their distribution on the kinds or brands of tires that Sears customers more commonly need to avoid drowning out other dealers. Target Market The target market of Goodyear in their distribution to Sears would be the current Sears customers who are loyal to them. Since their loyal customers usually just buy the recommended product or tire of Sears, Goodyear aims to grab a share of their market. As mentioned earlier, there are about 2 million original Goodyear tires being replaced at around 850 Sears outlets. Marketing Mix Product Strategy Goodyear will distribute all the models of the Eagle Brands, along with the T-Metric and Decathlon brands. It is expected that Sears customers will now favor the Goodyear brands under the recommendations of Sears dealers. Price Strategy Goodyear would distribute their brands at a small fraction higher than they normally do. This would, at least, somehow, make up for the market share that Sears would get from the company-owned franchisees and dealers. Distribution and Sales Goodyear would distribute these brands to all Sears outlets, and get an overriding commission from their sales, to compensate for the service warranty that will be offered by Goodyear Tire and Rubber Company in its auto centers. Advertising and Promotion A reasonable advertising and promotion is also recommended. Print advertisements may be handed out to customers who are browsing, and to those who are getting car services. Since the target market focuses on Sears customers, these print advertisements may also be spread to their mailing lists. References Peterson, R.A. & Kerin, R.A. (2007). Strategic marketing problems: Case and Comments (11th ed.). Pearson Education, Inc. Read More