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GOODYEAR : THE AQUATRED LAUNCHBY

ANANT AGGARWAL AKANKSHA RANJAN ALI AKBAR SAZID ANKIT BARIAR AMRITA MISHRA ANKUR SINHA ANURAG WATE ANKIT BATRA

10IB-009 10FN-007 10IT-003 10DM-015 10FN-012 10HR-007 10HR-008 10HR-006

TIRE INDUSTRY IN U.S TILL 1970S 5 Major players : Goodyear, Firestone, Uniroyal, BF Goodrich and General Tire Consistent growth in profits Absence of foreign competition Changes during the period Emergence of radial tires superior to existing bias and bias belted tires Increased competition e.g Michelin of France Change in nature of demand of tires

IMPACT OF CHANGES Sluggish growth in demand for passenger tires Decline in price of tires Tire producing capacity outstripped demand Number of mergers and acquisitions Uniroyal-Goodyear sold to Michelin General Tire sold to Continental Armstrong Tire sold to Pirelli Dunlop sold to Sumimoto Firestone sold to Bridgestone

TREND OF SALES OF PASSENGER TIRES(IN MILLIONS)Replacement OEM

43

54 37

50

152

144 123

137

1991

1986

1981

1976

|THE GORILLA} : COMPANY BACKGROUND Founded by Frank Seiberling in 1898 Manufactures tires for automobiles, commercial trucks, light trucks, SUVs, race cars, airplanes. Operates 41 plants in US, 43 plants in 25 other countries, 6 rubber plantations and more than 2000 outlets Revenue of $10.91 billion and 105,000 employees

COMPANY BACKGROUND(CONT.) Introduced the Tiempo in 1977, the first allseason radial Launched Eagle in 1981, the first radial tire offering high speed traction for sports Large investment in pipelines for natural gas and oil transmission during 1980s

WORLD LEADERS IN TIRE INDUSTRY SALES(IN BILLION US DOLLARS)Sumimoto, 3.5 Pirelli, 3.7 Michelin,10 .4

Continental, 3.9 Goodyear,8. 5

Bridgestone , 9.8

CLASSIFICATION OF TIRES

Major Brands

36% of unit sales Made by large manufacturers Highest recognition

Minor Brands

24% of unit sales Made by small manufacturers Includes high priced niche brands

Private label

40% of unit sales Mostly exclusive to particular retailer One distributor per territory Less retail price Less average life

Percentage sales50 45 40 35 30 25 20 15 10 5 0 Price Oriented Brand Oriented Outlet Oriented 1985 1992

DISTRIBUTION CHANNEL FOR REPLACEMENT TIRES

Tire manufacturer Wholesalers Retailers / Dealers End consumers

WHOLESALE DISTRIBUTION CHANNELS Major distribution channels are :

Oil companies Large retailers Manufacture owned outlets Independent dealers

3 kinds of independent dealers : Dealers strictly wholesalers, without any retail operations (10% of sales) Dealers who sold tiers at retail and resold tires to other dealers and secondary outlets(40% of sales) Dealers who bought tires to resell in their own retail outlets only (50% of sales)

Percentage Sales for 19769% 24% 56% 11% Oil Companies Large Retailers Manufacturer owned outlets Independent dealers

Percentage Sales for 19815%

20% 10% 65%

Percentage Sales for 19863% 16% 13% 68%

Percentage Sales for 19912% 19%

12% 67%

RETAIL DISTRIBUTION CHANNELGarages/Service stationsSmall, neighbourhood outlets

Warehouse clubs

Mass merchandisersRetail chains

Large stores

Sells gasoline, tires and auto services

Sold various categories like food, clothing

Sold tires, auto services and different merchandise

Sold private label and branded tires

Offered limited brand selection, low prices

Consisted of many outlets

RETAIL DISTRIBUTION CHANNEL(CONT.)Manufacturer owned outletOwned and operated by manufacturer

Large independent tire chainsKnown as multibranded discounters

OthersHalf the sales account for by full service auto supply stores

Sold only one brand of tire

Consisted of many outlets within a region

Sold tires at low prices

Offered range of auto services

Carried major brands and private label tires

Competitor for independent dealers due to price

GOODYEARS DISTRIBUTION STRUCTURE

4400 independent dealers accounting for 50% of sales revenue 1047 manufacture owned outlets generating 27% of sales revenue 600 franchised dealers accounting for 8% of sales Remaining 15% attributed to government agencies

DISTRIBUTION STRUCTURE(CONT.) Average selling price by independent dealers $75 per tire Retail margins : 28% for independent dealers 25% for dealers carrying other brands 20% for private label tires

Wholesale margins : 18% for private label tires 14% for goodyear tires

~JUST TIRES New retail format by Goodyear Modeled after quick lube stores Sold and installed tires only No other products or services Provides guarentees on speed and quality of installation

PROMOTIONS BY GOODYEAR 3/4th tires sold in independent or company owned outlets at discount of 25% For independent and company owned dealer, promotions by core events Company offered dealers spring dating every spring which provided extended financing

INDEPENDENT DEALERS V/S COMPANY OUTLETSINDEPENDENT DEALERSOffered more choice for brands

COMPANY OWNED OUTLETSOffered single choice for brand

Required less capital

Required more capital

Required less attention from management Restricted brand availability and market share

Required more attention from management Expanded brand availability and market share

GOODYEARS INDEPENDENT DEALERS Goodyear provided its independent dealers with services like : Expertise and training Certified auto services The Goodyear Business Management System National and regional advertising Research on market trends

It serviced its independent dealers through area sales manager Dealer issues consisted of minor billing problems and complaints about competition from other outlets

ALLOWANCES TO DEALERS

Wholesale allowance

Merchandising allowance

Advertising accruals

AUTO SERVICES Constituted $50 billion market Included jobs like oil changes, tune-ups, parts repairs, etc Typical price - $60 Break up of auto service revenues :8% 8% 40% 15% speciality outlets tire dealers 29% mass merchandisers service stations new car dealers

COMPETITION FACED BY GOODYEAR Major competition from Michelin which had stronger image among value oriented and quality buyers Bridgestone and Michelin were planning to launch new tires with 80,000 mile warranties Uniroyal was introducing a new tire for light trucks

AQUATRED : THE LATEST TIRE BY GOODYEAR Target market : Replacement tires in U.S passenger cars Focus on tread design and appearance Reduced hydroplaning and improved traction in wet conditions Planned to be sold with 60,000 mile warranty Positioned at top of broad line segment

ALTERNATIVES FOR TIMING OF LAUNCH

Alternative 1 : At the time of winter olympicsBENEFIT Due to winter and snow, people would want tires with better wet traction to ensure safety RISK The accumulated inventory level would not support tires for small cars to be used in olympics

Alternative 2 : Any other time i.e before/after olympicsBENEFIT The inventory levels would support large size cars RISK Initial sales may be low due to absence of winters.

RECOMMENDED STRATEGY FOR LAUNCH TIMING

Alternative 1 seems better because : High initial sales expected due to winter and snow Due to prior commitment the launch would keep the brand image intact Test market data shows 74% of buyers have domestic make of cars

ALTERNATIVES FOR DISTRIBUTION CHANNEL

Alternative 1 : Use existing channel

Alternative 2 : Add new channels

RECOMMENDED STRATEGY FOR DISTRIBUTION CHANNELCompany should use the existing distribution system an go for sale by independent dealers because : Independent dealers account for 50% sales Likely to replace competitor brands due to design and performance Fear of brand value erosion otherwise

ALTERNATIVES FOR PRICING Alternative 1 : Keeping it low cost Alternative 2 : Fixing an average cost Alternative 3 : Costing at a premium price

RECOMMENDED STRATEGY FOR PRICING

Alternative 3 seems the best option because : In 1991, company earned net income of less than 1% of total sales revenue Company needs to enter into value and quality oriented customer segments Higher dealer margins Avoid cannibalization of Invicta GS tires sales

OTHER STRATEGIES Aggressive promotion by the existing 60% space of company in media Increase in advertising accruals for dealers from 4 to 6 7 % to get their support Resolving channel conflict by methods like :

T H A N K