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Goodyear Case Analysis

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Case Analysis

Goodyear Tire and Rubber Company

Submitted by: Rick Fletcher

MB545 Marketing Management

City University, Renton MBA 2000 Program

Fall Quarter, 1999

Introduction
The Goodyear Tire and Rubber Company is currently the #1 tire maker in the world[1]. The 101 year-old company has maintained that position through most of the company's history. However, in the early 1990's Goodyear slipped to #3 as France's Michelin and Japan's Bridgestone found better ways to get their products to consumers. To regain their #1 status, Goodyear was forced to re-think their century-old practice of marketing their product exclusively through its dealer network.
Problem Definition
Goodyear is facing tough competition from tire companies that focus their attention on the replacement tire market rather than the new car market. Also, their competitors do not rely solely on dealer networks to distribute their product. To respond to these challenges, Goodyear decided to focus on the replacement tire market and to sell tires through Sears, Wal-Mart, Discount Tire, and other discount stores in addition to their traditional franchise stores. The decision to sell tires through discount stores created some problems for Goodyear: • Allowing tire franchises and multibrand discount stores to sell Goodyear tires upset Goodyear dealers

because it drastically increased competition.

• Multibrand outlets may lure customers in with the Goodyear name and then sell them cheaper

competitor's tires.

• Multibrand outlets selling Goodyear tires for less than the dealerships pay for them.

• Goodyear dealerships are selling other brands.

• Exclusive deals to sell new brands only through dealerships have been violated with Goodyear

allowing Sears to sell the Aquatread line.
In an effort to support their dealerships, Goodyear offered them exclusive rights to sell new products and a generous package of cooperative promotional incentives.
Alternative Courses of Action
For most of their history, Goodyear dealerships have enjoyed very little competition from neighborhood tire stores. Customers who wanted the Goodyear brand were forced to buy at Goodyear dealerships. This began to hurt Goodyear sales as competitors offered their tires through local discount stores at lower prices. In order to stay competitive, Goodyear had to offer their tires through discount stores, but this move caused the problems noted above. Goodyear may not be able to compete with other brands that sell through discount stores and keep a good relationship with their dealerships. The world has changed and Goodyear needs to catch up and then develop some innovative strategies to maintain their #1 position. Here are some alternative courses of action:
1. Eliminate some (or all) dealerships.
2. Increase the availability of Goodyear tires by selling them everywhere tires are sold; strive to carry a complete range of sizes.
3. Find out what causes a customer to choose another brand and then focus company efforts to win those customers.
4. Look forward - what features will customers want from a tire in the near and distant future? Which emerging technologies will need rubber products?
Evaluation of Alternatives
1. This alternative concerns the distribution aspect of Goodyear's tire marketing plan. The elimination of dealerships may be an alternative if sales are not supporting the cost of maintaining the store. In fact, Goodyear may unknowingly be contributing to the success of its rivals by providing and maintaining a sales outlet for them! Since Goodyear dealers are now starting to carry other brands, the company needs to consider each dealership separately to see if sales at that dealership warrant its existence. If not, the company should discontinue support of that operation and direct distribution efforts to local tire stores.
2. This alternative concerns the distribution and product aspect of Goodyear tires. Since the company's executives believe Goodyear has no other choice than to make the company's product available through more channels, they need to move forward with that strategy. Are Goodyear tires available wherever tires are sold? If they are, then this strategy has already been implemented. Does the company lose substantial sales when a tire store does not carry a complete range of sizes or the right model? Goodyear needs to determine the best model and range of sizes with which to provide its sales outlets.
3. This alternative concerns the price, distribution, and promotion aspects of Goodyear tires. Price: If Goodyear tires are priced higher than the competition, is the customer getting more value? This is a very important aspect of sales. When customers shop for tires, often they choose the cheapest tire with a competitive warranty. The author did not choose Goodyear tires when he purchased a set last month for his 1989 Chevrolet S-10 Blazer because they would have cost $425 for the set of four, compared to $345 for Cooper tires with the same warranty and mud and snow rating. Also, I would have had to wait a couple days while they shipped in my size. There may be significant opportunities for Goodyear to reduce costs by improving processes at the 90 plants it operates around the world, rubber plantations in Indonesia and 900 retail stores in the U. S. The manager at a local tire store told the author he believes Goodyear must charge more for their product to pay for their advertising, including the blimp. Distribution: If a customer cannot buy a Goodyear tire at their favorite store, they will turn to the competition since it is more convenient than looking for a store that carries Goodyear tires. Promotion: Sales ads need to reach customers both at home and in the stores, and Goodyear needs to promote their product at strategic times, like the beginning of winter (snow tires) and the beginning of summer (RV tires).
4. To be the leader in an industry requires vision. What will customers want from a tire in the future? Flat-proof tires that are reasonably priced. Tires that are guaranteed to not wear out, like the company's Infinitred, but at a competitive price. Besides tires, are there other opportunities for rubber products? Earthquakes seem to be occurring more frequently around the world and in greater magnitudes. There are efforts underway to make buildings more earthquake resistant. Some of these designs, notable those developed by the Japanese, require rubber foundation inserts. Goodyear should keep an eye on the economy as a whole, see where it's headed and provide a product that meets or exceeds the customer of the future's expectations.
Conclusions and Recommendations
Goodyear has a great history of providing the world with tires for everything from horse-drawn carriages to a moon rover. However, the company has the dubious honor of maintaining exclusive company outlets longer than any other tire manufacturer. They did notice the problem and have took measures to correct the problem in the early 1990's by offering their product to consumers through tire franchises and multi-brand discount stores. This led to problems with the dealers who felt they were being treated poorly by the company. To fix the problem, Goodyear offered its dealerships exclusive rights to sell new models and pricing incentives. However, the dealerships have already begun to sell other brands, which are benefiting from Goodyear supplying the storefront for them! Goodyear should take a close look at this situation and make sure it's worth it, "roll with the times" and market their tires through discount stores, or settle on some combination of the two. Concurrently the company should develop and implement more cost-efficient methods of manufacturing and that would result in a more cost-competitive product.
Follow Up and Evaluation
Dealerships - To evaluate the feasibility of continuing to maintain dealerships, Goodyear should identify the costs associated with each dealership. These costs would include, but not be limited to rent, electricity, taxes, insurance and labor. Then the costs should be compared with sales levels at that dealership. Finally, Goodyear needs to determine the benefit realized by the competition in marketing their product through Goodyear dealerships. If the costs come close to the sales level at a particular dealership, Goodyear should close that dealership and move the inventory to the nearest discount store (unless there are none located in the vicinity).
Cost reduction - Goodyear should determine the cost to produce a tire by category (labor, raw materials, shipping, etc.), rank those costs and focus their efforts on reducing the largest contributor. If Goodyear wants to remain competitive, they must offer their product at competitive prices. The company could identify the competitive price, set that as a goal, then set goals for cost reductions to enable the company to offer their product at that price. Cost reductions should be identified with care, cutting salaries would result in low morale and lower productivity. In conjunction with launching cost reduction efforts, Goodyear should make certain each employee understands the key to their own long term, secure employment lies in supplying a product made by employing the most efficient, low cost methods possible.
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[1] http://infoseek.go.com/Content?arn=10668&qt=goodyear&col=HV&svx=lhscaps

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