Summary:

In early 1992, Goodyear Tire and Rubber Company executives were reconsidering a proposal from Sears, Roebuck & Company that was originally made in 1989. The proposal from Sears was for Goodyear to sell its popular Eagle brand tires through 850 Sears Auto Centers in the U.S. This proposal was declined in 1989 because Goodyear management felt that selling their tires through a mass merchandiser such as Sears would undermine the tire sales of company owned Goodyear Auto Service Centers and franchised Goodyear Tire Dealers. However, following a $38 million loss in 1990 and a change in Goodyear top management in 1991, the Sears proposal resurfaced.

Two factors apparently prompted Goodyear’s renewed interest in the Sears proposal. First, the Goodyear brand passenger car replacement tire market share in the US had a 3.2 percent decline between the years 1987 and 1991. This share decline represented a loss of about 4.9 million tire units. Second, Goodyear executives believed that nearly 2 million worn out Goodyear brand original equipment tires were being replaced annually at some 850 Sears Auto centers. Goodyear executives believed the failure to repurchase Goodyear brand tires happened by default because Sears customers had such a remarkable loyalty to the company they were led to buy the best tire available that Sears had to offer, which did not include Goodyear brand tires.

Problem:
Primary: Goodyear’s primary problem lies within their current distribution policy. Currently they are only selling their replacement tires through company owned auto service centers and franchises. The market share for replacement tire sales captured by retailers not serviced by Goodyear (discount multi-brand independent deals, chain/department stores, and warehouse clubs) has grown from 17 percent in 1982 to 35 percent in 1992. So there has been a significant amount of market share growth in distribution channels that are not being utilized currently by Goodyear. Given Goodyear’s primary distribution through company owned Goodyear Auto Service Centers and company franchised Goodyear Tire Dealers, which represent tire company stores, the company is effectively “closed out” of retail outlets that are capturing a larger percentage of the replacement tire segment.

Secondary: 1. A product policy decision exists. They must decide if they should sell all, some, or one (e.g. Eagle) of their brand(s) through Sears. 2. Decisions on these policy issues are further complicated by franchisee reactions to the broadened distribution and the effect of cannibalization. Broadened distribution through Sears is bound to create some channel conflict and affect trade relations with franchised Goodyear Tire Dealers. The extent and severity, however, is not known. We also don’t know how franchise retailers are going to react. If they become aggravated with Goodyear’s decisions they may start carrying more private labels and switching tire buyers to competing brands. Goodyear must decide if it is worth it to possibly anger their franchisees in order to go after the market share they are missing out by using there current distribution policy.

SWOT

Competition
The tire industry divides into two broad segments, original equipment market and the replacement tires market. The Competition in both of these markets is intense, but the nature and scope of the competition is different for each of them.

In the OE segment competition revolves around the major vehicle manufacturers and supplying some or all of the tire needs for their new model year cars and trucks.

In the replacement tire segment competition occurs across the marketing mix. Major tire manufacturers compete on the basis of “retail points of sale,” product variety and innovation, price and promotion.

Original Equipment Tire Market
The OE market represents 25 to 30 percent of the tire unit production volume each year. Goodyear is the market share leader in this segment and captured 38 percent of the market share for OE passenger car tires in 1991. Followed by Firestone and Michelin who hold a market share of 16%. This market is the least profitable of the two but it is considered strategically important by tire manufacturers because it has been believed that car and truck owners who are satisfied with their original tires on new vehicles will buy the same brand when replacing their worn out tires.
Replacement Tire Market
This segment of the market accounts for 70 to 75 percent of tires sold annually (3 times that of the original equipment market). The demand for this segment is driven by average miles driven per vehicle. Tire manufacturers produce a large variety of grades and lines of tires under both the manufacturers name as well as private label brands to accommodate the needs of all different customers who are seeking tires based on price, quality, performance, etc…

Goodyear is the perennial market share leader in the US replacement tire market. They hold a leadership position in the passenger car, light truck, and highway truck product categories.

***World tire production in 1991 was approximately 850 million tires. Goodyear is the world’s second largest producer, right behind Groupe Michelin who is the world’s first largest producer, and right before Bridgestone who is third. These three firms collectively account for 60% of the worldwide tire market.

Retail Points of Sale
The tire industry uses retail points of sale to gauge the retail coverage of tire manufacturers and their brands. Goodyear brand tires have the broadest retail coverage with almost 8000 retail points of sale, followed by Michelin, Goodrich, and Uniroyal.

Consumer

Few replacement buyers are very knowledgeable about tires and many end up choosing a tire based on price and some just follow the recommendation of their local dealer. Consumers are becoming more price sensitive/conscious while abandoning brand loyalty. It is reasonable to conclude from the case text that replacement tire buyers are highly price conscious, and prefer choices (some “price-quality” ranges). It is also reasonable to believe that prompt and proper installation, a “pleasant” tire store environment, and credible salespeople are important since tire buyers appear to know little about the quality.
Strategic Considerations

Goodyear can choose not to distribute their product to Sears retailers and continue to solely distribute through company owned auto centers and franchises. * Goodyear would remain one of the top tire manufacturers in the world, and would not risk the effect of cannibalization or angering their franchisees.
Goodyear can choose to distribute their complete product line of tires in Sears retailers. * This could benefit both Goodyear and Sears, but could cause unease among franchisees and a high level of cannibalization.
Goodyear can choose to limit distribution in Sears retailers to the Eagle brand tires as originally proposed * Franchised Goodyear Tire Dealers would benefit from fewer brands being sold through Sears because of the decrease in cannibalization.

Recommendations:

After weighing all the possible outcomes we recommend that Goodyear accepts Sears, Roebuck and Company’s offer to distribute Goodyear’s products at Sears’ Auto center outlets. We believe the increase in the distribution channel will provide more revenue for Goodyear and help them to recapture the replacement tire market. In making this decision we also had to consider what brands would be sold through Sears. We agreed that Goodyear should stick with the original proposal from Sears which was to distribute their line of Eagle brand tires at the outlets. By doing this, Sears gets exclusive rights to Goodyear Eagle, and Goodyear Tire Dealers retain exclusive rights to all the other brands. This decision will help to minimize the effects of cannibalization to Goodyear Auto Center and its franchisees.