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Goodyear Tire and Rubber Company

In: Business and Management

Submitted By ghostchang
Words 540
Pages 3
BACKGROUND AND PROBLEM DEFINITION
Goodyear is the second largest producer of tires in the world. Sears made a proposal to carry one of the company’s popular brands of tires, the Eagle brand. Goodyear declined the proposal in 1989 but due to decline in market share and change in management, the company is giving the proposal a second thought. The company needs to decide whether to accept the proposal and have the Eagle brand sold in Sears or decline the offer and remain the status quo and have the tires sold only through company-owned service centers and franchised dealers.
MARKET AND INDUSTRY ANALYSIS
The tire industry is global and the tires produced in 1991 were about 850 million. Three largest tire manufacturers account for 60 percent of all tires sold worldwide. They are Group Michelin, Goodyear, and Bridgestone Corporation. The industry has two end-use market; the original equipment tire market (around 25 to 30 percent) and the replacement tire market (around 70 to 75 percent). Major tire manufacturers build their brand name with strong wholesale and retail dealer relationships.
Goodyear’s sales in replacement tires is directly affected by the average mileage driven per vehicle. The more people drive, the better the sales of replacement tires. Consumers are very price sensitive and most likely do not know much about tires. The buyers usually take recommendations from the dealer and are not loyal to a brand. Adding retail outlets is giving Goodyear a chance to increase their sales by being able to be recommended by the dealer. With Sears existing retail stores, Goodyear’s tire could be one the
EVALUATION OF ALTERNATIVE COURSES OF ACTIONS
There are two options, to accept or decline the proposal. The pros and cons of each alternative is listed here:
Alternative 1: Accept the proposal
Pros:
• Potentially market share
• Increase in sales (EXHIBIT 2)
• Increase distribution channel
Cons:
• Potential conflict with existing Goodyear franchise dealers
• Significant change in distribution policy
Alternative 2: Decline the proposal Pros:
• Keep focusing and concentrate on current dealers and service centers
• No changes to the distribution policy Cons:
• Opportunity cost
• No potential for increasing sales
• Possibility of continue to lose market share
RECOMMENDATION
The recommendation for this decision would be to accept the proposal. Without the additional two million units estimate to sell through Sears outlets, the total Goodyear sales in 1991 is $2,474,745,000 (EXHIBIT 1). With the additional units, the total sales become $2,669,745,000 (EXHIBIT 2). Goodyear replies heavy on the sales of replacement tires and with the additional Sears outlets, it will be easier for consumers to be exposed to the brand. EXHIBIT 1
Total tire unit sales in 1991 = 155,400,000
Goodyear market share = 16% (average from 2 categories)
Goodyear unit sales in 1991 = 155,400,000 * 16% = 25,382,000
Lowest selling price = $20
Highest selling price = $175
Average selling price = $97.5
Dollar sales in 1991 = Goodyear unit sales * average price = 25,382,000*97.5 = $2,474, 745,000

EXHIBIT 2
Goodyear sales in 1991 = 25,382,000
Additional sales from Sears outlets = 2,000,000
Total estimated unite sales = 17,382,000
Unit price = $97.5
Total estimated sales = $2,669,745,000
Additional sales = $195,000,000

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