Goodyear - The Aquatred Launch (Section E - Group 8)

Tire Industry was dominated by following companies during early 1990s through the 1970s: Goodyear, Firestine,
Uniroyal, BF Goodrich and General Tire.

The industry experienced important changes starting 1980s which led to the following results:

● Emergence of Radial tire replaced the older bias and bias belted tire. The demand for passenger tire grew
sluggishly.
● Foreign competitions decreased market share per company.
● The product capacity outstripped demand, tire making capacity rose 12% and capacity utilization fell from
87% to 76%.
● Unfavorable economic conditions led to mergers and acquisitions.

The segmentation for Passenger Tires:

● Performance and broad-line tires

● Replacement (65% revenue) and OEM (35% revenue) tires
● Brand Classification: Major brand (36% of unit sales), Minor Brand (24%) and Private label (40%)

The segmentation of Consumers (1992):

● Price-constraints buyers (45%)

● Value-oriented buyers (22%)
● Quality buyers (33%)
● Commodity buyers

The segmentation of Distribution Channels:

● Mass Merchandisers- Wide range; high volume

● Warehouse clubs- limited brand selection; minimal in-store service other than installation
● Manufactured-owned outlets- single brand: range of auto services
● Independent dealers (small & large)-major or private label; low priced, high volume operations

Below is analysis of the industry attractiveness using Porter’s Five Forces framework.

Porter's Five Forces

1) Industry Rivalry- High; The Tire Industry in the United States was dominated by five major companies:
Goodyear, Firestone, Uniroyal, BF Goodrich and General Tire. Again, foreign competition and import of passenger
tires made the industry quite competitive. Tire is almost a necessary product but not quite frequently bought. In
such an industry, five is quite a good number.

2) Entry Barrier – High; Tire as a product is hard to differentiate. Still there are some variations under different
brand names. And companies have to spend huge amounts to make their products identifiable to the customers.
Moreover, they not only want to keep their existing customers but also want to acquire their competitors'
customers. The established companies benefit a lot from the economies of scale and it would be difficult for new
entrants to match the prices and quality at the same time. It significantly reduces the profits for new firms, thus
discouraging new players in the industry.
Goodyear - The Aquatred Launch (Section E - Group 8)

3) Bargaining power of suppliers – Low – They followed the process of Backward Integration and they supply their
own raw materials to themselves. Hence the bargaining power of suppliers is low in this industry.

4) Bargaining power of buyers – High; Buyers usually want the best quality product for the cheapest price. Due to
high competitive industry, buyers get an undue advantage. Hence, to retain customers these tire companies have
to offer high promotions and discounts.

5) Threat of substitutes – Moderate – Brand loyalty is high in few customer segments. From exhibit 8 we can infer
that around 30% of the customers prefer switching products under the same brand name whereas around 40%
change it to private labels. It is highly dependent on factors such as price, fast service and trust.

Developing further on our understanding of the industry, below is analysis done for Aquatred product of Goodyear
using STP and Marketing Mix frameworks.

STP

From a consumer’s perspective, tires are an expensive necessity to keep a vehicle in driving condition. The average
purchase time between tires was 2.5 years. Customer’s usually preferred to buy tires in pairs as 40% of the buyers
bought 2 tires at once and 42% of the buyers bought 4 tires at once. Goodyear always believed in serving its
customers with performance oriented and quality products. They regularly surveyed car owners for Tire attributes,
Tire Selection criteria and their shopping behavior to identify potential customers & demand for innovation and
creativity. The order of customer preference was: tread life, wet traction, handling, snow traction & dry traction.
Customers base tire selection on various parameters like: Quick service, product pricing, mileage warranty, store
ambience, etc.

Based on shopping behavior, the consumers in this industry are segmented into:

1. Price constrained - Buy the best within the budget; Little loyalty to the brand
2. Value Oriented- Preferred brand at slightly higher price also acceptable
3. Quality seekers - Loyal to outlet and brand once preference established
4. Commodity buyers - Give importance to price & outlet. Trustworthy patrons & search for good prices.

Value oriented & Quality buyers preferred major brands over minor brands & private labels.

Target customers ->

● Quality based customers:

These customers put more emphasis on the quality of the tire, while price remaining a secondary factor
for the purchase decision. They focus upon life of tire, quality of the rubber, the traction it provides, the
tread of the tires, as well as high quality sales and after service.

Also, as per Exhibit 9, 61% buyers in the test market who bought Aquatred were quality based customers.

● Value based customers -

These customers put more emphasis on finding a product with good balance between quality and price,
namely the value they can get for every dollar they spend. They are less likely to spend more money on
Goodyear - The Aquatred Launch (Section E - Group 8)

tires than the quality conscious buyers. Consumers in this segment would buy their tires after thorough
research since they prefer benefit or value per dollar purchased. Information gathering could be from
point of purchase, or advertisement. After deciding purchase they would go to independent dealers or
mass warehouse which can give them service with the tire they purchase.

Also, as per Exhibit 9, 23% buyers in the test market who bought Aquatred were value based customers.

Based upon the above factors, Aquatred is the right product to be launched in the market, as it fills the gap of
prime brand product with high traction performance. Also, the above two customer segments would be willing to
provide demand in the market for it.

Positioning:

As a premium brand, Aquatred should be positioned in higher margin Replacement markets to quality conscious
consumers focused on performance that can be translated to tread life & wet traction. These factors allow
Aquatred to charge a premium to consumers. Aquatred will provide social value to the consumers in the form of a
style change, economic value of getting higher value than a competitive tire and a psychological value of safety.

Goodyear should position Aquatred as a top of broad line segment referring to improvement of performance and
safety in wet conditions. USP is to provide high traction in snow, ice, dry & wet weather for improved safety. The
main distribution partners should be individual dealers & manufacturer owned shops for brand equity & higher
margins.

Marketing Mix
Product:
Aquatred consists of the following features:
● Improved traction in wet conditions (deceleration from 55 miles/hr in a few seconds)
● 60,000 miles warranty
● Reduced hydroplaning
● Same wet traction even after 50% wear and tear
Price:
It is to be launched as a premium product in ‘All Season Radial’ sector. The suggested price as per test market
feedback is 10% over Invicta GS, the current highest priced product of Goodyear.
Place:
Aquatred can be launched via different potential channels. These are qualitatively discussed below -
● Mass merchandiser/Warehouse clubs - These channels focus on generating profit via economy of scale in
sales. These outlets focus on lesser pricing due to frequent discounting may lead to -
○ Brand dilution
○ Cannibalization of sales from existing channels. This may lead to independent dealers stocking
competitor’s products in the store.
● Independent Dealers -
○ Advantages -
 Biggest channel (4400 outlets with 50% Goodyear’s sales) for Goodyear’s existing products.
Goodyear - The Aquatred Launch (Section E - Group 8)

 Goodyear’s training and promotion processes are already set-up to ensure competitiveness
in market and reduction in dealer complaints.
○ Disadvantages -
 Lack of control on price. These dealers are free to choose their retail price (current retail
margins averaged 28%) and set their own inventory policies.
Since, Aquatred is to be positioned as a premium product, control over its retail price is important for
Goodyear. Thus, it may leverage the rich distribution channel created for increasing sales, but it needs to
diversify to other channels for further expansion.
● Manufacturer owned outlets -
○ Advantages -
■ Control over price
■ Higher profit margin
○ Disadvantages -
■ May lead to conflict of interest with independent dealers
Thus, Goodyear should focus on maintaining its independent dealers’ distribution channels while increasing its
own outlets. It needs to be ensured that these outlets are not in the same vicinity as of independent dealers.
Promotion:
● Increase in advertising expenses - As the product is of high quality, Goodyear can target quality and value
based customers and charge a premium to them. Thus to be able to refrain from promotional discounts, it
needs to focus on creating awareness.
● Launch during Winter Olympics - Will generate a lot of traction for the product and give a global reach

Conclusion
Aquatred is a patented technology and its launch will ensure that Goodyear is an innovation driven company. To
move from promotional discounts, company should focus on the advertisements and try to attract the customers
through the quality of the product. The launch of Aquatred in Winter Olympics is a right decision as the product is
in its initial phase and hence extensive marketing is needed. Price of the product should be kept slightly high (10%
– 15%) so that the value based customers as well as quality oriented customers could be targeted. Goodyear
should control the price of the product as lesser price via multiple channels may lead to brand dilution.

Also, Invicta GS is another good product of Goodyear in this sector, with customer satisfaction comparable to
Aquatred. Also, it can be seen from Exhibit - 9 that Aquatred captures a significant portion of competitors’ market
share as replacement tires, while keeping Invicta GC’s demand stable. Thus, it can be considered as a potential
fighter-brand.

In summary, below are the points Goodyear should keep in mind while launching Aquatred:

● Premium pricing
● Launch during Winter Olympics
● Selective distribution channels
● Higher investment in advertisements