COMPANY PREFERENCES OF THE CUSTOMERS

OF INDIAN TIRE INDUSTRY

“ There never was in the world two opinions alike, no more than two hairs or two grains; the most universal quality is diversity.”

-Michel De Montaigne

It is said that it is the customer who is considered the God and the success of every organization depends on the buying decision of the customers. Therefore, so as to attract the customers, the organizations apply a number of traits of promotion like personal selling, direct marketing and advertising in different media (print, TV, or out-door) etc. This concept applies in every industry, including the tire industry.

An Introduction to Tire Industry

Tire industry is capital intensive industry, and as capacities come in spurts, it leads to constant demand-

supply imbalance and consequent cyclicality in prices. The variable costs are also very high, with raw material forming 70% of the costs. Production process is technically intensive and globally huge sums are invested in R&D. Tire demand is derived demand, dependent on the auto industry, both for OEM and replacement market. The major segments are truck and bus (T&B) tires and car tires. Value share of T&B is about 73%. Replacement market forms largest segment (about 58%) followed by OEM (about 22%). Exports account for about 15%.

With global demand slowing down, there is a consolidation of capacities through mergers etc. The domestic tire industry broadly mirrors the market characteristics of global industry. However, due to rough road conditions,

rugged, suitable and cheaper cross-ply tires are in vogue. Consumption of natural rubber is therefore proportionately high.

Aims and Objectives of the Research

The consumer behavior is defined as the buying behavior of a customer so as to satisfy his or her needs. For the satisfaction of such needs, the marketers provide them with various products under different company’s name and brand names. It is up to the consumer to decide upon the choice of the company. So as to attract the potential customers, the companies in every industry go for tools like advertising. This advertising may or may not help the companies to increase the sales of their product.

This is true in case of the tire industry. Here, the basic aim of research is to study the impact of advertising on the sales of tires in the domestic tire market. In other words, it is an attempt to study – How the consumer buying behavior is affected by the advertising of the product, i.e., how the company preferences in the domestic tire market of the customer is affected by the advertising strategies of the companies.

The objective of this research is to study that how the frequency of advertising for a particular tire company, in a fortnight, affects the sales, in other words, the company preferences of the customer.

Hypothesis

In this research certain assumptions or hypothesis have been made. This has been done to facilitate the study. This hypothesis can be stated as follows:

H-0: The company preferences of the customers in the domestic tire market are affected by the frequency of advertisements they see in a fortnight.

An alternative hypothesis is stated in case the null hypothesis is rejected. This hypothesis is stated as:

H-1: The company preferences of the customers in domestic tire market are not affected by the frequency of the advertisements they see in a fortnight.

Literature Surveys

While working upon this research paper, a number of similar research papers were studied so as to draw some inference that what has already been studied and how does the advertisements affects the sales of a particular company.

A research paper “ Buying Behavior of Shampoo among College Going Girls in Bikaner City “ written by Mr. Pramod Kumar Gupta, says that the advertisements do affect the buying behavior. The research done by him is more of a theoretical research rather than an empirical research. The sample size he had considered is of 50 students. He has taken a hierarchical model depicting the role of advertising in buying decisions for shampoos in the girls. For this he has done a regression analysis taking the sales as a dependent variable and the frequency of advertisement shown as an independent variable. After running the regression, and doing the analysis of the results, it was analyzed and concluded that the buying behavior in college going girls for buying a shampoo is certainly affected by the advertisements shown in different media although there are certain other factors also which may influence the buying pattern. Factors like preferences for an herbal shampoo or a clinical shampoo.

Another research paper written by Mr. Arvind Vaid, Mr. Kunal Seth, Mr. Bharat Chavda and Mr. Anurag Gupta titled as “A Study of the Brand Loyalty of Cigarette Smokers “ also studies the customer

preferences for a

particular cigarette brand. The design of this is a descriptive design and the method used by them for the collection of data is the Questionnaire method. Originally they had interviewed 114 persons but selected 100 as their sample size. The analysis techniques used by them for their research analysis were:

ü Chi-square test

ü Graphical method

ü Mean, Median

ü Cross-tabulation

ü Z-test

Their main objective of conducting the research was to study the affect of advertising on the brand loyalty of the consumers. After conducting the research they deduced that a brand loyal consumer would not shift from one brand to another on finding the advertisement of the new brand attractive. Neither the brand loyalty would be affected by the change in price, change in income or the introduction schemes like free gift offer by the other brand. Also, they analyzed that the youngsters are more influenced by the advertisements than other age group smokers.

Research Methodology

Research design:

Problem: How does the frequency of advertisements affect the company preferences of the customers in the domestic tire industry.

Hypothesis: The null hypothesis and the alternative hypothesis are stated as follows:

H-0: Frequency of advertisements does not affect the company preferences of the customers’ i.e. the sales of the company.

H-1: Frequency of advertisements does affect the company preferences of the customers’ i.e. the sales of the company.

What to Observe?: The affect of the frequency of advertisements on the customer preferences. For this, the sales figures of different companies in the Indian tire industry are compared with the respective frequency figures of the advertisements of the respective companies.

How to Observe?: The various methods used for observation are:

ü Questionnaires

ü Personal Interviews

ü Economic and Auto Industry Journals

ü Advertising Magazines/Newspapers

Model Used: The model used here is a simple Karl Pearson’s Coefficient of Correlation.

How to Record Observations?: The observations are recorded in a tabular form.

Inference: it would help the organization to decide the optimal level of advertisement investment for boosting the sales and in turn making the company’s product a preferable company of the potential customers.

Model Used:

The model used in this research is the model for Karl Pearson’s Correlation Coefficient. Correlation is relationship, which exists between a dependent and independent variable. In this case, the dependent variable is the sales of the companies and the independent variable is mean frequency of the exposure of advertisements to the customers.

Correlation may be defined as the relationship between two variables where the change in one has significance change in another. It is said to be a perfect one if the deviation in one variable is followed by a corresponding and proportional deviation in another.

Karl Pearson’s coefficient of correlation is a measure of intensity or degree of linear relationship between two variables. Correlation coefficient between two random variables X and Y, usually denoted by r(X,Y), is a numerical measure of relationship between them. In this case X is the sales of the company (dependent variable) and Y is the frequency of exposure of advertisements to the potential customers (independent variable).

Data Collection:

The data for the research is collected by using the different methods of data collection. The various tools of data collection used for this research paper are enumerated as follows:

ü Questionnaires – A questionnaire is prepared and distributed among the sample size.

ü Interviews – Target sample size was interviewed regarding the preferences of the tire company they prefer for their vehicle, and the impact of the advertisements of that company on their purchase decision.

Companies’ Profiles

Apollo Tires Ltd.: -

It is one of the leading tires manufacturing companies in India. It manufactures automobile tires, tubes and flaps. Well entrenched in T&B (trucks and bus) tire replacement segment which comprises the bulk of the market. Though its presence in 2-wheeler and passenger car segment is low. Though going through low in FY’99, Apollo Tires Ltd. Has posted sales growth of 17% YOY in first 9 months of year. However, rising cost of material inputs and increased competition has put pressure on operating margins. The company has, however, succeeded in holding on to its market share by affecting a change in product-mix with production of more car radials.

CEAT Ltd.: -

A part of the RPG Goenka Group, CEAT Ltd. is the second largest tire manufacturers in country after MRF. CEAT manufactures truck and bus, passenger car, scooters and LCV tires. The company is a dominant player in T&B and passenger car tire segments with a market share of 14% and 17% respectively. In FY 2000,CEAT did well to posting a 21%YOY sales growth in replacement market for T&B tires. It is presently focussing on

catering to the passenger car and 2-wheeler industry. Towards this, it is commissioning a new radial tire factory in 2001.

Goodyear India Ltd.: -

Goodyear India Ltd. is a 74% subsidiary of the $13.5 bn. Goodyear Tire & Rubber Co., U.S., the world’s third largest tires company. In FY ’99

company increased its turnover by 24.2%YOY,thanks to increased capacity at its Ballabhgarh facility and improved off take from South Asia Tires Ltd. in Aurangabad. Goodyear India Ltd. has now come to occupy 11.3%of the domestic market share in the industry.

JK Ltd.: -

It is one of the leading domestic tire producers and a pioneer in radial tires in India. JK Ltd. has a presence in T&B, passenger car, LCV and tractor tire segments. It has largest market share of 23% in the T&B segment after the takeover of Vikrant Tyros. The company also leads in LCV tire market by

having 24% of the market share.

Analysis

After running the correlation and performing the t-test on the data collected, it is seen that the sales of a company are affected by the exposure frequency of the advertisements. In other words, the H-0 (null hypothesis) is rejected and the alternative hypothesis, H-1, i.e. the customer preferences for a particular tire company in the domestic tire market a re affected by the exposure to the no. of times an ad of a company shown to the customer, is accepted.

Conclusion

It can be concluded from this research, that the customer prefers those tiers for which the company concerned exposes him frequently through the various media forms like print, TV, hoarding etc. Although other factors like his income, type of vehicle, the road conditions of his city, does play an important role for making a purchase decision, advertising helps him to identify the players in the market. Therefore, it is important for any marketer to study the consumer behavior and henceforth create and apply suitable promotional strategies.