CASE: GOODYEAR, THE AQUATRED LAUNCH

GROUP 6

BACKGROUND (sharmista)

• 1900s – U.S. tyre industry dominated by 5 companies.

• It was characterized by consistent growth in revenues

& profits and absence of foreign competition.

• 1970 -1980s: three important changes

– Bias tyres replaced by radial ones.

– Foreign competition

– Change in demand from consumers and car manufacturers.

BACKGROUND

• Major impacts of these changes:

– Sluggish demand due to increased average life of

tyres with less usage of cars.

– Declined tyre prices by 25%

– 12% increased tyre making capacity but capacity

utilization reduced to 76%.

– Mergers and acquisition due to economic slow

down.

BACKGROUND• Goodyear – known as “Gorilla” for its dominance in the

tyre industry.

• Highest market share -15% (replacement) & 38% (OEM

market) in 1991

• Made investment over $1.5bn to convert its factories to

produce radials.

• Had strong track record in launching innovative

products.

• Stanley Gault, Chairman , increased priority on new

product development.

BACKGROUND

• GY Earned net income of less than 1% on total

revenues.

• GY testing a new retail format “just tyres”

• Price conscious consumers, making purchases

only on sale.

• Increasing dependence of industry on independent

dealers to increase availability & market share.

BACKGROUND

• 50% of GY’s independent dealers sold only GY tyres

and other 50% stocked at least one other brand.

• These dealers aggressively merchandised other

brands but still GY generated 90% of its revenue.

• 1991 – Dealers were not pleased with their reliance

on auto service which earned 48% of their revenues.

BACKGROUND

• Michelin owners were most loyal followed by GY.

• GY’s competitors planning a wide range of campaigns

for 1992.

• Aquatred – new tyre, with improved driving traction

under wet condition.

• Robbins concerned over the Aquatred launch program.

• Aquatred – product to revitalize GY.

QUESTIONS

• Aquatred, a the right product consumers?

• Whether distribution be expanded and if so which

channels to be added?

• Whether new channels would sell Aquatred?

• Launching Aquatred during Winter Olympics, was

the right option.

• Finalizing on the pricing and promotional policies.

AQUATRED, A RIGHT PRODUCT FOR CONSUMERS? (latif)

• Yes.

• Provided improved wet driving traction and as

per survey wet traction is the 2nd most important

performance attribute considered while

purchasing.

• Tread life was given 1st priority while purchasing

tyre and Aquatred offered 60,000 miles warranty.

PRICING

• Price conscious consumers, making purchase only on

sale.

• New tyre prices in U.S. passenger market had declined

& averaged at $75.

• Aquatred - priced at 10% premium over the Invicta GS.

• Current pricing was appropriate:

– Aquatred, only product in the market offering wet traction.

– Wet traction 1st priority while making purchase.

CONT…

• Pricing also depends on the

marketing channel to be used.

• Use of exclusive distribution for

Aquatred to signify uniqueness and

premium pricing.

PUSH STRATEGY FOR GY PRODUCTS

• GY induced its intermediaries to carry, promote & sell

only its tyre lines to consumers by:

– Offering 28% retail margin on GY tyres as compared to 25%

on other major brands.

– Offering its mechanize at a discounts.

– Extending financing on tyre orders.

– Offering other such services, not popular with every dealer.

– GY tyres to be available only in few dealership provided

they carry only GY brand.

PULL STRATEGY FOR AQUATRED (anuja)

• GY used pull strategy for Aquatred i.e. persuading

the consumers to demand products from sellers.

• Strategy is useful incase of

– Brand loyalty: Aquatred test market data revealed

61% of Aquatred buyers were quality buyers (i.e. loyal

to brand and outlet)

– Michelin had most loyal customers followed by GY.

CONT….

– Perceived difference: survey also

revealed that buyers were more likely to

replace competitors’ tire with Aquatred.

– Choose brand before they go to store:

according to the survey majority buyers

considered brand as the primary

shopping orientation followed by store.

ADVERTISING & PROMOTIONAL POLICIES

• GY usually spends 9-11% of sales on advertising and

promotions.

• 60% spent on promotions.

• 2/3rd of all GY tyres were sold on promotion i.e. an

average 25% discount.

• Michelin and Bridgestone to launch new tyres (80,000

miles warranty) backed by heavy advertising.

CONT…

• Firm’s advertising decisions depend on how

much motivation dealers need.

• Need to advertise more for Aquatred as:

– Miles warranty was just 60,000 when competitors

were coming up with 80,000 miles warranty

– Priced higher when consumers where getting price

conscious.

– Targeted at maturing replacement market.

CONT….

• Increase advertising to induce sales

and thus increase capacity utilization

which is currently lower.

GY’S DISTRIBUTIONAL CHANNEL (anesh)

• For consumer marketing, channels

used

– One and two level channel:

• For industrial marketing, channels

used

– One level channel.

One and two level consumer channels

GY(MANUFACTUERE)

Manufacturer owned outlets

Consumers

Independent dealers

(Wholesalers)

Car dealers, service stn, independent

dealers(Retailer)

Consumers

Independent dealers

(Wholesalers)

Consumers

Own retail outlets

One level industrial distribution channel

GY(MANUFACTUER

E)

OEM

Consumers

CONT….

• Retail channels:

– Independent dealers accounting for 50%

of sales

–Manufacturer owned outlet – 27% of sales

– Franchised dealers – 8% of sales

– Government agencies – 8% of sales

WHETHER TO EXPAND DISTRIBUTION AND IF SO WHICH CHANNELS TO BE

ADDED? (ruju)

• To modify distribution channel when consumers

buying pattern changes, new competition arises

and as the product moves into later stages.

• Should opt for selective distribution: relying on

more than few but less than all intermediaries.

• Include large independent tire chains and mass

merchandisers.

CONT…

• Use only for selected tyre lines which have

entered the maturity or decline stage.

• With this it can gain adequate market coverage.

• Would avoid brand dilution.

• Avoid channel conflicts by reserving selling

rights of certain goods only to individual

dealers.

WHETHER NEW CHANNEL SHOULD SELL AQUATRED?

• Use exclusive distribution: limiting number of

intermediaries

– Selling Aquatred only through Independent dealers &

manufacture owned outlets.

• Introduced to revitalize GY brand.

• Premium pricing under depressed economic situation.

• Try & bring down its levels of channel to one to avoid

adding much to price.

CONT…

• Protect its image by avoiding over exposure and

availability in discount stores, as its positioned in

the top broadline segment.

• Avoid price wars due to limited availability and thus

higher margins.

• Early buyers are willing to pay for high value added

channels, but later switch to lower cost channels.

LAUNCHING AQUATRED DURING WINTER OLYMPICS (salil)

• Yes. • Greater exposure within budgeted

advertising expense.• Scarcity would signify unique and

justify premium pricing.

Suggestion

• To periodically review channel design of

Aquatred and modify it if not working as

planned.

• Use of e-commerce marketing practices.

• Lowering price at later stages to drive

competition out.