1.

Summery

Founded in 1898 by Frank and Charles Seiberling with headquarters in Akron,

Ohio, Goodyear is one of the reputed and famous tire brand known globally in

rubber and tire industry. Company started its business by selling bicycle and

carriage tires but later switched to automobile tire industries as a main focus. In

1916, Goodyear became world’s largest tire producer because it introduced Quick

detachable and Universal Rim in 1903 which was widely accepted in the market

and was a successful product for the company. (Karin & Peterson, 2013) Until

1990, Goodyear enjoyed the largest and highest market share and leadership in

the tire industry, but second largest tire manufacturer Group Micheline acquired

the Uniroyal Goodrich Tire company in 1990 for 1.5 billon and became the

market leader followed by Goodyear as second largest tire manufacture. (Karin

& Peterson, 2013) thus, as per the 1990 data presented in this case, presently

Goodyear is second and Michelin ranks first in the global tire manufacturer

ranking.

Presently Goodyear has ¼ of global tire production capacity whereas it has 38%

of U.S tire manufacturing capacity with eight thousand retail points of buying in

U.S. (Karin & Peterson, 2013)

Following brands cover 60% of global tire market share.

 1. Micheline Brand - Largest manufactures in the auto tire Market with following brands

Michelin Uniroyal BF Goodrich brand

2. Goodyear – 2nd Largest manufactures in the auto tire Market with following brands

Goodyear Kelly Spring Field Lee Douglas

3. Bridgestone – 3rd Largest manufactures in the auto tire Market with following
brands
Bridgestone Firestone

Tire industry in segregated in main two categories i.e. Original Equipment

Manufacturing and After Market tire replacement Market. 25% to 30% of overall

tire per unit production volume sales come from OEM each year whereas 70% to

75% comes from aftermarket tire market replacement market.

Key Issues

In 1989 Sear approached Goodyear regarding selling Goodyear’s Eagle tire brand

which was declined by Goodyear because Goodyear company believed that such

action would affect sales through its owned auto service centres and franchised

dealers. However, in 1990 Goodyear faced $38 million loss in sales and in 1991

change in the top management made Goodyear to rethink and reconsider the Sear

offer. (Karin & Peterson, 2013) Key issues in considering this offer are as

follows:
 1. It would lead to conflict among Goodyear franchised owners and would

also upset them.

2. Selling through Sear will present major change Goodyear’s distribution

policy

3. It is hard to decide whether Sear should sell Eagle’s all sub-brands or only

certain brand. Should Goodyear let carry franchised owned dealers only on

exclusive basis. (Karin & Peterson, 2013)

Problem Analysis

Goodyear has to maintain and sustain its market leadership position by figuring

out on how to increase its distribution network while continuing and protecting

its current brand and market share. Goodyear’s market share in replacement tire

market segment is declining because less Goodyear brand replacement tires are

rebought and also 2 million Goodyear tires were replaced at competitors Sear’s

Auto centres in U.S.

Decisions to be made

Decisions should be based on above key issues and problem. Decisions for

strategically broadening the distribution network would include – should

Goodyear expand it distribution network through Sears and whether it will result

in increase of sales? - how many brand should be sold through Sear, all eagle

brands or few? - How to protect Goodyear franchised owners interest in this

business strategy with Sear? – how would be the cannibalization if sold through
other retailers? These decisions play important role as it directly relates to the

success of this action.

2. SWOT Analysis

Strength - Internal factors

Good year has nationwide presence having more than eight thousand retail outlets

which shows Goodyear has broadest market coverage. It is second largest tire

manufacturer in the world. Goodyear makes every type of tire for any type of car

or truck thus having the broadest variety of tires in the tire industry. Goodyear the

top advertisers on national level in U.S market. It has 12 brands that presents

strong presence in the industry. Quality and high performance is assured by its

presence in Auto Racing. In 1991 Goodyear had 38% of market share OEM.

Goodyear has prominent market share in highway truck tires, car and light truck

tires. One of the major strength of Goodyear is that it is reputed and world famous

brand know for high and premium quality

Weakness – Internal factors

Change in top management and drop in passenger car replacement tire market

share in 1990 by 3.2% which is loss of $38 million. Michelin brand has fourteen

thousand sale store whereas Goodyear has eight thousand which leads to huge

difference posting a major weakness. Goodyear has no strong presence in

international market and it ranks third in European market. Goodyear has limited
distribution network and it does not sell its brand through mass merchandisers.

Also it distribution network in replacement market is very poor which has

affected it market share. Goodyear tires are highly prices whereas competitor’s

prices are low which attract customers more to switch to other cheap priced brand

than Goodyear. Goodyear sales lacks in explaining its tires unique features and

types which leads to low sales.

Opportunities - External factors

Goodyear brand is globally known brand, thus, it can be quickly and certainly

accepted in foreign markets as it is high quality product and widely used in U.S

market. Tire industry growth depends in automobiles sales and automobiles sales

are growing in Europe, Africa and Asia which give Goodyear an opportunity to

expand in international market. Launch of Aquatred gives an opportunity to

heavily capitalize Aquatred as it not offered by competitors. There is opportunity

to sell through discounts stores, warehouse clubs and independent dealers as they

represent positive market growth in tire industry for replacement tire segment

which is more moneymaking compared to OEM. There is opportunity to increase

sales by educating customer about the tire features because customers do not

know the quality and performance results until effectively addressed their

questions during sales. (Karin & Peterson, 2013)

Threats – External factors

Goodyear faces heavy competition from local private label and cheap brands in

the market. There is threat in OEM segment from powerful brand Micheline.

Growing rate of discount tire retail stores is affecting Goodyear’s sales as

Goodyear does not sell through them. Goodyear tires are being replaced by other

cheap brand tires at several auto shops. Cut throat competition in price and quality

in the tire market. Goodyear’s franchised dealers and distributors might start

selling other tire brand because they suffer from shrinkage in profit margins. Due

stable OEM growth rate, profitability is limited with high competition.

3. Chanel Policy and Distribution Network

After analysing between the strength, weakness, opportunities, threats for the

Goodyear company and the tire market environment and demand, it does make

strategic sense for Goodyear to revise its current channel policy and broaden its

distribution network beyond company owned and franchised Goodyear tire

retailers.

Goodyear should consider to sell its tires through warehouse clubs and discount

multibrand independents dealers because the growth of these two networks

eroded the Goodyear’s market share from 1982 to 1992. Discount multibrand

independent dealer grew from 7% to 15% and Warehouse clubs grew from 0% to

6% from 1982 to 1992. (Karin & Peterson, 2013) Another important reason that

Goodyear should broaden its distribution network is that nearly 2 million

Goodyear brand worn out tires were being annually replaced at 850 Sears auto

shops in U.S. If sears carry Goodyear brand tire, these replacements can be done

with Goodyear tires itself which also increase sales and brand availability in every

corner of the city or state. To make distinctive competency, Goodyear can carry

low – medium or high priced tires at these networks depending on the location

and customer demands. Such decision to expand distribution network will have

only one problem which is company owned and franchised dealers will get in

conflicts and might switch to selling of other brand. This decision will hurt

company owned and franchised dealers but Goodyear need to come over it

limited distribution network weakness and it is possible. Goodyear can take care

of their own sales outlets by passing on high margin benefit for the same brand

that Goodyear will sell through new distribution channel because Goodyear’s first

priority should be the their owned and franchised dealers. When they will see the

benefit they get then they won’t mind Goodyear to broaden its network to other

dealers. This will also cover the threat of franchised owned dealers to carry other

brands. Company owned and franchised dealers would be given first priority and

benefits such has exclusive rights to sell certain exclusive tires, they will get trade

discounts from the company so that they have higher profit margin, marketing

support from company and many more which will keep their interest up and at

the same time new distribution networks will carry Goodyear brands but won’t

have rights to such benefits. Goodyear should broaden its network through Sear

as well by giving some of the EAGLE’s sub-brands out of 26 sub-brands to carry

in Sears auto shops. Thus, it makes strategic sense to expand distribution network

which gives new opportunity to increase sales and also cover the threats by

applying the logic mentioned above. Further in this it will be show by financial

calculation how this is feasible.

4. Alternative Strategies

Goodyear should consider to sell its Goodyear brand tires through Sear Auto

Centres. This will be not exclusive distribution of eagle entire line of 29 sub-

brands but some of the Eagle brand which are suitable to Sears customers

in regards with price and quality.

Pros

In case it is clearly mentioned that nearly two million Goodyear brand worn out

tires are replaced at the 850 Sear auto centres in USA. Two million unit sales are

a very large number which Goodyear can add to its exiting sales by selling

through Sear Auto centres as a one focused market. This will in the replacement

tire market which accounts to 70% to 75% of the overall annual tire sales and this

segment is more profitable than the OEM segment. (Karin & Peterson, 2013)

Such action will increase Goodyear’s sales and also recover falling market rate in

replacement market. This will open 850 new locations for Goodyear tire

availability in U.S which is expanding Goodyear’s distribution network in

replacement market. Market share will be increased in two to three year with other

benefits such as brand awareness and brand recognition. Goodyear tire won’t be
considered as low quality by this action as Sear is not a cheap or discount store.

Good relation with company owned and franchised dealers will be maintained as

Sear won’t get entire line of Eagle sub-brand whereas franchised dealers will

carry exclusive rights to all variety. As they will be competing with Sears now,

Goodyear will provide them with extra benefits than Sears auto centres. This way,

it will be balanced and this strategy will be successful.

Cons

Goodyear have to face the expansion expenditure to handle new 850 networks in

U.S which will need change in entire distribution network policy. Goodyear will

have to bear with the initial conflicts between company and company owned

franchised dealer as a result of accepting Sears offer to their tire distribution.

Cannibalization conflicts between franchised dealers and sear will be also a

challenged to be faced.

Broadening Goodyear’s Distribution network through Warehouse Club and

Discount Multibrand independent dealers

This strategic can be beneficial as this retail network has potential and Goodyear

did not utilised it earlier. Case clearly states in exhibit- 1 that 6% retail sales is

gained through warehouse club and they were not there in the year 1982.
Pros

This is untapped market for Goodyear brand tires and it was also not present in

1982. This market is also growing representing 6% of replacement tire market

sales. This will allow easy availability of Goodyear tires in warehouse clubs also

increasing sales, brand awareness and recapturing replacement tire market. Case

mentions major reason for Goodyear to decline in its market rate was due the

growing rate of warehouse club and independent dealers, thus, with this strategy

market share can be raised. Again, this strategy will be successful because

relation with exiting distributors will be maintained by offering the priority and

extra benefits compared to this new networks.

Cons

This strategy will confuse customers for Goodyear brand and also create more

competition. Independent dealers can sell Goodyear brand tires as per their choice

price to compete with Goodyear franchise which can be a threat to Goodyear’s

owned and franchised dealers. Company would require to negotiate about the

stock and salving space with warehouse club which can be pain and hectic. Again

initially company would have to bear conflicts between franchised dealers

interest and sale cannibalization.

Do nothing but maintain the exiting distribution policy

Pros

Goodyear manages to control all its brands sold through its owned and franchised

dealers, which shows there is no risk from these stores. Revenue received from

them is ongoing.

Cons

Exiting distribution network is poor and not efficient enough to tackle the

competition and sustain market share. Due to limited distribution network,

Goodyear has lost millions of dollars of sales mainly from replacement market.

Such scenario will lead to further losses in competitive environment which is not

a good signal for the company.

Recommendation

Goodyear should to accept Sear offer and sell only low to medium prices Eagle

sub-brand tires through Sear Auto Centres. Eagle brand should not be exclusively

available to Sear but it will be to company owned and franchised dealers. This

strategy is recommended and shall be implemented for the following reasons:

 Company’s brand awareness, availability, reorganization will be increased

because Goodyear brand tire will get access to 850 Sear stores nationwide

in US
  Sales and revenue of company would be raised as company used this

channel of before.

 As the manufacturing volume will increase, company’s cost of

manufacturing will be economical as Goodyear will be shipping out

millions of tires to Sears annually. (Karin & Peterson, 2013)

 Market share will be regained as there will be increase in annual sales

through Sear customer tending to buy Goodyear tires now. (Karin &

Peterson, 2013)

 Major revenue comes from replacement market and selling through Sears

will make Goodyear more profitable as replacement market is more

profitable than OEM

Risk linked with this strategy

 Goodyear has never dealt with such discount independent stores earlier, so

it can be challenging initially for the company to enter the such sales and

distribution network model.

 Company owned and franchised dealers have Sears as a new competitor in

the market who is selling same product. This will initially lead to slight

conflicts between these two company owned networks.

 Brand goodwill can have damaged as franchised dealer and channel

partners might think that company is not loyal to them.

  There can be price and cannibalization issues at the location where Sear

and company franchised are located near to each other.

Following financial calculation will show feasibility of this strategy

Replacement market total unit sales – 155410000 (Karin & Peterson, 2013)

Market share avg. – 16.3% (avg. of all three segments - 49/3 = 16.333%)

Assumed avg. retailer price - $100

Net sales – 155410000 x 0.16 = 24865600 Units

Net sales - 24865600 + 200000000 = $202486500 (2000000 x 100)

If Goodyear implements this strategy, following will be the incremental sales

Total sales - 202486500 (from above)

Assumed dealer profit margin – 40% = 80994600 (0.4 x 202486500)

Net sale - $202486500-80994600 = $121491900

Percentage increase in sales = 9.8% (200000000/202486500 x 100 = 9.8)

Thus it can be concluded that Goodyear can go ahead and start working with

Sears with a new distribution model as company will increase sale by 9.8% in the

first year.
Reference

Kerin, R. A. & Peterson, R. A. (2010). Strategic Marketing Problems. Saddle

River: Prentice Hall.