Goodyear Case

• Consumers could purchase tires by the following ways:

1. Wholesales channels: for chains and larger dealers

•  Wholesale dealers and large chains can buy tires directly from Goodyear factory without secondary outlets. These buyers accounted for 10% of annual sales of Goodyear.
• 40% of factory sales went to large chains that sell tires at retail places as well as resell them to other retailers or secondary outlets.
• Small and independent dealers hold 50% of Goodyear sales. These dealers bought tires for retail purposes and did not resell them to other outlets.

1. Retail channels: for normal customers

• Garage/ service stations: typically small, neighborhood outlets offering gasoline, tires, and auto services.
• Small independent tire dealers: usually consisted of 1 or 2 smaller outlets where they sold and installed tires and also offering auto services.
• Manufacturer-owned outlets: as its name, these outlets only sold 1 brand of tires.
• Warehouse clubs: offered a small number of tire brands according to the deal they could strike with vendors.
• Mass merchandisers: offered a very wide brand of tires.
• Large tire chains: also known as “Multi-brand discounters”, these chains typically had 30-100 outlets focused on geographic regions. These chains sold major tire brands and private label as well.

• Strategic role of Aquatred:

• Aquatred tires appeared to be the new product with the hope to replace existing Goodyear’s models. Aquatred, according to Goodyear’s marketing manager, had a tangible and perceptible difference over other models that customers could easily point out that Aquatred was different from other tires.
• Technically, cars equipped Aquatred tires could stop in a distance less than two-car length compared with those equipped conventional all-season tires. When Aquatred worn out 50%, it remained the same wet traction as new all-season tires.

• Right tire at right time?

• The last tire that increased wet traction of Goodyear was Uniroyal Rain Tire. It was introduced in 1970. Aquatred was belived to be launced in the 90s -> It was a good choice to replace old product.
• Continental Tires was known to launched its own anti-hydroplaning tire (the Aqua Contact) in 1993 -> Competition could occur agressively, depend on which tire introduced to the market first.
• Goodyear’s surveys indicated that Aquatred buyers were more likely to repalce competitor’s brand, drove imported cars and came to Goodyear outlets speciffically for the Aquatred -> Good customers responds.

• So Aquatred was a right tire at right time in field of product life cycle and customer’s demand. But it may trip over  competition from competitors at the time of introduction.

1. Potential risks and benefits for maintaining or altering exsiting channel sructure:

1. Benefits:

• Expanding distribution channel (by adding channels or retailers) could boost sales and prevent Goodyear OEM tires from being replaced by other brand in the replacement market.

1. Risks:

• Selling tires in lower-service outlets could damage the value of Goodyear brand, cannibalize sales of existing outlets thus might cause dealers to take on additional lines of tires.

1. Effect that pricing, channel and communication decisions have on another:

• Price vs advertising decisions: Aquatred was priced at a 10% higher than Goodyear’s most expensive tire (the Invicta GS). Because of this high price, retailers demanded for price promotions but was denied by the manager. So Aquatred could be kept out of channels that were prone to promotions and discounting.
• Price vs channels of distribution: Selling such a high price product like the Aquatred in low-service outlet could erode the value of Goodyear brand. So the decision was obvious, managers had to decide which channel would receive the Aquatred. If every stores sold Aquatred, the price would drop accrodingly.
• Channel vs communication decisions: Despite Goodyear’s literature and policies, there was variation in the presentation of Aquatred by dealers in test markets. So it was important to have synchronous advertisements through out all channel chosen to introduce Aquatred.

• Combinations of pricing, channels and advertisements that Goodyear should consider:

• If Goodyear insisted on selling Aquatred at high price, which means the marginal profit for each product sold is large, they should sell Aquatred in larger outlets such as manufacturer-owned outlets or mass merchandisers. The sales in these outlets may be lower than smaller-service outlets but because of high marginal profit, it would be able to retain revenue. If so, the advertisements on Goodyear should focus on the function of Aquatred as the best anti-hydroplaning tires on the market. Promotions may be appicable, but focus on product waranty other than price discount as buyers of this section may care more about product quality than price.
• On the other hand, selling Aquatred in small outlets means the price had to reduced. Thus marginal profit for each tire was small but total revenue would be compensated by larger sales. This action might reduce the value of Goodyear and face with agressive competitions from other low-price competitors and private brands. The communication strategies for this choice should be focused on promotions and product quality. If successfully lauched in these channels, Aquatred would represent a high quality product with acceptable price in customers’ perception, thus improve the brand’s position over competitors (Wright, McCormick, Sherman, & McMahan, 1999). Applicable promotions may be purchasing 4 Aquatred tires with the price of 3, or purchasing 4 tires would get free installation or free car check-ups.
• If Goodyear intended to use both channels, Aquatred price had to be the same in large and small outlets, thus led to different amount of sales between channels but total sales was guaranteed to be enormous. Advertising actions should focus on price-quality relationship, which means better product quality comes with higher price (Nickell, 1995; Estrin & Rosevear, 1999). In smaller channels, Goodyear should increase promotions like free installation or free check-ups to boost sales.

1.  Recommendations:

• To my point of view, Goodyear should employ both large retail chains and smaller ones as they acquired nearly 90% of total sales. Aquatred SWOT analysis is as follow:

+ Strength: Firstly, Goodyear had built up a good brand reputation and become one of the biggest tire brands beside Michellin, Sears, Dunlop... Secondly, Goodyear distribution channels were so enormous that product coverage in market could reach 100% capacity.

+Weakness: Proposed price of Aquatred was so high (10% higher than the most expensive tire of Goodyear).

+ Opportunity: Aquatred was launched in 1992 and become the first mover in anti-hydroplaning tires market, thus increased curiosity among customers and that led to higher demand for the product.