The year is 1992 and Goodyear is planning to release its new tire the Aquatred. The new tire is a premium tire which reroutes water away from the main tread making it have superior traction in wet conditions. With the launch of this tire coming up Goodyear has some challenges they need to figure out, where should they price the Aquatred? Which type of distribution model should they use? To figure this out we will first need to discuss the existing market and modes of distribution.
The tire market can be segmented in three ways. The first way is by tire, either by performance or broad-line tires. Performance tires were more expensive but gave the consumer more traction and control. Another segment was by either OEM or replacement tires. OEM tires are those which are included when a new car was purchased and a passenger replacement tire are those which are bought after initial tires are worn out. The last segment was by major brand which was about 36% of the market, smaller brand which had 24% or by a private label which held a 40% share. Goodyear was a major brand and made about 65% of its revenues off of replacement tire sales, with the rest coming from OEM sales. The US replacement tire market in 1991 accounted for 8.6 billion dollars. The Aquatred tire is to be launched in the replacement market because it would take a few years to develop a contract for OEM sales. This would be too long of a wait because competitors had their own versions of the Aquatred due to release sometime within beginning 1993.
Replacement tires were distributed to consumers through a variety of ways. One way was when the tire manufacturer sold direct to large chains and wholesalers who resold the tires at retail, car dealers and other secondary outlets; this accounted for 40% of Goodyear’s sales. Another 10% of sales were sold to large chains and wholesalers who sold only to secondary outlets and did not sell retail. The...