Goodyear Case Study

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  • Topic: Goodyear Tire and Rubber Company, Bridgestone, Michelin
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  • Published : November 11, 2009
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Arifur Rahman

Case Problem: Goodyear Tires and Robber Company

Professor: Arnold Pollack

July 28, 2009

A. How would you characterize the competitive environment in the tire industry in 1991?

The tire industry divides into two, broad segments: original equipment (OE) tires and replacement tires. The OE segment accounts for 20-25 percent of tires sold annually; unit sales are trending downward. The replacement tire segment accounts for 70-75 percent of tires sold each year; the unit sales trend is “flat”. Passenger car tires account for 75 percent of annual sales.

Although 10 tire manufacturers account for 75 percent of worldwide production, three firms account for 60 percent of all tire sales sold. They are in order: Groupe Michelin, Goodyear, and Bridgestone. These firms compete in both the OE and replacement tire segments. Although Goodyear is second to Michelin in worldwide production, it is the perennial U.S. market leader in both the OE and replacement segments.

Even though the OE segment is smaller, it is viewed as strategically important by tire manufacturers for two reasons. First, prominence in the OE segment provides volume related scale economics in the production of tires. Second, it is believed that car/truck owners satisfied with their OE tires on new vehicles will buy the same brand when they replace their worn tires. However, the case also states that passenger replacement tire buyers are becoming more price sensitive and less likely to simply replace their branded OE tire with the same brand of replacement tire.

Overall competition is intense in both the passenger OE and replacement tire segments. The nature and scope of competition differs, however. Competition in the OE segment revolves around the major vehicle manufacturers and supplying some or all of the tire needs for their new model year cars and trucks. OE tires are essentially “produced to order” and may be viewed as a “commodity” by vehicle manufacturers. Competition in the replacement tire segment occurs across the marketing mix. Major tire manufacturers compete on the basis of “retail points of sale,” product variety and innovation, price and promotion (advertising, retail promotions, and event sponsorship).

B. What is Goodyear’s relative competitive position within the tire industry?

Goodyear is the second largest tire manufacturer in the world, behind Michelin which manufacturers and markets the Michelin and Uniroyal/Goodrich brands. The Goodyear brand is the single largest brand, in terms of sales to the OE tire segment. Its share of this segment is 38 percent. It is noteworthy; however, that Michelin with its Michelin and Uniroyal/Goodrich brands combined capture 30 percent of the OE tire segment.

Goodyear brand tires capture the largest portion of sales in the U.S. replacement tire market: 15 percent of passenger car tires, 11 percent of light truck tires, and 23 percent of highway truck tires. Company wide share increases in each category when sales of its Kelly-Springfield brand is included

One might also note that Goodyear’s relative competitive position is due, in part, to the following:

The broadest line of tire products of any tire manufacturer: product line width and depth. The largest number of “points of sale” for any branded tire with controlled distribution; that is, company owned and franchised dealers. Price Performance Positioning: Premium pricing supported by product innovation and umbrella brand advertising that emphasizes, “The best tires in the world have Goodyear written all over them.” Nevertheless, there is evidence that Goodyear has encountered some problems which can be categorized as follows:

• Flat or downward trend in OE tire volume. Goodyear has likely felt the effect of plateaued unit volume in the OE segment (see case Exhibit 3). Unit volume growth is possible through market share gains; however, market share is increasingly “purchased”...
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