Good Year Case Study – IDECIDE approach Aku5299@gmail.com INTRODUCTION OF THE COMPANY Looking back, the founding of The Goodyear Tire & Rubber Company in 1898 seems especially remarkable, for thebeginning was anything but auspicious. The 38-year-old founder, Frank A. Seiberling, purchased the company’s firstplant with a $3,500 down payment -- using money he borrowed from abrother-in-law Lucius C. Miles. The rubber and cotton that were thelifeblood of the industry had to be transported from halfway around theworld, to a landlocked town that had only limited rail transportation. Eventhe man the company’s name memorialized, Charles Goodyear, had diedpenniless 30 years earlier despite his discovery of vulcanization after along and courageous search.Yet the timing couldnt have been better. The bicycle craze of the 1890swas booming. The horseless carriage, some ventured to call it theautomobile, was a wide-open challenge. Even the depression of 1893 was beginning to fade. So on August 29, 1898,Goodyear was incorporated with a capital stock of $100,000.David E. Hill, who purchased $30,000 of stock, became the first president. But it was the dynamic and visionaryfounder, hard-driving Seiberling, who chose the name and determined the distinctive trademark. The winged-foot trademark, inspired by a newel-post statuette of Mercury in the Seiberling home, has been altered over the years. Yet, it remains an integral part of the Goodyear signature, a symbolic link with the company’s historic past. Something else about these legendary early years lingers on through Goodyear’s history. Something elusive and intangible, yet very real.Something about the people. People like Seiberling, actually trying to liquidate family-owned property in 1898 when he ended up taking that once- in-a-lifetime chance to buy -- at a bargain -- the seven-acre tract that became Goodyear. People like George M. Stadelman, a man who avoided crowdsand never made a speech, yet had a gift of integrity and foresight that guided Goodyear’s sales through a critical 20years. People like Paul W. Litchfield, whose conviction and leadership helped inspire Goodyear’s development fornearly six decades.With just 13 employees, Goodyear production began on November 21, 1898, with a product line of bicycle andcarriage tires, horseshoe pads and -- fitting the gamble Seiberling was making -- poker chips. The first recordedpayroll amounted to $217.86 based on the prevailing wage of 13 to 25 cents an hour for a 10-hour day. After the firstfull month of business, sales amounted to $8,246. Since the first bicycle tire in 1898, Goodyear pedaled its waytoward becoming the world’s largest tire company, a title it earned in 1916 when it adopted the slogan "More peopleride on Goodyear tires than on any other kind," becoming the world’s largest rubber company in 1926.Today, Goodyear measures sales of nearly $20 billion, although it took 53 years before the company reached the firstbillion-dollar-year milestone. And it all began in a converted strawboard factory on the banks of the Little CuyahogaRiver in East Akron, Ohio. Spanning the years, through all of those yesterdays, a legion of firsts and facts and figuresappears that reflect the making of a companySource :http://www.goodyear.com/corporate/history/history_overview.html
Good Year Case Study – IDECIDE approach Aku5299@gmail.com VISION Become a market-focused tire company providing superior products and services to end-users and to our channelpartners, leading to superior returns for our shareholders. MISION To develop products with superior quality and value that best fills the needs of consumers. OBJECTIVE 1. To maintain 38% market share in Original Equipment Passenger Car Tires; 2. To be market leader in tires industries; 3. To continue making profit; 4. To continue growth in worldwide. DILEMMA In 1990, Goodyear clock in lost $38 million and the lost had triggered Goodyear top management to find the best approach in order to maintain the status of Goodyear as the market leader in tires industry. One of approach is to consider the proposal from Sears. Sears is an American chain of departmentstores, which was founded, by Richard Warren Searsand Alvah Curtis Roebuck in the late 19th century.The proposal raised several strategic considerations for Goodyear. First it a matter of distribution policy,Goodyear had not sold the Goodyear tire brand through a mass merchandiser since 1920s. In additionthe move could create conflict with its franchised dealers. Second, if the proposal is accepted, severalproduct policy questions loomed. Specifically, should the arrangement with Sears include only GoodyearEagle brand or its entire Goodyear brand? Exhibit 9 shows the list of brand own by Goodyear.
Good Year Case Study – IDECIDE approach Aku5299@gmail.com
Good Year Case Study – IDECIDE approach Aku5299@gmail.com PROBLEM IDENTIFICATION AND STATEMENT The move to consider Sears proposal by Goodyear top management is the quick win strategy to minimize the impact of the loss of $38 million in 1990. The decision to accept or to reject may jeopardize Goodyear brand and reputation. Goodyear need to find the real problems and develop the best approach and strategy to manage the problems effectively. The tire industry divides into two end-‐use markets : 1. The original equipment tire market and 2. The replacement tires market. Exhibit 2 above shows Goodyear hold 38% of market share in Original Equipment Passenger Car Tires. The tire volume is directly related to automobile and truck production.Based on the figure, Goodyear has no problem in the Original Equipment Passenger Car Tires segment. Therefore, Goodyear only need to maintain the good business relationship and rapport with the Original Equipment buyer. The next market is for the replacement tire. Exhibit 5 shows Goodyear is a market leader for three major segments for replacement tire ; passenger car tires, light-‐truck tires and highway-‐truck tires. Compare to their main competitor that is Michelin, Goodyear consider as better in every segments.
Good Year Case Study – IDECIDE approach Aku5299@gmail.com As summary, in terms of market share, Goodyear still has a good and strong market share. Therefore, Goodyear has no problems in market their products competing with competitors. Based on the above data, we can see that most of sales or Total Sales income of Goodyear is generated from Replacement Tires. Consequently, Goodyear needs to protect and maintain Original Equipment Replacement ^re the market share in the Replacement Tires Market. The loss of $38miilion may resulted from decreasing in sales in 25% the Replacement Tires market. 75% Major brand–name tire manufacturers capitalized on their reputation and experience as producers of original equipment tires by building strong wholesale and retail dealer relationships and networks through which to sell their brand-‐name replacement tires to vehicle owners. In the USA, Goodyear have a total of 7,964 of retail points of sales. The number of retails points of sale for major tire brands is shown in exhibit 6 below.
Good Year Case Study – IDECIDE approach Aku5299@gmail.com In short, we can conclude that, the main factor that made Goodyear achieve a status as market leader in USA is because they have the biggest retail distribution. Goodyear is depending a lot on their retail points of sales performance and reputation. Reference to all the above statement and data, the real problems face by Goodyear is the growth of warehouse membership club stores and discount tire retail claims coupled with mulitbranding among mass merchandisers contributed to the 3.2% decline in market share for car replacement tires in the US for the period of between 1987 and 1991. Sears is one of the biggest warehouse membership club stores in US. The growth can be seen in the exhibit 1 below;
Good Year Case Study – IDECIDE approach Aku5299@gmail.com Goodyear problem statement: With the declining trend of market shares, Goodyear need to consider the opportunities in the growth of warehouse membership club stores and discount tire retail claims coupled with mulitbranding among mass merchandisers to strengthen Goodyear brand and market. Goodyear need to be less dependent on their current retails distribution which consist of franchise dealers and start looking for a better alternatives such as a proposal from Sears. ENUMERATE THE DECISION FACTORS Two sets of decision factors must be enumerated in the decision-‐making process is alternative courses of action and uncertainties. Alternative courses of action are controllable decision factors because the decision maker has complete command of them. Uncertainties are uncontrollable factors that the Goodyear cannot influence. Goodyear may consider several strategies in order to strengthen their market shares. First, Goodyear may decide to do Market Penetration. This mean Goodyear will focus on their existing customers and products. Goodyear may do more advertisement and promotion to educate their current customers to be more loyal to Goodyear tires or Goodyear could increase sales from Original Equipment buyer. However, the disadvantages of this approach are its make Goodyear live in the Red Ocean. Means that, Goodyear not responding to the current trend but still stick to the traditional approach by depending
Good Year Case Study – IDECIDE approach Aku5299@gmail.com more on existing retail distribution. The pros of this approach is, the current dealers will be secured and happy. Second alternative course of action is, Goodyear may consider expanding their market of existing products to new customers. This approach is under Market Development strategy. The strategy will cause Goodyear to do extensive A&P activities and involved some changes in distribution strategy such as engaging in strategic relationship with Sears. The approach is considered as Blue Ocean. Nevertheless, by creating a new approach to gain new customers, this will cause conflict in Goodyear current dealers. The last alternative course of action that Goodyear could do is to engaged in Product Development. In recent years, consumers had become more price conscious and less brand loyal. Most of them are Goodyear existing customers by taking into consideration Goodyear as a market leader. Therefore, Goodyear may consider the trend and might produce a cheaper tire with an exceptional quality to cater a price-‐sensitive customer. However, the approach might jeopardize Goodyear brand and image. Low price reflect low quality and this is against Goodyear brand promise. Goodyear brand positioned as premium quality brands. marketing strategy (Markets) New Customers (warehouse clubs, Current Customers discount (retail points of multibrands sale) independent dealers) Existing product class Goodyear (Product) Market Market (30 current Goodyear penetration Development brand) New product class Product (low price and Diversification Development quality)
Good Year Case Study – IDECIDE approach Aku5299@gmail.com Goodyear needs to decide which marketing strategy they want to engage. The uncertainties are consumer decision making in selecting the brand and type of tires. Surveys showed dealers were able to influence car owner’s choice of replacement tires, both to brand and type of tires. This is one of the causes of growth in warehouse clubs since 1982 to 1992. Pros Cons Market • Less cost in Advertising & Promotion because • • Red Ocean Loose market share in Penetration Goodyear only need to refresh their existing buyers warehouse club and mass merchandise • Experience & happy dealers Market • • Blue ocean Can cater a new market • Product cannibalization and market Development • • Higher cost in A&P Unhappy existing dealer Product • • Produce cheaper tire Increase sales • • Jeopardize Goodyear brand Bad perception & Development • Cater price-‐sensitive buyer reputation
Good Year Case Study – IDECIDE approach Aku5299@gmail.com THE FIVE COMPETITIVE FORCES Threat of subs^tute -‐ Very high -‐ -‐ Market is maturing -‐ Bargaining -‐ Bargaining power of power of Compe^^ve Rivalry supplier between Exis^ng customer Players -‐ Consider high due to -‐ Consider high due limited avaibality of -‐ Consider to availabelity of raw materials and less moderate because similar products in + supplier of current market the market share -‐ The price of raw -‐ The proﬁt margin is material is increasing decreasing since mid every year 1970s + Threats of new entrance -‐ Costly to enter the industry Based on 5 Porter competitive forces, Goodyear have more unfavorable forces towards maintaining current distribution channels (franchise) as primary marketing channel to sales Goodyear tires. Therefore, Goodyear needs to act fast and start to look and consider new strategy to maintain the position as Market Leader in tire industry in USA.
Good Year Case Study – IDECIDE approach Aku5299@gmail.com SWOT ANALYSIS STRENGTH WEAKNESSES - Vast experience in producing and selling - Too dependent on Goodyear franchised tires product dealer - Have 7,964 Retail Points of Sale - Don’t have a good relationship to - Market leader in US membership clubs and mass merchandiser - Second market leader in worldwide such as Sears - Market leader in Original Equipment Passenger Car Tires OPPORTUNITY THREAT - Producing better and cheaper tire to cater - Business in Original Equipment is not prince-‐sensitive customers concrete due to highly price elastic - Able to push sales by introducing new - Dealer might promote other product product of features via existing dealers which offer more profit margin easily - Engage with a strong membership clubs - The growth of membership clubs and mass and mass merchandiser to tap a new and merchandiser growth market - High bargaining power of customer and customer Goodyear has good and strong internal strength because of the well-‐established structured and business background. In addition, this strength risen more opportunities for Goodyear. The opportunities of engaging with the mass merchandiser and membership clubs carry added value to the Goodyear market and operation. Furthermore, the strength could reduce the impact from the external threat. However, Goodyear needs to come out with a good strategy and approach in order to neutralize the threat. One of alternative is by accepting proposal from Sears. IDENTIFY THE BEST ALTERNATIVE – Market Penetration Based on the argument above, Goodyear has to capitalize the emerging retail outlet that is membership clubs and mass merchandiser. If not, they might loose their market share gradually. To capitalize the new approach doesn’t mean to create a new product or to acquire new market area, this can be done by upgrading current retail points of sales by applying a same strategy or concept used in membership clubs and mass merchandiser. Goodyear have a strong sales distribution and fundamental consist of franchised dealer, therefore they should capitalise this advantages at optimum level. They might upgrade their current dealers to be equipped with latest technology and extend the dealers services to be more holistic services like membership club does. Goodyear should go for Market Penetration.
Good Year Case Study – IDECIDE approach Aku5299@gmail.com (Markets) New Customers Current Customers (warehouse clubs, (retail points of sale) discount multibrands independent dealers) Existing product class Goodyear (Product) Market (30 current Goodyear Market Development penetration brand) New product class Product Development Diversification (low price and quality) DEVELOP A PLAN FOR IMPLEMENTING THE CHOSEN ALTERNATIVE The recommendation for 4Ps strategy for the chosen alternative is as follows : Product • Goodyear need to focus more on what their customer wants. The product should be custom made. Not just a normal bowls or a normal cup. They should be more trendy and attractive to the youngsters • All Roses’s product should be biodegradable Price • The price should be at par with competitor or less • Rose needs to discuss with the customer (chains store) on the selling price. They need to make sure there is still profit for Rose even at minimum amount. Place • Rose may pick a few stores to do OEM. Don’t do mass production. Its may reduce the quality and demand for the products. • Make agreement with the selected stores – long-‐term agreement to protect Rose business.
Good Year Case Study – IDECIDE approach Aku5299@gmail.com Promotion • Rose need to focus more on promotion via internet for their own products. They can sell worldwide. • The cost of promotion may be shared between Customers and Rose. This is the smart way to reduce the cost of A&P. PROPOSE DECISION