Good year


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This is a problem identification process using I-DECIDE approach. Its one of my favorite decision making process.

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Good year

  1. 1. Good  Year  Case  Study  –  IDECIDE  approach  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 :
  2. 2. Good  Year  Case  Study  –  IDECIDE  approach  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.
  3. 3. Good  Year  Case  Study  –  IDECIDE  approach    
  4. 4. Good  Year  Case  Study  –  IDECIDE  approach    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.  
  5. 5. Good  Year  Case  Study  –  IDECIDE  approach    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.  
  6. 6. Good  Year  Case  Study  –  IDECIDE  approach      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;  
  7. 7. Good  Year  Case  Study  –  IDECIDE  approach      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  
  8. 8. Good  Year  Case  Study  –  IDECIDE  approach  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)  
  9. 9. Good  Year  Case  Study  –  IDECIDE  approach    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                  
  10. 10. Good  Year  Case  Study  –  IDECIDE  approach  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.      
  11. 11. Good  Year  Case  Study  –  IDECIDE  approach  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.        
  12. 12. Good  Year  Case  Study  –  IDECIDE  approach        (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.  
  13. 13. Good  Year  Case  Study  –  IDECIDE  approach  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