Goodyear faced challenges with its hybrid distribution model. [1] Small independent dealers provided high-touch service but required resources from Goodyear. [2] Manufacturer-owned outlets educated customers but were costly. [3] Large chains prioritized discounts over brand loyalty. Goodyear struggled to balance these conflicting channel goals as each member pursued independent interests over the manufacturer's.

1. Goodyear: The Aquatred Launch
Maria Medvedeva, DLEMBA2010
Behavior of consumers in the replacement tire market. Factors driving the purchasers,
where they buy and how frequently.
To analyze consumer buying process, it is important to examine the situation in which a purchase
occurs. Consumer buys tires in cases of emergency when the tire is torn on the road; and as a
preventative measure before the crisis (including tear in the tread; nail; at car registration
inspection) occurred. It is given in the case that 50% of the purchases are done in the same day
as a “grudge purchase”. Average time between purchases in the preventive/safety category were
2.5 years. 60% of all units sold were purchased in sets of four tires.
The behavior of consumers for tires in the replacement market are either habitual or dissonance
seeking. Habitual buyers rely on the same brand and channel of purchasing; while dissonance
seeking consumers explore product variety in terms of performance, resilience and durability and
make a purchase in their favorite distribution channel.
Replacement tire market of 1991 shows that consumers across all segments are becoming more
tire brand aware and price conscious. In fact, the tire has become almost a commodity and
consumers do not see it as a premium product. The tire consumers can be broken in the three
category with definitions as per the table below:
Quality Conscious -18% Value Conscious – 23% Price Conscious – 59%
Factors driving purchasing Factors driving purchasing Looks at tire as at a
decisions are performance decisions are getting extra commodity- necessity. Tires
attributes including long life value for money paid as are needed to carry weight of
the car. Extreme switch
time of the product – compared to a competitive
between brands if it saves
thickness of the rubber, product. Performance money. Price conscious
reliability - groves, tread and benefits are important in consumers are drawn to the
superior high touch service at terms of lifetime for tire and low cost, one stop shopping
the point of sale. These reliability connected to a experience and broad selection
consumers are looking at psychological safety factor. of brands, sizes and styles in
variety of durability, Tires are needed to carry warehouse clubs.
reliability, style and high weight but also provide
touch service from sales durability.
representatives. Price
High brand awareness at
sensitivity is low. They
17%.

2. believe tires are needed to
carry the car, provide lateral
control, provide handling and
durability. Driving foreign
cars.
Consumers are demanding
improved quality product with
key characteristics as defined
in survey.
High brand awareness at 15%.
Buying process includes Buying process includes Buying process is primarily
information gathering, information gathering, purchasing at lowest cost at
evaluation of alternatives, but evaluation of alternatives, warehouse clubs - 20% price
difference with independent
purchase in their own channel but always buying at the
dealers and 27% with company
– manufacturer owned outlets lowest price. Purchases are outlets.
or small independent dealers made at small independent
focused on the preferred dealers or mass warehouses
brand. Price index of these that provide bundle services
channels is 100 to107% but it and give a bit lower prices
does not stop a quality buyer (3% from the small
as he is looking at perceived independent dealers and 10%
performance and quality from the company owned
value. outlets – based on price
index exhibit 2)
The key attributes that consumers were seeking for in a tire includes the following:
1 Tread life
2 Wet traction
3 Handling
4 Snow traction
5 Dry traction

3. What is the strategic role of Aquatred in Goodyear’s product line? Is this the right product
for the right time?
Aquatred tire is a premium product line with a unique value proposition of providing high
traction in snow, ice, dry and wet weather for improved safety. 55% of cars stopped under wet
condition faster. Being worn 50% the tire maintained the same wet traction. Additionally, these
benefits were placed into a tangible, “look and feel” package with Aquachannel design that
changed tire appearance. The product is seen to be priced at 10% premium over the current
premium offering Invicta due to increased functional benefits. Safety, durability and appeal!
To start the analysis of adding a premium sub-brand (Aquatred) to Goodyear’s portfolio, we
need to analyze the market, the position of the company, its competitive advantages and
challenges, as well as review the competitive environment.
Tire replacement market, 80% of the total tire (OEM and Replacement) market is mature and
stagnant with slow growth factors and extreme competition.
Goodyear has been experiencing a management crisis with no clear strategy and focus on their
competitive advantage of producing tires. They diversified into other industries. By defocusing
on innovations in tire markets, they are facing an price wars as their differentiators from private
label and other competitor are very small, as perceived by the consumer. As per exhibit 5, brand
loyalty is slowly degrading as compared to Michelin with 44% of loyal customers. Their current
distribution structure is hybrid with lack of control over distribution of the tires to low price
outlets. The brand is not doing well due to this heavy discounting and arrival of discount chains.
Their financial position is also challenging with net income less than 1% of total revenues.
Revenues $10.91 Billion
Net income < 1%
Despite all that, Goodyear is known as an innovator with a strong track record of launching new
and exciting products. The main goal for Goodyear’s new innovative product should be to
improve brand equity and financial positions of the company through the improved customer
perception of premium tires and higher margins on the product.
Looking at the competitive environment, Goodyear has the bigger market share per sales unit
(15%), Michelin comes in second place (8.5%). While the market is crowded with brands,
Michelin achieved large share gain from 75 to 80 in both OEM and Replacement markets
through uses of a wide distribution channel and a combined sales force for both premium and
private label brands. This is the largest competitor for Goodyear with highest perceived value
among customers as a premium product.

4. Another important trend is the increase in the marketshare of private labels due to the high
amount of price and value conscious buyers. Many large and small manufacturers specialized in
private label due to excess capacity; however, they have created a problem as the market is
oversaturated with tires leading to price competition. Price of a private label is 18% lower than
the comparable brand label but with lower functional characteristics of lifetime. Goodyear
carried a subsidiary called Kelly Springfield that represented 80% of the total private label sales.
While all competitors are summarized below, the key points are:
1) Michelin and Bridgestone were planning to introduce improved warranty – 80,000 mile
2) Michelin was able to position its brand among quality and value conscious consumers
3) Michelin was selling at discounted venues: mass merchandisers and warehouse clubs
4) Goodyear had too many private labels and needed to refocus its product mix from purely
price driven to value providing.
5) Rare innovations in industry – Uniroyal was introducing new tires and Continental was
planning to come up with a similar design in 2 years.
US MAJOR BRANDS MARKET– 36%
Brand Share Performance/Image Strengths Weaknesses Strategy
Goodyear 15% Stronger image among Goodyear has the Lack of
price-focused segment. bigger market share company focus.
However, high appeals per sales unit (15%) Management
among quality and crisis.
value consumers.
Firestone 7.5%
Michelin 8.5% Stronger image among - Michelin comes in - Plan to introduce a
quality-conscious and second place (8.5%). new tire with 80,000
value-conscious -Combined sales mile warranty
segments Michelin sold forces for Michelin
as prestige brand and Goodrich
High brand loyalty - Wide Distribution:
125 company owned
outlets
7,000 dealers, 570
warehouse clubs, Gas
and service stations,
Mass
Merchandisers:
Montgomery and
Sears
Bridgestone 3.5% - Plan to introduce a
new tire with 80,000
mile warranty

5. Pirelli 2.0%
Goodrich 3.5% - Focus on the high
(Subsidiary of performance market
Micelin)
MINOR BRANDS – 24% US UNIT SALES
Brand Share Performance/Image Strengths Weaknesses Strategy
Uniroyal 2.5% Good price/value. Flexible pricing. Product quality - Introducing new tire
Focused on SVU and Appeals to value is not the top for light trucks
trucks market. consumers. priority. Focus
on proving
value for a
price.
Kelly (Goodyear) 3% Good price/value ratio. Flexible pricing. Product quality -Advertises low price
Appeals to value is not the top for tires.
consumers. priority. Focus
on proving
value for a
price.
Sears 5%, Dunlop Good price/value ratio. Flexible pricing. Product quality
2%, General 4.5%, Appeals to value is not the top
Kelley Cooper 3.5 consumers. priority. Focus
% on proving
value for a
price.
PRIVATE LABEL – 40% US UNIT SALES
Brand Share Performance/Image Strengths Weaknesses Strategy
Kelly Springfield 37.5% Low price alternative Flexible pricing. Low life of the Advertises low price
(Goodyear) for a lower quality. Discounted tire. for tires.
distribution channel.
All American Goodyear is planning
(Goodyear) to discontinue
Concorde Goodyear is planning
(Goodyear) to discontinue
Small and Large
Manufacturers with
excess capacity
Overall, the Goodyear needed Aquatred to improve its financial position and build up brand
equity and establish itself as an innovation leader along competitors with a premium product
lines in a stagnant tire replacement market. To do so, Goodyear needed revolutionize the market
by breaking price driven behavior of consumers and changing their perception of tire
characteristics – moving away a commodity perception. Aquatred is an important product for this
time in the industry, and should be introduced as soon as possible.

6. Evaluate the evolution of Goodyear distribution channels and discuss the management
challenges these changes have brought? How well the Goodyear addressed these changes.
Goodyear has a hybrid go to market strategy combining both direct and indirect channels. Tire
replacement industry used 6 main channels for distribution, from which Goodyear focused on 3.
Most sales revenue was derived from Small Independent Dealers, Manufacturer Owned Outlets
and Large Chains.
Goodyear Distribution Channels
1) Small Independent Dealers has conflicts with Goodyear about proximity of manufacturer
owned outlet, billing, pricing and need for special programs. This is a high maintenance
category as evident by the Bill of Rights asking to be treated better by manufacturers.
a) Accounted for 40% of the retail sales share in US with price index being at 100% of the
recommended manufacturer value.
b) Only 2500 independent dealers generated a consistent level of sales, maintained major
Goodyear retail displays and offered the full line of Goodyear tires. 50% sold only
Goodyear’s tires ; the remaining 50% stocked at least one other brand. Goodyear’s
products generated 90% of revenues. Therefore, we can say that brand loyalty is high in
this channel.
c) Independent dealers create value through post sales service by providing warranty check
up, oil changes and other auto services. The average number of tires installed per day
decreased 13% at a typical independent dealer. Average service dollars per outlet grew
92%
d) Needed high attention and support from manufacturer.
2) Manufacturer Owned Outlets allow Goodyear a full control of the distribution, but creates a
competition with the other channels. Outlets set the quality and value standard for
performance seeking consumer as they have better training and educated personnel to
evaluate the problem and provide solution.
a) High cost to maintain and high touch management oversight. This is not a core business
for Goodyear but is used for educational and awareness building of customers. Necessary
for education of the consumers, maintains of the product pricing and experiencing brand
benchmarks. 1300 outlets carefully placed away from small dealers.
b) The market share of this channel has decreased over number of year but they still
represent 9% marketshare with the price index of 107% over other retail channels due to
higher perceived value from the loyal customers to the brand.
3) Large Chains and Large Chain/Wholesales is the channel of distribution over which
Goodyear has no control in terms of product resale and pricing structure.

7. a) Large Chains/Wholesalers resell to care dealers, services stations, and small independent
dealers. Large Chains are resellers for independent dealers, secondary outlets and its own
retail outlets.
b) Large chains represented 23% of the retail market, but they practice discounting and
promotion so price index is at 90%. This reduced customer perceived product value, but
targeted price conscious consumers. The channel is not loyal as they sell 54% of the
private labels.
c) Diversion problems from wholesalers to discount outlets created a problem with
independent outlets. Discount outlets use the product to conduct switch and bait
technique – by attracting brand loyal customer using the product advertising and offering
an alternative solution.
d) Diversion was difficult to avoid due to legal restrictions that prohibited manufacturers
from dictating to whom their tires should be resold.
Replacement Tire Market Other Distribution Channels
1) Mass Merchandisers were one stop convenience outlets like Sears that sell tires and
performed auto services. They maintain a large brand selection at a slightly discounted 97%
price index but their marketshare declined from 28% to 12%. Value conscious consumers
were primary buyers in this channel. The loyalty to the manufacturer products were quite
high as they only sell 34% of the private label tires.
2) Warehouse Clubs are heavy discounters of the pricing at 80% price index but their share has
grown from 0 in 1976 to 6% in 1991 and the trend is a continuous growth. Since large % of
the consumers and price and value driven, this channel would see an increase over the years.
3) Garage/Service station – derived value from offering services on gasoline, tires and auto.
Share declined from 18% to 6% as consumers are becoming more price conscious. These
outlets charges highest price as the consumer purchasing would be connected to the
emergency purchase. Garage stations heavily promote private labels as they bring higher
margins and cheaper in general.
Distribution Channels: Price Index/Market Share and % Private Label Revenues
RETAIL OBS SHARE % PRIVATE PRICE
LABEL
Garage / Small outlets 6% 57% 110%
Service Gasoline
Stations Auto services
Small Small outlets auto services 40% 36% 100%
independent
dealers

8. Manufacturer One brand auto services 9% 16% 107%
outlet
Warehouse Large stores 6% 8% 80%
Limited offer according to
deals
Minimum service
LOW PRICE
Mass Retail chains 12% 34% 97%
merchandiser Large brand selection
Auto services
Large tire Multi brand discounters 23% 54% 90%
chains LOW PRICED, HIGH
VOLUME
Overall, Goodyear had a major conflict between its independent dealer distribution channels,
company owned outlets and large wholesalers due to the differences in the independent goal of
each channel. When each member of the channel is an independent business, they will not set the
same goal or behave according to manufacturer expectations. This is what we call a conflict.
As analyzed above, the goal of small independent dealers was to obtain higher margin on their
bundled product/service offering and attract loyal customers to the brand. They needed a lot of
help in promotion, pricing and management oversight. The goal of manufacturer owned outlets
were to make public aware and educated about the line of Goodyear products. This was not a
core business, but was important from the awareness standpoint. Manufactured owned outlets
personnel were more educated to address consumer concerns with a Goodyear product line. The
goal of large warehouse and chains was to push the largest volume of product at smaller margins.
This is a true distribution business where margins are accepted at a lower base point, if volume is
high. They are not interested in brand equity or label loyalty; they dispatch an order as requested
by the next channel or retail.
Managing three core channels and their conflict requires a specialized sales force that conducts
planning sessions with goal setting, communicate incentive programs. It also requires a careful
planning for each product in the product development lifecycle which type of distribution system
to select – from exclusive to intensive. Traditionally mass products go well through intensive,
while premium requires exclusive distribution with focus on education and training of the
channel carrying the brand to perform value add functions including convincing the target
customer.
There is no evidence in the case that Goodyear properly addressed planning, incentives or
conducted a thorough review of the channel practices to understand how to handle each channel
independently. They had no control over large chains, and many complaints from small dealers.
Goodyear needed to design internal structure with specialized programs driving behavior.

9. How should Aquatred be positioned, priced, promoted and distributed. Explain and justify.
After the careful analysis of the consumer behavior, distribution channels, tire replacement
market environment, company position and competition, the next step is to select a target market
among described segments and create a product differentiation strategy for proper position.
As defined above, the market is divided among Quality, Value and Price conscious consumers.
The company weak financial position and need to increase brand equity would make us to focus
on Quality Conscious consumers- being only 18% of the market, but with high expectations in
terms of performance, style and durability.
The findings are in the following table:
1) Quality, Value and Price Conscious Consumers
SEGMENTATION
1) Goodyear has management crisis, low brand loyalty and
financial issues. The company knows how to produce
innovative product and has an opportunity to build
brand equity through introduction to the segment
demanding a higher performance/quality product.
TARGET MARKET 2) The target audience – Quality Conscious (18%) seek
additional value provided with the tire through
reliability, durability or handling.
3) By introducing a new premium tire, Goodyear would
need to introduce program to increase perceived value
of tires in the market.
1) Establish a frame of reference – Goodyear is in the tire
market. Simplification of the message to consumers.
Goodyear needs to review their other investments and
select its core focus as a company. The name should be
associated with tires, and not with other products.
2) Point of Parity – Buyers top requested attribute - Tread
Life and Handling should be in the product as in other
competitors; however, a differentiator needs to be
PRODUCT POSITIONING added.
3) Point of Difference - Get better traction lead to
psychological appeal of safety. 50% stop time leads to
psychological appeal of innovation by this brand. Make
benefits tangible by changing tire appearance.
4) Goodyear should avoid poisoning mistakes including
positioning too many features, or targeting too broad of
an audience.

10. Product Position includes such characteristics as design, name and brand, warranty and level of
customer service. As a premium brand Aquatred should be positioned in the Higher Margin
Replacement Markets to the Quality Conscious consumers focused on quality and performance
that can be translated to treat life and wet traction. Consequently, the benefit of these two
attributes is a consumer perceived value which is the willingness to pay more. The psychological
benefit is safety. To make these attributes tangible, Goodyear should introduces a new tire style
with Aquachannel design. Aquachannel design has a grove, a brand element that creates an
impression of channeling water. Aquatred would appeal to consumers through a psychological
need for safety by providing a functional attribute of improved traction in wet condition; through
a social need for difference by providing style change and through economic benefit of getting
more value than a competitive tire.
Goodyear should position Aquatred as a top of the broad-line segment, referring to improvement
of performance and safety in wet conditions. Unique value proposition is to provide high
traction in snow, ice, dry and wet weather for improved safety. Safety, durability and appeal!
60K mile warranty is being reviewed by the company, but a potential improvement could be to
increase to 80K mile to beat the competition.
It is also imperative to initialize campaigns to switch value driven consumers to see high value in
safety and purchase the product at premium pricing. These Value buyers are followers and would
switch after Quality consumers if they value is worth the investment.
Pricing strategy starts from setting a pricing objective based on integrated analysis of company
goals, fixed and variable costs, customer buying behavior, competitive differentiation and
product value context. Pricing in the case of Aquatred would lead to product image, channel
image and enhancement of Goodyear reputation. After the review of all aspects, Goodyear
should enter the market with a Market Skimming objective to establish market leadership
through a superior product with initial premium pricing that can be later reduced when
competitors enter with similar products. The price should be just high enough for customers to
match it with perceived high level of quality. The high price will communicate the image of a
superior product to the market. No discounting should be allowed not to erode its value.
The pricing method – Perceived Value Pricing should focus on safety image, high traction
performance, warranty and other service deliverables through channel, savings on insurance,
brand reputation and trustworthiness. By deploying high pricing Goodyear will communicate
image of a superior product.
Price for Consumers

11. +Price plus 2.5 X Better Traction (Reduced the chance of the accident by 2.5 times, reduced
probability of getting into an accident in the rainy condition)
+Price plus Safety - (Insurance premium increases after incident, so it can be quantified)
+Price plus Resilience (50% used gives same stopping power)
+Stylish Exterior (Aquachannel)
Total Price with Improved Value
5 out 6 stores showed that price sensitivity is from 79.95 to 88. This means 5-10% improvement
from the base value of 75 (average). However, their described perceived value of the product
could be calculated based on the average market price and differences in improvement
perceptions described by the dealers.
75 USD at 15% improved value=86 USD
75 USD at 20% improved value = 95 USD
75 USD at 35% improved value = 101.2 USD
Thus, the perceived value for this tire is in the range from 86 to 101 USD as described by the
dealers. Suggested retail pricing is 10% above Invicta – from 89.95 to 93.95 USD. While we can
assume that the price range should be within the perceived value category, it is imperative to run
more studies using models of Van Westendorp and Conjoint analysis to measure distribution of
perceptions about the acceptable price of the product. The analysis should tell us at average
expected price, and at what price the intent to buy falls sharply and at what point the price is too
inexpensive and hurts the image.
The promotion program should be launched nationwide to have a stronger impact on the
market. $21 mill was allocated.
Communication program for the launch should include:
1) Training plan for dealers’ sales associates/Establish education centers to include:
a. Benefits and positioning against competition
b. Objectives handling for pricing
c. Brochures explaining technical characteristics of the product against competitors.
2) Test and drive demonstrations in all major dealerships across country
3) Advertising to make tire a prestigious and stylish item with safety as the key message.
This should build brand equity and increase sales revenues. Participate in car magazines
reviews, industry specific events. Invite a NASCAR car drivers to test drive Additional
benefits could be announced in press releases considering that this tire is associated with
high quality, long life and safety.
4) Sales incentive plans
a. Aquatred commission accelerator should be placed for internal sales.

12. b. Travel incentives or special offers for individual sales people of dealers.
5) Additional Service could be introduced:
a. 80K Mile Tread Life Limited Warranty
b. Roadside Assistance
Distribution: Aquatred should be distributed using exclusive distribution channel design. To
design the channel network, Goodyear should understand what the need of the Quality Conscious
consumer segment is and where they purchase their tires. Based on the analysis, this segment is
interested in performance and quality; thus the channel must understand technical characteristics
of tires and be able to provide presales and post sales support.
Small independent dealers and manufacturer outlets are most consistent with the high value
premium image that Aquatred is going to portray. Channels should contribute to the value chain
of the product through the following characteristics:
 Price
 Image
 Post sales - warranty, check up, tire rotations
 Presale- convincing target consumers of purchasing
 Financing – payments
Manufacturer needs to provide:
 Promotion
 Information
 On time efficient manufacturing
 ERP or online system for ordering
If small independent dealers are not perceptive to the idea of a higher priced product, Goodyear
needs to educate them through seminars describing points of differentiation. Goodyear is about
to revolutionalize the market, and their dealers should be able to convince and educate the
customers on the perceived value of the breakthrough.
Aquatred should be only provided under a limited distribution contract to the manufacturer
owned outlets and dealers who are loyal to the brand and generate the most revenue – this way it
will protect dealers’ profit margins and sales volumes. This way Goodyear has a full control over
its distribution channel and can control price. Goodyear should avoid selling Aquatred to other
distribution channel and car manufacturers – OEM to keep the product in the premium channel,
at least until competition enters the market in 1993.
In the next two years, Goodyear should introduce an Aquatred light version under a different
sub-brand and enter mass merchandising market to capture the remainder of the consumers (59%
PC +23% VC). Competitors are already selling at this channel without scarifying its image. Mass

13. merchandisers do not discount heavily – only 3% from small dealers, and keep high brand
loyalty. At the same time from the company standpoint, expanding channels means adding
intermediaries to create an inventory buffer. This is a hedge against fluctuations of demand.
Since existing dealers should have already collected high profits on Aquatred, they would
probably see entering additional channels as less threatening.