Currently Goodyear has a superior market position in the US, being the market leader in the pas-senger tire

market. Goodyear has a strong advantage due to their extensive R&D in both con-sumer behaviour and technology. This, along with intensive advertising and good product quality, has led to a strong and well-known brand. However, the companys financial situation is problematic, mainly because of large debt due to an emotional takeover battle in 1986 and therefore Goodyear is currently paying 1 million/day in inter-est. Furthermore, the market has been maturing since the 1970s due to an increase in oil prices and an increasing life span of tires. Goodyear is also facing fierce competition from foreign compa-nies, particularly Michelin of France and Bridgestone/Firestone of Japan. Consumer Behaviour Analysis Consumers in the US tire market value tread life, wet traction, handling, snow traction and dry trac-tion when purchasing tires, whereas the price is the most important criterion when choosing a dealer. This is reflected from the facts that 45% of the buyers are price oriented, 22% brand ori-ented and 33% outlet oriented. A behavioural segmentation of the consumers (Fig.1) shows that the price-oriented buyers are most likely to be found in segments 1 and 4, whereas the biggest part of the brand and outlet oriented buyers match the consumers of segment 2 and 3, with an overall increasing price consciousness. When combining the tire and outlet preferences, consumers value good-quality tires at a low price, which makes most of them shop around before purchasing, pick-ing the preferred tire for the lowest price as only quality-oriented and trusting patrons commodity buyers are outlet loyal. Regarding the environment of the US market, it is clear that buyers in segment 2 and, especially, 3 are middle to upper class suburban Americans with average and above income. Therefore they are not necessarily price, but mostly value oriented. Distribution Channel Analysis Currently Goodyear distributes its replacement tires through three types of outlets; Independent dealers, Manufacturer-owned outlets, and franchised outlets. Furthermore Goodyear is testing a new channel called Just Tires, which only specialises in selling and installing tires. Independent dealers with 4,400 outlets accounts for 50% of Goodyears sales. However, of the 4,400 outlets only 2,500 are considered active dealers, as they generate a consistent level of sales and offer Goodyears full product line. Manufacturer-owned outlets and franchised dealers account for 27% and 8% of sales, respectively. Considering the Retail Positioning Map for replacement tires on the right, it becomes apparent that these three types of channels are all positioned as rather high value added and with a relatively narrow line of tire brands. This positioning of the retail channels that Goodyear uses is in good cor-relation with the image of the brand. However, some mass-merchandisers and auto supply stores get hold of Goodyear tires, mainly through large independent dealers acting as wholesalers, and then sells the tires at discount prices. Goodyear is afraid of the negative effect this will have on their image, as these low profile retailers contradict the high quality image of the Goodyear brand. Furthermore the small independent dealers feel threatened, because they cannot compete with these low prices.

Aquatred The Anti-Hydroplaning Tire The Aquatred is a premium priced high quality tire with increased safety due to improved anti-hydroplaning. Therefore the Aquatred is aiming at the high-priced end of the broad line tire market. The safety aspect of the Aquatred could satisfy consumers, particularly families Safety Need1. This means that the target consumers are middle class and above, most likely with families (See Ap-pendix II Buyers Behaviour for Aquatred). It is most likely that this target group is to be posi-tioned in the Value-oriented and, especially, Quality buyers segment of the market because of their common characteristics of being brand loyal, and as they associate a known brand with being a safe choice and of good quality. The Quality Buyers account for 23% and the Value-Oriented buy-ers for 18% of the consumers, whereas 39% of the Value-Oriented and 35% of the Quality Buyers are uncommitted, which indicates that the opportunities to gain new customers are good. Looking at the distribution channels, both groups are purchasing tires at small independent retail-ers and manufacturer outlets (See Fig. 1). Goodyear is distributing its products mainly through these channels, which indicates that the right customers can be targeted through existing chan-nels. The 60,000 mileage warranty of the tire provided by the manufacturer will be an important incentive for retailers to include the Aquatred in their selection, as the sellers currently provide war-ranties. Launching and promoting the Aquatred during the Olympics could hurt the brand image, as there will not be tires fitting imported cars available until several months after the games Main Issue In relation to the decision of whether to launch the Aquatred tire or not, there are certain matters to consider. We elaborate on these in the following part and then select a main issue. I. Costs of the Aquatred Goodyear spent a large amount of money over a period of several years to develop and test the Aquatred. The tire is now ready to be launched, but costs are a significant issue. A full-scale launch is estimated to cost about 21 million dollars. If this new product fails, Goodyear will have lost time, effort and money. Failure might furthermore cause bad publicity, damaging the image of Goodyear. II. Timing of the Launch The US tire market is maturing, slowing the growth and thus, launching the Aquatred at this mo-ment might prolong the break-even horizon. Furthermore Goodyear has the possibility of advertis-ing during the Winter Olympics, where ratings are high throughout many countries. This is a good chance to show off new products, and promoting the Aquatred would be ideal. However as men-tioned, Goodyear will not be able to create models for imported cars by that time. Additionally, other brands are also planning to launch a new tire with improved wet traction so if Goodyear chooses to wait launching Aquatred they may loose out to competitors. III. Consumer Behaviour Consumers are becoming very price-oriented and tend to see replacement tires as a grudge pur-chase. Thus, this could turn out to be a problem when launching the Aquatred in the high price end of the all-season tire range. The consumer perceived value2 is difficult to determine, they might not find the quality worth the high price. There are however many brands and options to

choose from, and it could be difficult to convince price conscious consumers that they should choose the Aquatred quality tire, over a lower priced product. IV. Distribution Channels As Goodyear is currently distributing through independent dealers, manufacturer-owned outlets and franchised outlets, the company is only focusing on a small variety of channels. The profile of these channels fits together well with Goodyears brand, but the consumers buying pattern is changing toward a more price-conscious behaviour. This behaviour is more in line with the low priced image of the mass merchandisers and warehouse clubs. Thus, at the moment consumers are often switching away from Goodyear when replacing tires, and selling high quality tires like the Aquatred at premium prices can have difficulties being supported by the dealers. Furthermore, consumers generally see replacement tires as a grudge purchase, which they will buy when the need occurs. This signifies that availability of the Goodyear tires throughout the different channels is important. However, expanding distribution might cannibalise the existing channels and work against the Goodyears brand image. Another problem regarding Goodyears channels is the poor uniformity of the sales message that the customer receives. Selecting Main Issue Although Issue I is important, the costs involved in the launch of the Aquatred should not be con-sidered the most important area to focus on. This is due to the fact that Goodyear needs to take some risks in order to develop the company and improve their economic situation. Regarding issue II, even though the timing of the launch is not the most fortunate, it should not be the highest prior-ity. Despite the market conditions, if launching the Aquatred, Goodyear cannot wait because com-petitors in the near future plan to introduce 80.000 mileage warranty or similar anti-hydroplaning tires. Thus, if waiting Goodyear might lose a potential first mover advantage and weaken its image as a leading innovative organisation. Issue III is important but we believe that Goodyear can deal with consumer challenges by solving the problems concerning distribution channels. We realize that all the issues mentioned above are important, but the core problem lies within the distribution. Thus, by a process of elimination we select issue IV, the problem in relation to the expansion of distribution channels and how this will affect the launch of the Aquatred, as Goodyears most im-portant and urgent issue. Alternative Solutions Solution I: Implementing a New Channel Just Tires Solution I represents the concept of corporate chain stores3, which Goodyear could implement in order to be available to all consumer-segments and furthermore, offer a broader line of products along with service. Several other corporations have also adapted this concept, such as GAP, and have been successful. The concept of Just Tires would develop Goodyear into a corporate chain store, offering only Goodyear tires and well-trained staff offering the right and proper service. Each Just Tires store across the US will offer products at the same price. In this way Goodyear would gain more control in pricing, promotion and merchandising. According to the figure on behavioural segmentation con-sumers demands differ on a wide scale; some consumers focus on price while others value qual-ity. However, one of Goodyears strengths is the up to date R&D the company

has undertaken. This research shows how consumers are becoming very priceconscious, and illustrates buying behaviour fitting to segment 1 (See fig. 1). This development in consumer behaviour has changed, while Goodyear has developed their new replacement tire Aquatred. This new hydro-planning tire is priced approximately 10% above other tires produced by Goodyear and therefore does not meet the demand for lower priced tires in the market. This is where the concept of Just Tires comes in. These stores will offer all lines of tires Goodyear currently produces and should be able to attract the four segments of consumer types. Furthermore, these new chain stores would also help launch the new Aquatred, it would end the cycle of the right marketing mix for (promotion) the Aquatred. Additionally, this implies that in the long run the availability of the Aquatred will be in the hands of Goodyear distributed to the right retailers and sold at the premium price set by Goodyear. This solution demands strong focus from Goodyear in order to implement, stay in the market, as well as expand. However, this does not imply that Goodyear should withdraw from their other dis-tribution channels, since the company has high market share in some of these segments. When evaluating this concept versus the current situation of Goodyear, they could in the long run be successful. The concept of corporate chain stores offering broader lines of products along with service will improve the availability of their products. In terms of their new line of replacement tires, Aquatred, this new distribution channel will help promote the newly developed tire. This will be possible because of Goodyear training employees, who will be able to communicate the right knowledge and service about the product. In the long run this will increase their market share and improve their financial situation. However, implementing the concept of a corporate chain store will be too expensive for Goodyear, as the company has a large debt. The concept of corporate chain stores demand heavy investment and huge amount of capital. The company would need to invest in advertising, education, physical facilities, merchandise, consumerawareness and pricing. Solution II: Distributional Expansion to Mass Merchandisers In order for Goodyear to update the distribution structure, fitting it to the needs of the more price conscious consumers, an expansion would be a step in the right direction. Considering the fact that Goodyears existing distribution channels are concerned that an expansion of distribution might lead to cannibalisation, Goodyear should approach this expansion in terms of multichannel market-ing4. By means of applying a multichannel marketing strategy Goodyear will extend both its variety of channels and the number of channels in order to become more available in the replacement tire market and target the more price conscious consumers, while still keep distributing through its original channels; the independent dealers, the manufacture-owned outlets and franchised outlets. Thus, using the multichannel strategy Goodyear should keep distributing the whole product line through its original channels. The distributional expansion should then be carried out by distributing Goodyears lower priced products, such as Arriva, Tiempo and Corsa GT, through mass merchan-disers (See the figure above). Furthermore Goodyear should launch the Aquatred only in the origi-nal channels, as

these channels target the value-oriented and the quality-oriented buyers, which is in line with the high quality and innovative image of Aquatred. The launch of the Aquatred will, be-cause of Goodyears first mover advantage, give these specific channels a differentiated product from those of the mass merchandisers and other channels where only Goodyears lower priced tires will be distributed. This differentiation of products among the diverse types of channels will help insure a spread of consumers, in terms of their buying behaviour, between the different chan-nels. If Goodyear do not expand distribution channels to the mass merchandisers this channel would most likely to some extent still sporadically obtain Goodyear products. Thus, starting to distribute its low-priced products to and thereby cooperate with the mass merchandisers Goodyear gain more control of exactly which products the channel receives. However there will still exist some risk of Goodyears high price products like Aquatred or Invicta ending up at mass merchandisers or other low profile outlets. Furthermore by expanding distribution in this manner Goodyear will make a flank defence5 against its main competitors, entering the low priced channels and highly increas-ing availability. As the appeal of Aquatred is in the heart of Michelins core segments, value-oriented and quality buyers, it is most likely that the launch will take away shares from Michelin and not cannibalise Goodyears existing products. The cost of expanding the distribution to include mass merchandisers will incorporate cost of point-of-sales displays, back up advertising of the new channel and informing the sales assistants in the stores. Nonetheless, this should be a rather inex-pensive solution. Solution III: Concentrating on Independent Dealers In order to rapidly expand the distribution of the Aquatred, Goodyear should concentrate on distrib-uting through independent dealers. 50% of the sales revenues are currently generated from independent dealers, and they generate 63% of all retail sales (40% small ind. Dealers, 23% large ind. Dealers) in the whole replacement tire market, being the biggest distribution channel. The advantage of independent sales channels is that they do not need as much capital and atten-tion as manufacturer-owned outlets and franchisees, and the implementation of this marketing sys-tem is less costly than developing a franchise organisation or a corporate marketing system. Therefore if Goodyear sells its 1,047 outlets and stops franchising, some capital will be freed, which can be used on extensive expansion by convincing independent dealers to sell Goodyear in their stores by offering rewards and special prices. This strategy will ensure a fast expansion, in contrast to the establishment of a company-owned distribution system, which would grow rather slowly because of the high amount of investments needed to buy out existing dealers and set up new outlets. The availability of the products will be high when using the independent channels. This strategy could increase sales quickly due to the rapid expansion. However, with such a strat-egy Goodyear risks that other brands carried by the independent dealers will cannibalise the sale of Goodyear products. In 1989, 70% of the independent dealers sold only the Goodyear product line, whereas in 1991 only 50% did, this reflecting the increasing demand for cheaper private label tires. Apart from that, the company will have no control over discounts and it will be hard and

al-most impossible to prevent the large wholesalers to sell the top-of-the-line tires to mass merchan-disers and warehouse clubs. Therefore the distribution of Aquatred through mass merchandisers will be inevitable in the future, thereby decreasing profits as Goodyear has to fit the price of the product in order to keep the small distributors competitive and to satisfy the customers expecta-tions, even though the company does not sell directly to the mass discounters. Evaluation and Choice of Best Solution Evaluation Criteria and Matrix It is relevant to see how each solution compares to one another and to evaluate each criterion as well as weigh them against one another (See Appendix III Evaluation Criteria). The criteria have been listed below, with the assigned weight. We believe that likelihood of increasing sales and availability of products are the most important criteria and therefore afforded the highest weight. Thus, the solutions are evaluated with both short-term and long-term outlooks. In grading the dif-ferent solutions, underneath, the different pros and cons, and their subjective outcome, have been taken into consideration. The scale used was from 1-5, 1 being the very poor performance, 5 being the very good performance6. It is clear from the matrix that option II, expanding channels is the best option. It has the best marks in the two most important criteria, likelihood of increasing sales and availability of products. The success of Aquatred (F) is equally high in both options I and II, but option II has the highest overall chance of success and is therefore a better choice, because it can improve Goodyears situation both in the short and the long run. It provides the possibility of gaining market share with the launch of a new product and the expansion of the distribution system without harming the companys financial situation. Outline of Chosen Strategy Goodyear will expand to Mass Merchandisers like Sears and Wal-Mart with its cheap tires Goodyear must set up mechanisms in order to control how Goodyear tires are spread throughout the distribution channels Agreement with mass merchandisers Goodyear must make Aquatred available only to its target customers through independent dealers, franchised outlets and manufacturer owned outlets. Goodyear must communicate the values of its products more effectively, in order to insure that the sales message will be communicated with better uniformity from sales assistants to consumers Goodyear will set up a system of training for the sales force that will enhance uniformity of Goodyears sales message Implementation Distributional Expansion to Mass Merchandisers When it comes to expanding distribution channels, it is important for Goodyear to stick to several main marketing objectives. They must start by making an agreement with the massmerchandisers to ensure that they will be the only wholesaler of their products in order to guarantee that only the lower-priced tires will be sold in these channels. This will appease the independent dealers, as it will guarantee that the mass merchandisers will not compete directly with them and ensures that the new distribution channels will not cannibalise existing sales channels. If Goodyear sells to mass merchandisers controlling the products when purchased, then Goodyear cannot control where the tires go from there and they gain the same profit no matter how many tires the mass-merchandisers sell. If possible, Goodyear should aim at purchasing key shelf-space to guarantee high presence of the tires.

Due to the US law environment, Goodyear has no say in the final price. However, the products for the mass merchandisers should not be sold under the normal wholesale price in order to guaran-tee that the price difference between the channels is not too large. To justify this, Goodyear has to offer services that are valuable for the mass merchandisers, this could be consumer surveys since Goodyear regularly collect this kind of information. Goodyear can benefit from the large target group of the mass-merchandisers by placing a small booklet containing information about their products within the larger advertising booklets for the mass merchandisers. This should only be a onetime initiative with the purpose of letting Goodyear control the initial message to the consumer targeted by mass merchandiser. When negotiating with the mass merchandisers, Goodyear can use its brand image and aware-ness as a main bargaining tool. The mass-merchandisers will gain several things from carrying the Goodyear brand. They will enhance the depth of the selection and thereby increase their brand selection. This will lead to an increase in sales, as the introduction of Goodyear products in these channels most likely will attract some of Goodyears loyal customers and thus not only increase sales of tires but other products as well. Negotiations and agreements will determine when the products will be able in the mass-merchandisers stores and how large each shipment will be. This will vary based on size of the merchandisers and on their ability to sell Goodyears tires. However, Goodyear should aim at hav-ing an agreement with the mass merchandiser in time so that they can offer their products right after the Winter Olympics on the 24th of February in order to put up defences against indirect attacks from competitors through the lower-priced channels. Launching the Aquatred The Aquatred tire will be launched on February 8th 1992 at the start of the Olympics7. Across the country, each independent dealer will offer the new Aquatred tire with a 10% discount. Prior to the launch commercials will be broadcasted on national TV from February 3rd 8th 1992. Two proposals for the TV commercials. 1. Featuring a famous driver, expressing his need to feel safe not only when he is racing, but also when he drives his family will be successful. It needs to mention family and safety and customers need to connect this to the Goodyear brand and their Aquatred tire. 2. Featuring a family with their sixteen-year-old daughter, who recently received her drivers li-cense. The family have been car-shopping and find a used car, which needs new tires. The family agree on choosing Aquatred tires because of the safe choice. Before the launch, Goodyear will distribute a special booklet Aquatred Tire of the Future con-cerning the technical details of Aquatred anti-hydroplaning tire as well as clear instructions for the sales assistants on how to promote the sales message to the consumers. These booklets will be distributed to the stores on the 3rd February, five days before the launch of Aquatred. This will help insure that there will be more uniformity in the sales message towards the consumers. Promotion-Tour: Better Safety on US Streets The Aquatred Promotion Tour will take place during the Olympics from February 10th 17th 1992. During the

promotion tour local radio stations will cover the tour and simultaneously TVcommercials will run on national TV. The idea is that the marketing department of Goodyear has separated the country in to eight regions. A team will cover each region and at public places pick people reflecting the target group, give and install the new Aquatred tires on their car. The team will consist of 2x Goodyear-Aquatred experts, 2x Formula 1 mechanics and a TV crew (1 camera-man and 1 journalist) from ESPN. Each van will be painted in Goodyears colours (blue and yellow) and the slogan Better Safety on US Streets will be painted on the side of the van. ESPN has been selected, because they are broadcasting the Winter Olympics from Albertville, France 1992. Message/ slogan Better Safety on American Streets Resources needed 8x teams; each team will consist of: o TV crew: 1xjournalist and 1x cameraman o 2x Formula 1 mechanics o 2x Goodyear employees When Before and during the Winter Olym-pics in Albertville, France 1992 February 8th 23rd Where to target Bigger cities Suburban areas: malls, highschools, schools, kindergartens Who to target People with family cars, Valueoriented/Quality buyers How Pick random people and install tire for free The two Formula 1 mechanics will change the tires on time TV and radio advertising Why Increase of Awareness Positive impact on company image Word-of-mouth promotion Free promotion from local TV and radio station Budget for the Implementation The cost of the full-scale launch amounts to 21 million dollars, but there are several additional costs that need to be taken into account. The figure listed below shows estimated the costs of the implementation of solution II excluding the full-scale launch. Notes 1 Kotler 2004, Marketing Management 11th ed. page 196: Maslows Hierarchy of Needs 2 Kotler 2004, Marketing Management 11th ed. page 361: Perceived value 3 Kotler 2004, Marketing Management 11th ed. page 538: Corporate Chain Stores 4 Kotler 2004, Marketing Management 11th ed. page 524: Multichannel Marketing 5 Kotler 2004, Marketing Management 11th ed. page 259: Flank defences 6 In grading the different options, a scale from 1-5 was used. 1=very poor performance, 2=poor perform-ance, 3=average performance, 4=good performance, 5=very good performance. 7 We are aware that it states in the case that the Winter Olympics 1992 were held in January. However the fact is that it was held from the 8th 23rd of February, which are the dates that we have used in our Case Study Appendix I - SWOT Strengths 1st mover advantage, with the Aquatred anti-aquaplaning Wellknown brand (largest share of advertising in TV and magazines) Strong brand image (The product is mainly available through authorized dealers and not through mass merchandisers, warehouse clubs etc.) Close relationship to dealers, because of franchises and merchandise allowance Good technological and customer research, and new product innovation Product Quality (60.000 mileage warranty) Market leader in the US Weaknesses Currently no Aquatred tires for the export market, because of no special moulds Customer loyalty is lower than Michelins (the main competitor) Large debt mainly due to the emotional takeover battle in 1986 Lack of consistency in information given from tire dealers during product presentations Kellys Springfield tires

are not distributed trough the same channels Goodyear Opportunities Advertising at the Winter Olympics Launch of the Aquatred as appealing to the two strongest factors sought of by customers; tread life and wet traction Expand distribution channels and thereby preventing price-conscious consumers from re-placing Goodyear tires with competitors Promotion towards families as a safety product Threats Wholesalers distributing to unwanted retail channels (e.g. mass merchandisers) Competitors launching wet traction tires similar to the Aquatred Increase in oil prices Tensions between Goodyear the independent dealers (Goodyear; both supplier and competitor) Further declining tire prices NTDRA, imposing more regulations (bill of rights) on Goodyear Competitors launching anti-aquaplaning tires or tires with 80.000 warranty Appendix II Buyers Behaviour for Aquatred Other stimuli: Economic: Mature market, slow growth, strong competition Technological: Offset of Information age Political: US presential election of Bill Clinton, antitrustlaws in US Cultural: Economically well situated middle class (WASP), Melting Pot Buyers characterristics: Cultural: Middle class and beyond; good citizens; Social: proper jobs; most likely surbuban families; probably more than one car Personal: Full nesters I-III; Average pay white-and blue-collar workers and above Psycholological: Motive: Need for safe and high quality tires Perception: Aquatred good quality, known brand (safe choice, trust), safety Learning: Loyal customers, attract new committed customers Beliefs and attitudes: American brand, quality, safe choice Buyers decision process: Problem recognition: internal stimuli: need for new tires+safety external stimuli: advertising and promotion Information search: Personal sources: cannot rely on word of mouth Commercial sources: Salespersons highly important (outlet loyalty), Advertis-ing to develop awareness Public sources: Olympics and sponsorships Experiental sources: Promotional events Evaluation of alternatives: Need: tires, many alternatives benefits: Safety, 60000-miles-warranty, new hydroplanning technology, cur-rently no alternatives, but in near future Attributes: Tread life, handling, snow traction, dry traction- All positive Brand beliefs: American brand, good quality, good price for recieved value Purchase decision: Attitudes of others: Salespeople need to promote Aquatred positively Unanticipated situational factors: Presence, brand image Postpurchase behaviour: importance of high-quality-product from factory on; positive handling of complaints(60000 miles warranty) Buyers decision: Product choice: dependent on segment Brand choice: dependent on segment Dealer choice: dependent on segment Purchase timing: dependent on need recognition (two kinds of need: immediate for new tires or safe purchase), average time between purchases 2,5 years Purchase amount: 42% - two tires 40% - four tires 16% one tires 2% - three tires Appendix III Evaluation Criteria Criterion A: Cost of solution, this is always something that companies look at and is specifically important to Goodyear. Criterion A can be viewed as a short-term solution as it is difficult to predict long-term costs because of the fierce and fast responding competition. Criterion B: Risk of solution, as Goodyear cant risk failing in there choice of distribution structure in order to keep their market position. The risk as such could

be both short and long-term as risks are immediate but have a lasting effect. However, certain risks must be taken to stay competitive in the tire market. Criterion C: Likelihood of increasing sales, we believe this to be the most important criteria be-cause we see Goodyear as a profit maximising company. Furthermore the increase of sales can increase the sales and is therefore important to keep their market position. We see this as having a long-term impact and therefore we weighted it highly. Criterion D: Availability of Products, this is important to reach customers and generate sales. It is directly related to the main issue and therefore weighted second highest. This can be changed comparatively fast and is therefore a short- term criterion. Criterion E: Product targeting control, this is important to reach target customers and contributes to the success of Aquatred. Criterion E is least important because of external factors like anti-trust laws that restrict manufacturers in many ways. This is a long run effect because it determines the price and image of the product. We believe that it is more important for the product to be highly available than placed right in order to increase sales. Criterion F: Aquatred Likelihood of success, another important issue and relates to the main question of case. Regarding the time needed to generate a break even between expenses and sales revenues, criteria F should be seen as a long-term criterion