1. How would you characterize the competitive environment in the tire industry in 1991? The tire industry is divided into two end-use markets: First is the original equipment tire market (OEM) in which tires are sold directly to the automobile or truck manufacturers. This market represents 25 to 30 percent of the tire unit production volume each year. Goodyear is the market share leader in this segment and captures 38 percent (1991). Within this segment, price is highly inelastic due to the fact that car and truck manufacturers can easily switch to a competitor brand since the price competition in this segment is fierce in this market The second is the replacement tire market. This segment of the market accounts for 70 to 75
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Market research shows consumers are losing loyalty to tire brands but have increased loyalty to retailers. Therefore, this move would provide Goodyear with a broader spectrum of customers. A problem that will arise is the pushback from the current Goodyear Franchises. Franchise owners who have heard about Sears’ proposal threatened that they will sell tires from competitors who provide a better value to customers. While it was clear that some franchise dealers were critical of broadened distribution of any kind, the pervasiveness of this view was unknown. Another issue was cannibalism of company-owned Goodyear Auto Service center and franchised Goodyear Tire Dealers tire sales also meant that Goodyear executives had to consider the incremental replacement passenger car tire sales from broadened distribution. The danger would be that company-owned and franchised Goodyear Tire Dealers might incur a loss in unit sales. This would be evident in communities where Sears had a strong market presence.
5. What effect, if any, does the number of brands and specific brands sold through Sears have on the distribution decision? Why? Tire industry analysts expected Sears to benefit from carrying Goodyear brand tires. According to market share estimates, Sears’ share of the U.S. replacement passenger car tire market had declined from 6.5 percent in 1989 to 5.5 percent in 1991. Good year brand tires would certainly enhance the company’s