"If the majors think they can maintain their marketshare by brand name alone, I think they are mistaken."
What do you think of that comment?
Agree or disagree? Angry? Surprised? Unconcerned?
Before you jump to conclusions and perhaps break out the sharp blades, let me set the table a little more.
The statement came from a fellow tire dealer, a pretty prominent one in a pretty solid part of the country with a pretty middle/upper-middle class customer base. He’s been around for a while, and I have a great deal of respect for his opinion and perspective.
Here is what he wrote just before that quote:
“I think the price increases are getting painful at this point, and we are seeing a great deal of push back and trading down by everyone – from Bugatti to Buick. The consumer is so much better educated on the fact that tires are safe, that they all do the job, and they see that they can spend less and still have a quality product.
“If the majors think they can maintain their marketshare by brand name alone, I think they are mistaken.”
I agree, and this is not an indictment. It’s about time that tiremakers, which have micromanaged marketshares for decades, learned the simplest of business truths: You cannot eat marketshare.
Tough times have tightened belts at all levels – from Bugatti to Buick. Of course, the timing couldn’t be worse for a “premium brand” marketing approach, so popular with major tiremakers. Sure, a Buick owner might want a “premium brand” for his/her car, but fast-rising tire prices have pushed customers who perceive “value” at the “premium” end to buying from the “value” end of the product screen.
And that leaves a bad taste in their mouths, one that might well linger for 60,000 miles or so.
As I said in March, price increases are a fact of life. I challenge, though, that the speed of such increases isn’t really that necessary. Since Jan. 1 alone we have seen two complete waves of prices increases, with virtually every maker twice dropping a large percentage hike on your doorstep like the morning paper.
“Due to the steep increase in the costs of raw materials affecting our industry, we must reluctantly raise prices of our product,” the carbon-copy news releases read. “We appreciate the continued support and understanding of our dealers as we remain committed to providing the highest quality products.”
As tiremakers announce large first quarter dollar and unit sales increases, dealers are struggling to even get tires. Never have I received so many fill rate complaints from readers. The slow reaction by tiremakers to the rising demand so evident in mid-2010 makes one wonder just how attuned to the market the suppliers are. Or do they have a new strategy?
Still, yesterday’s “flight to quality” is today’s “dash for dollars.” And those dollars are not being misspent on bad products.
Thanks to the Interwebs, consumers do have access to more information about tires and the companies that make them. They can pore over product reviews from fellow drivers and professionals. They can wade through customer feedback and sizing options. They will turn up at your counter more prepared and better armed than your own salespeople.
Because they are better educated (and want every penny to count), they will bypass products they deem as “over priced” in favor of more moderately priced options. They can see that all things – safety and science and warranty – are pretty equal, that there is little difference between Tier 1 and Tier 3 tires – even some Tier 4 brands.
With $4 a gallon gas and fast-rising food and clothing prices, familiar brand names mean little at the sales counter. If a customer for a set of 215/60R16s has to choose between $640 for a “major brand” tire and $340 for a quite competent “not so major brand,” the choice is simple.
It has been suggested to me (by people in the know) that the majors feel they can live with low fill rates in North America because they are making all kinds of money in Europe and Asia and South America. That they have gotten used to a little frugality, and aren’t interested in going back. That they can live selling a few less tires here due to price pushback because emerging markets offer a fresh lot of buyers.
Maybe. I don’t know.
What is undeniably true is that you cannot maintain marketshare by reputation alone, and you cannot run a business without customers.
In this day and age of cost-sensitive consumers, familiar old-line brand names will not carry the day unless they deliver a complete solution to the buyer. Safety, technology and warranty must be joined by price.
Marketshare may not matter anymore, but if the brands want to continue to matter, makers are going to have to find a better balance between the needs of downtrodden consumers and pretty, shiny financials.
