Goodyear Tire & Rubber Co. chairman and CEO Rich Kramer closed out the tiremaker’s annual Dealer Conference, hosted Jan. 29-31 in Nashville. This year, Kramer forward-looking speech took on a new dimension when he specifically talked about new market opportunities for tire dealers – The Millennials, a fully connected group of tire and auto service consumers.
“As I talked to a number of you, what I heard from a lot of you telling me that boy, your Goodyear associates, the Goodyear team out here, man, they’re really, they’re really pumped up. They’re really excited about what’s going on here. That makes me feel really good. Then, in reverse, many of our associates are saying boy, all our customers here; they’re really pumped up. They’re really feeling good about things. I think we’re getting that alignment again as a team, and there’s just a lot of excitement right here. Maybe again, if I can quote our friend Vince Poscente (the keynote speaker), we’re getting that emotional buzz, right?
But in all seriousness, you know, this is a great meeting, and as good as this meeting is, I have to tell you, it’s only a success because of all of you. It’s a success because of your investment and your time and resource and your team’s time and resource. It’s a success because of your commitment to learning and your passion to grow. And really, we feel that. That really forms a foundation for all of us to have the confidence to grow our business. So, I’m going to join my colleagues in doing something that you’ve heard many times, and you’ll hear it more: We thank you for your business. We say it because we mean it, and we can’t say it enough. We thank you for your loyalty, and we thank you for being part of the Goodyear family.
Now, I’m going to start my remarks today with just a few comments about 2013 and about our Goodyear business. I’ll start with 2013.
I think as we think about the business – you’re living this every day – we certainly didn’t get back to its robust volumes that we saw pre-recession, back in 2007 and 2008, when we had industry rise and forecast for it to go up, but we did certainly see more positive signs, particularly the second half of the year and particularly into the fourth quarter. I said it on the stage before, and I certainly said it on conference calls where I’m asked: my view of the North America tire industry has been, in terms of it rebounding, it’s not a question of if, it’s a question of when. And I would say to you that ‘when’ is starting now. Hopefully you are, and hopefully you’re trusting me, but let’s look at some signs. Let’s have a little outside evidence to support what I’m saying.
The first thing is auto sales. Auto sales now are up, I don’t know, 2-3 years in a row. And for Goodyear, this is a huge benefit for us, not only from a volume perspective, but from the OE fitments that we’re getting in terms of driving our business. And as you heard the team yesterday, it’s not a mistake that we’re getting on the fitments that we are. It’s part of our strategy. And what does that all mean for you? It means that replacement business is coming. It got a little better in the second half towards the fourth quarter, but if we think about it, the replacement business is only going to get better. In the next 3 to 5 years, you’re going to see more cars rolling into your shops with Goodyear tires on them, needing to replace those Assurance, those Eagles and those Wranglers. That’s a pretty cool thing. That’s something to be excited about.
The next sign is really around increased consumer confidence. People really want more products, just about everything, and housing’s actually getting a little bit better as well. And what that means, if we put it into our business, is more trucks on the road. We saw truck miles increase, particularly in the second half of the year, again, particularly in the fourth quarter and even in December. We see long-haul trucks and we’ve seen regional deliveries increasing their miles. Remember, the important thing for all of us, in addition to being able to service those vehicles, is when we think about the economy, one of the best prognosticators about where our economy is going is the truck business. That’s true both when it’s decreasing – we see truck miles go down. We know the economy is probably going to face impediments – and when we see an increase, like we see now it typically means there’s going to be some good things coming. So, it’s a positive. Our economy overall hasn’t rebounded, but we’re seeing steady improvement.
And if I flip to Goodyear, what’s happening in Goodyear? Well, the good news is, and maybe more importantly, our strategy is working. We’re going to announce our results for 2013 in about three weeks or so. Certainly, I can’t talk to you about it right now, but what I can tell you, if you extrapolate just where we’ve been through, through the nine months of the year, we’re on a path for our third year in a row of our operating earnings being over $1 billion. And that’s the first time we’ve ever done that in the 115-year history of our company.
In addition to that, our balance sheet is getting stronger, which means we can focus more and more on the investments that we have to do. So, when you think of Goodyear, we’re in the best shape that Goodyear has been in for a long period of time. Our strategy is working, and we have confidence that we’re driving toward the destination that we include in our strategy roadmap that talks about creating sustainable economic value, not for a quarter, not for a year but for the long-term. And I would say we have momentum right now. We’ve got the best product line in the industry. We’ve got best-in-class service. We’ve got the best dealer network, all of you out there. And what I’ll commit to is we’re going to keep that momentum going. I’ll commit more than that, and I’ll tell you we’re just getting started.
Now, for the balance of the meeting, I’m not going to talk about the North American business. I’m not going to review our strategy. I think it’s clear it’s working, and the results speak for themselves. And I’m also not going to talk about what we’ve called our seven megatrends that we introduced to you a couple years ago that we see as shaping the tire industry for the next 5 to 10 years. These trends, they play in our favor, and if you listen to what we’ve talked about the past few days, you see that they’re actually happening just as we said they were going to happen.
Instead, what I am going to talk about is what one might call the eighth megatrend. The eighth megatrend really is the changing consumer, something that’s going to be very, very important to us as we look ahead. So, I want to cover it in three parts. I want to look at the next generation of consumer – who they are, what and how they’re shopping, what their buying behaviors are, and let’s look at the critical factors that they are going to look at in their purchase decisions. They’re going to be very different.
Then what we’ll do is have a little discussion on what that means to our industry, the tire industry. And finally, I want to provide some perspective about how how we at Goodyear, about how we are thinking about our future business relative to these trends that we’re going to see. And as a result of that, I hope, I hope you walk away believing that being aligned with Goodyear is going to be the best way to take advantage of these trends that we’re going to see, and I hope you understand, believing us, that Goodyear has advantages that are going to lead consumers to buy Goodyear tires and more importantly, buy Goodyear tires in your stores.
Now, before we get started, I just want to say one more thing. When I talk about the changing consumer, we’re really talking about a trend that’s coming. We’re not at an inflection point today. We’re not at that point where something’s down and something’s moving up and we’re at that crossroads, but I want to tell you that it’s coming. And what we need to do is think about it, and my comments are to prepare us to think about this, to think about it together and as a team because that’s what business leaders do, and all of you are business leaders. We don’t react at the moment something changes. We think about it in advance and are ready to take advantage of it together. So, let’s talk about the consumer of tomorrow.
Maybe the best place to talk about that is to describe it in demographics. Today the largest demographic in the United States is what? Anybody know? Baby Boomers, right? Baby Boomers make up about a third of the adult U.S. population right now. Born after World War II to about the mid-1960s. Includes most of us in this room, including me, and frankly is the picture of who shops at our stores by and large right now. But we know with time, things change. The boomers are going to be replaced with a new demographic. Anybody know the name that that’s taken on now? The Millennials.
The Millennials are going to be the next generation. They’re born between 1980 and around 2000, and this group is going to have the biggest impact on all U.S. businesses moving forward. And as we talk about the Millennials, I think there’s a misconception out there. That misconception is that they’re going to be stragglers that they’re not going to be good consumers. Well, I will tell you that that’s wrong. It’s not true.
Accenture, the global consulting firm that I think maybe some of you have heard of, what they say is that the 80 million Millennials that are coming our way are going to form a trillion dollar demographic. They’re going to be the people buying all kinds of products in future – including tires – moving forward. In addition, an interesting way to frame this is individuals in there 20s actually increase their spending at about 6% year. By the time you’re 30, you actually reduce that to increasing spending to only about 2% a year. So, that’s a numeric way of saying that Millennials are going to be the tailwind of the U.S. economy as we look forward. And again, to be very clear, we’re in transition mode here. This hasn’t happened yet. We’re at an inflection point. Boomers are declining. Millennials are coming up in terms of the demographic. That’s not a surprise, but I want to reinforce, hey, we love Boomers. We love them as our customers, and again, this is something we need to think about moving forward.
So now, let’s talk about the Millennials. Who are they? Let’s describe them a little bit. More racially diverse than any demographic before. More educated women with more economic clout than we’ve ever seen before. And a group that’s going to be more technologically savvy than any group before them. Remember, this is a group that’s not a group of early adopters. These are people who’ve used technology all their life. In fact, and you know that anyone under 20 has not lived in a world without the Internet or without technology. In fact, 64% of them have constant access to the Internet, and 57% of teens or younger already own a computer. And that whole demographic now spends about eight hours a day connected to some form of media. That’s what we’re looking at. And maybe the most important factor is this group feels comfortable buying almost anything online. And then you throw a fun fact in there for all of us as well: 83% of them sleep with their phone turned on, on the nightstand next to them or as the picture shows up there, in bed with them. Have any of you seen that before? Any of your kids do that? I know I’ve seen that as well. Yeah, my daughter does that, despite what I tell her to do.
But look, all the fun facts outside, here’s the thing we need to look at. It’s just not about a new generation connecting with technology. It’s really about how they connect with the information they’re getting from that technology, and then equally important, how they’re going to use that information in shaping their shopping and buying behaviors. That’s what we need to think about.
Now, I’m going to talk about how their shopping and behaviors are going to change, including a lot of different examples, but I’m going to focus on three of them in particular. And the first one is that the consumer is in control more than any other demographic before. Secondly, they’re going to have higher expectations that are going to be hard if not impossible to ignore. And third, for this group experience is what matters. They’re going to place a premium on the experience, not just the product, but also the brands and their experience with you delivers, okay? So, let’s go. Let’s talk about those three things.
So, who is that consumer? Who is that new consumer, and what does it mean when I say the consumer’s in control? Well, if you think about it, they’re actively engaging with data on a regular basis, and they’re actually listening to each other more than we ever thought before. And this starts with the research phase. And it’s not now just going on a website and maybe checking the price or talking to a friend. Those things still matter, no question about it, okay? They absolutely matter, but more and more, it’s about online views. It’s about the service ratings of products. It’s about our presence on Facebook and Twitter and all the advertisement that you see out there. And it’s about blogger commentaries and of all things, YouTube videos.
Since I’ve been up here so far, there’s been about a 3,500 blog posts made and about a thousand hours of video that’s been uploaded to YouTube, just in the time that I’ve been here. That’s staggering. All that information coming in, how do you make heads or tails of it? It’s staggering. But I want to reverse that as well and say with all that information out there, if we can see a breakthrough, if there is a breakthrough, if the right demographic is reached, the opportunity is even more staggering. And I want to use a couple examples today to bring some of these points home.
The first one I’m going to use is a lady by the name of Michelle Phan. Anybody ever hear of Michelle Phan out there? Well, Michele launched a career on YouTube as a college student back in 2007. College student. Her passion was step-by-step instructions to applying makeup. She loved to apply makeup, put videos together. Low and behold, first week, 40,000 hits for her video. Today, Michele is the number one beauty guru on YouTube. She has 5 million subscribers and 250 videos, how-to videos that are posted out there.
Now most importantly, her influence on the fashion and cosmetic industry only continues to grow. And the point here is not about makeup and not about YouTube. It’s about how consumers are now being influenced. So, cosmetic companies, who do you think cosmetic companies are listening to now? Think about it. When Michelle says a product is good and gives it her endorsement, what do you think happens? When she doesn’t, what do you also think happens? Right? It goes the other direction. People are listening to different sources of information. So, when I say consumers are in control, I want you to understand that the world is moving beyond the traditional advertising or way to reach people. People aren’t waiting to see a magazine come into their mailbox at the end of the month and looking through the ads and making purchasing decisions. More than ever, these consumers are connected. They’re constantly connected. They have access to unlimited information. Interestingly, they trust bloggers. They trust what those bloggers say, and they follow their advice. And all that makes a difference in how they think about their purchasing decisions.
Now, armed with more information from more sources and with more immediacy, what you think the impact is on consumer behavior? This probably would include us as well. What happens to our expectations? I can tell you, they don’t go down. They only go up. Consumers are going to continue to become more discerning and less likely to simply accept a party line or a piece of advice. The key point here is that consumers will have a much broader set of purchase criteria based on increased expectations. That’s what we’re going to see.
Think about your own example, your own experiences with hotels, something that’s pretty common to all of us. Remember what used to pass as amenities for all of us? You can see that picture on there. Remember going to a place with your parents? A color TV, a heated pool, how cool was that, right? You were dying to stay in one of those places. They were really cool. Now, let’s fast forward. Think about where we are today. Flat-screen TVs, premium movie channels, big beds, fitness centers, we want them open 24 hours a day. We’re looking at all that. And by the way, you’re going online, and you’re doing your research to see which ones have those amenities that meet your higher expectations. You’re probably willing to pay a little more for it as well, if it really interests you. Think about our expectations. They’ve increased. Can you imagine a hotel that doesn’t have Wi-Fi? I can hear your kids screaming right now. The point, again, is not just talking about hotels. The point is our expectations are increasing. And hotels, hotels are a really simple example.
This same thing is going to happen across all industries, and that’s what I’d like you to remember.
So, if we think about this, where are we? We’re going to have consumers in control. We have higher expectations. If we add those up, it’s going to create a new situation for us, which is really that special is the new normal. So, to stand apart from the competition is going to require a different approach. That’s what that means to us. And with a baseline expectation of higher quality, which consumers are going to expect more, consumers are going to find the value of branding more than just the product alone. A big part of the value is going to be in the experience that’s actually delivered with the product.
So, let’s use an example again, one that probably is familiar to all of us. What do we do in the morning, for most of us? We get up in the morning, probably make some coffee, we walk out and get the newspaper. We sit down. We read the newspaper. Now, if we fast forward, or even we see today this new generation, new Millennials or the changing consumer, we’re more likely to find them at Starbucks standing in line, reading the headlines on their smartphone, waiting to spend about four bucks for a cup of coffee, right? And probably going to pay for it with an app on their phone, which, this is mind boggling, they’ve actually prepaid maybe a month’s worth of coffee on their iPhone or their smartphone to pay for that. Think about that.
They’re giving Starbucks money in advance to pay for a coffee. That’s a changing consumer.
Really, what are we talking about here? We’re not talking about just buying coffee. We’re talking about an experience. People don’t go into Starbucks just to go and get their coffee, but the coffee is good, and if it weren’t, people wouldn’t turn up. But really, the model of Starbucks just wasn’t to make good coffee. It was to create a place that they called the ‘third place.’ It was a place between your home and your work that you could go to and feel comfortable. And you could surf the web, read a book, talk on your phone, do homework, right? How many kids now are doing homework at Starbucks? They created this ‘third place,’ a place that says ‘Hey, Starbucks gets me; I want to go there.’ What they’ve done is they’ve created a relationship. And they display that relationship, walking around all day long with that cup that has the Starbucks logo on it. So, what are we talking about here? We’re not just talking about a purchase. That’s not a purchase. What it is is an experience. That’s what I want you to keep in mind. It’s an experience.
So, that glimpse of the consumer that we’re going to see, the consumer is going to be more in control.
They’re going to have higher expectations. They’re going to look for an experience that will be more meaningful for them going forward. I think that’s the world that we need to get ready to see. And as I said before, it’s not here yet. There may be bits of it, but it’s not here in full force right now, but it’s coming. And as leaders, we need to think about it, and we need to figure out how we’re going to do in that environment. We need to be ready for it, and most importantly, we need to be ready together to lead this new trend and take advantage of where we’re going.
Now, I can almost hear someone in the back over there going ‘Rich, haven’t you learned anything yet? This is the tire industry. We’re different. This doesn’t apply to us.’ You know, I heard that a lot when I came to Goodyear. Let’s talk about how it does impact the tire industry. I want to make three points, and the first one is we have to realize that these trends are not going away. You all have kids. You see it. The trends are not going away, and there will be no business that’s immune to this, no business in the U.S. and I would argue no business in the globe that’s going to be immune to these new trends. So, we ignore it collectively at our own peril.
The second point I would make to you, I’d make this point emphatically for you, is that you matter. The tire expert, the tire retailer matters, I would suggest you, more than ever. The consumer needs you, and Goodyear needs you, and we need you more than ever as those consumer expectations change and they talk about the experience that they have, they expect to have when they come into your stores.
The third thing, again, is experience matters, and it’s up to us to think about what’s important to that next generation of tire buyers by considering that total experience. What do we need to do? What do we need to do relative to the things that we just talked about? And as we do that, we’re going to have to look at this. An important factor of that experience is going to be how the consumers come into contact with those brands, both what we do and what you do. They’re going to be looking for things like was the website simple to use, was it optimized for my mobile device, did it load quickly, did it have all the content on there that I wanted?
You know, in the past when we looked at this, price was really the shortest path to a transaction. That still may be true today, but for this evolving consumer, a focus on experience is going to be the path to a relationship, and I would tell you that’s the opportunity that’s waiting for you. That’s the opportunity waiting for us, and we believe that Goodyear is better prepared than any of our competition to meet the arrival of these changing consumer needs. And we’re going to do that doing three things, and the first is we’re going to continue to bring you new, innovative market-back products of the cadence that you’ve come to expect. Just like no one’s going to go to Starbucks if they don’t have good coffee, we know we’ve got to deliver the best products to you, so that is the core of what we have to do as a business in selling tires. And we’re going to commit to doing that. I’m going to commit to you that innovative products at the cadence that you’ve come to expect is exactly what we’re going to continue to do. You can count on us.
And secondly, we’re going to go out there and continue to invest in technology and data gathering to find all this information that people are using out there, look at it, analyze it and turn all that data into information that we can help you use to drive consumers to your stores to sell Goodyear tires. That’s a must for us.
And equally, the third thing we’re going to do is continue with the effective marketing spend in both in the traditional sense that we know we need, but also thinking about what we have to do on the interactive side to deal with the changing consumer as we go forward. And we’re going to do this for two things. One, one, we’re going to do it to enhance the experience of the consumer that we’ve seen, but secondly and equally if not more important, to drive those consumers to your stores.
Now, as we look ahead, as we look at the trends that we see out there, frankly, we love them. We see it as an opportunity. We’re very excited about what the changing consumer is going to bring to us. And you know what? We’re leaning in. We’re leaning in to this because we want to lead because these changes play to our strengths.
And what are those strengths? The first one I hope is obvious. It’s our brand. Our brand is our number one asset. It’s known in every corner of the world, every town, every corner. It’s 115 years old, on its way to another hundred years. And we’re going to continue to build our brand beyond products and to support the entire consumer experience, and our brand will continue to evolve, continue to evolve, pairing the great heritage that we have and adjusting as we need to to the new consumer. I commit to you that we’re going to make sure that our brand is more relevant than ever.
Our second strategy is our team. I always say next to our brand, our number one asset is our people. And I will tell you the men and women of Goodyear are the best team in the business, and I’m personally proud to be part of that team. But you know what? They’re not the only ones on the team. All of you, you’re on the team as well. We want consumers to choose Goodyear, but we choose to reach those consumers through your stores. You stand for Goodyear. To the customers in your communities, you stand for Goodyear. To that small business with a half a dozen delivery trucks that are counting on you, you stand for Goodyear. To that commercial fleet that you serve, you stand for Goodyear. Of course people trust the brand. We count on it. But real trust, real trust comes from a handshake, it comes from a look in the eye, and it comes from a person, and that person is you. And that’s why we’re so proud and so confident to have our brand in your hands. You’re Goodyear, and you are our ambassadors.
And our third strength, very important to us, is trust. There’s an author, Simon Sinek, he says trust is a feeling; it’s not a checklist. It comes from sharing the same common set of beliefs, believing in the same things. He says trust is earned when we want the same things, in this case, for our customers.
At the beginning of my remarks, you saw the video. The question the video asked was why do I choose Goodyear, a question I make my team ask all the time. Why would you choose Goodyear? What you heard in that video is not just a story about selling tires. It was a story about earning trust by reducing worrying, by delivering peace of mind and by inspiring confidence. And you know what? That’s what Goodyear represents. That’s what our team represents. That’s what you represent. And that’s what we’re going to continue to do, to deliver to our customers, both Baby Boomers and Millennials alike.”