I’ve been thinking about how the world of tyres might change in the coming ten years or so. That’s not to think about which brands or sizes might be doing better or worse than they are today – except that Zenises and our Z-Tyre will of course be in the ascendant.
It’s more about changes in the way we do business. Tyres made in China are getting better. Today there is still a large gap in price but a much smaller gap in technology performance compared with ‘legacy’ brands (those tyre brands which first established themselves in the Western tyre markets decades ago). That big price gap is no longer justified by the small differences in technology. And the technology gap is shrinking fast. Even today many of our tyre brands can compete on equal performance terms with legacy brands. In a year or two, I expect the difference between ours and legacy brands to be indistinguishable.
On pure performance abilities, we should be charging the same price. The market is probably not ready for that yet, but we can bring that day closer by helping people understand what they could be paying for when they buy a legacy tyre. Just the name – nothing more.
It’s not just happening in car tyres. It is the same story around the world in truck tyres and also in the tyres used on bikes, agricultural vehicles; mining trucks and every other type of vehicle.
Where does that leave the legacy brands?
We’ll be offering great tyres that are largely indistinguishable from legacy brands, except for the name on the side of the tyre. Our prices will be better and our dealer margins will be better. So legacy brands are going to have to find a different way to do business if they want to compete with us.
New business models
There are some recent innovations. In the commercial tyre sector we have seen the move to price per kilometre (ppk) contracts where the fleet manager pays a fixed monthly fee depending on the type of vehicles, distances travelled and so on. Already tyre makers are talking to the suppliers of the telematics boxes. Those are the instruments that measure speed, location distance and can help a fleet manager to minimise costs while maximising up-time for the trucks and drivers. Michelin recently purchased the biggest such company in Brazil.
Here there’s a strategy emerging: Michelin has the Michelin Solutions business; Goodyear has the FleetOnlineSolutions. Bridgestone has its Total Tyre Care programme. Each of these is designed to meet the need for fleets to outsource various services.
In business, we focus more and more on the customer and try to out-source the tasks where we cannot add value through our customer-facing activities.
These fleet management solutions aim to meet that need by providing services to the fleets. Truck tyres are only a small part of the total service package.
If the low-cost, high-performance tyres coming out of China are eroding the legacy brands’ margins, then those legacy brands have to find a way to extract more money from their customers. In the business-to-business world, that means selling more services to help make the customer’s business more efficient.
New strategies in car tyres
In the car tyre business, it’s a bit different. In Germany, in conjunction with our partner Alzura, we have already announced our Z Tyre Flat Rate program whereby customers can pay EUR4.99 per month and we’ll provide them with brand new tyres as a service and even replace them if the tyre gets a puncture. It’s a great service and meets a need and we’re currently the only tyre company in the world to offer a flat rate for tyres.
It might take a while to convert the whole market to this model, but it’s a start. In car tyres, however, I see the legacy tyre makers adopting two key defensive strategies. The first is freezing out the importers by gaining control of the wholesale and distribution and retail system. They originally tried to disrupt new quality brands from China by lobbying for new regulations such as tyre labelling but this backfired. So now they’re now trying to block market access to new entrants by using their considerable financial muscle to buy the market away. The second is controlling the marketing message and using new technology to by-pass the distributors and eventually the retailers that aren’t part of their platform.
The legacy tyre makers know that dealers in many cases receive more profit by selling one of our tyres. They know that most people who walk into a tyre store will buy the tyre recommended by the dealer. They know that long term, this is bad for their business.
Their short- to mid-term strategy is to buy up the distribution and retail companies: Bandvulc and BlackCircles have already been swallowed in the UK; Allopneus in France; Ihle, Meyer- Lissendorf and others in Germany. Following Bridgestone’s acquisition of Speedy there is barely a single independent retail chain left in France. It’s not just Europe – we saw Bridgestone bidding hard to win the Pep Boys chain in the US.
Longer-term, they want to try to change the basis of the consumer’s purchasing decision. Today the purchasing decision is often based on a combination of dealer recommendation; magazine test results as well as availability and the overall price-performance package. That works in favour of a competitive multi-brand environment and against a legacy brand monopoly.
Exploiting social media
A mid- to long-term response is an increasing online participation with social media, webstores, competitions, games, surveys and other infotainment designed to trigger mass sharing and forwarding. Legacy brands are setting up portals to inform consumers about tyres; about what to look for; magazine test results; their ‘green’ credentials and the rest. They are using games and Tweets and infotainment to build a relationship with the customer. They are watching which parts of the site are visited most and which pages contribute to the buying decision.
And then they place a big, bright ‘BUY NOW’ button that encourages the customer to hand over credit card details with no need to visit a dealer.
They believe this approach will make it more difficult for consumers to learn about the alternatives to their brands.
They want to gain control of the communication channels and the message and then to understand the fine-grained needs of the consumer and meet those needs with an outstanding service offer.
That offer includes a mobile fitment van that will visit your place of work, or a street address; it includes a time-slot booking option and it includes feedback like you get on Amazon or TripAdvisor, so that consumers are given confidence that they will get great service as well as great tyres.
If we are to respond, then we need to offer not only great products at great prices, but improve service as well.
Over the shorter term, the battleground is moving to the distribution and retail chains. I think that it will be difficult for importers to compete on that front as they are effectively removed from the distribution channels. But I am convinced that in the longer term as the battleground moves to dominate the social media and internet channels we will be able to compete more effectively and the legacy brands know this.