Diagnosis for a Tyre Manufacturer

I :  The client is an Indian tyre manufacturer who has been losing market share over the last 2-3 years. Please figure out the reasons here.

C : Okay, do we have any info on what is the current existing market share for our client also the competitors in the market?

I : The market share has declined from 20% to 15%. There are about 4-5 major players who command 80% of the market, the remaining is fragmented with small regional players often sourcing from China and selling in India.

C : Alright, Where do they lie in the value chain? What sort of customers do they cater to? What type of tyres are we looking at?

I :  The client manufactures and then sells the tyres to OEMs directly. They also cater to consumers directly via dealers with a pan-India presence. Currently, they manufacture tyres for 4W vehicles like economy sedans, SUVs and luxury cars.

C : Alright, what type of dealers we do business with? Are, they company owned stores, or we outsource?

I : So, we have two channels, Multibrand dealers who stock tyres from all players and Exclusive dealers, who we partner with, and they stock only our tyres.

C : Do we have a split of sales across these two channels?

I :  Multibrand: 60% and Exclusive: 40% of the overall volumes.

C : All of this is useful. I would like to start off by understanding, is the decline attributable to our growth not being in sync with the overall industry or we are losing out on our existing market share. 

I : Well, you can say that our competitors are eating our existing market share. 

C : Are we able to meet the existing demand?

I :  We don’t have issues with the supply side. You can focus on demand decreasing. What could be the possible reasons?

C : The industry is growing at a healthy rate. I would want to hypothesise here that the decline can be attributed to our sales via dealers.

I : Yes, indeed our sales via dealers have declined.

C : Is the decline for all the tyres we manufacture or it's specific to some?

I :  We are observing this in economy vehicles, but our premium segment has grown by 5%.

C : Since, it's an issue specific to us, I would want to hypothesise, the underlying reason is internal to our client. I would like to approach this by looking at four perspectives, Awareness, Affordability, Availability, and User Experience.

I : Sure, lets dive into these one by one.

C : Awareness: Here I want to look at the sales promotion and trade promotion activities we do. Things like channel incentives, sales force effectiveness also any positive or negative publicity we have seen by our competitors.

I :  We do see aggressive marketing efforts by few challenger brands, but we don't look at it as an issue. Our salesforce have been effective.

C : That means we have changed our channel incentives. Is that the case here?

I : Yes, about 2 years back we changed our dealer margins and made it more lucrative for exclusive stores at the cost of multi-brand dealers.

C : Since the sales are skewed towards multibrand stores for economy vehicles, this could have back-fired as the multibrand dealers will push our competitors tyres over ours.

I : This is exactly what has been happening. Can you figure out why though?

C : Alright, we see the decline for tyres is concentrated to economic vehicles and that too from multi-brand stores. As an end consumer, I have personally always preferred multi-brand stores for tyre changes, cause the coverage of these stores are and I end up getting better deals. If I had a luxury vehicle, then maybe I might I have prioritised company-backed/authorised exclusive dealerships.

I : Precisely, this is what is happening. So, our client wants to position themselves as a premium player, hence the tie-up with exclusive dealers, and that is why our premium segment sales have grown.

C : Makes sense, also from a user perspective the frequency of tyre changes is very low across the life of a vehicle.

I : Yes, you are right. We can close it here.