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CASE STUDY The Case Of The Commodity Trap Continued.. THE DISCUSSION Y.S. JOSHI Yasuda's decision not to renew its contract with Roadmaster Tyres should be seen more as an opportunity than as a threat. It should enable Roadmaster Tyres to consolidate its position in the marketplace through the more effective utilisation of capacity which would, otherwise, have been tied up in unremunerative oem sales. The need is to strike a balance between a broader product-range and the right customer-mix. And it would appear, quite logically, that such a balance can only be struck by the company entering the passenger-car tyres replacement market. This customer is not only price-sensitive, but also looks for value and convenience at the point of purchase. He wants service support since the act of purchasing a tyre has an emotional undertone for the car-owner. Incidentally, the dynamics of the marketplace are changing and, sooner rather than later, all businesses will transit to a position where they will be selling solutions to the customer rather than products. Roadmaster Tyres cannot but take note of this change. Even the concept of the tyre-shop has changed over time. Aligning itself to the new needs of the customer, the One Stop Tyre Shop should be capable of providing the buyer a comfortable experience while dealing with the company-be it for new tyres, accessories, repairs, or retreads. A more fundamental change has taken place in the attitude of the second-generation tyre-dealer, which is evident at 2 levels. The New Age dealer sells a comprehensive value-package to the customer. And he remains loyal to a single manufacturer. All this obviously means that Roadmaster Tyres will have to reduce its dependence on the OEM market-and, of course, on any single car-maker-and enter the retail market on its own steam. At a generic level, the Suchakra concept holds good across the board. So, Roadmaster Tyres should extend its loyalty programme to the passenger-car tyres market. The first step is to build a comprehensive database as part of an analysis of the customer's preferences and psyche. This will help in defining and refining the marketing strategy. I feel there is a need to focus on smaller segments rather than the market at large. Once the database is in place, Roadmaster Tyres could enter niche markets by selling solutions in terms of mileage, fuel-consumption, and comfort. One route would be to tie up with one of the technological leaders in the field of passenger-car tyres. Even M&A can be considered if such an option exists. How should Roadmaster Tyres influence the New Age customer for passenger-car tyres? Through the enhanced visibility of the product, which can take on forms like promotions, advertising, and importantly, celebrity endorsements. And by capitalising on the company's network of dealers, garage-owners, and mechanics. Roadshows-and, why not?, free health-camps for older customers-can strengthen the relationship-building process. Tying up with manufacturers of car-accessories-like auto-electrical products, interiors, and batteries-by cross-subsidising their purchases could also get Roadmaster Tyres into a win-win situation by enhancing value to the customer. Of course, having established itself in the truck tyres market, Roadmaster Tyres should continue to reap the benefits by spending a minimum of resources, but never losing sight of the importance of the relationships it has so assiduously nurtured. There are basic differences between the truck tyres market and the passenger-car tyres markets, which call for paradigm shifts at various levels of the company. So, the quality of the existing network will have to be reinforced through training and counselling. A new mindset will be required to understand the behavioural patterns of the new customer. One of the immediate threats to Roadmaster Tyres' entry into the passenger-car tyres market is immediate retaliation by the established players through price-cutting. Roadmaster Tyres should be prepared to bleed for some time, perhaps even till the product completes the first stage of its life-cycle. In the interim, the truck tyres business will have to act as a cash-cow to sustain the new product-line. Since a successful launch could also have repercussions on Roadmaster Tyres' capacity, growth-patterns need to be monitored so that Bakshi can mobilise the resources that may be required for a possible expansion in the medium term. Finally, I think Bakshi should recruit people with entrepreneurial skills from outside the company. They should come from as diverse specialities as possible so that, together, they can drive the paradigm shift that Roadmaster Tyres needs at every level to survive. K. SWETHANARAYAN Let me first place Roadmaster Tyres' current business model, in terms of both revenue and marketshares, in perspective. Roadmaster Tyres has established a formidable presence in the replacement market for truck tyres. Thanks to Suchakra-an innovative scheme, no doubt-the company has grown its share in this segment from 12 to 21 per cent within a span of 2 years. What is noteworthy is that the revenues from this account constitutes 75 per cent of the company's turnover. Besides, the margins are between 10 and 12 per cent. These are impressive figures. Given the fact that Roadmaster Tyres has firmly locked into the customer in the truck tyres segment-and will, therefore, not only consolidate, but also build on its presence there in future-the importance of this market for the company is undeniable. On the other hand, the passenger-car tyres segment constitutes only 10 per cent of the company's revenues. As much as 80 per cent of its capacity was tied up with one large customer, Yasuda, which controls 70 per cent of the passenger-cars market.Since Yasuda has just decided to terminate its contract with Roadmaster Tyres, the dilemma faced by Bakshi is three-fold:
As the company's CEO, Bakshi's mandate is to enhance shareholder value. This can be best-achieved by focusing on a profitable revenues-growth business model. And the only one that will work for the company is a model that builds on its strengths in the replacement market for truck tyres. This is where Roadmaster Tyres has a future. Not only does this segment generate the bulk of its revenues, it also offers the best margins. Having successfully built up a marketing programme, and experienced breakthroughs in relationship marketing here, Bakshi would do well to build on it instead of frittering away his resources on unremunerative and unprofitable markets. As far as the passenger-car tyres segment is concerned, the termination of the contract by Yasuda has led to an immediate problem: low capacity-utilisation. And Roadmaster Tyres' managers do not seem to be too happy about dealing with the OEM market in future. This is hardly surprising; notwithstanding the avowed emphasis on partnership programmes, the fact is that the power equations between OEMs and vendors are almost always tilted in favour of the former. This does not, however, mean that Roadmaster Tyres should exit from the OEM market. But Bakshi should look at OEM accounts only in terms of putting his surplus capacity to good use. The real thrust, as far as the passenger-car tyres segment is concerned, should be on going retail. Bakshi should immediately put in place a programme that will facilitate the transformation of his company into a retail business. For one, Roadmaster Tyres should go for franchises on exclusive dealerships. It should invest in dealer-development, infrastructural development, and brand-building. It is important that Roadmaster Tyres should develop internal structures in terms of organisational and operational processes to do so. A number of its internal processes will need to be reengineered in order to get the customer focus right. Building new competencies in retailing passenger-car tyres is fundamental to developing new mindsets. For instance, Roadmaster Tyres should tie up the product-development process, which must absorb inputs from the retail customer to develop viable product-and-value propositions. I foresee a gradual disinvestment from the OEM business by Roadmaster Tyres, which could then be deprived of the benefits of associating with the automobile majors. That's why Bakshi and his team have to work to strengthen their internal R&D capabilities, which must have strong linkages with the requirements of the customer. A change from a traditional OEM supplier into a retail customer marketer cannot be automatic. While any migration towards the retail end of the passenger-car tyres market will take at least a year, Roadmaster Tyres should start putting in place the processes that can facilitate this migration right away. G. HOSANGADY At the outset, Roadmaster Tyres must re-examine the essence of its channel-management, and re-assess the basis of its advantages in customer relations. It should also move out of the traditional mindset of commodity selling. I think the launch of Suchakra has already marked a beginning in that direction. One learning that the success of Suchakra has brought home is that, contrary to popular belief, the purchase of a truck tyre does involve emotive factors. And this is all the more true of a passenger-car tyre. In fact, initiatives similar to Roadmaster Tyres' pioneering efforts in customer-retention are becoming increasingly relevant in a number of industries today. Every commodity is gradually morphing towards customisation in an environment in which differentiation is emerging as the key competitive weapon for success. Viewed in that light, it is difficult to share the Management Committee's apprehensions about the difficulties in segmenting the passenger-car tyres market. I think Roadmaster Tyres is under-estimating the savviness of the Indian customer; the range of attributes prevalent in the developed economies is equally applicable to the Indian environment. Safety, durability, aesthetics are all influences on buying-decisions in the case of tyres. So, they could well be the bases of segmentation in a market which, all said and done, still plays the numbers game. One of the tasks that Bakshi should undertake is to integrate Roadmaster Tyres' infotech systems with its long-term goals. This will help him gain a grip over 2 issues that he will have to address in future: managing sales channels, and understanding what drives the customer. Briefly, Bakshi should keep the following process in mind:
True, the franchisee route, by its very nature, is cost-effective, and carries little risk. But I still feel that the expansion of Roadmaster Tyres' chain should be piecemeal and step-by-step. For instance, it is only when one outlet has become profitable that Roadmaster Tyres should set up the next one. Such a strategy of expansion alone can ensure a focus on both the bottomline and marketshare. Otherwise, an increase in marketshare could come at the cost of Roadmaster Tyres' margins, which is not desirable. Clearly, Roadmaster Tyres should enter the passenger-car tyres replacement market. Given the roadmap-and its success in the truck tyres market-there is little reason why it cannot replicate its success in this segment too. R.L. KUMAR Roadmaster Tyres is faced with the immediate problem of one of its customer-segments drying up at short notice. The bright side of this situation is that it will affect only 10 per cent of its sales, and that too, in the case of a product which earned it only low profit-margins of 2 per cent. Still, the need of the hour is to formulate a strategy that can widen Roadmaster Tyres' customer-base so that the company is on a stronger wicket in future. One of the options before Bakshi and his team is to explore the possibility of selling to the other passenger-car OEMs. However, if Yasuda has a marketshare of 70 per cent, what is left is just 30 per cent. And even this is fragmented among a number of players. This is an important point to bear in mind. The other option is to grow in the truck tyres replacement market. But Roadmaster Tyres has already achieved impressive gains in this segment: from 12 to 21 per cent in the last 2 years. It is obvious that any further growth in this market will only come at a slower pace. I, therefore, infer that the passenger-car replacement market is one of the better options open to Roadmaster Tyres. The after market for any automotive product is far in excess of the OEM market, and is determined by the population of vehicles and the frequency of replacement. If the company has to maintain the growth that it has achieved in the last 5 years, it has to look at a segment that has tremendous potential. And the replacement market for passenger-car tyres is one such. Nor can Roadmaster Tyres be accused of having a commodity mindset. Its success in the truck tyres replacement market proves that it can execute tactical marketing schemes. Having said that, I must also mention that there appears to be an absence of strategic thinking among the members of the Management Committee. Joseph Raj, the finance head, for instance, is only looking at absolute margins in a particular segment. Most of the others are talking about immediate profits without a long-term plan. The positive side, however, is that there is an openness and a willingness among Roadmaster Tyres' managers to listen and to share. Bakshi's immediate task, therefore, is to organise brainstorming sessions among small groups of his operating executives right down the line. These sessions should be built around three sets of questions. One, customer-centric questions that establish the customer's identity, and determine his specific needs as well as the elements of the marketing-mix that he will find relevant. Two, market- related questions that seek to assess market- and competitive-dynamics, and find out how easy----- or how hard----- it is to enter the market for passenger-car tyres. And three, marketing-mix relates questions that address issues related to the 4Ps. Based on the available information, the ideas thrown up during the brainstorming-and through intuition-Bakshi can draw up a hypothesis. But strategic decisions can only be based on hard data. Therefore, the next step should be to commission a survey, whose objectives are based on the questions that are raised at the brainstorming sessions. Only the findings of this survey can dictate Roadmaster Tyres' next move. In conclusion, I would only say: Roll Forward, Roadmaster Tyres. This small setback is actually a great opportunity! |
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