Reinvent Your Business, Not Your Wheels

Everyone knows the tire business is dollar driven. It’s full of customers looking to shod their vehicles with the cheapest generic brand they can find, or haggle you for. The rare non-price driven client will be worth your while, but most will end up just rolling their balding tires on down to Costco anyway. Conversely, the price of tires isn’t going to fall anytime soon, as is evidenced by some research from Frost and Sullivan.

“With the tire aftermarket participants having to comply with the TREAD Act (in the U. S.), manufacturing costs have increased, on top of the fact that raw material prices such as rubber and petroleum have skyrocketed,” says Frost & Sullivan Research Analyst Kyu-min Oh. “This all results in price increases for the end-user.”

With oil prices at a historical peak and the situation in the Middle East being so unstable, oil prices will not be coming down anytime soon. With crude oil being one of the important materials used in manufacturing a tire, tire prices will increase steadily.

“Rising material and manufacturing costs force price increases throughout the distribution channel,” says Oh.

In the end, the situation is blurry. On one hand, service providers are dealing with rising costs, while at the same time dealing with what is said to be an increasingly price conscious public.

What’s more, the reality of the price-sensitive tire business is a difficult one to grasp amidst general optimism as to the benefits of customer education, preventative maintenance programs and the other sorts of image changing campaigns popular with the industry’s gurus.

However, the research on the matter is unequivocal, and while some segments of the independent service business can rest assured that price is not the primary decision maker when it comes to consumer purchase decisions, those in the tire market have no such luxury. According to a report from J. D. Power and Associates, price is absolutely the number one motivation factor when it comes to the overall purchase decision, as demonstrated by the graph on the next page. However, to leave the analysis at that would be to really miss the point as it pertains to the independent service provider and tire specialist.

As can clearly be noted by the chart, and was mentioned previously, cost indeed represents the number one driver when it comes to consumer purchase decisions. With 73 per cent of respondents mentioning it, and a full 38 per cent citing it as the number one factor, there is no denying the prevalence of the shopper looking to get out on the cheap. However, what should also be noted is that if you were to add up the remaining number one answers — items like high quality service, previous good experience and word-of-mouth — the total would significantly exceed that of price. So while cost remains a major steeping stone, the customer who is looking for the softer side of the sales game is certainly out there.

More importantly for the independent and the so called tire specialist, is the second chart, showing where consumers have chosen to purchase their tires. If we combine the information given too us in these two graphs, we can reach some very telling, and extremely vital conclusions, which should ultimately affect how you deal with your tire clients.

According to the chart, 25 per cent of respondents purchased their tires at a mass merchant. It is no secret to anyone in or out of the industry that these businesses offer the lowest price on virtually everything, including tires. Seeing as 38 per cent of customers rank price as their number one criteria, it is pretty safe to assume then, that the vast majority of that 38 per cent, make up the lions share of the mass merchants overall tire business. In short, the straggling bargain hunters that wander into a tire specialist are certainly not the majority, and are in fact, a very small minority, according to the research.

As an independent service provider, this fact has some serious implications for you. As a general rule, while the bargain conscious shopper may not be terribly savvy when it comes to some broader tire know-how, you can never discount their ability to buy the least expensive product, or more to the point, know where that cheap product can be found. As such, if a client walks into your facility, you should already know a thing or two about their personality and likely purchase habits.

According to the data, 11 per cent of respondents used the independent service channel for their tire purchases. If you’re lucky enough to have someone from that cohort in your shop, you have to be aware of the fact that they know full well, down at the local box store, they can buy your product for less, and yet here they stand in your shop. Despite being fully aware that it will cost them more, they have chosen your business because it offers (or it should offer) top-notch service and a pleasant customer experience. In short it offers value.

So moving forward, don’t get caught up in the myth that all tire customers are price driven. While the majority are, the one’s standing at your counter are most certainly not, so stop treating them that way.

A Price Point Case Study

Many independents have fallen into the trap of competition based on price. Despite the research which was discussed above, they remain convinced that their customers want the lowest price no matter what, and are unwilling to acknowledge the service side of the value proposition. As a result, some have started offering economy-priced tires along side their usual offerings. What some fail to realize, is that not all tire distributors have the ability to back-up the products they provide, particularly if they are merely acting as a North American sales agent for a separate international entity. It is that sort of practice that has, in some automotive sectors, caused some of the same corporate recall disasters which have been suffered recently by massive multinationals like Colgate.

A highly relevant case out of the United States pointedly and tragically illustrates the dangers of poor product research. A company out of New Jersey which was involved in importing Chinese- made tires and then rebranding them for domestic sale (Foreign Tire Sales) has been told to recall some 450,000 tires after they began experiencing tread separation problems. According to preliminary reports, it would appear as though the manufacturing company in China unilaterally decided to cut back on, and in some cases stop using, the appropriate gum strips which are critical in holding the tread in place. As a result of the ordered recall, execs with the importer have indicated that they will have no choice to declare bankruptcy, as they simply can’t afford the mandatory recall.

While many shop owners feel as though they are not significantly impacted by the recent spate of recalls, what many don’t appreciate is that like it or not, you are intimately associated with the products you sell, and in some instances, can be severely affected legally and financially. In end, the moral of this story appears to be: know your suppliers, know your brands, and if a discount tire seems like too low a price-point to be true, it probably is. Independent service providers have long stood on reputation, so why risk tarnishing that just so you can sell a low margin product, which the research has shown your clients aren’t looking for anyway?