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What is a Tier Two tire? Tier Three?

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What is a Tier Two tire? Tier Three?

Be honest. When you hear the phrase “Tier One tire,” which brands come to mind? The answer is easy. Goodyear, Michelin and Bridgestone are the anchor brands on which most dealers base their product screens.

There are a number of reasons why they are considered Tier One tires. They have the most market share, particularly in the United States. They are the flagship brands of the three largest, by far, tire manufacturers in the world. They generally command the highest price, and are backed by the most advertising dollars. And they are all original equipment brands, representing close to 65% of the OE market.

They often are considered the “best” tire in the good-better-best selling strategy. As the “best” tire, quality is implied in the eyes of the consumer. Therefore, a higher price is warranted.

Then what is a Tier Two tire? That question is much harder to answer.

Continental AG is the fourth largest tire manufacturer in the world. The Continental brand has significant OE market share. And it may not be priced as high as a Michelin (what brand is?), but often matches Tier One pricing. Continental certainly markets it like a Tier One tire, which it is in Germany.

Based on the previous criteria, however, it falls short of the Big Three. Continental AG is more than $10 billion in tire sales behind third place Goodyear Tire & Rubber Co. In addition, the Continental brand has less market share in the U.S. than the company’s associate brand, General. If Continental is a Tier Two tire, does that necessarily make General a Tier Three tire?

General competes against Firestone, which is the main associate brand of Bridgestone. Wouldn’t that make General a Tier Two tire in the eyes of the marketplace?

You see the dilemma, and why it is so hard to define tiers. I would think most major brands not calling themselves Goodyear, Michelin and Bridgestone would grudgingly accept being classified as Tier Two tires, and I would tend to agree.

It is also hard to determine how many tiers there are. When a tire company places its brand “in the middle of Tier Two,” isn’t it really creating tiers within tiers? Maybe tiers should be determined by price point alone.

Tiers were a point of contention in 2009 when the United Steelworkers petitioned the International Trade Commission asking for quotas on Chinese consumer tire imports. In response to the petition, the American Coalition for Free Trade in Tires said tiers do not correspond to performance, but to price and profit margin. The coalition said there were three tiers, and defined them as follows.

1. Tier One is made up of the major tire companies’ premium brands. “They carry the highest price tags and have the highest profit margins for the manufacturers.” Examples: Bridgestone, Goodyear and Michelin.

2. Tier Two is made up of the tire companies’ mid-market brands. “The marketing effort for these tires is not as extensive as for Tier One tires.” Examples: Firestone, Dunlop, BFGoodrich, Continental, Yokohama and Toyo.

3. Tier Three is made up of “value” brand tires. “These tires are marketed to consumers who are more concerned with price than a brand name.” They also have the lowest profit margins. Examples: GT Radial, Runway, Primewell, Douglas and Riken.

I would guess the coalition placed all private brand tires in the third tier.

Personally, I see tire marketing in the real world as more of a four-, maybe even five-tier system based on price points. For example, where would you put low-cost Chinese imports? The bottom of Tier Three? In their own tier? There are just too many markets within markets to define tiers in a hard and fast way. And geography also plays a role in tier development. Ultimately, it’s up to you to determine blanket tiers, and, subsequently, tier market share.

There is one factor I haven’t addressed that may be the biggest factor in determining a tier: markup. I’ll leave the last words to my friend, the late Jerry White of White Tire Supply in Beaumont, Texas, who once sent me an email on the topic based on a blog of mine.

“Ulrich, you are full of prunes. We find that the percentage markup on Michelin and Bridgestone is much less than Tier Two brands, and the markup on Chinese imports is the best of all.

“We find that between Discount Tire, NTB, and Sam’s Club, the profit margin on the first two is almost non-existent. Some high-end car dealers are also getting very aggressive with their pricing.”    ■

If you have any questions or comments, please email me at bob.ulrich@bobit.com.

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