Strategic positioning: Dealers say private and associate brands, when marketed correctly, can generate big bucks. But pricing and customer perception still pose challenges
Almost five years after the Firestone recall, tiremakers continue to focus on major label tires while putting less emphasis on private and associate brands. They aren't the only ones.
American Tire Distributors Inc. (ATD), for instance, recently disclosed plans to steer customers from private and associate labels to flag brands, which ATD officials say "provide us with higher profit per tire."
According to Modern Tire Dealer statistics, major brands increased their share of the replacement passenger tire market at the expense of both private and associate brands in 2004. The six largest domestic private brand marketers -- TBC Corp., Treadways Corp., Hercules Tire & Rubber Co., Del-Nat Tire Corp., ATD and SURE Tire Co. - accounted for 18.5% of that segment with their private and exclusive brands, down from 19.5% the previous year.
Mark Shumaker, vice president of Shumaker Tire Co. Inc., a single-outlet dealership in Golden, Mo., says the push toward flag brands is nothing new.
"The majors have always dictated that there is value in flag brand tires by virtue of (the tires) being flag brands. But I don't believe that."
Credibility is king
Shumaker Tire sells Eldorado, a private brand marketed through Treadways Corp., and Aurora, an associate brand that's built by Hankook Tire Co.
Shumaker says he and his sales staff can direct customers toward what they want to sell. "A lot of them go with what we recommend.
"People come in and ask, 'What's Aurora?' and I tell them it's made by Hankook, and that's good enough for them. They believe me because I shoot straight with them.
"It goes back to people believing in what you tell them."
Not all customers are easy to influence, he says. "There are people who are major brand buyers and wouldn't even consider a private label."
Clients in this category tend to only purchase new cars and usually settle for nothing less than exact OE replacements when it's time to swap out their tires.
But even the affluent aren't immune to sticker shock. Shumaker says some people will come in and specifically ask for a Michelin or a Goodyear and then change their minds when they hear the price.
Shumaker reports his dealership sells a size 225/60R16 Eldorado Legend for $80, while a same-size Michelin in his market might go for $135.
"I have (major label) products and Eldorado products sitting side-by-side."
Shumaker Tire sells more private and associate brand tires now than five years ago, he says. A lot of that has to do with the proliferation of private and associate brand SKUs. "There are more sizes and more designs, and by virtue of that, you're going to increase sales.
"Private and associate labels aren't for everyone, but they're a big part of our business."
Something for everyone
"I think the 'flight to major brands' didn't quite come off the way the majors thought," says Mark Rhodes, president of Cape Girardeau, Mo.-based Plaza Tire Service Inc.
The 41-store dealership sells SURE Tire's Summit private brand, plus Bridgestone Firestone North American Tire LLC's Dayton associate brand. (It primarily wholesales Summit and sells Dayton at both the retail and wholesale levels.)
"A high percentage of customers buy what we recommend at the counter."
Rhodes concedes that more customers are familiar with major label tires (Plaza also sells Bridgestone, Firestone, Pirelli and Yokohama products). However, the big names comprise only 40% of his overall mix.
"There's a home for each brand in our marketing plan," he says. "There's a customer for each brand. But we probably make more money on our private and associate brands at the retail counter."
Plaza Tire started selling Dayton 30 years ago. "We were Dayton for a long, long time before we had a lot of major brands. We marketed it like a major brand."
The company began ramping up its major brand involvement in the late-1990s.
“Variety is important to the customer," he says. The company added Summit to its line-up two years ago.
Plaza Tire had an excellent year in 2004, according to Rhodes, and Summit and Dayton played key roles.
He says the success of a private or associate brand boils down to how it is used. "You take them under your wing and use them as your name, your brand -- to be synonymous with that name in your market."
Pricing and perceptions>
Clarksburg, W.Va.-based Wholesale Tire Inc. sells nothing but private brand tires. The dealership -- which has four retail stores and three distribution centers -- started selling the Remington brand 45 years ago. It also carries Hercules and Multi-Mile products.
Brand positioning can be tricky, according to Wholesale Tire Vice President Bill Wymer. "We have other private brand dealers in our markets, so we have to be careful. We try to keep our tires at a reduced price but we can't get too high in price."
Downward pricing pressure exerted by major label tires makes that difficult, he says. "The gap between the pricing of major and private brands has narrowed to the point where it's tough to compete against the major brands.
"We're finding instances where major brands are selling cheaper than private brands. It's a real problem."
Wymer believes the profits that tire manufacturers reap from building and distributing private brand tires "are being used to subsidize the price reduction of major brands. So, in essence, our own success is killing us. We're paying for their price reductions!"
There used to be a perception among Wholesale Tire's retail customers that private brands did not match major brands in terms of quality. "But I think people are becoming more knowledgeable. They know Remington is made by Goodyear and Hercules is made by Cooper. They recognize those names as manufacturers. And at that point, they begin to think, 'Could there really be that much of a difference? Are we paying for the blimp? Are we paying for the Super Bowl ads? This is probably the same tire.'"
Wholesale Tire Sales Manager Bob Currey concedes that some customers will always buy major brand tires. "But there are those who say, 'I can get a better buy with a private brand.' The quality is parallel."
Wymer and Currey say private brands can be used to capture younger customers.
"There are a lot of younger people who buy these newer cars that have expensive tire and wheel packages," says Wymer. "Then when they go to replace them, they get sticker shock. They don't have the money to put $1,000 into tires. They're looking for an alternate tire of the same quality at a reduced price.
"A lot of them are up-and-coming people. They think, 'I may not have been able to afford the Goodyear when I was 25, but I bought that Remington, which was just as good.' So as they climb the ladder, they're going to stay with Remington.'"