If there is one theme that runs through the articles I’ve written for Modern Tire Dealer over the past year, it is this: change.
I’ve written about the speed of change, the changes in the private brand tire business, the changes in the number of SKUs, and the changes in trends from print media to digital media. I’ve written about the changes necessary to be prepared at the sales counter and how the Internet has changed the way consumers research tires before determining who they will call or visit.
Most of these changes have been in process and are accelerating, gaining momentum, and altering perceptions and business behavior. I believe I see something on the horizon that is a game changer, and I see major rubber companies positioning themselves to remain competitive and improve their margins where possible.
Google, Yahoo, Bing, Yelp, Facebook and a vast variety of other “information” providers are changing everything, and the outcome will be dramatic. I want to know what you think the net outcome will be. Will this flatten margins or improve margins? Please follow my logic and tell me what you think.
More margin? Less margin?
I was reading an interesting article online last week about Michelin tires, Bayer aspirin and Fiji water. The short article was based on this premise: How can Michelin, Bayer and Fiji continue to sell and “market for margin”?
One question in the article was: How can Fiji charge twice as much for a bottle of water? Isn’t water, water? Another was how can Michelin command a premium price for its products when other products offer similar features, benefits and performance for less money?
These are good questions and deserve a closer look. I believe that our new digital age will challenge long-held perceptions regarding quality and brand identity. Will the “margin-driven” brands be permitted to charge their premium price and reap the benefits of increased margins?
For years I worked and was involved at the retail tire sales counter and experienced firsthand the “power of perception.” Almost daily, a customer would request replacement premium tires that had come as OE on their vehicle. Usually, after visiting the car and asking a few questions, the customer would say something like this: “I got over 80,000 miles on my Brand X tires from the factory....” Along with their perception of Brand X quality, they now had experienced the quality and service firsthand.
A little better than half the time I was able to convince the customer that I had a tire that was “just as good as their Brand X” and would meet their expectations. Nearly half would stick with their perception and buy the Brand X tires. Some customers were actually offended that I would dare challenge their perception and recommend what they perceived as an inferior product.
My question is this: In our information age, will “margin-driven” brands feel downward pressure on their margins, and will they sustain current levels or improve margins?
There are several ways to look at the margin issue. With more information readily available online, will consumers continue to perceive premium tires — such as Michelin — as brands worth paying more for, or will they discover that perhaps there are satisfactory options that meet their needs at lower prices?
Case in point: You’re at Walmart buying mouthwash, and there is the “leading brand” for $4.99. Alongside is the Walmart brand with the same shaped bottle, the same fluid ounces, the same color, and the same ingredients for $2.99. Consumers are being offered choices such as this continually. Consumers are being reprogrammed, offered options — good options, for less money. It’s less complicated to find and understand where and how to save.
Study after study shows that consumers, though loyal to certain brands, are increasingly open to good “value-driven” options. The theme of this month’s article is “perceived value.” Perceived value has always been, and will continue, to be a determining factor when consumers decide what products and services they will buy and where they will buy them.
Another case in point: Several years ago the Buick brand of automobiles was considered by many to be an “old man’s car company,” and a brand certain to become extinct. Today, it’s one of America’s fastest growing brands, a leader in the full-size, crossover vehicle category.
Surveys show that as high as 90% of new car shoppers research online. When searching, guess what they found — that Buick has great new products and offers “value.” In their research, their perception of Buick and their “perceived value” changed enough to buy the product.
Simply stated, perceptions are based in reality. Buick changed and so did perceptions.
It’s the information that changed the perception. It’s the Internet that makes the information easily available.
[PAGEBREAK]Information challenges long-held perceptions and changes the net outcome. It helps consumers answer their most important questions, their value questions, their what-and-where questions.
To my point, I Googled “tires.” In less than half a second, there were 229,000 options to review. Granted, this was overkill, but on the first page alone was more than enough information to make an informed decision. The first page was loaded with a variety of information, maps, rebates, tire manufacturers, national retailers, regional retailers and local independent retailers. It had pictures and prices and Web sites and reviews.
I selected one of the 48 possible options on page one. One click later and I was on a page with a variety of competitors, thousands of reviews including test results, shipping costs, side-by-side price comparisons, and more information than most tire consumers can digest. One “e-tailer” had more than 5,000 reviews. Most of the reviews were very positive and, if read, could certainly affect the consumer’s value perception.
I’m not sure if all this information is making tire shopping/research simpler or more complex — it’s probably both. I read a survey reported by Forbes magazine indicating that two-thirds of the people surveyed say they are noticing “tech overload’ when searching for information online. Available information has grown by 50% since last year. Obviously, my simple research on Google indicates there’s more information available than is necessary to make a tire-buying decision. There is plenty of information to challenge or change consumers’ perceptions.
As if all this information is not enough, certain social medias now make possible additional information that impacts perceptions. Yelp, a social media site, assists in local search capabilities and allows users to “rate” local businesses. In short, with Yelp’s five-point rating system, customers can “review” the local business and rate their satisfaction/dissatisfaction, creating a de-facto reputation system. Now, potential customers can read reviews from previous customers before deciding to visit a local retailer in their area. If you’re not familiar, you may want to check www.yelp.com.
What’s different? Everything is different. It’s driven by information, and that information is quickly changing perceptions and buying decisions.
The value equation and value perceptions are changing and becoming more complicated as a result of the explosion of available information.
Of course, every product or service has a price/value equation. The equation is some factor of the product or service’s function, features and benefits, attributes, image, perception and price. Consumers “rate” and “re-rate” businesses continually with every interaction, every purchase, every product. Customer satisfaction and customer loyalty is always in play. Every detail matters. Every interaction matters. Every short-and long-term perception matters.
Everything is constantly in play, all day, every day!
Consider this: Usually the higher the perception, the higher the price; the higher the price, the higher the profit; the higher the profit, the more ability or flexibility to offer additional value that reinforces the perception, thereby strengthening the perception, the margin, the profitability and the brand.
This cycle is healthy and supports a business/product/service with continued customer loyalty that ensures a sustainable enterprise.
It’s not accidental that Michelin, Bayer and Fiji are able to command a higher price and collect extra margin. Margin requires forethought, planning, execution, marketing and, of course, a quality product with a great reputation.
My closing thoughts are these: Michelin is a high-quality product; it enjoys a high-quality reputation and commands a price commensurate with its quality and reputation. It has earned this reputation during its long history and, therefore, the value equation Michelin adheres to currently works.
One thing I think I know — there is a new reality facing all of us, manufacturers, distributors, retailers, e-tailers and consumers alike. Everything is in play every day. Perceptions are changing rapidly. Access to information is driving the changes. All perceptions are on the table with the consumer. To compete, real value is critical to success.
Hyundai came to the U.S. a number of years ago. Their reputation for quality and design was poor. Things improved at Hyundai and the word got out. Quality improved. Service improved. Warranties improved. Sales improved. Now the perception has changed and it goes something like this: It’s a great car for the money; it even looks and drives like a Mercedes Benz for thousands and thousands of dollars less. I guess that perception is reality, or reality is a perception of reality.
Using Michelin as an example, do you think the access to additional information by consumers will erode the brand’s margin or enhance it? Every day millions of consumers search and research for value online, and the information they gather will change their perceptions. What’s it going to be?
Wayne Williams is president of ExSell Marketing Inc., a “counter intelligence” firm based in La Habra, Calif. He can be reached at [email protected].