Tire industry needs to ask ‘What does success look like?’

There is a question I believe tire distributors should ask more often when evaluating a new supplier.

It isn’t, “What is your price?”
It isn’t, “What is my container program?”
The question is much more simple: “What does success look like to you?”

I asked that question last year during a meeting at the SEMA Show with the CEO of a large Asian tire manufacturer. This was a substantial company that had recently opened an impressive new manufacturing facility. Members from both of our teams sat around the table, working through all the expected subjects: Products, programs, pricing, volumes and opportunities.

At some point, I stopped the conversation because I wanted to understand something more fundamental about the company sitting across the table from us.

I looked directly at the CEO and asked him a simple question.

“What does success look like to you?”

There was silence.

He thought about it for what felt like a minute or two before finally answering.

“Just buy more tires.”

I remember sitting there thinking about his response.

If someone asked me that question about my own business, I could tell them in considerable detail what success looks like. I could tell them where we want to go, how we intend to get there, what we need to invest along the way, and how our customers, suppliers and team members fit into that plan.

His answer gave me a much clearer understanding of our relationship than before I asked the question.

It was refreshingly simple, but it also exposed a fundamental disconnect that I believe exists throughout parts of our industry.

For many tire manufacturers, particularly those competing in the more price sensitive tiers of our industry, the strategy is primarily focused on convincing the distributor to buy the tire. Tremendous amounts of capital are invested in factories, equipment, molds, capacity and increasingly broad product portfolios. Sales teams travel the world looking for importers and distributors. Manufacturers attend trade shows, build impressive booths, create catalogs, offer container programs and develop incentives designed to generate more purchase orders.

Then the tire arrives at the distributor’s warehouse, and the responsibility for creating demand largely changes hands.

Now the distributor has to create awareness for the brand. We have to educate our salespeople. We have to convince dealers to inventory it. We have to develop programs, promotions and incentives. We have to market the product. The dealer, in turn, has to convince consumers who may have never heard of the brand that this is a tire worth putting on their vehicle.

At some point, we should ask ourselves who is actually building the brand.

If most of a manufacturer’s marketing investment is directed toward getting me to buy its tire, rather than helping me create consumer demand for that tire, then the distributor isn’t really a partner in the manufacturer’s marketing strategy.

The distributor is the target of it.

That distinction has become increasingly important to me, because I believe our industry has traditionally placed too much emphasis on acquisition cost when making purchasing decisions.

Of course cost matters. Every dollar matters in distribution. Freight matters. Duties matter. Terms matter. Inventory turns matter. All of those things are fundamental to running a successful wholesale business.

But ultimately, I believe the most valuable metric is not simply what you can buy a tire for.

It is what you can sell it for.

A low acquisition cost has limited value if there is nothing protecting the value of the product once it reaches the market. You can negotiate aggressively and buy extremely well, but if the product is widely available through multiple channels at essentially the same price, your ability to create a meaningful return on that inventory disappears very quickly.

This is where the relationship between manufacturers and distributors becomes particularly important.

A manufacturer may ask a distributor to develop its brand within a market. The distributor commits working capital, warehouse space, sales resources, credit, delivery infrastructure and customer relationships to that effort. Over time, the distributor begins to create demand.

Then the same product starts appearing through brokers. Another wholesaler gains access to it. Smaller customers may receive pricing surprisingly close to what larger distributors are paying. The market becomes saturated with the same product, and eventually price becomes the primary differentiator.

There is another version of this problem that I believe is even more damaging.

Many manufacturers will produce essentially the same tire and put three, four or even five different brand names on it. Those brands are then sold through different importers and distributors into the same geographic market.

On paper, everyone has their own brand.
In reality, everyone is competing with versions of the same tire.

The tread pattern may be the same. The construction may be the same. The factory is the same. The positioning is similar. The only meaningful difference is the name molded onto the sidewall.

Each distributor then enters the market believing it has something to sell, only to find itself competing against several versions of essentially the same product. Inevitably, the conversation moves toward price.

One distributor lowers the price. Another responds. Another brand enters the market at a few dollars less. The manufacturer keeps producing. Containers keep moving.

Volume may increase, but value disappears.

Eventually, nobody in the distribution channel is making the return they expected. The manufacturer has succeeded in keeping production moving, but the distributors and dealers are left competing over smaller and smaller margins.

That is not brand building. It is production looking for an outlet.
This is one of the reasons I believe proprietary brands are becoming such an important part of the future of tire distribution.
But simply owning a brand does not make it valuable. Putting a name on a sidewall and controlling the purchase order is not a strategy.
What matters is the vision behind the brand.

A well-managed proprietary brand understands where it wants to go, how it intends to get there and what role each participant in the distribution chain plays in creating that success.

More importantly, the owners of that brand understand that their responsibility does not end when the distributor buys the tire.
That is actually where the work begins.
They invest in sell out.

They create associate dealer programs that give retailers a reason to support the brand. They develop consumer rebates that help dealers close the sale. They invest in digital marketing and geo fencing to create awareness in the markets where their distributors are selling. They build warranty programs that give consumers confidence. They invest in social media, content, promotions, events and product education. They give the dealer tools to sell the tire and give the consumer reasons to want it.

Most importantly, they are investing their own money alongside their distributors and dealers to build something of lasting value.
When that happens, the relationship changes completely.

The manufacturer or factory has a purpose. The brand owner has a purpose. The distributor has a purpose. The dealer has a purpose. And the consumer receives a product with a real value proposition.

Everyone has a seat at the table, and there is an opportunity for everyone at that table to be profitable.
That is the type of distribution model I believe our industry should be moving toward.

It also requires discipline.

You cannot ask a distributor to invest millions of dollars in inventory, salespeople, warehouses, delivery equipment, marketing and customer relationships and then continuously find new ways to sell around that distributor.

You cannot tell someone they are your partner while simultaneously offering essentially the same economics to customers purchasing a fraction of their volume.

And you cannot produce the same tire under five different names, sell those brands to five different companies in the same market, and then be surprised when those companies destroy each other’s margins trying to move the product.

Healthy competition is good for our industry. Undisciplined distribution is not.
There is a fundamental difference between building a market and simply filling one with product.
That is why I believe distributors need to reconsider what we are actually buying when we commit to a supplier.
We are not simply buying tires.

We are allocating capital. We are allocating warehouse space. We are allocating the attention of our sales organizations.
Most importantly, we are putting our customer relationships behind someone else’s product.

That deserves considerably more consideration than simply asking who can give us the lowest price.

We should be asking where the brand is going. We should understand how demand will be created. We should know what the supplier intends to invest in the market. We should understand the distribution strategy and whether the people controlling the brand are willing to protect the economic health of the channel.

We should ask how the dealer is going to make money.
We should ask how the distributor is going to make money.
We should ask why the consumer is eventually going to choose this tire over the dozens of alternatives.
And we should ask the person sitting across the table the simplest question of all.

“What does success look like to you?”

There will always be another factory somewhere in the world willing to sell us another tire for another dollar less. That opportunity is not difficult to find.

What is much harder to find is a company with a clear vision for a brand, a commitment to creating consumer demand, respect for its distribution partners and a strategy designed to make the entire channel successful.

Those are the brands I believe distributors should be running toward.
Buying a tire cheaply does not make it valuable. Creating a market that allows everyone involved to profitably sell that tire does.
And the best suppliers understand that success does not end when they receive our purchase order.

It begins there.

Joaquin Gonzalez Jr. is the president of Miami-based distributor Tire Group International.