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Purchase Decision Making in the Tire Industry

Anshu Sharma
Introduction to the Indian Tire Industry

Indian tire industry contributes to ~3% of the manufacturing GDP of India and ~0.5% of the total GDP of India. This certainly indicates the importance of this industry, not only to the manufacturing sector but also to the Indian economy as a whole. Driven by strong domestic demand, the Indian tire industry grew from ~ INR 30,000 Cr in 20010 to ~ INR 60,000 Cr in 2017. Notably, ~95% of this demand came from the domestic markets. The tire market is closely contested, with three players MRF, Apollo Tyres and JK Tyres accounting for ~60% of the total market share by revenue.
Sources of Demand

There are three sources of demand from the market point of view: OEM Demand, Replacement Demand and Exports. OEM demand arises from the tire fitment which happens during new vehicle assembly. Replacement demand arises out of cycles of tire replacements which happen over the life cycle of the vehicle. Indian tire market is largely replacement demand driven with revenues from replacements contributing to about 70% of the total revenues while OEMs and exports account for the balance 30% of revenues.
In terms of end-products, the tire market is dominated by Truck & Bus (T&B) tires with 55% of the total sales coming from T&B tires. Thus, it is vital for tire companies to crack the replacement market for Truck & Bus tires. The subsequent sections bring out certain key insights to help marketers design and execute winning strategies for this replacement tire market. The insights are focused around the T&B tire market; however, they can be selectively tweaked and applied for the other tire markets as well.
Key Attributes of Tire Purchase Decision

Tires are the second biggest cost element for a fleet owner after fuel, and thus play a pivotal role in driving profitability for fleet owners. As a result, key purchase attributes for decision making are centred around overall performance of the tire. Key primary attributes that buyers evaluate while making the purchase decision are: Price of the tire, Total Life of the tire in kilometres, Ruggedness, Safety & Grip, and the Fuel efficiency delivered by the tire. Key secondary attributes which impact the total life of the tire are repairability and retreadability of the tires. Chemical composition used in the manufacturing of these tires determine their degree of repairability and retreadability which extend the overall life of these tires. Some tire buyers also consider the first life of the tire as a key purchase parameter as against the total life. This parameter indicates the number of kilometres a tire can run before the treads wear-off and before it goes for its first retreading. This parameter is especially critical for fleet owners and specific applications where retreaded tires are not considered desirable.
Another interesting point for marketers to note is that most of these factors, except price, cannot be directly evaluated by the buyers at the time of purchase. Thus, the buyersโ€™ go-to sources for information to help them in decision making are one, their judgement based on brand perception, and two, the insights from external expert stakeholders on the performance levels of various tire brands.
It is interesting here to note for marketers that while brand perception of high performance can be driven by advertising and communication, appearance of the tire also plays a critical role in forming perceptions especially regarding attributes such as ruggedness, safety and grip. Customers do look at the appearance of the tire and tread patterns as an indicator for ruggedness, strength and grip. These perceptions, though possibly ill-informed in many cases, do play a critical role in customer choice.
Thus, it is important for marketers to keep these factors in mind while designing their brand communications and their customer marketing programs. We now move to the second source of information for customer decision making, insights from external expert stakeholders.
Tire Purchase Stakeholders
Before we go about designing any marketing strategy, it is of vital importance to know the key players who can influence the perception of these attributes and thus the tire purchase decision. The key stakeholders involved in the purchase are: Buyers, Tire Sellers, Drivers, Fitters, Tire Repair Mechanics, and Tire Retreaders. While the buyers and the sellers are the direct parties involved in the purchase, it is interesting to note the role of external stakeholders such as the drivers, fitters, tire repair mechanics and retreaders who can influence the tire purchase decision in different ways.
These external stakeholders assume importance primarily for two reasons. One, because they are deeply involved with the tireโ€™s usage lifecycle and can share key insights about the attribute performance, repairability and retreadability of different tire brands. Two, because these players perceivably have no direct stakes involved in the purchase, and hence the buyers find their inputs unbiased and credible as against those coming from the sellers and their partners.
Thus, it is important for tire marketers to manage these stakeholders and try and build a positive perception of their brand in the minds of these stakeholders.

Tire purchase decision is a very multi-dimensional scenario which involves diverse attribute and a diverse set of stakeholders. Missing out on any attribute or stakeholder can lead to a brand missing out in the highly competitive and perception driven market. Marketers need to roll-out periodic market research programs to refresh their understanding of these attributes and stakeholders involved and the perception they hold regarding various brands.
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