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Marketing Strategy of Cooper Tire & Rubber Company -
December 16th, 2010
Cooper Tire & Rubber Company (NYSE: CTB) is a United States based company that specializes in the design, manufacture, marketing and sales of replacementautomobiles and truck tires, and subsidiaries that specialize in medium truck, motorcycle and racing tires. With headquarters in Findlay, Ohio, Cooper Tire has 60 manufacturing, sales, distribution, technical and design facilities within its family of companies located around the world.
Cooper also owns the UK Avon Tyres brand, which also produces tires for motorcycles, road cars, and for motor racing.
Its slogan is "The tire with two names....the company and the man who built it."
Sales: $1.6 billion (1996)
Stock Exchanges: Chicago New York Pittsburgh
SICs: 3011 Tires & Inner Tubes; 3069 Fabricated Rubber Products, Not Elsewhere Classified; 3052 Rubber Plastics Hose & Belting; 3714 Motor Vehicle Parts & Accessories; 3061 Mechanical Rubber Goods
Cooper's greatest strength is its wide customer and market base. In tires, we maintain a healthy balance between house brands, which we market to a loyal 1,300 member independent dealer network, and private label customers such as Sears Roebuck and Co., Pep Boys and Winston Tires. In engineered rubber products, we serve virtually every light vehicle manufacturer in North America. In fact, our products were found on all of the top ten selling vehicles in the U.S. We're also expanding internationally, where we see significant opportunity to capitalize on the growing demand for American-made tires and engineered parts. Another key strength is our dedicated, high-caliber employee team. They are continually working to expand our production capabilities, improve productivity and increase manufacturing efficiencies. These are the bases for our position as a competitive, low-cost producer. Finally, Cooper has a proven long-term track record, strong operating cash flows, an enviable balance sheet and a rigorously followed capital investment policy. When you put it all together, that's what has--and will--continue to drive our success.
America's fourth largest tire manufacturer, Cooper Tire & Rubber Company ranks among the world's top ten tiremakers and is one of only two independent tire manufacturers in the United States. The company has developed a niche market within a huge commodity by concentrating on the manufacture of replacement tires. Its products are marketed through independent dealers and distributors under four brands, Cooper, Mastercraft, Starfire, and, since March 1997, Cooper-Avon. The company also makes tires for several private label marketers.
Cooper surpassed $1 billion annual sales for the first time in 1991, and although it is one of the smaller major tire companies, its earnings have led the industry: the company has paid dividends every year since 1950 and has increased the dividend annually since 1980. Although passenger car and truck tires constitute the majority of Cooper's production, the company is also involved in the manufacture of such engineered automotive products as vibration control devices, window and door sealing systems, hoses, and adjustable seating devices that provide lumbar support for passenger cars. Cooper is also one of the world's largest inner tube producers. Twelve plants in Ohio, Mississippi, Arkansas, Georgia, Indiana, the United Kingdom, and Mexico churned out more than 100,000 passenger tires per day in the mid-1990s.
Early 20th-Century Origins
In 1914 brothers-in-law John F. Schaefer and Claude E. Hart bought the M and M Manufacturing Company in Akron, Ohio. Schaefer and Hart entered the industry in the midst of a period of vigorous growth; between 1910 and 1916, tire production doubled every two years. As real incomes increased over the decade and the Ford Motor Company introduced its more affordable Model T, the demand for tires increased. Tire manufacturers increased capacity, designed new machinery, and promoted their new products.
At that time Ohio was a hub of tire manufacturing: one-third of the 134 tire companies in the United States were located in the state, and in the early decades of the 20th century Akron alone supplied one-third of the country's rubber goods. In this "rubber capital of the world," M and M Manufacturing produced tire patches, cement, and repair kits. These products were in high demand during the early years of the automotive tire industry because the first pneumatic tires were easily punctured. Poor tire quality also prompted consumers to seek rebuilt tires, and in 1915 Schaefer and Hart purchased a tire rebuilding business, The Giant Tire & Rubber Company, also in Akron.
In 1917 the Giant Tire & Rubber operations, including its staff of 29, were moved to Findlay, Ohio, into buildings abandoned by the failed Toledo Findlay Tire Company. Also that year Ira J. Cooper, whose name would later come to represent the company, joined Giant's board of directors. Fire destroyed the main building of the Giant plant in 1919, but reconstruction of a new, single story plant began immediately. As Giant rebuilt and continued to grow, Cooper became involved in forming his own company to manufacture new tires, The Cooper Corporation, which began operations in 1920. As founder, Cooper emphasized dedication to three principles: good merchandise, fair play, and a square deal. This "Cooper Creed" would serve as a corporate doctrine for many years to come.
Industry Consolidation in the 1920s
The tire industry underwent several changes during the 1920s. New tire and rim designs made it easier for consumers to replace worn or punctured tires, and improved durability meant they would have to do so less often. Lower pressure tires developed during the decade improved comfort and road handling. Technological advances in the manufacturing process helped larger companies gain economies of scale that made them more competitive and promoted a consolidation of the industry in the 1920s and 1930s.
In 1930 The Giant Tire Company and The Cooper Corporation merged with the Falls Rubber Company of Cuyahoga Falls, Ohio, to form the Master Tire & Rubber Company. Falls had been a minor tire manufacturer established in the 1910s. Within one year, production at the three plants totaled 2,850 tires per day. At that time the company marketed tires under several brand names, including Falls, Giant, Sterchi, Hoover, Savage, Linco, Williams, Swinehart, Tigerfoot, and Englert. Downsizing in the 1930s brought all tire operations to Findlay by 1936.
Ira J. Cooper died in 1941, the first year the Cooper oval trademark was registered and used. In those early years of the brand's identification, the logo also included a banner proclaiming the tires' "armored-cord" construction. The company's red, white, and blue logo would become one of the most easily recognized emblems in the tire industry.
During World War II the company manufactured pontoons, landing boats, waterproof bags and camouflage items, inflatable barges, life jackets and tank decoys, and, of course, tires, to benefit the Allied effort. The company's contribution to the war effort was acknowledged in 1945 by the armed forces in a special ceremony bestowing the Army-Navy "E" Award. Soon after the war the company name was officially changed to Cooper Tire & Rubber Company, in recognition of Cooper's contribution to Master Tire & Rubber.
Post-World War II Expansion
The postwar era heralded expansion at Cooper and in the industry as a whole. Many factors contributed to the growth of the business. Increasing disposable income facilitated extensive car ownership. The expansion of the interstate highway system and suburbanization in the postwar era meant more wear and tear on tires, which in turn increased demand for replacement tires. Furthermore, rail transportation was supplanted by buses, taxis, and trucks for local and long-distance needs. In 1956 Cooper purchased a plant from the Dismuke Tire and Rubber Company in Clarksdale, Mississippi. The refurbished factory helped Cooper meet demand for tubes and tread rubber.
Between 1947 and 1964, Cooper Tire developed its own national wholesaling system. The company strengthened its ability to supply private brand customers and earned retailer loyalty by pledging not to open its own sales outlets. This marketing scheme simultaneously enabled Cooper to avoid the vagaries of the retail market.
Cooper went public in 1960. The distribution of shares facilitated another decade of growth for the company. Also that year a plant at Auburn, Indiana, where all automotive and custom engineered rubber parts were produced, was acquired. In 1964 an industrial rubber products division was established as a separate corporation known as Cooper Industrial Products, Inc. A second industrial products plant near El Dorado, Arkansas was acquired to expand those operations.
Capital improvements at the corporate headquarters during the 1960s included a new warehouse, which made operations at the Findlay plant more efficient. A research and engineering building was added to the location in 1964 to accommodate testing, laboratories, tire design, engineering, and sales training operations. Also that year the company completed the first phase of construction on its new tire plant in Texarkana, Arkansas.
One year later production facilities at the Texarkana, El Dorado, Auburn, and Clarksdale plants were expanded. Original outlets in Los Angeles and Atlanta were replaced with new and enlarged Cooper factory branches. Before the decade was ended, the Texarkana plant was expanded and a modernization plan was completed. The modernization included installation of one of the first cold feed tread tire tubers in the industry and inauguration of one of the largest 27 Banburys in the tire business.
Conversion to Radials in 1970s
In the 1970s Cooper strove to convert from bias-ply to radial tire manufacture. Bias tires had been produced by placing cords in rubberized fabric at an angle of 25 to 40 degrees to the direction traveled. Radial tires were first conceived in 1913, but the first practical application of the idea was not achieved until 1948. Radial assembly called for cords or belts that were arranged at a 90 degree angle to the direction traveled. Advantages of radial construction included improved wear (from an average of 23,000 to 40,000 miles), improved handling, and lower fuel consumption. The disadvantages, however, prohibited many companies from making the conversion until the 1970s. They included more complex and time-consuming production requirements, incompatibility with bias tires on the same vehicle, and diminished cushioning. For a brief period, many manufacturers in the industry compromised by introducing a bias-belted tire, but steel-belted radials became the norm in the late 1970s. Once the core of the tire industry, the bias-ply market had shrunk almost 75 percent by 1977.
Cooper completed research and development of its own radial tire manufacturing equipment and in-house product testing in 1973 and began full-scale production of steel-belted radial passenger tires at the Findlay and Texarkana plants the following year. During this time Cooper purchased a plant in Bowling Green, Ohio, for the manufacture of reinforced hose and extruded rubber products. Within three years, the plant was upgraded to produce rubber trunk, car door, window, and sunroof seals.
Near the end of the decade the U.S. government imposed the Uniform Tire Quality Grading System (UTQGS) to regulate the manufacture and labeling of bias and belted tires to help consumers in comparative shopping for tires. A voluntary system of tire grading had been proposed by the National Highway Traffic Safety Administration and accepted by the Rubber Manufacturers Association in 1966, but the guidelines were expensive and hard to enforce. The federal government advanced regulations several times during the 1970s, but grading did not begin until 1979 for bias-belted tires and 1980 for radial tires.
Counter-Cyclical Strategies for the 1980s
The 1980s were years of significant change for Cooper Tire and the tire industry overall. Many American manufacturers scrambled to lower production capacity as the domestic market became saturated. From 1979 to 1987 a total of 23 U.S. plants were closed in the rush to downsize. Ironically, some of the industry's contraction could be attributed to successful technological advances that produced radial tires that withstood three times more mileage than previous models.
But while many of the world's original equipment tire manufacturers strove to consolidate in the face of steadily falling automobile sales, Cooper executives calmly delineated strategies for continued growth and even expansion of production. Cooper based its plans on several consistent factors that President and Chief Operating Officer Ivan Gorr described in a 1987 study. First, Cooper executives observed that there was as yet no other form of personal transportation that could provide the speed and convenience of the automobile and, therefore, no alternatives for the pneumatic tire. Planners at Cooper also noticed that, as auto manufacturing in the United States improved in the 1970s, consumers kept their cars longer. Demand for replacement tires grew in proportion to the average age of cars.
So as its competitors deserted plants, Cooper bought them and upgraded them. By overhauling older facilities, Cooper added capacity for one-third the cost of building new ones. In 1981 the Texarkana plant reached a production record of more than five million tires. The following year a three-phase expansion project at Texarkana was undertaken and three building additions at the Findlay plant were completed. Production capacity continued to increase with the purchase of a radial tire plant at Tupelo, Mississippi, and even more expansion at the Findlay plant.
By 1983 Cooper was ranked among the "Fortune 500" register of America's largest industrial companies, and a year later net sales exceeded $500 million. Over the next two years, Cooper made its first foreign acquisition, that of Rio Grande Servaas, S.A. de C.V., in Piedras Negras, Mexico, a manufacturer of inner tubes. The Cooper sales force was honored in the 1980s with the designation "best in the rubber industry" by Sales & Marketing Management Magazine's annual survey of industry executives. And in 1985, Cooper Tire & Rubber Company was enumerated among The 101 Best Performing Companies in America.
Research and development at Cooper were enhanced by several capital investments during the decade. A technical center for design, research and development, and testing was completed in 1984 at the Auburn, Indiana engineered products plant. The following year saw the completion of an addition to Findlay's Research and Engineering complex. The expansion facilitated increased in-house tire testing. A third addition enhanced the Findlay facility in 1988.
Distribution was also improved during the 1980s, with centers opening or expanding in Moraine, Ohio; Atlanta, Georgia; and Tacoma, Washington. Cooper warehousing capacity totaled 3.2 million tires by mid-decade. By the end of the 1980s distribution centers at Findlay and Moraine were granted foreign trade subzone status from the U.S. Department of Commerce. The designation diminished and suspended Cooper's payment of duty on imported raw materials.
As the company celebrated its 75th anniversary, Cooper's emphasis on the replacement tire market was vindicated. Statistics showed that the replacement tire market was three times larger than the original equipment market and had grown much faster over the decade. Investors appreciated the company's performance as well; Cooper's stock rose 6,800 percent during the 1980s. And with a per share price that amounted to 14 times earnings, Cooper was insulated from takeover threats.
During the 1980s foreign competitors took over six of the United States' largest tiremakers. By early 1990 six companies controlled 80 percent of the free world's capacity for tire production after the scramble for market share. The acquiring corporations reasoned that their size would provide bargaining power with American automakers as well as economies of scale. Domestic tire prices remained stuck, however, at 1985 levels.
The 1990s and Beyond
Cooper's capital investments and focus on the replacement market paid off in the 1990s. The company's efficient means of production propelled it to the highest gross profit margins in the industry at 33 percent. When larger competitors turned to the replacement market and tried to undercut Cooper's prices, those high margins gave the company leeway to join in the price wars.
Despite a lingering U.S. recession, Cooper's net sales topped the $1 billion mark in 1991 and the company added almost a quarter of a billion more the following year. Capital investments continued to grow in the 1990s: the company purchased a 1.8 million-square-foot tire manufacturing plant in Albany, Georgia, in 1990, then expanded its Findlay and Bowling Green locations in 1993. Construction of a new plant at Mt. Sterling, Kentucky, got under way in 1995, and a $10.5 million upgrade of the Clarksdale, Mississippi, facility began in 1994. Ongoing cost-cutting efforts almost doubled Cooper's operating margin from the late 1980s to the early 1990s.
In the meantime, Cooper's annual revenues increased from $1.2 billion in 1992 to $1.4 billion in 1994, while net income climbed to $128.5 million. Ivan Gorr retired that year, leaving behind a sterling record: sales had increased threefold and profits almost sextupled during his last decade at the helm. Gorr was succeeded as chairman and CEO by Pat Rooney, a 40-year company veteran who had joined the company right out of college in 1956. Sales continued to grow under Rooney's leadership, totaling $1.6 billion by 1996. But high raw material costs that, because of competitive pressures, could not be passed on to customers in the form of price increases, cut into Cooper's net in the intervening years. Profits declined to $112.8 million in 1995 and slid to 107.9 million in 1996. Cooper's usually high-flying stock suffered as well, dropping from a high of more than $39.50 per share in 1993 to less than $18 in 1996.
Though Cooper-made tires are sold in dozens of countries worldwide, overseas sales totaled less than ten percent of the company's total revenues that year. The Ohio firm boosted its foreign operations with the March 1997 acquisition of Great Britain's Avon Rubber plc for $110.4 million. The purchase gave Cooper a plant in England, distribution throughout France, Germany, and Switzerland, and footholds in several emerging markets in Asia. It also added $169 million to Cooper's sales column and $6.5 million to the bottom line.
By that time the Cooper Tire & Rubber Company no longer ranked among Fortune's elite. Nevertheless, it remained a widely admired firm, both for its labor/management relations and its long-term stock performance. In 1993 authors Levering and Moskowitz named it one of America's best employers, giving particular note to Cooper's high pay, employee longevity, and workplace pride. And even after the rocky ride its shares took in the mid-1990s, author Gene Walden singled out Cooper's equity among The 100 Best Stocks to Own in America.
Principal Divisions: Tire Products, Engineered Products.
Last edited by anjalicutek; December 16th, 2010 at 12:49 PM..