A comprehensive tire management solution was launched by Michelin in the year 2000 called as Michelin Fleet Solutions (MFS). The main motive of the management of the company in order to adopt this system was that the management of the company wanted to maximize the length of the tires of Michelin so that it satisfied the customers and they were less reluctant to pay any price premium set by the company. This would also enhance the chances of re-purchasing and frequent buying from the customers. However, the project had failed to generate profits for three consecutive years and the management of Michelin is now concerned that whether the Michelin Fleet Solutions project should continue or not and how to resolve all the issues that were hindering the profitability of Michelin Fleet Solutions project.
The situation analysis for Michelin has been done by using the SWOT model which identified the strengths, weaknesses, the threats to which the company is exposed to and the future opportunities of the company.
Business Model of Michelin
The business model that is proposed by Michelin is entirely different from the traditional tire models. Under this model, the focus of the company was to provide the customers with a service which is the ability to drive, rather than just manufacturing and selling the tires directly to the customers as in the traditional business models. Under this model the key significant factor was the monthly fee that was charged by the company. This monthly fee was calculated based on the number of the kilometers that had been driven by the customer per vehicle. In this way, the clients could easily benefit from the variable costs. The profitability of this business model was completely dependent on controlling the costs and optimizing the tire management activities through the 4-lives program.
Solutions Offer and Benefit for Customers
The business model of the company was completely different as compared to its traditional model. In the traditional model, the customers were charged for time and material. Therefore, when the customers paid the total material and time cost to the company and a truck breakdown occurred, later it represented an unforeseen cost factor for the customers. However, in the case of the MFS model, the industrial risk is taken over by Michelin against a monthly fee. This is the reason that customers would buy this offer and this offer came to be known as the solutions offer. As the company assumes the industrial risk, the customers are benefited with high productivity and flexibility.
Strengths & Weaknesses
The Michelin group is one of the most dominant players in the consolidated tire industry with global revenues of around 15.6 billion Euros. The company has long maintained a strong brand image in the eyes of its customers. Long ago the management of the company had designed a roadmap which was entitled as ‘4-lives program’, which focused on the optimal maintenance activities in order to maximize the performance of the tires. The research and development department of the company had identified that the tires of Michelin last longer but only if they are maintained well. The company maintained long lasting relationships with its customers by outsourcing its tire management and this gave full value of its tires to the customers of the Michelin tires.
When the Michelin Fleet Solutions project had initiated, in the starting three years, the sales force of the company had hard time to sell to the customers. The main contributing factor to this was the pricing which was based on premiums, thus, the company had failed to communicate or position the rationale behind this project, and as a result, the customers were not willing to pay such premium prices. Another significant weakness was due to internal conflicts faced within the company. The sales force had one objective which was to sell the maximum number of tires, however, the Michelin Fleet Solutions focused on prolonged tire life cycles and this harmed the sales of the sales force. Moreover, the cost structure for this project was extremely complex.
Threats & Opportunities
The Truck and the Buses tire market is relatively consolidated with Goodyear, Bridgestone and Michelin and each of these companies contribute over 18% to the market each. However, the low cost Asian firms belonging to China and Korea are proving to be a real threat to Michelin. These firms are increasingly gaining more traction. For instance, the tire for Michelin costs around 400 Euros per unit where as an equivalent tire from China costs 250 Euros per unit. Apart from this, in order to facilitate the geographical expansion, the company solely relied over the service provider networks in order to deliver the services to the customers. Therefore, the future service quality might not be up to the required standards of Michelin………………….
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