SYNOPSIS: Roadmaster Tyres had managed to climb to the No. 2 spot in the replacement market for truck tyres. But the company's foray into passenger-car tyres was in hot water, with an OEM contract with the country's largest car-manufacturer not being renewed. Chintan Bakshi, the CEO of the company, found himself caught in a quandary. Roadmaster Tyres could continue to focus on the truck-tyres segment and be profitable, but, essentially, be a commodity company. Or it could leverage its presence in the OEM market for passenger-car tyres, invest in brand-building, and go the retail way. Both had their merits. And demerits.Cummins India's Y.S. Joshi, modi Xerox's K. Swethanarayan, SAS Institute's Gourish Hosangady, and John Fowler (India)'s R.L. Kumar debate Roadmaster's ideal course of action. A BT Case Study.

As his new Mercedes-Benz E-Class-perhaps the only vehicle of its kind in the world that ran on Roadmaster-T5 radials-swung into the private two-lane metalled track that led to Roadmaster Tyres Limited's huge manufacturing-facility on the outskirts of Baroda, the thoughts of Chintan Bakshi, its 51-year-old Chairman and Managing Director, kept returning to something his father, Raman Bakshi, the founder of the company, had once told him. ''There's something peculiar about our business,'' Bakshi Sr had said. ''Every one of our successes, no matter how large or small, is immediately followed by failure.'' He couldn't have been more right, thought Bakshi, as he stared at the 2 pieces of paper in his hand.

One was a fax from Manohar Shukla, the company's 32-year-old Vice-President (Marketing)-a fast-track MBA Bakshi had managed to poach from the country's largest FMCG company in late 1996-detailing the marketshares in the tyres market in the first quarter of 1998. Roadmaster Tyres' share in the replacement market for truck-tyres-which constituted 50 per cent of the market, and accounted for 70 per cent of Roadmaster Tyres' turnover-had moved up to 21 per cent from 15 per cent in 1997 and 12 per cent in 1996. Bakshi knew that Suchakra, a customer-and dealer-retention programme initiated by Shukla, was largely responsible for this.

The second piece of paper was a fax too. This one was from Joseph Raj, Roadmaster's 53-year-old Vice-President (Finance). It had come in at 6.12 a.m. that morning while Bakshi was out on his walk. Although he had 2 PCs at home, Bakshi preferred his managers to use either the fax or the phone to communicate with him. This fax was brief: Spoke to VS. The deal is certainly off now.

VS was Vijay Sharma, the President (Operations) of Yasuda India, India's leading passenger-car manufacturer. In November 1995, Roadmaster Tyres had entered into a 3-year supply-contract with Yasuda India. Due to expire in 3 months, Bakshi had asked Raj to explore the modalities of a renewal-something Roadmaster Tyres had taken for granted. However, much to its dismay, the company discovered that Yasuda India was speaking to other tyre-manufacturers, such as the world's No 2, Brim Plc, which had entered the Indian market in 1997. While the loss of the contract would hurt-sales to Yasuda accounted for 80 per cent of Roadmaster Tyres' passenger-car tyres capacity, and accounted for just over 10 per cent of its turnover-its timing hurt even more. For, Shukla and Bakshi had just drawn up a blueprint for a marketing initiative for passenger-car tyres that rode on Roadmaster Tyres' status as the sole supplier to India's largest car-manufacturer. Bakshi's reverie was broken by his arrival at the plant. ''Well, we'll have to find some way out when the Executive Committee meets this evening,'' he thought to himself.

Raj knew things weren't well when he had routinely broached the issue of renewing the contract to Yasuda India's Sharma. He had first met him in 1995, when Roadmaster Tyres had managed to wrangle the contract, which had really placed it among the top tyre companies in the country. Raj had kept in touch with Sharma ever since, but, since the latter had never even hinted that he might not renew the contract, he was surprised when he was told that Yasuda was looking for an alternative supplier. Sharma had not been very specific: the reasons cited ranged from better terms to Brim Plc's superior technological capabilities.

Now that the deed was done, Raj was not particularly unhappy with the way things had turned out. He had all along been a vociferous opponent about maintaining a presence in the OEM market, and had, often, suggested to Bakshi that Roadmaster Tyres should move out of that segment. He had the numbers to back his argument: the net margins in the replacement market ranged between 10 and 12 per cent; those in the OEM market were often less than 2 per cent. Besides, Yasuda's contract came with a provision for a 5 per cent reduction in prices every year. Thus, Roadmaster Tyres had first quoted a ridiculously low price to bag the contract, and had then had to cut its prices further!

However, he couldn't refute the fact that the deal had been good for the company. While Roadmaster Tyres hardly broke even on its sales to Yasuda India, the fact that it accounted for 80 per cent of the its installed capacity for making car-tyres ensured that fixed costs were spread across a larger base. In the absence of such a deal, the company might have found itself in the position of not being able to fully utilise its production-capacity for passenger-car tyres. Besides, the arrangement had catapulted Roadmaster Tyres into the limelight: selling truck tyres wasn't hardly as glamorous as selling passenger-car tyres, and, for the past 3 years, all Roadmaster Tyres campaigns had featured the latest Yasuda India models sporting its tyres.

There was another option-going retail-but Raj had done some number-crunching, and discovered the costs to be fairly high. Each store would require between 500 and 1,500 square feet. This cost would be borne by a franchisee that would either purchase it outright, or take the place on lease. The second element would be equipment, essentially balancing and aligning units that would cost anything between Rs 4 lakh and Rs 8 lakh. And the third element would be the furnishing overheads, which would work out to around Rs 1,200 per square foot. Since companies and franchisees normally split the equipment and furnishing costs, Roadmaster Tyres would have to invest Rs 5 lakh in each store. And that didn't include the cost of advertising. ''No, sir,'' thought Joseph Raj, ''going retail wouldn't do.'' And he decided to say as much at the Meeting.

The day seemed to be earmarked for ruminations about the Yasuda deal and Roadmaster Tyres' future. Shukla bumped into Prabhakar Agrawal, the company's 39-year-old Vice-President (Human Resources), and Ashwamedha Rao, Roadmaster's 42-year-old Vice-President (Manufacturing). It was but natural that the 3 members of the executive Committee discuss the task before them that evening.

Rao, who believed the company's association with Yasuda India taught it modern production and quality techniques, said as much. He was all for tying up with another car-manufacturer. ''After all,'' he pointed out, ''with so many global car majors entering the domestic market, Yasuda's share is sure to fall.''

Agrawal wasn't so sure. ''I don't know if it was strategically right to tie up the bulk of our capacity with one large customer,'' he said. ''We should have opted for a broader customer-mix. One alternative now is to go retail even while we pursue the OEM business. I think the time has now come to target the end-user directly. How about something like a Dial-A-Tyre service, wherein the customer calls a central number, and gets the tyre delivered to his doorstep? Or how about a passenger-car tyre version of the Suchakra scheme we used in the truck tyres market?''

This was Shukla's territory. Roadmaster Tyres' resurgence in the truck-tyres segment was based on the realisation that 80 per cent of the trucks in India were controlled by 30 per cent of the trucking companies. It was these companies that Roadmaster Tyres targeted with an innovative promotion in 1997. Trucking companies-and even individuals who owned trucks-could participate in Suchakra by paying a fee of Rs 500. That done, they received 50 points for every tyre they bought, and, once they toted up 4,500 points, they became eligible for a range of gifts from the company. To ensure that the scheme did not alienate their dealers, a version was launched for them too. The effective cost to the company worked out to Rs 200 per tyre. Indeed, many of Roadmaster Tyres' rivals were offering this amount as a discount. But Shukla managed to build relationships with customers by spending the same amount differently.

Once both versions of its schemes were in place, the company increased the prices of its tyres by Rs 400 each. The move worked. But Shukla was well aware that a retail version of the Suchakra scheme would work only at the dealer level. And, before the company could even consider adopting it, a more critical decision on whether to go retail or not would have to be made. Their ideas no clearer after a 45-minute luncheon discussion, the worried troika returned to the tasks that would occupy them in the next few hours before the critical meeting.

Back in his room, Shukla, who was certain the others would depend on his judgement, sat down and penned his thoughts on the retail conundrum facing Roadmaster Tyres. ''To go retail and build our brand, we have to segment the market first,'' he wrote. ''And we have a problem here. Unlike the developed markets in the West, where you can segment the passenger-car tyres market on attributes like speed, comfort, grip, and smoothness of drive, the only bases of segmentation here are price and mileage.''

''Secondly, a tyre is a product that is driven by manufacturing and R&D. To get the marketing focus right, I think we need to develop dedicated product-development cells which not only track customer needs, but also translate them into commercially-viable propositions. We also need to educate influencers like mechanics. Before doing any of this, we should be clear: should we? Are we committed to growing a business that accounts for a mere 10 per cent of our turnover today?''

The Executive Committee was. The desire for margins propelled it to decide in favour of going retail. Bakshi was willing to make the investments the process required, and Shukla, given his FMCG background, was quite confident of his ability to tackle the retail market. So, Roadmaster Tyres hired an ad agency, developed 2 products exclusively for the passenger-car tyres market, established a retail-presence of 20 franchise outlets, and launched them with much fanfare. The response wasn't bad, but it wasn't outstanding either in the first year. Shukla advised patience. But Raj continued to badger the other members of the Committee with facts and figures on how they had erred in entering the retail market.

THE DISCUSSION

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