CASE ANALYSIS MICHELIN FLEET SOLUTIONS: FROM SELLING TYRES TO SELLING KILOMETERS
Presented By: Sanchit Singhal, SMBA 13048 Urva Sharma, SMBA 13067
In the early 2000, Michelin starts moving to the service industry by launching a comprehensive tire-management solution called Michelin Fleet Solution (MFS). Although MFS aims at maximizing the lengths of Michelin’s tires so that its customers will be less reluctant to price premium, which helps increasing the chance of re-purchasing, the project itself cannot generate profit for three consecutive years. Thus, the top manager is left with the unsolved questions “Should MFS be continued and how tackle the problems preventing MFS to be profitable?” Customers are reluctant to sign contract
Since the market is immature, customers do not immediately und erstand the benefits of this program and only see the increased upfront costs, increased dependence and high switching costs. Moreover, salespeople found it hard to com municate and explain to the customer the benefit that they would gain from that solution offer. A long with training for the contact employees, the company needs to educate its customers about the offer and its managerial and financial benefits. Public relations and word-ofmouth, as well as advertising in the trade press, play a big role. Internal Conflict
While the traditional product sales force’ s objective was to push sale of tires as much as possible and to increased tire-related sales, MFS in turn pushes for product lifespan to be prolonged as much as possible, thus potentially harming the sales of new forces. In that way, the existing of MFS represents competition to the product sales peop le. Two sections have opposite goals under the same roof of Michelin raising massy conflicts and inquisition toward the core value of business.
Because the conflict arises from heterogeneous objectives, compan y has hard time to set goals and manage sales amongst regions. The first answer for this issue is clarifying each department objectives. The product sales teams should con centrate their resources in attracting new potential customers as well as target segmentation. Otherwise, MFS division would in charge of take care of consumer’s tires until they cannot be retreaded, then recommend them to repurchase new Michelin’s tires. In that respect, instead of being competitors within Michelin, the company would be able to satisfy existing customers and simultaneously expand its market share. Another suggestion to reduce complexity in management is re-organizing company’s structure. Because of differences in nature between TB team and MFS team, having them under the same department induces confusion in perception of employees and leaves sales directors difficult time to design project and manage budget for both agencies. Moreover, according to Michelin organization chart, each MFS teams is u nder supervision of regional sales director as well as MFS director, which increases intricateness of understanding and implementing goals, set by both directors. Hence, the necessary adjustment is that MFS executives would take full responsibility to all MFS teams’ activities as they separate MFS department completely. On that point, every branch has their exclusive and homogeneous objectives and supports mutually without any frustration. Complex cost structure
MFS offer different method of fee charging to its cust omers which base on kilometers driven per vehicle instead of “time and material”. This would result in a very complex process to
ensure the company makes appropriate profit. Failing to exploit one single mm of rub ber means adding 6 to 7 percent on their cost. This is one of the major reason leads to the loss of MFS. To overcome this turmoil, the company need to build up an extensive database to be able to work out as precisely as possible the price- per- mile it should charge. It does this b y calculating a whole range of factors, such as what tires the fleet is running on and their condition. Having this database would help MFS to forecast the appropriate fee for each customer, thus avoiding the stage “never generating profit with such a low fee”. Quality control process with the service provider
To facilitate geographical expansion, Michelin decided to rely on service provider networks to deliver the service to customer. However, it leads to the dependence on the third party to optimize the cost structure and the quality of the service provided. To tackle these problems, Michelin should provide a new method of payment to the service providers. Instead of paying a fix amount of money per contract, the payment should be counted on the retread rate of clients who that service provider serves. Doing so would put the service provider on the same path as Michelin which is providing the best service so that th e retread rate is maximized. Moreover, proper training for the third party about the “4-lives program” is essential to ensure the process is managed properly. At this stage, Michelin should not worry about them become their competitors as their size is not sufficient to provide tire management service to big clients. Conclusion
Moving to the service area takes lots of time an d effort. MFS is a great solution to create the competitive advantage of the tires in the consolidated market. Upfront investment is necessary to generate the long-term benefit. As lon g as those problems are tackled properly, there is a high chance that the project would soon be profitable.
