Kumho refines portfolio, focuses strategy on independent dealers

GUANACASTE, Costa Rica—Kumho Tire USA Inc. is heading into 2019 with a streamlined sales strategy that focuses on its independent tire dealer customers, a slimmer, less redundant product portfolio and a marketing plan centered on online, social media and analytics.

The U.S.-based subsidiary of South Korea's Kumho Tire Co. Inc. is looking to grow, reinvigorated by the stability that Qingdao Doublestar Group's July acquisition of a 45 percent stake in the company has provided along with the financial impact of its $607 million investment.

Kumho shared its plans with 30 key tire dealer and wholesaler customers during its 2019 dealer meeting, held Dec. 1-5 at the Four Seasons Resort at Peninsula Papagayo, Costa Rica.

Focusing on a theme of "Partnership Drive and Profitability," Shawn Denlein, Kumho's executive sales and marketing vice president, said Kumho has moved away from what he called a "transactional-based" price strategy featuring lots of deals to one that focuses on programs.

"We were being very aggressive with price and obviously that works short term," he said. "But long term the issue that you have is that you don't really have a lot of stability in the market. You'll have peaks and valleys in volume, and then your programs kind of get a little bit out of line, and your margins will eventually start to suffer."

The company has eliminated special pricing, he said.

Kumho also is looking at establishing a MAP (minimum advertised pricing) strategy internally to determine "where our product is positioned in the marketplace," said Denlein, who joined Kumho in April from Monro Inc. where he had been senior vice president of tire merchandising for just 13 months.

"What I would like to do eventually, is come out with a MAP pricing strategy. But before we do that we have to do a lot of due diligence behind the scenes to see truly where we fit."

He stressed, however, that MAP pricing would not be forced upon dealers. "We're studying it, and then we will come out and have conversations with everybody before we do any kind of implementation."

Stressing the importance transparency, Denlein said Kumho sees itself as a bottom second-tier tire manufacturer.

"We don't have aspirations to be a Tier-One player," he said. "We just want to be solidified in the tier that we believe we live in, which is the bottom of the second tier. So, we use words like 'high quality, reasonable price, best in class and just a smart choice for consumers.' That's really where we believe our positioning is in the marketplace."

To help improve dealer margins, Denlein said Kumho has simplified its buying programs, which he said had so many components even he had trouble understanding them. With one program, Kumho reduced the number of components to three or four from 10, he said.

The company is taking a similar approach with its product offerings, consolidating overlapping tire offerings. "Where we might have two treads, we are going to take it down into one tread," he said. "So, we are really trying to simplify the entire product portfolio."

This issue of overlapping tire lines started during 2011-13, a period when the company was struggling financially and didn't introduce many products. This was followed in 2015-2016 when it added a lot of models to the portfolio.

"We're basically getting rid of about five or six product lines and condensing moving forward," he said.

So far, Kumho has replaced the Crugen KL33 and Ecsta STX for SUVs, CUVs and light trucks with the Crugen HP71 and has eliminated the Ecsta 4X and Ecsta PA31 UHP tires and launched the Ecsta PA51.

Looking ahead, the company plans to retire the grand touring Solus TA71 and Solus TA31 and replace them with the Solus TA51. It also will phase out the Ecsta PS91 and PS31 summer lines in favor of the Ecsta PS72 along with the Road Venture MT51 and KL71 mud-terrain tires and launch the Road Venture MT71.

Denlein stressed during the meeting that Kumho will continue to sell through the independent tire dealer channel, which remains the largest channel in the tire business, with an estimated 61.5 percent share in 2018.

"Not only is it really the biggest segment, but it's also, for me and for Kumho, the best way for us to get out and talk about our brand, because our industry is still dominated by independent tire dealers."

Denlein also noted that tire sales through auto dealers are increasing, and in 2017 this channel held a 9 percent share of the market, up from 2 percent in 2000.

"People are becoming more comfortable with going to the one-stop auto dealer," he said.

As for other tire distribution channels, Denlein said he expects tire sales through mass merchandisers to shrink.

Globally, Kumho manufactures 53 million tires annually at eight tire plants, supplying tires to the U.S market from factories in South Korea, Vietnam and the U.S.

In the U.S., the company's fill rates are 90 percent and above Denlein said.

The U.S. factory in Macon, Ga., where production began in 2016, mainly produces tires for original equipment fitments with auto makers, Denlein said, although some replacement tires are built there, as well.

Supplying OE tires is a growth area for Kumho. In 2005, Kumho supplied OE tires to three auto makers in the U.S.; today it has 60 OE fitments.

Kumho will concentrate more of its OE efforts moving forward on Japanese transplant assembly plants, as well as higher-inch tires, which offer greater profitability, Denlein said.

Speaking of DoubleStar's investment, Denlein said the purchase creates a lot of stability for Kumho and initially affects the company in three ways.

The first is independence. Kumho will remain independent in terms of management.

"Kumho still operates Kumho, and Doublestar operates Doublestar," he said, adding he anticipates this will remain that way for the foreseeable future.

Second, the Doublestar investment is positive for Kumho because the company now has added capital to invest in new products, manufacturing and technology.

Third, the acquisition will help Kumho and Doublestar grow in the Chinese market.

"The synergy in China is really the first area that's being explored with the companies together," Denlein said.

Turning to marketing for 2019, Denlein said the tire maker will concentrate efforts on online and social media vs. print advertising and use analytics combined with the marketing team to better "understand where are we, and what have we got ahead of us."

Aided awareness of the company, he said, has grown to more than 40 percent in 2018 from 23 percent in 2012 and is even higher among those ages 40 and under.

"How is Kumho accomplishing this?" Denlein asked rhetorically. A lot of it has to do with the company's national, regional and local marketing relationships with the National Basketball Association, where it is active in social media and digital efforts, as well as partnerships with local celebrities and other sports stars.

The NBA, Denlein said, is the most-followed professional sport and has the most engaged sports fans on social media. This includes 36.6 million fans on Facebook, 27.3 million on Twitter and 30.5 million on Instagram. The NBA also has year-round activities in which Kumho can participate.

In 2019, Kumho plans to use "geo-targeting" through the NBA and Facebook starting in the West, Southeast and Northeast. Through geo-targeting, Kumho and dealers could target ads on Facebook toward consumers in a particular area and promote something the dealer is doing or that Kumho is doing nationally.

"We have someone in our office, and that's all the individual does is geo targeting," Denlein said, so we can take an area that you have your stores and you have your business and show you the trends in the market, the consumer (tire) sizes."

In addition, the company will use social media, videos and online partnerships with celebrities and sports stars such as the NBA's John Wall, pro football's Brandin Cooks of the Los Angeles Rams and racing driver Collete Davis to promote the brand. Davis—who's engaged in sports cars, drifting and monster trucks—has a huge following among women and even some men, Denlein said, and will help Kumho engage with female consumers.

Kumho's target audience for its brand promotion efforts is adults 18 to 34 years old, with an average income of $50,0000. The target for digital and social media advertising is adults between the ages of 18 and 54.

Why is Kumho focusing so much of its advertising efforts on social media? Denlein asked. For five reasons, he said:

1. Dealers' customers are on social media. Fifty-nine percent of the nation accesses social media every day and more than one-third check their social media five times a day, he said;
2. Consumers are more receptive to messages through social media;
3. The opportunity to gain new customer insights;
4. The capability to target and retarget the ideal customer and to have a conversation with the customer; and
5. Cost effectiveness. The cost per thousand impressions on social media can be as low as $2.50, about a third the cost of traditional media.

Additionally, Denlein said 72 percent of consumers trust online views as much as personal recommendations from real people; 68 percent of consumers turn to social media networking sites to read product reviews; and 90 percent of consumers said that positive online reviews influence their buying decisions.

Knowing these social media trends, Denlein reiterated: "I keep saying this: We have to understand what the consumers are saying about our brand, good and bad, so we can figure out how to talk with them, how to work with you and what's the best approach."