Michelin Fleets Solutions: From selling Tires to Selling Kilometers

Service Marketing
Group 3

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 understand the benefits of

this program and only see the increased upfront costs, increased dependence and high switching

costs. Moreover, salespeople found it hard to communicate 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-of-

mouth, 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 people. Two sections have opposite
Michelin Fleets Solutions: From selling Tires to Selling Kilometers
Service Marketing
Group 3

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, company 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 concentrate 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 under 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

Michelin Fleets Solutions: From selling Tires to Selling Kilometers
Service Marketing
Group 3

MFS offer different method of fee charging to its customers 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 rubber 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 by

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 the

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.

Michelin Fleets Solutions: From selling Tires to Selling Kilometers
Service Marketing
Group 3

Conclusion

Moving to the service area takes lots of time and 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 long as those problems are tackled properly,

there is a high chance that the project would soon be profitable.