Falken 2.0 — Sumitomo lays foundation for expanded U.S. presence

ST. LOUIS (Dec. 22, 2012) — Sumitomo Rubber Industries Ltd. (SRI) has put the North American tire industry on notice: It's got no strings to hold it down.

As a result of the dissolution of SRI's 16-year global alliance with Goodyear earlier this year, the firm is on a mission to expand its presence in North America, with local manufacturing, testing facilities and research and development capabilities on the horizon.

As a first step toward strengthening its competitive position in the country, SRI announced plans Dec. 15 to realign its North American business units in the coming year and that it has renamed Falken Tire Corp. — its Rancho Cucamonga, Calif.-based marketing and distribution arm — Sumitomo Rubber North America Inc. (SRNA).

The name change will take effect Jan. 1.

In addition, SRI's Goodyear Dunlop Tire North America Ltd. unit will change its name to Sumitomo Rubber USA L.L.C. (SRUSA) by the end of March. Responsibility for sales of Dunlop-brand light vehicle tires to Japanese OEMs and sales of Dunlop motorcycle tires in North America will transfer to SRNA from SRUSA, the company said.

Under its updated corporate structure, SRNA will operate three separate sales divisions:

• Dunlop Motorcycle Tire, in Tonawanda, N.Y., will be responsible for Dunlop motorcycle sales to OE and replacement markets.
• Falken Tire will be responsible for replacement market sales of Falken-, Ohtsu- and private-branded products for light vehicle and commercial markets.
• SRNA OE sales, located in Detroit, will be responsible for Dunlop-brand light-vehicle tires for Japanese OEMs and Falken-brand OE sales for all North America OE customers.

SRNA will provide centralized administrative and logistics support to all three divisions, the company added, and will take over sales and distribution responsibility starting in the first quarter for the Dunlop, Falken and Ohtsu brands in the Caribbean and Falken and Ohtsu in Mexico. These previously were handled by SRI directly.

Handcuffs off

The structural changes come on the heels of Falken Tire's recent dealer meeting, which took place during Game 1 of the 2015 World Series in St. Louis. During that meeting, Falken President and CEO Richard Smallwood, whose new title will be president and CEO of SRNA, made it clear that the end of Sumitomo's agreement with Goodyear would mean big things for the Falken brand moving forward.

“That alliance was good for a long time, but it ended,” Mr. Smallwood told dealers. “So that alliance is now done, and the handcuffs are off. We were restricted for many years with what we could do, and those restrictions are gone.”

Call it Falken 2.0.

Under the alliance with Goodyear, SRI was not able to have manufacturing or research and development within North America, but during the meeting the company said it plans to use the Tonowanda Dunlop plant it reclaimed  from Goodyear to build Falken-brand passenger, light truck and medium truck tire lines.

Rick Brennan, Falken's executive director of marketing, told Tire Business the company expects to be producing Falken-brand products for the North American market at its plant within the next year-and-a-half.

“As we go forward, there are a lot of things that have to change,” he said. “…We now have to change the ordering process for tires. We have to change where the billing comes out of to their customers. All of that infrastructure will take a lot of computer programming, a lot of process change as well as other things.”

In addition, SRI reclaimed the former Dunlop motorcycle proving grounds in Huntsville, Ala., which it will use to test its products.

Going forward, Falken seeks to improve its brand value in a crowded mid-tier tire segment through marketing initiatives — such as its recent partnership with Major League Baseball (MLB), signed Oct. 1 — improvements in product quality and aggressive pursuit of OE business, Mr. Smallwood said.

“By 2019 or 2020, our plan is to have at least 5 percent market share in OE,” he said. What these changes don't mean is an immediate increase in tire prices for dealers.

“Every manufacturer, we all want to raise our price point,” Mr. Smallwood said. “Every single manufacturer wants to raise their price point because, in theory, that's how we make more money. The reality is in a market, no matter what product there is, there's a sweet spot in that market where you can do very well.”

He added that having a higher price doesn't necessarily equate to being a more profitable brand, likening Falken's strategy with that of Southwest Airlines.

“Whereas Southwest Airlines has typically been the most consistently profitable of the airlines, they're considered a value brand,” he continued. “That's really what our orientation is. We want to be a very solid tier-two player, but we believe that in order to get the growth we want to get and maintain the profitability we want to have—we need to find—that value.”

In order to create value, the Falken brand is focusing on four cornerstones of creating mutual success for itself and its customers:

• Highly profitable brand — The brand is working to develop strong consumer pull, reduce channel conflict and keep transaction costs between itself and dealers low.
• High quality products — SRNA will be developing new products in North America with the North American consumer in mind.
• Reliable supply — Falken said it is committed to delivering 90-percent or better three-day fill rates.
• Easy to do business with — Falken said its goal is to offer high service levels, quick response time, trouble-free products and flexible service for all customers.

Marketing efforts

With the Falken brand being the only one SRI controls globally, the company will pour a lot of energy into developing it across various markets, Mr. Smallwood said.

SRI is working to revitalize the brand with an updated logo and a new, global tagline: “On the pulse.”

As a mid-tier tire brand, one of Falken's greatest challenges moving forward will be finding a way to stand out in an already overcrowded market.

According to Mr. Brennan, the performance of many of Falken's current products doesn't help to set the brand apart from its competition. While its dedication to the performance market and strong social media presence have helped turn Falken into the No. 4 U.S. brand in terms of volume for tires with speed ratings of H and higher, the company has low overall brand awareness.

“If I went back to 1999,” Mr. Brennan said, “there were 198 million passenger and light truck tires sold in the U.S. We're at 204 million today, so the market is flat. If we want to grow, we've got to take it from somebody.

“We all say we're going to grow,” he continued. “How in God's name are we going to do that when the market is flat as a pancake? Everybody can't grow — you've got to be strong to grow.”

Falken will be boosting its advertising and promotions dramatically, with 2016 marking the most diversified ad buy the brand has ever had, including print, digital, billboards and TV.

“We're even wrapping our delivery trucks for the first time, so it will be a mobile billboard as it goes down the road,” Mr. Brennan said.

One of the primary ways Falken is seeking to improve its brand position going forward is through its marketing partnership with MLB, replacing Bridgestone Americas' Firestone brand as the official league tire sponsor.

Falken's MLB contract kicked off with this year's post season, giving the brand exposure with fans directly at all of the playoff games, including the World Series. As part of the agreement, Falken will have signage behind home plate during 95 nationally televised games throughout the regular season, and it also will buy TV commercials.

The company's contract runs through 2017, with plans to continue it if things go well, Mr. Brennan said. Neither Falken nor MLB disclosed the value of the contract.

Mr. Smallwood told Tire Business prior to this agreement he was never an advocate of sports marketing, a view that stems back to sales and marketing roles he held in the late '90s.

“All the psychology of research was coming out and saying the high impressions is meaningless if there's no emotion attached to the impression, so I was always a big believer that in any kind of advertising, any kind of branding, there had to be emotion attached to the brand,” he said.

“My feeling has always been that on sports marketing it's very difficult to have feelings or emotion attached to the brand. If you see a Falken logo on the inside of the field, and that's all you have, where's the emotion? There's no meaning to it, and that's why I never was a big fan of that.”

Mr. Smallwood said what ultimately changed his mind were “pure numbers.”

“We spent a lot of money in motorsports — crazy amounts of money in motorsports,” he said. “The people who know us hold us in extremely high regard, but those are the people who know us. Then there are the other 320 million people in the U.S. who simply don't know us, and that's where the problem comes in.”

In the first three weeks after inking its deal with MLB, Mr. Smallwood said Falken's website traffic grew dramatically.

As for why the company chose MLB, Mr. Brennan said it came down to demographics and availability.

“The people who watch baseball don't know Falken,” he said. “It's new eyeballs. The other issue is it comes down to what's available. The NBA already has a tire sponsor, NHL has a tire sponsor, NFL has a tire sponsor, so to get an exclusive where we can actually get something that's a big enough soapbox, it was MLB. And we wanted exclusive rights.”

Mr. Smallwood added that Falken can offer a lot of advantages for MLB as well.

“Our goal was always to find people we could cross-market with — other brands that we can work with where there's value,” he said. “You never want to be in a one-sided relationship.

“If you look at Major League Baseball, at the beginning of the year when they put in the new commissioner for baseball, one of the key initiatives they gave him was to reach the youth market…. We are a very strong youth brand, and so there's really a great fit for the both of us. We're weak in the older demographic, they're weak in the younger demographic, but we can come together and help each other.”

Moving forward, Falken also will change some of its promotion tactics, focusing less on consumer rebates, which Mr. Brennan said have proved largely unsuccessful.

“We started about two or three years ago at $20 a tire for consumer rebates,” he said.

“Then it went to $40, then it went to $60, then it went to $80. Now there's $120 out there, and $120 is really expensive to pay somebody to buy your tire. It's not a win-win situation over a long period of time.”

Last year, he said, Falken spent “hundreds of thousands of dollars” on its consumer rebate program, “paid a lot of administration fees and we got zero lift in sales.”

One new promotion the company will try in 2016 will be an MLB tie-in fantasy baseball program, which Falken will use to incentivize dealers to sell tires with prizes.

Falken also recently revamped its motorsports strategy, ending a six-year engagement with the Tudor United Sports Car Challenge and moving more heavily into support of “grass-roots” racing venues. However, Mr. Brennan said the company is not abandoning its roots in motorsports.

“Drift has changed from owning the teams to sponsoring,” Mr. Brennan said, noting Falken actually will be increasing activity in grassroots racing.

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To reach this reporter: [email protected]; 330-865-6148; Twitter: @Will_Schertz