Rolling into eCommerce: The Tire Rack pioneers eCommerce Tire Sales
Founded as a family business in 1979 in Indiana, the Tire Rack successfully pioneered a shift in the $17 billion tire industry, once dominated by in-person purchases, to mail order and, later, in 1997, ecommerce. In order to achieve this, entrepreneur Peter Veldman devised a clever strategy to enable this novel business model. This strategy, the company’s operating model, has enabled the Tire Rack to grow to $1 billion in sales and one of the most trusted names in the industry.
Tire Rack
Founded as a family business in 1979 in Indiana, the Tire Rack successfully pioneered a shift in the $17 billion tire industry, once dominated by in-person purchases, to mail order and, later, in 1997, ecommerce. In order to achieve this, entrepreneur Peter Veldman devised a clever strategy to enable this novel business model. This strategy, the company’s operating model, has enabled the Tire Rack to grow to $1 billion in sales and one of the most trusted names in the industry.
Business Model
The Tire Rack’s business model is simple: sell the best performing, correct-fitting tires directly to customers by phone and online at competitive cost, with fast delivery. This isn’t as straightforward as it seems.
Tires come in various sizes, with different capabilities, and suited for different driving conditions, which makes it hard for the customer to choose. How is one supposed to decide between the “Blizzak LM-32” tires that cost $282 each and the “Pilot Alpin PA4” at $301 each? Further, tires are bulky and expensive to ship, placing constraints on price advantage as well as quick shipping availability. Lastly, unlike a local garage or dealership, the Tire Rack cannot also offer installation, leaving it up to the customer to find a trusted tire installer. Yet despite these challenges, Veldman and his team built a tightly-aligned model to deliver the intended value to the customer, and they’ve spent the last two-and-a-half decades improving on this model to maintain their customers’ happiness and their competitive advantage.
Operating Model
Informative Sales Reps
When the Tire Rack first moved towards mail order sales via telephone, they built out a highly knowledgeable sales team who can advise customers on which tires fit their vehicle, as well as which tires would be a good value. Sales reps are auto enthusiasts who are trained for nearly nine weeks both by the books and on the test track, giving them an advantage when advising customers on the right choice for their vehicle and driving needs, and giving customers confidence about buying tires sight-unseen.
Easy-to-Use Website
The Tire Rack website serves 50 million visitors each year (with the average visitor browsing 13 pages). The website serves two customer types.
“’For those who love to research their purchases, TireRack.com delivers enough tire data, how-to information, consumer feedback and other content to keep enthusiasts engaged for hours. However, for consumers who want to complete the process in minutes, we’ll match their vehicle to the right treads and arrange for local installation quickly with zero hassle.’” By optimizing the website for both types of customers, Tire Rack has been able to win the trust of millions of customers when making their tire purchases.
Customer Reviews
To provide customers with purchase assurance and aid in decision-making, the Tire Rack has built a robust framework for customers to leave tire reviews. 100,000 drivers have logged over 2.4 billion miles on 400 different tire models. These ratings go beyond the simple 1-5 star framework and ask customers to rate performance along dimensions such as “Hydroplaning Resistance,” “Steering Response,” and “Noise” using a clearly defined rating scale. This subject-matter-specific context enables researching customers to find the right set of tires according to their performance needs. This impressive data set also creates a hard-to-replicate competitive advantage.
Testing
In order to complement the customer reviews and provide reassurance that customers are making the best decisions, the Tire Rack built a 5.5 mile “Real World Road Ride loop” where experts can test and analyze tires under repeatable “lab” conditions. This resource, along with their tire buying guides, provides direct value to customers as well as a wide moat against competitors hoping to offer similar expert value.
Distribution Centers
More than half of the country can receive an order the next day. The rest can be served in two days. To achieve this, the Tire Rack operates seven distribution centers nationwide. They are located strategically in Denver, Colorado; South Bend, Indiana; Windsor, Connecticut; New Castle, Delaware; Midway, Georgia; Shreveport, Louisiana; and McCarran, Nevada. Each distribution center’s inventory is geographically tuned to the needs and preferences of the customers it serves, in order to improve availability of popular tires and support the low-cost strategy by making most efficient use of overhead.
Partnerships with Installers
Lastly, in order to complete the purchase loop, Tire Rack has developed relationships with 8000 “Recommended Installers” around the country, each of which has taken a “Price Pledge” to install tires at a published rate based on the tire size. Customers rate these installers on the Tire Rack website as well, providing a mechanism for ensuring that Tire Rack customers have a pleasant experience from purchase to installation.
Sources:
http://www.bloomberg.com/research/stocks/private/snapshot.asp?privcapId=4479858
http://www.superchevy.com/features/vemp-0801-tire-rack-tour/
http://usatoday30.usatoday.com/money/smallbusiness/2003-12-07-veldman_x.htm
http://www.southbendon.com/news/company-profile/tire-rack-started-here-staying-here
http://www.moderntiredealer.com/article/311835/is-tire-rack-your-competition
Really interesting operating model. It sounds like Tire Rack has created a very effective way of educating tire shoppers, providing quality assurance, and guaranteeing a competitive rate on installation. The most impressive part of their business model, to me, is that they are able to fulfill orders anywhere in the country within two days. I would be interested in seeing how much inventory they have to keep on hand to sustain this and also what their cash conversion cycle looks like. Also, I’m curious if they are delivering to the mechanics or directly to the customer? I would hope they are able to get the tires directly to the mechanic otherwise this extra step of transporting tires from their homes to the mechanic for installation seems a bit burdensome.
I wonder exactly who they are targeting because I personally would get serviced at a dealership or an Autozone, which seems easier since – for me – tires are a low involvement purchase. Perhaps they are targeting car enthusiasts or people who need high performance vehicles for their job. Or perhaps, they are targeting value customers if their business model allows them to offer lower prices than the more traditional outlets? How does their pricing (tire + guaranteed installation fee) compare to a rival such as Autozone? Also curious whether they sell to mechanics and retail outlets like Autozone or only direct to consumer? Is there an opportunity there?
Very interesting to see how the company has grown organically over the last 45 years. It seems like a well-aligned business and operating model has allowed it to maintain its competitive foothold in the market.
Michael,
What an interesting company to choose. I’d looked at founder-owned tire company in the past and definitely agree with Tire Rack’s business and operating models. What I wonder, particularly with founder-owned businesses like this, is how sustainable the business model is and how much of the mission is standardized (vs. in the hands of the founder). In addition, I agree that customer reviews are critical in promoting the trust circle. One thing I had looked into in the past is whether you link a social media component to the review, as generally individuals trust their friends (or friends of friends) more than strangers. I would be curious to see how these two aspects have been integrated into Tire Rack’s model.
Jessica