Bridgestone Bandag pursuing a “fair share” approach to price increases
Last year Bridgestone Bandag – one of the largest competitors in the European retreading market – only announced minor price increases. In February this year, however, the manufacturer and franchisor needed to raise its prices by an average of six per cent. As Harald Van Ooteghem, Brussels based senior manager for TBR/Retread Business Planning at Bridgestone Europe, explains to Tyres & Accessories, in the event of price increases an attempt is made to implement a “fair share” approach by which both partners – the supplier and customer – share the extra burden.
“At Bridgestone Bandag we do our utmost to limit the price increase to the customer by looking at optimisations within the entire flow [of production and distribution] rather than just implementing price increases following raw material cost evolution,” says Harald Van Ooteghem. In this context the company succeeds in reducing price increases to an absolute minimum, the senior manager of TBR Business Planning adds. Whether in production processes such as at Bridgestone’s Lanklaar factory, the company’s sales organisation or the products themselves, attempts at every feasible optimisation are made.
Procedures to be optimised – compounds improved
An example mentioned by Van Ooteghem is the reduction of precure tread weight through improving the formula used. “When we develop a new compound we always work towards achieving premium performance through optimising the use of raw materials.” These days modern tread compounds offer a mileage that previously could only be purchased with additional millimetres of tread rubber. Today the tread can comfortably achieve a given mileage with less rubber. Further given examples are the integration of the Bandag factory in Lanklaar, Belgium into the Bridgestone family of factories and the step-by-step rebranding of Qualitread production.
While widespread experimentation with substitute raw materials is being carried out, Bridgestone Bandag remains sceptical as to whether “reclaimed rubber” is a genuine alternative to traditional raw materials. The use of such materials “might be potentially beneficial for lower price/low performance compounds; this is, however, not part of our compound design strategy,” the senior manager adds. In general, the Brussels based European operation sees itself as a provider of premium products: “Substituting high-quality materials with inferior materials is not an option for us,” the Bridgestone Europe senior management states. “If we reduced the quality of the raw materials we used, we would definitely harm our brand image.”
If raw material prices can no longer be absorbed by the manufacturer and the prices for treads and per kilogram prices for tread rubber need to further increase, then Bridgestone Bandag will attempt to employ a cooperative approach. Plainly speaking, this means it will not simply pass the increased raw material costs – whether for rubber, chemicals or whatever – one to one onto the customer. Instead, the higher cost will be distributed as part of a “fair share” approach. “As we work in partnership with our Bandag franchisees, we also bear a responsibility to make their businesses successful,” says Harald Van Ooteghem. “As we are not passing the full cost impact to the market, our margins have been impacted.” An attempt is being made to minimise and cancel out such negative ramifications through the abovementioned optimisation.
When looking at its competitors, it can be seen that Bridgestone Bandag succeeded in this last year, the senior manager points out to Tyres & Accessories. “Unlike many other suppliers, who were forced to pass on huge increases already in 2010,” last year Bridgestone itself only needed to implement “a very low increase on retread material in 2010.” The first Bandag price increase since April 2010 was implemented on January 1 this year, an average rise of six per cent.
Management at Bridgestone Bandag cannot predict how prices will further develop this year, yet in the short-term a recovery and reversal of current trends is not anticipated. As long as emerging countries such as China and India continue to demand a growing share of global raw material supplies, they will remain scarce and expensive. Reflecting upon this, Harald Van Ooteghem points out that some companies have already announced their second price increase for this year – even before the first takes effect. While Bridgestone Bandag has already raised its prices by an average of six per cent, a further increase is not yet on the cards.