How social nets, price comparison are influencing online tyre business

Things move quickly in the online world. Even business moves “at the speed of thought” as Bill Gates suggested in the title of his book of the same name. While the tyre industry has shown some signs of reticence when it comes to doing business over the Internet, in recent years the tide has turned and most large (and many small and medium sized) tyre companies now see online involvement as a permanent part of their business. However recent developments in social marketing and price comparison sites only go to show that if you don’t keep up you may lose out. Tyres & Accessories analysed the latest data and spoke to some leading players on the frontiers of tyre e-business to see what pitfalls and opportunities lie ahead for the UK and European tyre business.

The first question we have to ask is: is the online tyre market place already considerably bigger that we thought? For some time the received wisdom has been that online tyre retail or e-tail accounts for less than five per cent with most estimates hovering around the 3 per cent market. Last year insiders at a certain large French tyre manufacturer suggested the real figure could be as much as three times that amount. At the time most people T&A spoke to thought this was an overestimation, however during a recent exchange Harley Titchener, senior account manager at GfK NOP Research Panels told us that it could even be more than this.

Bigger than we thought?

According to Gfk, the online channel is one of the most dynamic areas of the British tyre market and “has been embraced to a greater degree than ever before with manufacturers and distributors recognising its importance and relevance for a customer that is becoming increasingly internet savvy.” The result of this increased focus on e-commerce has been steady online sales growth to the point where 1:10 is sold online (year-ending June 2011). Looking back a couple of years, Titchener explained, that ratio was closer 1:20. Looking further ahead, another as yet unpublished report produced by a leading tyre manufacturer suggests this channel could account for anywhere between 40 and 50 per cent of sales by 2020. So whichever way you look at it – indeed if you agreed with those that said the UK online tyre market was or is around 3 per cent of the total volume – the order of growth reported by GfK and predicted by other sources cannot be ignored.

This point is underlined by the fact that those not actually buying their tyres online are increasingly using the Internet as a pre-purchase research tool. According to GfK, almost 1 in 5 customers now undertake some form of online research before making their purchase. Other sources put this figure considerably higher.

Not a Meerkat in sight – price comparison and the tyre market

With average tyre prices increasing and consumer budgets being squeezed by the recession and higher fuel costs, it is no surprise to see that GfK’s data suggests that the proportion of customers looking up price comparison sites, brand and outlet information online has increased year-on-year. We have all heard of gocompare.com and comparethemeerkat – ahem, I mean comparethemarket.com – which offer price comparisons of things like car insurance, but during the last year or so they have been joined by a number of tyre price comparison equivalents.

Interestingly, tyre price comparison as a field is not occupied by the best-known players. Instead a number of home grown enterprises (such as tyrepriceadvisor.co.uk, tyresearcher.com and cartyresforsale.co.uk as well as France-based rezulteo-tyres.co.uk) are seeking to corner the market. There are others and T&A knows of plans for more that aren’t visible yet, but so far unconfirmed reports suggest that tyrepriceadvisor is the market leader followed by tyresearcher and cartyresforsale. The others are said to be having negligible impact on the market at the moment. Tyrepriceadvisor’s strength is in the fact that it is linked to tyres-online.co.uk, which produces regular and varied content relating to tyres. And, being as it is part of the first run of tyre websites, it ranks highly with search engines.

Knowing that online tyre retail already accounts for a significant chunk of UK retail sales and that pre-purchase research is even more important, the comparison sites seek to do business by showing consumers a range of prices for the same (or very similar) products before referring the customer to the relevant e-tailer. In exchange for the customer referral the e-tailer pays the comparison site a commission, usually between four and seven per cent, but this varies from company to company and can be dependent on volume.

So does this mean consumers are finding bargains online? The GfK NOP panel data indicates that to some extent they are. The average price for online purchases is reportedly lower than purchases made off-line and a larger proportion of online sales come from the sub £50 price point. This could be driven by increased competition and the emergence of the price comparison sites, but the reasons are far from clear. And what’s more this assessment doesn’t necessarily contradict previous data supplied by another source that suggested that the average online tyre price was some £10 to £15 higher than it was a couple of years ago. Considering the number of tyre price increases that have been implemented at the manufacturer level since then, it seems unlikely that it would be any less than this now.

Social networks: connecting to tyre e-tail customers

Demographically, online tyre shoppers are slightly different to offline customers. They tend to be younger, with 35 per cent of online sales coming from 16 – 34 year olds. In contrast the 16 – 34 year old age bracket accounts for 18 per cent of off-line tyre purchases. Additionally, there are a higher proportion of male online purchasers with 71 per cent of online purchasers being male, as opposed to 62 per cent male buyers offline. So basically, twice as many young people buy tyres online and this group is more likely to be male.

And this is where social networks such as Facebook and Twitter come in. As tyre manufacturers and retailers alike engage with these socialising and so-called micro-blogging sites they both feed and are fed by the young male tyre buying demographic referred to above.

Facebook’s latest membership information illustrates the point. Currently this social network alone reports that it has more than 750 million active users. And the fact that Facebook users have an average of 130 “friends” or connections means each person tyre businesses connect with online is like a micro advertising opportunity; it presents tyre manufacturers and retailers with the opportunity to convert not only one enquiry into a sale, but to see their products and services recommended virally around the rest of the user’s friends.

Social network market shares

Facebook    50.14
YouTube     22.54
Twitter        3.49
MySpace     0.44
Others        23.39

Source: Experian, July 2011

Social networking is also more mobile than previous generations of online interaction.  Currently more than 250 million active users access Facebook through their mobile devices. And, according to the site itself, people that use Facebook on their mobile devices are twice as active as non-mobile users – all of which provides tyre companies with real-time access to the hearts and minds of the tyre buying public.

Social networks like Facebook are also increasingly international. Facebook for example is available in more than 70 translations and about 70 per cent of Facebook users are outside the United States.

While Facebook’s status as the largest social network makes it vital signs a good indicator of the breadth of influence this technology has, for all its three quarters of a billion members, there are already signs that Facebook has peaked. And while July’s Experian data show that by market share YouTube is the next biggest social network (see table), some would argue that the video sharing site provides less opportunity for interaction than Facebook or fast-growing Twitter. Twitter’s current market share of just 3.49 per cent belies the fact that this network broke the 100 million member barrier in September and is still very much in it growth phase. Another network noticeable by its absence from Experian’s list, and which is arguably more important for business to business purposes, is LinkedIn. This business networking and CV-sharing site also have upwards of 100 million members.

Pre-2011 tyre companies were relatively slow to engage with the social networks. When Tyres & Accessories set up its twitter account (@tyrepress) in 2009 for example, it wasn’t easy finding tyre manufacturers, wholesalers and retailers to follow. Sure there were accounts for the global head offices of some firms and plenty of tyre and wheel depots in the US, but until more recently there were far fewer over here. During the last year or so this has clearly changed with significant financial and time investment being made into social networking and blogger outreach by the large firms.

T&A recently ranked the leading tyre manufacturers’ efforts in the UK as a means of gauging progress. We also tracked our own performance and that of our publishing peers to give a reference point to this. The rankings were compiled using two of the leading measure of social impact Klout and PeerIndex. The two scores these systems offer were then averaged for consistency. Owing to the fact the top six tyre makers are very much global players, using the UK-based social networking handles gives us the opportunity to keep the data consistent. This also filters out biases in favour of non-English languages.

Well done to Continental who clearly placed top with an overall score of 45, 1.5 points ahead of Michelin who, considering their consistently strong performance in general online branding terms (see separate article for more on this), will no-doubt be disappointed with this result. After the top two there were 6.5 points of clear air before Dunlop in third. However when you consider that the Goodyear Dunlop joint venture has two top six places when you add in fifth placed Goodyear (29.5), you could argue that their combined influence is greater. Just behind Dunlop Pirelli showed a competitive performance. Bringing up the rear of the top six, Bridgestone’s score of 22 was surprisingly only half of that of top ranking Continental. (See table for more details)

It is early days for both price comparison and social networking, meaning the shape of the market is still very much fluid. With reference to the comparison sites, while a small number of players dominate at the moment, other sites are likely to link tyre content and price comparison together with tyre retail and even stand to make possible additional revenue through advertising. When it comes to social networking too it is clear that this method of connecting with customers is still very much evolving and it will be interesting to see what our social networking rankings look like in a year’s time. In this respect one thing looks clear, there are likely to be a lot more companies investing a lot more in this area during the next 12 months.

Number crunching

For anyone wondering about the approach adopted by the researchers quoted through this article, the GfK NOP research utilises a 12,000 strong panel to collect consumer tyre purchase data from across Great Britain on a quarterly basis. Following the completion of the fieldwork the data is weighted, in line with ONS targets, so that it is representative of the GB population.  However, we have to point out that GfK NOP tyre market data is consumer driven and, as such, excludes fleet purchases.