Tier 4 Tires: The Price of Entry
Are entry-level priced products here to stay?
Up until a few years ago or so, Tier 3 was considered to be the entry-level for all segments of tires. Previously, the past decade and a half has been marked by brands like Aeolus, Sailun, Hercules, and an onslaught of others taking the market by storm, and putting the major manufacturers on their heels in times of increased competition.
While the major brands initially denied the invasive pressure of Tier 3 competition, it was only a matter of time before these giants had to strategize solutions to address the tier’s growing momentum, as it was surely felt in the coffers.
In recent years, the entrance of Tier 4 has led to a new price proposition creeping into the marketplace and as a result, gaining ground. The price positioning of these products is now referred to as Tier 4.
Barriers to entry
Today, Tier 4 products have infiltrated the medium truck segment, and to a lesser degree the passenger and light truck segment. Medium truck has far less models and sizes, allowing Tier 4 producers to enter with few hurdles. Conversely, the fact that the PLT segment has much greater SKU proliferation has created barriers to entry for the emerging Tier 4 producers to fully capitalize on the segment.
Tier 4 products have infiltrated the medium truck segment, and to a lesser degree the passenger and light truck segment.
Further complicating Tier 4’s adoption into the marketplace is Tier 4 brand’s attempt to cut out the middlemen by going directly to the end-user, a task that will surely prove monumental.
Tier 4 products are typically very low priced, manufactured off-shore, and usually produced in factories with much wider quality tolerances than the preceding three tiers. This alone may not appear a big problem, however, the issue arises in the manner that these manufacturers’ goto- market strategies are executed. That creates the problem.
Tier 4 manufacturers such as Roadlux, Double Road, Agate and Caspin are examples of manufacturers that are considered market disruptors. These manufacturers have decided to disrupt the market through price and channel disruptions.
The standard model for several decades in the industry has been: manufacturer to wholesaler to retailer to end-user. The disruptors have chosen to cut a link out of the traditional chain by going direct to not only wholesalers and retailers, but endusers as well. These disruptors are viewed similarly to Amazon and Uber, and may be here to stay.
On the surface, it appears that their strategy is unsustainable and that a modification of this business model may need to occur to ensure their long-term survival. Sophisticated competitors will have already realized that building a model centred on added value, and superior service, will inevitably triumph.
Solutions such as e-commerce, online portals, superior technologies and development will always counter the offerings of entry-level priced products, however, there will always be a portion of the market in search of cheaper products. I believe Tier 4 brands’ staying power will depend heavily on their ability to adjust their strategies to traditional market practices.