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Tyre Industry

Pirelli – A classic case on how to run a B2B business & become a leader in the B2C segment.

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Posted: September 21, 2016 at 1:33 pm   /   by   /   comments (0)

 A classic case on how to run a B2B business and become a leader in the B2C segment.

A few facts about Pirelli:

giovvani-pirelli

Founder: Giovanni Batista Pirelli

Pirelli started as an undersea telegraph cable manufacturing company and in the late 19th century was involved in the business of laying cables in the Mediterranean Sea.

Current Chairman: Ren Jianxin

Employees: 37,500

Revenue: 6 billion euros

Pirelli builds their customer’s perception at a macro level:

Whether it is an Italian car or an Italian tyre, products from this country-they evoke a common belief in a consumer’s mind. He acquires not just a product, but his own aura gets charged with the characteristics of great looks and great performance.

First the car companies realized this and started manufacturing extreme high performance cars – what Pirelli refers to as the prestige range of vehicles. These include Ferrari, Lamborghini and Maserati among others, and Pirelli tyres started working very closely with these companies.

The other companies like, McLaren, Porsche, Aston Martin  had no choice but to join hands with Pirelli, since the customer who related to this segment of prestige brands could not be allowed to sway for the lack of Pirelli tyres fitted on their car.pirelli-car

Ultra high performance car buyers also have their vision set on high performance cars like Audi, BMW, Mercedes and Jaguar, amongst others, and these brands also cannot ignore Pirelli.

Pirelli found its niche as a brand that assists the great looking Italian cars to deliver performance.

Pirelli builds and protects its niche:

Pirelli has worked very closely with car manufacturers in creating its own range of products that are customised for every car variant. A tyre for Lamborghini carries an L sign, F for Ferrari and an MGT for a Maserati and thereafter this gets subdivided into various products suited for each variant of Ferraris and, similarly for other manufacturers.

The fit is so immaculate and precise that the automobile manufacturer cannot deny Pirelli the advantage of a favored status over other tyre manufacturers.

Pirelli enjoys such a high level of trust as a brand that manufacturers are willing to place Pirelli in an enviable position on the car itself , the best example of this is the Lamborghini Aventador Pirelli edition – Will we be able to buy a Maruti Brezza Apollo edition in this lifetime?

Pirelli develops  technological superiority:

The homologation of Pirelli tyres with prestige and premium car manufacturers is not just because this tyre company is an Italian tyre company.

All this has been made possible with a lot of patience and intelligence, in simpler words, research and development.

In 1901 the company got its first patent for tyres and today it holds approximately 5,000 patents.

Pirelli runs approximately 150 collaborative projects with universities and research organisations.

Pirelli not just creates technological barriers, it follows that up by maintaining a presence on the F1 circuit, which is the Holy Grail for proving the credentials of an ultra high performance tyre. A customer will derive an obvious conclusion – if a Pirelli product can deliver performance for an F1 car, I cannot question its quality in any segment.

Pirelli’s association with Maserati  goes back to the early decades of the last century when Giuseppe Campari’s Maserati won the French grand Prix in the 1930s.

The Pirelli Cinturato introduced in the 1960s reinforced this association and it has stood the test of time, weather, geographies, demographics and much more over the decades.

pirelli-world

The corollary to this is that it leads to the customers’ willingness to pay a premium for the quality delivered by a Pirelli product – and in return, Pirelli spends more on research and development of better technology.

It’s a vicious circle which benefits the customer and the manufacturer-but not Pirelli’s competitors.

Excerpt from Pirelli Annual report:

Pirelli has already started working on projects such as the Cyber Tyre, with applications in the Consumer and Industrial Businesses. This technology is the result of a collaboration Between Pirelli’s R&D division and the department of Engineering at the Polytechnic University of Milan. The Cyber Tyre provides vital information about vehicle Performance and road conditions, as well as the tyres Status, thanks to an embedded electronic sensor the size of a one euro coin. The sensor ‘talks’ via a wireless connection to the car’s on-board computer and other electronics, displaying information to the driver via a graphic interface. This information can be transferred later to a central Computer for more analysis. The result will be ever higher Levels of safety and performance.

Pirelli manages its relations with customers:

Pirelli runs approximately 100 collaborative projects with car manufacturers.

On the B2C front Pirelli tracks every car that is sold in the prestige segment, and does not miss an opportunity to aid the customer with its service team. The company also focuses on being present in the customers’ mind through various channels, so that when the need arises, he thinks of Pirelli as his first choice.

The fact that car manufacturers, especially in the prestige segment, have laid down the parameter that a car warranty shall be void in case OE recommended tyres are not fitted- helps Pirelli.

Can you imagine the impact of such a warranty from any of the bigger manufacturers of cars in India on our Indian tyre brands? It makes me wonder about the impact on Chinese TBR imports .Would people stop buying Tata trucks or will they stop buying Chinese TBR if such a warranty is in place from Tata Motors?

Excerpt from Pirelli Annual report:

Following the car through its whole life cycle our business model has two key stages. Winning top Manufacturers’ approval is only the first objective. After Pirelli tyres are fitted in the factory, the second stage of Success is measured by the second and third sets bought by drivers. Fidelity to a tyre brand is higher in the Premium market. Once drivers become accustomed to Premium tyre Performance, they want to continue: the majority choose the same brand for replacements. Connecting the Premium carmaker with the Premium car driver throughout the value chain

Pirelli manages its employee relations:

  • Pirelli makes every employee spend an average of 8.2 days on training every year
  • Pirelli has 37,500 employees out of which less than 3000 are temporary workers
  • Employees are encouraged to follow the mantra of “Open Innovation” – which leads to generation of many ideas that get commercial backing from the company
  • The number of whistleblowing reports in Pirelli went up from 1 in 2010 to 23 in 2014
  • Pirelli treats its employees as a repository of Group know how and the drivers for its growth
  • An employee who believes in the company’s vision has the conviction to translate it into positive returns for the company

Pirelli diversifies:

Although 70 % of Pirelli’s tyre business is generated from cars, 7% comes from motorcycle segment, 3% from Farm tyres and the balance 20 % comes from truck tyres.

Pirelli occupies a leader’s position in markets in South America, Europe Middle east and Africa.

With manufacturing plants in countries that provide cost benefits, like Mexico, Romania- Pirelli manages its production with an eye on quality that sustains the group image of an Ultra High performance company with Ultra High performance products.

Pirelli enjoys life in a paradox:

Fact # 1: A Pirelli product has built such strong credentials as a performance tyre, that a customer who buys a Pirelli tyre is willing for a trade off in preference of performance versus a relatively long life.

Fact#2: The buyer of a Pirelli product is not a price sensitive customer, he is looking for quality and he is willing to pay a premium for it.

Postulation: Pirelli sells more tyres to the same customer at a better price during the lifecycle of one car in comparison to their competitors.

Pirelli is omnipresent: Nitrogen N2 is a triple bonded element, one of the strongest bonds that exist.

Pirelli’s triple bond with Car manufacturers, Car drivers & Employees is hard to break.

Everyone aspires to buy a car with Pirelli tyres.

Read more about Pirelli’s association with major car brands

Pirelli Annual report

Pirelli Ferrari hill climb championship

Ferrari challenge Trofeo Pirelli

Pirelli Ferrari Formula Classic

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