Company Profile

Connecting the carmaker with the car driver throughout the value chain

Connecting the carmaker with the car driver throughout the value chain

Pirelli’s ambition in the medium term is to outperform industry growth. We want to improve returns, generate greater cash flow and value for all stakeholders: from shareholders to employees, local communities, suppliers, clients and those 10,000 or more trade partners who sell Pirelli every day. Our business model is based on a simple premise, a journey connecting the carmaker with the car driver throughout the value chain.

The golden rule is follow the maker. Pirelli sells to top carmakers’ plants; then it sells to the aftermarket through all channels – tyre specialists, dealers and auto chains. Fast information and a fleet of foot attitude in the aftermarket, we believe, are the key to success.

Longstanding partnerships are the key

Pirelli aims to be the preferred technology partner to the world’s most prestigious carmakers. We are leader in car homologations, ranking first in winter and summer tyre approvals, varied by grip and tread path, and second in all-season tyres. We added more than 200 homologations from carmakers in 2014. Now with a portfolio of more than 1,500 homologations, Pirelli is one of the foremost companies supplying tyres to car factories.

Almost every car produced by a carmaker requires a different tyre. Engineers develop exactly the tyre needed for each type of car. Our managers have the big task of expanding the range but keeping costs under control: with demand in different climates and innovative technologies such as run-flat and self-sealing, the breadth of products continues to expand. For example, varying winter climates in Germany, Canada, Russia and Japan each require different tyre technologies. In order to reduce such complexity, Pirelli has developed several de-complexity projects with the aim to simplify and standardize the production of certain components and processes. Such agility is possible only because of the way the business is organised.

The segment is Pirelli’s sweet spot – it has higher technological hurdles to overcome but also boasts higher margins. Pirelli has grown its market share with carmakers from 14% to 20% between 2011 and 2014. Meanwhile, its share of the prestige segment – Ferrari, Maserati, Lamborghini, Porsche, Bentley, Aston Martin and McLaren – has grown from 30% to around 50%.

Pirelli’s global management follows a matrix organisation combining function with geography.

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 market. Once drivers become accustomed to tyre performance, they want to continue: the majority choose the same brand for replacements.

If a driver goes to the dealer that sold him or her the car, the dealer is likely to recommend the same tyre brand. Equally, a car’s warranty may be void if it is not fitted with approved tyres. Concentration on brings rewards.

Pirelli captures the replacement business through different levers amongst which by developing a full range of marked tyres, which carry a special imprint on the sidewall linking them to the individual car model. For example, BMW marked tyres are identified by a star sign on the sidewall, MO stands for Mercedes Original, AO for Audi Original, MGT stands for Maserati. By choosing marked tyres, the driver ensures the optimal driving experience, as originally intended by the carmaker. Pirelli can count on the widest portfolio of marked tyres in the industry.

Mapping of car distribution and Big Data offer huge opportunities. Through our geo-marketing system, we are able to identify for each postcode or zip code where cars and tyres have been sold area by area, where the car lives, how many of those cars have Pirelli tyres and when those tyres will need to be replaced.

This work is essential to understanding the consumer, the dealer network and tyre shops that will sell second and third sets of tyres over three- or four-year periods. The mapping and data crunching allow the company to communicate expertly with dealers so they can stock the right tyres and gain more sales.

Pirelli deploys three main marketing programmes: coverage of the car dealer network and co-operation on marked tyres; growth of retail network; and engagement with the end consumer through digital programmes, which also leverage on Pirelli’s Motorsports, including the exclusive presence in Formula One.

It all means that Pirelli, for the first time probably in the tyre industry, is driven by a consumer-centric approach.

An “open innovation” R&D model

At the heart of the Pirelli story is an ever-evolving technological process that takes raw materials such as rubber and steel and turns them into high performance products to meet the exacting requirements of carmakers and car drivers.

If you want to be a leader in the tyre business, you cannot just count on your in-house resources. That’s why Pirelli chose to use an Open Innovation Model: today its external collaborations account for more than 150 projects with universities and suppliers. Among our research projects in the fields of innovative materials and technologies, we are looking at silica derived from rice husks and selective de-vulcanisation technology to make scrap tyres reusable.

On top of that, there are about 100 collaborative development projects with carmakers. Many of these are Joint Development Agreements focused on the most advanced areas in each part of R&D, from materials to electronics.

Formula One is excellent advertising of course, but it also motivates research, enhances speed of change and flexibility and encourages talent. Pirelli places young engineers on the motor-racing programme; their work helps other parts of the company by providing data, especially on materials, and pushing R&D.

Formula One helps to improve simulation programmes and provides significant feedback from the racing teams about Pirelli’s tyres. Some F1 engineers later switch to the tyre business. Pirelli’s products are made better and faster through F1, through working with the best people in the business.

The company likens Formula One to a gym: it can only come out better and stronger.

The company likens Formula One to a gym: it can only come out better and stronger.

The optimal manufacturing footprint

Pirelli’s manufacturing footprint is technologically advanced, efficient and sited close to the markets in which we sell.

Production capacity amounts to approximately 72 million Consumer tyres, 50% of which are, and 6.3 million Industrial tyres. Production is totally in lowcost countries for the Industrial business while 78% of Consumer production is in these areas.

Today’s manufacturing setup is the result of a journey that was started in 2008, reshaping the company’s footprint by building capacity in Romania, China and Mexico to replace production in mature markets. As a result, Pirelli has reaped greater efficiency and reduced costs.

Sustainability and profitability ride together

Our unceasing focus on the finest products goes hand in hand with Pirelli’s commitment to sustainability. Profitability is informed by all aspects of sustainability. A sustainable business will stay successful.

Sustainability is embodied in the management system adopted by the company. We map, control and manage the economic, social and environmental impact and opportunities connected to Pirelli’s processes, products and services.

Our unceasing focus on the finest products goes hand in hand with Pirelli’s commitment to sustainability. Profitability is informed by all aspects of sustainability.
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