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1 Introduction to the case 2
2 Analysis of the environment 3
2.1 Listing of environmental factors influencing the company (PEST Analysis) 3
2.1.1 Political and legal factors 4
2.1.2 Economic factors 4
2.1.3 Socio-cultural factors 5
2.1.4 Technological factors 7
2.2 The international golf equipment market Introduction 8
2.3 Analysis of the competitive forces (Five-Forces-Analysis) 10
2.4 Anal. of the Drivers Of Change in the industry and their impacts 12
3 The companies and their strategy 15
3.1 Which companies are in the strongest/weakest competitive Position 15
3.2 Recommendation of strategic moves 17
3.3 Key factors For competitive success in the Industry 18
3.4 The prospects for above average profitability in the golf-equipment industry 20
4 Callaway Golf Company Resources and Competitive Capabilities 23
4.1 The present strategy 23
4.2 The company s strengths and weaknesses 24
4.3 External opportunities and threats 25
4.4 The company s prices and costs 26
4.4.1 Analysis of the companies competitive position 26
4.4.2 Analysis of Stakeholder Expectations 28
5 SWOT Analysis 31
6 Sources of reference 32
1 Introduction to the case
The task is to execute a strategic analysis for Callaway Golf Company and to determine the actual position of the firm and its environments. The amalysis will result in verifying if there is a change of the present strategy necessary to continue Callaway s success story.
2 Analysis of the company s environment
2.1. LISTING OF ENVIRONMENTAL FACTORS INFLUENCING THE COMPANY (PEST)
2.1.1 POLITICAL AND LEGAL FACTORS
Generally one can mention that the activities of governments worldwide during the last decade tended to globalize the industry. The trade policies of core markets like the European Union, most of Asia and the United States encouraged free markets between nations. However, country specific laws are still reality, and enterprises are still affected by them. The actual tendency is clearly orientated to furthermore encourage global competition, a fact, companies of all kinds have to respect. However, in some countries we still have Foreign trade regulations aiming at protecting the own economy. As well all the major markets are stable democracies which act with a great political and government stability, therefore this does encourage spends for leisure activities.
Monopoly restrictions may get more important for the golf equipment sector, as we already have a high grade of concentration.
As Callaway Golf is an American enterprise it deals under American law protection. The United States possess a strong developed patent right combined with a system of lawyers fees based on commission, which in the past affected the company in a way that as a consequence of settled lawsuits against competitors, mostly with knockoff imitations, it was awarded more than USD 5 million in judgments and fines for imitative infringement.
Finally it should be mentionen that theincreasing popularity of environmental protection legislation may affect future production costs in general.
2.1.2 ECONOMIC FACTORS
The company is (because of social cultural factors and its policy) mainly affected by the economical development in three key markets, which are the United States, Japan and Europe. In some of those markets the company actually noted a decrease of the total dollar volume; if the trend holds on it could affect production costs because of over-capacities.
As it would be necessary to perform an analysis of the economical influences not only in the home country, but as well in every target market, I will skip this point and solely give some basic information about the development of the world economy.
In the year 2000 we find world economy once again in a better shape. With a general increase of world industry output of 2.9 % that is about 0.3 % higher than in 1999 the world economy finally seem to have recovered from the negative influence of the Asian crisis in 1997.
2.1.3 SOCIO CULTURAL FACTORS
The socio cultural factors are very much influencing the success of an enterprise like Callaway which dedicates itself to the development and production of goods useful for just one determined target group: The golfer
In 1995 there were 25 million of americans (representing a nine percent share of the total population) playing golf, which was by far the most important target market of Callaway.. The second important target market was Asia were about 16.5 million people were playing golf. Europe with just 2.3 million is on third place. As a tendency we can say that golf is practices in the developed countries, the developing ones are not very significant for the golf industry. The typical golfer had a relatively large annual household income of USD 57.000 to USD 59.000. A level of income of which in developing countries just a small percentage of the population dispose. However this might be a problem: The target market consists of high income persons and in spite of the notable decrease of the average green fee to the 1998 GBP 17.50 during the last years, playing golf in some countries (for example Italy or in Switzerland) keeps a luxury activity. Figure 1 shows us the average joining fees in a golf club by country in GBP. Easily we can see that joining a golf club still causes costs not affordable for everyone, this still limits the target group. However, playing golf seems to be a modern phenomena. Even in Europe we noted the opening of more or less 250 new golf courses every year in the beginning on the nineties, and about 150 annual opening in the second half of the decade. And the US shows us how it could be the future. From its 25 million golfers 5.4 million were female ones and about 2 million were teenagers. states. Especially the involvement of teenagers in the sport gives us an insight in the potencies the sport offers. And in Europe still only 1.4 % (2.3 million) of the total population plays golf at least once a year. Figure 2 shows the the coverage of the population of some European countries with Golf courses. While the US offers one golf course for every 23.000 people in 1998, we can see that Europe steps far behind with a medium of one golf course per every 77.000 people. As well we can see sharp differences between the European countries themselves. As well we can detect more potential for the sport in the former communist block countries like Poland, Hungary and Russia. In Russia the first country club opened in 1993 and until 2015 an availability of more than 100 golf courses in the country is expected. Western Europe counts more than 5000 golf courses today, but the opening rate is not supposed to decrease. Finally it must be mentioned that with the opening of more and more golf courses around the world competition is increasing, with all its consequences, but mostly we will see falling joining fees for private clubs and falling green fees in the public one. This will furthermore increase the target group for Callaway Golf. Golf forms today an important part of the upper classes life and is absolutely en vogue . As well we have to see that golf is not an one time investment, players usually buy other clubs, frequently buy golf balls etc. All these goods belong to the product line Callaway offers. As a conclusion let me mention that in spite of the specialization on golfers Callaway has excellent opportunities, because Golf is in , the rapid growth in one core market, the United States, is not supposed to come to an end soon, and the potential in other markets is enormous.
2.1.4 TECHNOLOGICAL FACTORS
In the golf equipment industry there was nearly no technological progress for decades. With the introduction of perimeter weighting in the late sixties we experienced a tendency to more and more introduce advanced technology in golf equipment. The next key invention was made in the early 80 s with metal woods, in the late 80 s followed graphite shafts and in the early 1990 s finally appeared the oversized club head. From the late 80 s on we have seen more and more expenditures into Research & Development, and the appearance of advanced technology completely changed the market structure.
A further consequence was that product innovation caused shorter life cycles and stimulated sales, because of the customer supposition that the technology will improve their game. Technology transfer was still possible in short time, and the market leader were steadily attacked by companies with knockoff imitations.
2.2. THE INTERNATIONAL GOLF EQUIPMENT MARKET INTRODUCTION
During the last years the market size of golf equipment generally experienced rapid growth. Solely the US market had a total sales volume of an estimated USD 2.410 million in 1997. Compared with 1996 we noted a growth rate of about 5 %, slightly less than 1995/1996 when sales in golf equipment rose by about 7%. That means as well that the share of golf equipment sales in the total sports equipment market raised from 9% in 1986 to 15% in 1997, a sign for an increasing popularity of golf (see chapter 2.1.3.).
The worldwide market for golf equipment is highly competitive and extremely dynamic. However in 1997 there were more than 350 enterprises involved in manufacturing golf equipment, but only six of them dominated over 80% of the market. Therefore we can talk of a high grade of concentration. As well it was estimated that only those six companies were profitable. Callaway Golf finds itself among some very strong competitors; the best positioned ones are Karsten Manufacturing, Taylor Made, Cobra Golf (which belongs to the Fortune Brands group, which actually as well is home for two other golf equipment companies: Titleist and Foot-Joy), and the old fashioned competitors like Wilson, Spalding and MacGregor who even with the introductio of technologically advanced clubs- were not able to regain the market share they lost before. These companies are well established and well financed and in possession of recognized brand names. Apart from that there are a couple of small uprising companies attacking the market leaders with knockoff imitations (see chapter 2.1.1). In the golf ball segment, which is as well highly competitive we can find one competitor with an estimated market share of more than 50%. Callaway Golf ball company s mayor competitors are brand names like Slazenger, Titleist, Spalding, Wilson and Maxfly. But on all mayor golf markets in the world Callaway Golf still remains the number one in sales.
As distribution channels we see mostly on-course pro shops and some off-course retailers specialized on golf equipment. Examples are Edwin Watts and Nevada Bob s. During the flow of time the last ones gained more importance because of offering a wider range of brands and more aggressive marketing. But they generally only hold pro-line equipment on stock, and offer as well qualified personnel or even computerized systems to fit the golfer with the for him optimal club. While high-end manufacturer still keep this distribution system (necessity of custom fitting ), we find as well low-end manufacturer who are distributing through discounters, mass merchandisers and sporting-goods stores. They attract basically newbies to the sport as well as occasional golfers who don t want to spent that much money in equipment.
The golf equipment market today is very dynamic, and with increasing spending for Research & Development we experience shorter and shorter product life cycles.
As well because of the more and more advanced technologies implemented in a simple golf club the necessities on raw material and goods delivered by subcontractors as well increase. Today it deals with to a high grade customized products which leads to high switching costs and bigger interruption times when it comes to a change of buyers. However the companies consider it still not too complicated to find alternative suppliers. As well the raw materials are available and until now there are signs of shortage in the future.
As already mentioned only six of the more than 350 competitors on the golf equipment market are profitable.
Callaway uses as well sales companies established in the target markets, as partnerships with other companies. Since the year 2000 in Japan for example the products are delivered directly to retailers by a wholly owned sales company. This is supported by a new product introduction policy which encourages retailer support and as well assures client support before and after the purchase of Callaway equipment.
As well there exists a certain quantity of products that are sold through unapproved outlets or distribution channels, but mark a notable part of the total sales.
One of the core points in advertising is to be present at all the grand international opens. An important indicator of popularity is the use of drivers or clubs of a certain brand by pros in international tournaments. The golf equipment manufacturing companies try to endorse the most popular players, and in history for some of them this became instrumental, one is example is Cobra Golf who contracted Greg Norman, another Titleist with the endorsement of Tiger Woods. However, endorsement of players gets more and more costly, because the contract amounts get bigger and bigger.
2.3. ANALYSIS OF THE COMPETITIVE FORCES (FIVE-FORCES-ANALIYSIS)
By the end of the 90 s competitive rivalry in the golf equipment market was high. Only six manufacturers dominated more than 80% of the world market, and most of them had roughly the same size.
This development was relatively new in the market, because earlier we have seen an oligopoly market structure, dominated by three old fashioned companies. With the introduction of advanced technology in the sport a couple of new enterprises took over the market and its structure changed rapidly.
Buyer Power varies. With increasing size of the companies they demanded bigger and bigger amounts of raw materials from the suppliers, so it tends to increase. However, golf clubs are not that material intensive, therefore we still consider the buyers power here low.
When it comes to customized goods like shafts etc., we consider Buyer Power as high because of a high grade of concentration, the tendency to backward integrate suppliers etc. This is at least valid for the graphite shaft segment, the steel shaft supply differs a lot because the supplier side there is highly concentrated.
Supplier power was dependent on the product. As most golf club producers don t believe that grips make a difference to the golfer, supplier power in this segment was quite low. They purchase a limited of grips from one producer, but in case they would be easily ready to change their source.
When it comes to Golf club shafts, supplier power was higher. Because of the very high entry investment in the steel shaft market there are only a few companies competing, the reputation having True Temper.
The graphite shaft market again comes up with very low supplier power. Because of the relatively cheap investments necessary to produce graphite shafts we see some more manufactures on the market as well as buyers tendencies to backward integrate suppliers. As well we have to take into account that with the demand of more and more customized product from the buyers side, the supplier power will grow.
In Raw Materials Supplier Power is still low.
Threat of substitutes
Golf clubs are basically a generic product and must be aware that there is always the threat of substitutes. Companies fight for their share of a relatively small target market. As companies pay high sums to link professionals with their products, they offer high quality before and after purchase service to keep their clients in the line.
Threat of entry
The threat of entry in the economy is not that big because the market is relatively small size and today a successful engagement on the golf equipment segment needs skill and enormous startup investments, mostly in Research & Development. As well it takes time to establish a new brand in the market, when it has to be build up from the scratch.
However keeping in the potential the golf market offer it might be possible that i.e. other sporting goods manufacturers will give it a try.
2.4. ANALYSIS OF THE DRIVERS OF CHANGE IN THE INDUSTRY AND THEIR IMPACTS
Changes in industry growth rate
The market for golf equipment worldwide amplified notably during the last fifteen years. As example in Table 1 we can see the development of market size in the United States and the annual growth rate:
Year Sales of Golf Equipment (in million USD) Groth rate (related to the year before)
1997 (est.) 740
2.410 Not available
The historical analysis shows that we had a couple of Boom Years in the early nineties and a decreasing growth rate later on. We still see the market of golf equipment grow moderately. Interesting is that the number of golfers during those years remained stable or was growing moderately. This means that the growth of market size was more attributed to the golfer s preference to can choose between a number of woods, than to the entry of new golfers on the demand side of the market. That furthermore means that the introduction of advanced technology in the game led to a change of costumer preferences. Golfers bought the high technology clubs to see their possibilities and to generally improve their game, and they liked to have different clubs to choose from. This preference demands a higher grade of product differentiation to satisfy the necessities. Taking this change of attitude into account and as well reviewing the socio cultural factors we can draw the conclusion that the decrease of the growth rate will probably come to an end and we will see a stable annual growth rate of around 1 or 2% in the future because of the following facts:
Golf as a sport is still en vogue
Increasing competence between private and public golf courses will lead to a further decrease of green fees and joining fees; that will furthermore lead to an enlargement of the target group
Finally the opening of golf courses in Russia may have signalized an increasing convergence of markets worldwide. Customer preferences become more and more similar. Therefore there is a big possibility that the possible size of target groups worldwide will close up to the one of the United States, where 9 % of the population are more or less active golfers. In Western Europe and Asia we are still far behind that rate, which finally means that those markets offer enormous potential.
Product innovation led to a change in buyer s behavior, it gets more and more common to have more than one driver and a series of woods, this as well improves market size.
However with a persistent tendency to globalization there might appear other companies in the business attacking the already established ones in certain target markets or just compete in their home market. As well it cannot be excluded that other major companies will entry the golf equipment industry, but because of the high grade of concentration we already see this would result in huge marketing and R&D expenses to get a high rating of name recognition. In the golf equipment industry this requires most of all high quality products, we already know that even companies with decades of experience in the golf business are experimenting heavy problems in regaining the market share they lost because of unawareness of the their clients necessities.
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