Saturday, March 9, 2019
Case Study on Golf Equipment Industry
The persistence overview The retail gross sales of play game game game equipment diligence, which includes golf nine-spots, bags, balls, gloves and footgear, declined from slightly $4 billion to about $3 billion in 2003 and and so rebounded to around $3. 8 billion in 2007 with many threats remaining. The changes in the retail value of golf equipment industry argon closely connect to the come in number of golf players and total rounds of golf contend in the country. The club evaluate of golf has dropped approximately 21% from 27. 5 million in 1998 to 22. million in 2007, being the stupendousst decrease rate during the same detail among selected sports and recreational activities including bicycle riding, fishing, hunting, running, swimming, tennis and workout at fitness club (Source National Sporting Goods Association in Gamble 2008, C-80,). The total rounds of golf played in the United States had r atomic number 18ly changed in the last decades, it is curiously fl at from 2004 to 2007, with slight than 1% changes recorded (Source National Golf instauration in Gamble 2008, C-80). 7% of golf equipment sales are from marrow golfers-those playing at least 8 times a yr and averaging 37 rounds a year (Gamble 2008, C-80). Although, there are less players and less rounds played then before, manufacturers are compelled to go ahead with their concept and victimization schedule and all the same boost their spending in tradeing (Stogel 2009). there are two types of manufacturers in the golf equipment industry.High-end preeminent markings, which include rise known name such as TaylorMade-Adidas, Fortune Brand (parent of Titleist and Cobra), Calla focussing, pick apart, Cleveland and Nike exhausted huge amount of resources on R&D for innovative constructs and distributed their ware through on and off-course pro shops and major online golf equipment retailers. The low-end manufacturers such as Adam Golf and Dunlop Golf with less pay backed proficient capabilities interchange their harvest-homes at attractive voicely lower prices. They mainly focus on male parent and occasional golfers through department store, large sporting tidys stores and discounters.The three define characteristics of the golf equipment industry are the number of golfers, gear design noveltys and cross recognition. The United States Golf Association (USGA) and the Royal & Ancient Golf mettlesome society (R&A) had started placing more(prenominal) and more performance regulations to limit the manufacturers ability to develop equipments, clubs and balls, with advance(a) technological innovations, because USGA prescribeds believed that its an effective way of life of protecting historic golf courses that could not be lengthened due to space limitations, but too ensuring that the skill is the dominant element in determining games triumph.It is believed that such performance regulations had two impacts to the golf industry. Firstly, it discourages refreshful golfers from taking up the game. Secondly, it equalises the technological differences amidst the exalted-end grocery store leaders and the low-end producers. In all, the golf equipment industry is a fix-sized food commercialiseing driven market with current manufacturers, for each one attempt to capture a bigger market treat by festering reliance on price competitions. The competition in this industry for market deal is fierce. The five-forces analysisWe take the five-forces model of competition to analyse the free-enterprise(a) forces in five areas that affects the industry attractiveness. 1. The hawkish pressures created by the rivalry among competing manufacturers are rattling safe and have the greatest effect on the industry attractiveness, mainly due to a. wholly atomic number 82 pit manufacturers are active in delivering advanced products with design innovations in order to break their market standing, b. All steer brand manufacturer s are quite equal in size and capability. They can hardly be diametriciated in boilersuit product performances. . There are fewer vendees with less demand. d. Equalization of technological capabilities due to regulative limitation has shortened the differences in equipment performance between low-end and high-end products. e. There is growing reliance on price competitions. The competitive weapons apply by companies to outmaneuver one another include a. virtually brands started the passage of arms of price cutting. The average unit selling price of close golf equipments dropped. For example a. Drivers and woods dropped from $231 in 1997 to $174 in 2007. b. Irons dropped from $75 in 1997 to $71 in 2007. c.Footwear dropped from $86 in 1997 to $81 in 2007. d. Golf bags dropped from $126 in 1997 to $116 in 2007. (Source Golf Datatech in Gamble 2008, C79,) b. All brands are spending huge amount on R&D for technological advancement to give a recrudesce and easier flap, they in l ike manner providing a boarder range of equipments to suit golfer with unalike needs (Rynecki 2001). In addition, some had added adjustable features such as the TaylorMade r7 drivers, which allow golfers to move atomic number 74 weight plugs among a series of slots located in the rear of the driver to adjust launch angle and left/right dispersion. c.Manufacturers were relying on pleasant authorizations contracts with touring professional persons to enhance their image. For example, Nike paid tiger Wood nearly $100 million endorsement contract in 2007. d. Custom fitting was offered by around manufacturers and pro shops. It became important to gain market dowery as nearly manufacturers introduced shaft flex options in early 2000s. 2. The competitive pressures associated with the threat of new entrants were weak mainly due to a. The market demand does not march any increase since the number of golfers and the total rounds played are diminish year after year b. near golfers ha ve a very high degree of loyalty. They are highly likely to stick to the brand that they were using and ordinaryly have untouchablely believes to their spareite touring professionals choices. Along with the high technological product designs that influence most buyers get closings, it has do the opening barriers very high for this industry. c. Almost all existing manufactures are experiencing beastly profit grows in recent years. However, opportunities for new entrants still exist for low-end golf gears market under the current regulatory conditions. The new comer may be rofitable just now if it completes the following goals a. Become a fast & contract copy cat and compete on a low price. b. Be able to find reliable & low cost suppliers overseas. c. Originally has or be able to build good distribution channels, imaging Kmart or Target to have their home brand golf gears. 3. The competitive pressures from the sellers of replacing product raises from a. The raising number of counterfeit equipments produced in China, selling online at attractive prices and ship to the world. b. The boilers suit difficulty of the game, time consuming issues and the high golf fees are the three main barriers for recreational golfers.The current sparing crisis had forced many families to cut their spending on leisure activities. As presented in record 2 of Gambles original case, enchantment the participation rate for golf was decreasing, the rate for running and workout at a fitness club showed significant increase of approximately 37% and 50% from 1996 to 2007. On the other hand, in December 2003, six leading brand has created an alliance to against counterfeiters and had recorded some successes with Chinese governments willingness of taking severe measures against rampant counterfeiting.Golf, also known as the spotless couple with short letter, is a challenging sport that suits all age and raise groups. Its ability of improving social networks, expanding busine ss opportunities and harmonise domestic conflicts was sensed by its players. The remaining golfers are more likely to be the hollow out golfers those are loyal to the game. Moreover, various governing bodies had roaringly brought golf adventure into Olympics, starting 2016 Summer Olympics. Thus, the pressures from substitutes are moderate to normal. 4.The competitive pressures stemming from suppliers talk terms mightiness were quite weak since a. The clubheads were made by casting houses in Asia, where rarely union power was exercised. The design is owned by those leading brands manufacturers and they are being selective in establishing contracts with surplus offshore casting houses. b. Most brands manufacturers co-develop shafts with suppliers that specializing in shaft design and manufacturing. The collaboration had provided attractive win-win opportunities, but weakens the suppliers bargaining power and feasibility. . Both clubheads and shafts suppliers had rarely chance to integrate themselves and become official club manufacturer due to the high entry barriers, as discussed in force No. 2-new entrants. Golf manufactures need to pay more help to background check to casting houses offshore. It is important to initiate effective controls on production and shipping procedures to prevent suppliers selling the same product on black market. 5. The competitive pressure stemming from creational golfers bargaining power were moderate to normal because a.Buyers are the end users, in another word, golfers, who purchase the equipment infrequently and in small quantities. b. The manufacturers brand reputation and images are important to core golfers. c. Most golfers are very loyal to specific leading brand and has strong believes in its product performances. However, d. The demand was declining due to the number of golfers and total rounds played are declining. e. The USGA and R&A performance regulations had limited and equalized the technological capabilities o f different manufacturers.The competitive pressure stemming from touring professional golfers are strong because their choices have strong influence to core golfers who watches the tournaments. The driving forces analysis The boilersuit golf equipment market is downsizing. There are 3 major driving forces in this industry. Firstly, the regulatory design limitations adopted by USGA and R&A had driven the competitive changes. As a result, some leading brands capabilities of developing a sweeter swing were limited. Lower-end manufacturers got opportunities to catch up on technological capabilities and had gained more market shares and made more profits than before.In addition, it had lowered the overall profit margins in the industry. Secondly, product innovation is another light upon driving forces. Although the battle on developing the most advanced clubs and balls to the market has never stopped, the battle had been upgraded by calling design innovations within golfs governing orga nizations regulatory limitations. Thirdly, the whole market trends are to be merchandise driven. To play a smash market mix such as understanding buyer interests, increasing product differentiations, appropriate pricing and use effective publicity tools is the key task for every manufacturer.Leading brand like Callaway utilise heavy TV schedule, plus print and radio for mass advertize in order to bring its Big Bertha Steelhead Plus metalwoods and irons to market (Stogel, 2000). Winning endorsement contracts with top tour professionals remedys images of the brand and influences core golfers purchasing decision. The above driving forces are inter-related and together influencing this mature industry by making the competitions fiercer than ever. The strategic group mapping The strategic group map below shows the comparative market pips of selected golf equipment manufacturers using price and design innovations/advancement. Note Circles are drawn roughly proportional to the total revenues of each manufacturer. ) The map provides some indication of brand dressing in general. It shows that Callaway, Ping and TaylorMade are likely to struggle more with market share competitions. On the other hand, the governing organizations regulation driving force will favour strategic groups like Adam and Nike as the design limitation smoothes the differences among their innovation capabilities to the high-end ones. However, this map may not mean much as most of the product brands have their own advantages and have significant market share in some specific golf equipment.For example, Nike with a very successful record in golf dress up and footwear sales, where it was the second leading golf shoes manufacturers, had never grown to 3 percents market shares of golf clubs. In all, Nike is best positioned in this map with almost no coincide with another other brands. Key success factors The key factors determine the success of company competing in the golf equipment industry should be closely think to the industrys dominant economic characteristics, driving forces and market positions (Thompson, Strickland terzetto and Gamble 2010, p. 92).There are several factors that could affect the competition, three of them outranked in importance from three different areas. First of all, in regards to product marketing, a well-known and well-respected brand name influences buyers purchasing decision. Therefore, clever advertising using the appropriate media to gain effective contact with the potential buyers is every golf equipment manufacturers market focus. Over the years, winning endorsement contract with top touring professionals with individual social image had been approved to be the most effective way of creating and enhancing brand image.Nike Golf as a late comer was a star in using endorsement contract to improve brand recognition and boost sales. The company has recorded notable success in golf apparel, footwear and ball market since its 1996 endorsem ent contract with Tiger Wood. (Gamble 2008, C-96) Product innovation capabilities come next in this competition pool. The overall market is still very sensitive to first-to-market new attributes and features to be added on, even though the industry is considered as mature with knowledge-clients.All leading brands in the industry had put huge amount of resources on R&D and had delivered several remarkable models to market over the years, although Callaway and TaylorMade seem to be more internationally recognised by their innovation power. Thus, there is no overall market leader in innovation, but leading models in different product group (Woods, Irons, Putters, Golf balls & Accessories) for a specific time check. some other key success factor is product distribution related.As we mentioned before, leading manufactures sell their product mainly through on-course and off-course pro shops and most large pro shops have made variety of brands and models available in stock. The retailers /sales preferences will more or less influence buyers final decision at point of purchasing. Therefore, the consanguinity with these retailers is important, especially for brands like TaylorMade-adidas Golf that does not offer consumers the option of purchasing clubs or apparel on its website (Gamble 2008, C-92). Callaway Vs.TaylorMade-adidas, financially The financial performance of a company is usually a good indicator of how well its competitive strategy works in the market. However, the way of translating and analyse companies financial result has never been easy. we take the process rate as an example by looking at the manufactures 2007 total sales revenue, Callaway Golf increased its sales (rounded to the nearest million) by $107M =10% from $1,018M in 2006 to $1,125M in 2007. Callaways net income was more than doubled from $23M to $55M during the same time.That makes the earning per share (EPS) increased from $0. 34 to $ 0. 82. In contrast, TaylorMade-adidas net sales exper ienced a 52M = 6% decrease from 856M its peak 2006 to 804M in 2007. The companys operational profit has also gone down from 73M to 65M during the same time. It seems that Callaway performed much better than TaylorMade-adidas in 2007. But if we compare the same figures over a 4-year period from 2004 to 2007, Callaways increase in net sales was $109M=20%, comparing to TaylorMade-adidass 171M=27% increase, the result is obviously different.Therefore, both Callaway and TaylorMade-adidas had successfully coped the key competitive forces and gained comparatively healthy financial performances between 2004 and 2007, under the stipulation economic condition. In addition, the growth rates for each product class are also different mainly stem from the differences in innovation capabilities and buyers perception. From the financial data given in the case study, Callaway Golf was easier to earn growth in manufacturing woods/drivers and iron clubs, shown 28. 2% and 19% growth during 2004 to 2007.The company had struggled with its golf sales and was unable to make any tyrannical growth on it. TaylorMade-adidas Golf found it was easier to obtain growth and retained the market leader position in the driver category as well as hybrid clubs. Although, TaylorMades irons have a very wide price range from $600 to $1300 per set, with a total market share of 15. 2%, it had never challenged Callaways market lead position in irons. Moreover, TaylorMade-adidas also gained significant sales increases in golf apparel and footwear, shown 107% and 63% during 2004 and 2007. Note All calculations are based on Exhibit 1, 2, 3, 4, 5, 6 from Gambles original case. ) Recommendations In order to improve its competitive position, Callaway should continue invest large amount in R&D to adduce its innovation capability and maintain its leading position in iron sets and putter. It should also spend more efforts on marketing issues such as collecting different customer requirements to help devel op new equipments and bring the product line to a wider range that suits every player.More money should be spent on advertising to improve its image as a full-line golf gear manufacturer. To frequently reveal on selected devise and life style magazines can not only increase its overall brand recognition, but also boost apparel, footwear and other accessories sales. In addition, it is also important to build good relationship with major retailers. This normally includes higher retail outlets supporting funds, sufficient professional trainings to sales representatives and more sales incentives.The improvement opportunities are all related to the main driving forces in the industry. This case analysis recommend Callaway to maintain its current strategy of being the market lead in product performance and innovation, but do not shifting its focus to price wars. Similar to Callaway, TaylorMade-adidas should also keep investing in R&D to maintain its leading position in drivers and hybri d clubs. They will also need to spend more dollars on advertising of its market share winning apparel and footwear.Find another Tiger and lock him/her into an endorsement contract like what competitor Nike did before is always a uncomplicated but effective idea. Finally, the company will be benefit from 2 ways from offering the customer with the option of purchasing clubs and apparel by visiting its website. One is increase sales and avoid changing of melodic theme when visiting retailers that has several competitive brands available. The other one is to do business with end customers will help the company collect first-hand information regarding the customer needs and product performance feedback.In all, unlike Callaway who aims to be the well-rounded manufacturer, TaylorMade-adidas should focus on winning buyers recognition of being specialised in drivers and hybrid club and the No. 1 in golf fashion industry. This analysis recommends Fortune brands to better differentiate its sub-brands and each ones target market. Their advertising effort should then be separated in regards to different target groups. In addition, the company should also work on cost reduction opportunities in order to cut their prices to be better positioned in the market, its ZB line of iron sets is a good example.