Group Case #2

Competition in Golf Equipment Industry in 2008

Presented By:

518 28225 26 Chatvilai Komindr

518 28328 26 Chokechai Ngamwutikul

518 28443 26 Duangta Thiansukitseree

518 28626 26 Tunyapon Jarupaisarn

518 29130 26 Bhornrat Bubphavanich

518 29146 26 Pornrudee Larpanant

518 29203 26 Puttipan Ponyanun

518 29501 26 Lalin Ananbanchachai

518 29518 26 Luksamon Phanpermpoon

518 29931 26 Satit Auputtinun

The paper is partial fulfillment of

Strategic Management course (2602-650),
MBA English Program Batch 3
Content
General Environment..........................................................................................1
Economic Segment......................................................................................................................1
Demographic Segment................................................................................................................2
Sociocultural Segment.................................................................................................................3
Political/Legal Segment...............................................................................................................3
Technological Segment................................................................................................................4
Global Segment............................................................................................................................4
Industry Environment..........................................................................................7
Industry Lift Cycle Analysis..........................................................................................................7
Industry’s Driving Forces.............................................................................................................9
Strategic Groups........................................................................................................................12
Strategic Types...........................................................................................................................13
Key Success Factors and Industry Matrix..................................................................................16
Porter’s Five Forces Model........................................................................................................20
Competitor Environment Analysis.....................................................................24
Market Environment Analysis............................................................................27
Recommendation..............................................................................................29
Reference..........................................................................................................30
General Environment

General environmental factors are the external factors that have several impacts on golf
equipment industry. An analysis and summary of those impacts including opportunities and
threats of the industry are listed below.

Economic Segment

World economic today is still very weak and in the downturn. The world economic has declined
since 2006 which was the result from the subprime mortgage crisis in the US. The percentage of
the US disposable personal income and personal saving rate has continually declined in the
recent years. Once they realized the difficult time in 2008, the US people tend to save their cash
and reduce their leisure time as there is a rebound in the saving rate at 2Q and 4Q in year 2008.
However, the US Government and also governments of the countries all over the world are not
at ease in this crisis. They have to launch new initiative policies in order to restore and boost
their economic system. Despite of capital injection, monetary and fiscal policies will play an
important role and need to become more supportive of aggregate demand and sustain this
stance over the foreseeable future. Also governments have to develop strategies to ensure the
long-term fiscal sustainability.

Figure 1: US Personal Saving Rate (Percent of disposable personal income)

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 With strong effort from the government, we believe that the economic will be
recovered soon. After the hard time, people will need some more relaxation and it would be
the time they return to play golf, which will become an opportunity for the golf equipment
industry.

Demographic Segment

Age structure

Baby Boomers are the majority golfers in the US. The Boomers are the 78 million American who
born between 1946 and 1964. They are ages 44 to 62 in 2008. The retirees, both men and
women, are a better golf customer because they are less likely to be working or raising children.

In 2007, during the recession period, the number of Americans who played golf at least
once a year was approximately 22.7 million, which was around 5 million less than the number
of Americans playing golf in 1998. The decrease was due to increased job and family
responsibilities. Moreover, health concern and/or injuries were a major reason that blocks the
older golfers from the golf course. Those reasons are the threat for the industry.

Even though the number of golfers composed of men, women, and junior was declined
in 2007, however, there is a statistics from the National Golf Foundation (NGF) reported the
fast growing segment of women golfers are those between the ages of 18 and 29. Young female
golfers are golf “lite” and play golf average at about three rounds per year. Therefore, there
would be an opportunity for golf industry to expand its market through women and junior
golfers.

Ethnic mix and Income distribution

There is slightly effect from ethnic in playing golf. Minority participation was relatively low in
the US. However, there’s a study from National Golf Foundation stated that the income tended
to reduce differences in participation rates among races. For golfers with household incomes
lower than $100,000, white non-Hispanics and Asians were nearly twice as likely to play golf as
African Americans or Hispanic American while there is no difference among race in the
household that their incomes exceed $100,000. However, the percentage of African American
golfers has doubled after the success of Tiger Woods.

The availability of the access to golf course is another factor for playing golf. In America,
the golf courses are accessible to Americans across a wide range of income level. But in Europe
and Asia, the golf still is the sport only for the rich.

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 The high cost in playing golf is also the obstacle for people who want to play golf. The
membership fees, green fees, and the equipment are the example.

From the above reasons, there’s an implication that there are interested people who
would like to play golf but have the financial limitation. Therefore, less income would be the
threat but if any company in this industry can respond to this existing need, then would be a
great opportunity to expand the market.

Sociocultural Segment

Golf is classified as a sport for the affluent. This is due to its history that it was popular among
the royal families. Apart from the sports, we have to accept that golf is a kind of social activity.
Golf becomes more popular among business people once they have to negotiate their business.
The 18-hole round of golf can keep them together long enough and more relax than in the
conference room.

Formerly, golf is mostly played among men. But since the women are more accepted in
the world class today and after the established of the LPGA, the numbers of female golfers are
increasing. Ai Miyazato, Lorena Ochoa, Se Ri Pak are some of the example of the success female
golfers which influence women to interest and start playing golf.

As we all know, woman and fashion are inseparable. They always want to look good.
Therefore, this would be a great opportunity for golf equipment industry if they will
concentrate more on female apparel and do R&D especially on golf club for female.

Political/Legal Segment

The rise of counterfeiting in the golf equipment industry is a considerable amount of threat. As
the profit margin on golf equipments become less, golf executives need to reduce their cost.
Outsourcing their production to China would be the great opportunity for them to reduce and
control their costs. In 2005, about 60 percent of all golf equipment was manufactured in China.
Unfortunately, their suppliers in China have replicated their products with almost exactly the
same as the genuine one since they were produced from the same factory in the afterhours.
These knockoffs are sold both in China and exported to all over the world via internet with a lot
cheaper price than the original product. The Chinese government tended to do nothing with
the counterfeiters. With small action from the Chinese government, the golf equipment
industry’s six leading manufacturers have to help each other and become alliance in December

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2005 in order to identify and pursue both those who made and sold counterfeit clubs. Not only
clubs, there also were other counterfeit products, for example, shoes, apparel, golf bag, etc.

Counterfeit products from China, not only golf equipment, have harmed many
industries around the world. Many countries across the world condemned Chinese government
and called for measures to resolve the issue. If they cannot solve this problem, the industry has
to reconsider its outsourcing country. Otherwise, counterfeit products will ruin the price
structure of the golf equipments.

Technological Segment

Technology nowadays helps golfers enjoy more in their games. The technological innovation in
golf clubs has many benefits. For example, the increase in driver size helps reduce the adverse
effect of off-center hits, wedges were given more defined grooves to help improve accuracy on
approach shots, and balls were designed to go further when tee off and better controlled on
green. However, the technology improvement in golf equipment industry has limited by the
USGA and R&A. Even though there are controversies about the limitations, the companies have
to comply with the rule. Therefore it is hard for the industry to differentiate themselves by their
product. This is an opportunity for those less developed technological companies to catch up
with those leading companies. In the other way around this is considered as threat to the
advanced technology.

Global Segment

There’s a rise in BRIC countries (Brazil, Russia, India, and China). Even though GDP Growth of all
countries over the world is going down in the same way, however the emerging and developing
economies countries have a lot more high GDP than the advanced economies. Some experts
predict that there is an opportunity for golf club to have a growth rate over 25% annually in
BRIC countries, especially in China and India, as golf continues to go worldwide and these
countries are increasing in their purchasing power year after year.

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 Figure 2: GDP Growth (Percent Change)

Moreover, there is an announcement that golf will make its return to the Olympic
Games in 2016, which will increase its exposure to the world and introduce it to a new
generation of people.

General Environment Opportunity/ Threat (Ranking 1-5)

Economic Segment  Threat (3): Recession in the recent US

economic
 Opportunity (3): Boost up from the
governments’ policies

Demographic Segment  Threat (2): Health concern in baby

boomers
 Threat (4): Increasing in job and family
responsibility
 Threat (4): High cost in playing golf
 Opportunity (3): Increasing in female and
junior golfers

Sociocultural Segment  Opportunity (4): increasing in female

golfers

Political/ Legal Segment  Threat (5): The rise of counterfeit

products

Technological Segment  Opportunity (3): Technology helps

golfers add more entertainment in

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 games
 Treat (4): Technology development
limitation by USGA and R&A

Global Segment  Opportunity (5): Expansion market to

BRIC countries
 Opportunity (5): The return of golf in
Olympic Games 2016.

Table 1: Summary of General Environment Effects on the Golf Equipment Industry

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Industry Environment

Industry Lift Cycle Analysis

As shown in a graph and a table below, at 2007, the industry is in the maturity stage because of
stability in sales. By adding a strongly negative factor of industry evolution by announcing rules
from USGA and R&A in 2008, the industry sales of 2008 should decrease from 2007. Thus, the
industry will enter a decline stage. According to the life cycle model, at a decline stage, the
industry will have the following effects.

 Product consolidation: the number of products may be reduced, and surviving products
rejuvenated.
 Price: A company might try to stimulate growth by changing their pricing strategy. Prices
may be lowered to liquidate inventory, or maintained for continued products.
 Distribution: distribution becomes more selective. Channels that are no longer
profitable are phased out.
 Promotion: Expenditure on promotion is reduced for products subject to the Harvest
and Divest strategies.
 Profit: Sales and profits start to fall. The market for that product shrinks which reduces
the amount of profit available to the firms in the industry.
 Exit: High-cost and low market share firms will be forced to exit the industry.

As sales decline, a company has three strategy options:

 Hold: maintain production and add new features and find new uses for the product.
Reduce the cost of manufacturing (e.g. move manufacturing to a low cost jurisdiction).
Consider whether there are new markets in which the product might be sold.

 Harvest: continue to offer the product, reduce marketing expenditure, and sell possibly
to a loyal niche segment of the market.

 Divest: Discontinue production, and liquidate the remaining inventory or sell the
product to another firm.

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 Year 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Drivers and
Woods 676 601 583 599 626 608 660 654 792 883 877
Irons 533 485 447 475 459 456 461 482 534 570 579
Balls 458 487 518 530 555 529 496 506 536 539 552
Summation 1667 1573 1548 1604 1640 1593 1617 1642 1862 1992 2008
Table 2: Retail Value of Major Golf Equipment in the United States 1997-2007

2500

2000

1500
Drivers and Woods
Irons
Balls
1000 Summation

500

0
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Figure 3: Graph Shown Retail Value of Major Golf Equipment in the United States 1997-2007

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Industry’s Driving Forces

In the past, the golf equipment industry was changing by 4 driving forces as listed below

1. The regulation from the United States Golf Association (USGA) and the Royal &
Ancient Golf Club (R&A)
These two organizations have constantly established series of new rules to set the
boundary in which the golf equipment with advance technology could give superior
performance and advantage to some golf players over those with older technology. The
USGA and R&A have announced the limitation on many aspects even though there is
little evidences that technological advance of golf equipment will lower the score.
 In 1998, USGA put the limitation on how well the driver clubface can bounce the
golf ball by set the coefficient of restitution (COR) at 0.83. COR 0.83 implies that
the speed of the ball after hit the clubface cannot exceed 83 percent of the initial
speed when it was launched from the cannon to eliminate a springlike effect.
 In 2004, USGA announced that the driving club must no larger than 5 by 5 inches
and the volume could not be more than 460 cc
 In 2005, USGA informed all the golf equipment manufacturers that the driver
Moment of Inertia (MOI) must not be over 5,900 g-cm2 with a tolerance of 100 g-
cm2.
 In 2006, USGA, in an agreement with R&A, developed regulation to have
characteristic time (CT) test which indicate how long the ball remain in contact
with the driver’s face. The USGA put the limit of CT test to be 239 microseconds
with 18 microseconds of tolerance.
 In 2008, USGA rules that, within January 2010, every grooves of iron and wedges
would be required to have rounded edges to minimize golf ball spin.

These regulations from USGA and R&A could prevent the core golfers from
purchasing the golf equipments that are not conforming to USGA’s Rules of Golf. This
would mean that every time the new regulation made an introduction, there will be
some models, which are not conforming to the regulation, have to be deeply discount or
even removed from the market. So, every time the new regulation comes out, there will
be the reduction on profitability of the companies who own those models.

As the technological advantages will be limited by the regulation, the

differentiation between each manufacturer will be narrower. That would benefit golf
equipment whose technologies are limited by helping them catch up with the
manufacturer with advanced technology such as Callaway Golf, TaylorMade and Titleist.

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 In other word, the regulation will increase the profitability of those low technology
manufacturers.

The regulations that enforce rules on clubhead size and performance also
increase the profitability to shaft manufacturers. The USGA allowed interchangeable
shaft which mean that golfers can install different shafts into the driver head to have
different launch characteristics. So the differentiation of golf club changes toward the
compatibility with shafts. The skilled core golfers might have strong preference for a
particular shaft and select golf club based on which club is compatible with their
preferred shaft.

The introduction of new regulation will also have an effect on the industry
competition as the competition will shift from technological capabilities to price
competition and endorsement contracts.

2. The number of Golf players and their frequency of playing

From the research conducted by industry analysts, the trends of golf playing are
declining from many reasons
 Difficulty of the game which disappointed the existing players and make them
quit playing
 Lack of free time the play and practice from many reasons
 Health concern and injury from playing
 High playing fee

These factors are accountable for the declining trends of golf industry and will
reduce the profitability while increase the intensity of competition of overall golf
equipment industry.

3. The counterfeit golf equipment

The counterfeit golf equipments were coming to be the threat to golf equipment
industry since golf equipment manufacturer decided to outsource either the production
or assembly or both to China. There are many ways to imitate the legitimate product
such as reverse engineering, mold stealing and after hours production. So the
counterfeit golf equipments can look nearly the same as the genuine branded product
while price can be extraordinary low.

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 This would reduce the profitability of the company who outsources to China
because some people who concern over price will go for the counterfeit and the
company will need to invest some capital to hunt down these counterfeit goods.

4. The touring professional endorsement contract fee

Most recreational golfers based their buying decision toward the brand of clubs and golf
balls as their favorite touring professionals equipped. Therefore, the competition on
endorsement contracts is getting more intense which make the endorsement contract
value soar. The data shows that the endorsement fee of PGA tour’s top 10 golfers had
been raised from between $250,000 to $400,000 in 1990s to $4 millions in 2007.
The soar in endorsement fee will directly lower the profitability of the company. But
they cannot escape from this expense since the enhancement on brand image is
needed.

In conclusion, the golf equipment industry is going a little worse since the above 4
driving forces are against the profitability of the industry especially the big players with advance
technology such as Callaway Golf, TaylorMade and Titleist. But for the small players and shaft
manufacturer, there might be an opportunity to gain more profit and market share in the
market since the downside factors are not much worse compared to the impact on big players.

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Strategic Groups

In the golf Equipment Industry, all players can be grouped in different strategic groups with
respect to the way they strategically position their products based on Product retail price and
Product / Technological Innovation. There are 3 main strategic groups in this industry which are
High-end manufacturers, Low-end Manufacturers and Counterfeit Manufactures.

Callaway, Taylor Made – Adidas ,Titlists / Cobra Ping

Best
High
Product / Technological
Innovation

Nike &
Other Low-End
Manufacturers
Low

Worst position
Counterfeit
Manufacturers

Retail Price
Low High

Figure 4: Strategic Groups in Golf Equipment Industry

The High-end manufacturer group includes Callaway Golf, Taylor made – Adidas Golf
and Titlists / Cobra golf which offer good quality and technological advance of golf equipment
at premium price. They spend a large budget in R&D and marketing activities. Also, they mainly
sell professional equipment to professional and core golfers. While the Low-end Manufacturer
group includes Nike and other Low-end manufacturers which mainly offer golf equipment that
are less technological advanced at cheaper price to recreational or amateur golfers. For
Counterfeit Manufacture group, it represents manufactures which illegally sell imitated golf
equipment products at much cheaper price than legitimate and original products.

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 By taking these 3 strategic groups into consideration, the High-end manufacturer group
is considered in the best position, while the Counterfeit Manufacture group is considered in the
worst position. The reason is that the High-end manufacturer group has larger financial
resources and stronger industry and product knowledge and technology to develop new
products, employ marketing activities and sell their products, especially when there’s the
decline in the number of Golfers and rounds played. For the Counterfeit Manufacture group, it
had disadvantages since it’s illegal entity and is risky to be shut down by the government or sue
by the legitimate golf equipment manufactures. In addition, although they sell products at
cheap price, the quality of product may not match the original products.

Strategic Types

Callaway Golf Company Prospector

Callaway has broad product lines of golf equipments: drivers, putters, wedges, irons, golf ball,
footwear, and get loyalties from Callaway-branded licensed products such as golf apparel,
watched, clocks, travel gear, eyewear, and golf range-finders. Moreover, under each product
line, Callaway has developed various models of its golf clubs. For example, its driver models are
square FT-I and traditional-shaped FT-5 driver, Hyper-X driver line, Big Bertha fairway wood, X
line of hybrid club, and FT line of hybrid clubs.

In addition, Callaway focus on developing product and create new innovation to golf
clubs industry. It hired a team of aerospace and metallurgical engineers to design and produce
the most technologically advanced golf clubs. And in 1991, it introduced the first stainless-steel
driver-Big Bertha to the industry. This driver had far better performance than conventional
wooden drivers. The introduction and sales of Callaway’s Big Bertha led other rival companies
taking technology into competition. However, in 2003 Callaway lost it 1 st rank in driver industry
to TayloyMade since TaylorMade’s R580 was larger and matched consumers preference, the
company keep developing its products and introduced the squared-shape driver market where
TaylorMade doesn't choose to play in.

Furthermore, Callaway has a continuous development on its innovation in perimeter

weighted irons and putters to maintain its market-leading position. With the broad product
lines, product innovation orientation, therefore, Callaway is characterized as prospector.

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 TaylorMade-adidas Golf Prospector

TaylorMade emphasized on advanced technology in its products especially on its drivers and
hybrid clubs. It was the most technological advanced during 1980s until the launch of
Callaway’s BigBertha in 1990s. However, its introduction of R580 driver in 2003 brought it back
to the market-leading position. And to maintain its lead in driver category, the company
continued the development on its driver with updated model of r7 every 18 month. In addition,
it introduced hybrid club with movable weight technology that allows golfers to have a single
driver that is able to produce many ball flight path. This innovative product is well accepted by
most golfers and expanded TaylorMade market share in the driver category. Moreover,
TaylorMade also develops its products in other category such as wedges, putters, and irons
even they are not well-regarded by most golfers.

Like Callaway, TaylorMade has fairly broad product lines: drivers, irons, putters, wedges,
hybrid clubs, apparels, and shoes. Each category contains long vertical product series such as
putter category containing of 11 models in the product line.

Hence, TaylorMade is categorized as Prospector as it has fairly broad product lines and
the innovation of product orientation.

Titleist Defender

Comparing to Callaway Golf, TaylorMade, Ping Golf, and Nike Golf, Titleist was the first
company to produce golf eqipment in 1932. Titleist has been number one and the largest seller
of golf ball since 1949. And in the year 2007, its Fortune brand of golf shoes hot the most
market share in the golf shoes industry and Titleist became the world’s largest seller of golf
equipment. However, the company rarely came up with innovation of golf equipment. It more
focus on cost efficiency, which can help maintaining its share of the market. For example, as
Titleist golf ball was the leader in the golf ball industry, the company golf ball line not only has
premium-priced Titliest’s Pro V1 but also lower-priced NXT, DT, and value-priced Pinnacle sub-
brand in order to have more cost efficiency in production of golf ball while gaining more
customer in other segments.

As the company did not tend to focus on creativity but more on improving its operation
effiency, therfore, Titleist is categorized as the Defender.

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 Ping Golf Defender

As mentioned in the case, it only provides putters, irons, drivers, hybrid clubs, wedges,
excluding golf ball, apparels, and shoes. Unlike Callaway, TaylorMade, and Titliest, the limited
product line Ping Golf focus only on the golf clubs industry; especially on its well reputable
perimeter-weighted putters and irons.

With the limitation of product lines and unlikely to innovate in new areas, Ping Golf is
categorized as Defender.

Nike Golf Reactor

We can say that Nike Golf did not have a systematic strategy. It neither emphasized on
innovation of the golf equipment nor focus on the cost orientation but huge investment on
heavily employment of the endorsers like Tiger Woods and other 17 PGA Tour members. This
strategy brought the company to success on the sales of golf apparels, footwears, and golf balls
but failure in the golf equipment industry since golfers perceived Nike as not a serious golf
equipment manufacturer along with the poor performance of its hybrids, irons, wedges, and
putters. Moreover, while other competitors like Callaway Golf, TaylorMade, Ping and Titleist
could control retail prices, Nike Golf has the sell price different from the suggested price.

Since its low on cost effieciency, lack of product innovation and systematic strategy,
Nike Golf is categorized as Reactor in the golf equipment industry.

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Key Success Factors and Industry Matrix

There are several important factors that determine the successfulness of golf equipments
manufacturers. Below are the key factors.

1. Product Performance and Technological Innovation

Golf equipment manufacturers have to come up with new technology and continuous
improvement to satisfy consumer's demand. They should also try to differentiate
themselves in a market with similar products in the industry. Technological innovation is
included the research and development that companies require to reserve a large
amount of budget to gain the competitive advantage. Among the golf equipment
manufacturers, Callaway provide the highest budget on research and development. The
company first invested on the research and development in 1985 by hiring the
aerospace and metallurgical engineer team to design the new innovation of golf clubs.
In 1991, the Big Bertha, an oversized stainless steel driver were launched into the
market with great success. Callaway is also the leader in other segments like iron since
2002 and Odyssey 2-Ball putter because of the company continuous development.

TaylorMade is the first brand that launches metal wood since 1979 and became
popular since 1984 until the coming of Callaway Big Bertha in 1991. By the way, the
company still continues to develop the driver segment by launching 400 CC R580 driver.
With the largest available at the time, it made TaylorMade become the leader of driver
segment again.

Among the golf ball brands, Titleist is considered to have superior technology
especially the Pro V1 which have the most advance technology that provide the
maximum distance. It generated annual sales about 700 million USD and it is the no. 1
brand of golf ball with the market share of 40%

Ping was the brand pioneer for many aspects such as being the first brand who
provided custom fitting service since… and being the first brand who launched the
hybrid club in 1999 and became successful in 2002.

2. Price Competitive
The golf equipment price is varied upon the product category. One of Callaway
marketing strategy is premium pricing. It charges price upon its product performance.
Then to compare the price between other leading brands, Callaway products have
highest price. TaylorMade, Titleist and Ping are using the same pricing strategy that

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 provides the range of price depends on the product brand. For example, Fortune brand,
they provide variety of products which have different target market, for example,
Titleist VS Cobra and V1 golf ball VS Pinacle. Nike is the only brand that uses different
strategy with the lowest price charge that came from an uncontrolled retail price. In
term of distribution channel, all leading golf manufacturers sell their product through
on-course pro shop, off-course pro shop and on-line retailer. The issue that have to be
concern is the price that retailer will charge to consumers. In case the company does not
control the retail price, it may create a problem and the price inconsistency toward the
brand. All the leading manufacturers like Callaway, TaylorMade, Titleist and Ping have
controlled the retail price accept Nike Golf that the price is always lower than MSRP
(Manufacturer Suggested Retail Price).

3. Brand Image Brand Loyalty and Endorsement

Brand good reputation and good image can lead to brand loyalty. That’s why many
brands use lots of advertising expenditure to promote their brands. As the leading
sports brand in the world, Nike has a clear marketing advantage over its competitors. By
the way, Nike golf product segment is not yet a remarkable brand compare to its
competitors, Nike spends around 11-12% of annual revenues on advertising to build
strong brands by using celebrity endorsements aim to grow the market share in the golf
segment.

Golf product brand equity depends on the performance of its endorsed players .
The performances of the professional golfers sponsored by each brand strongly relates
to sales. When golfers use certain equipment to win any tournament, golfers of all levels
generally want to play with the same types of equipment. For the 5 brands leader,
Callaway has the lowest level of endorsement with only 12 endorsement contracts with
staff professionals and 7 contracts with professionals.

PGA Tour European Tour Champions Tour LPGA Tour Legends

Phil
Thomas Bjorn Bruce Fleisher Annika Sorenstam Arnold Palmer
Mickelson

Michael
Ernie Els Jim Colbert Morgan Pressel Gary Player
Campbell

Eduardo
Nick Flanagan Nick Dougherty Julieta Granada Johnny Miller
Romero

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 Olin Browne Niclas Fasth Mark McNulty Leta Lindley David Leadbetter

Table 3: Endorsement players for Callaway Golf

TayloyMade, Titleist and Nike have equal in degree of endorsement. TaylorMade

used 121 golfers to be their endorsers like Sergio Garcia, Natalie Gulbis, Paula Creamer,
and Retief Goosen which can be broken down as 70 endorsement contracts for driver,
11 endorsement contracts for clubs and apparel and other 40 limited contracts to use
TaylorMade drivers during the tournament. While the main endorser for Nike Golf is
Tiger Woods and other 17 PGA Tour members. It seems to have lowest in no. of
endorsers but the company has to put large financial commitment to Woods.

Degree of
Brand Endorsement Detail
Endorsement
12 endorsement contracts with staff professionals, 7 contracts with
Callaway Low
professionals
70 endorsement contracts for driver, 11 endorsement contracts for
TaylorMade High
clubs and apparel and other 40 limited contracts
More than 100 PGA Tour professionals for V1 ball, 50 tour staffs
Titleist/Cobra High
member for club, shoes and apparel
Nike Golf High 17 PGA Tour members plus Tiger Woods for shoes, apparel and clubs

Ping Low 20 PGA Tour golfers, 12 LPGA Tour members

Table 4: Comparing of Brands’ Endorsement Degree

4. Personnel Related Factors

One of most important is related in the area of personnel. Like any other industry, skill
and experience in the field can guarantee that a company uses its resources wisely and
effectively. Therefore, it is important for companies to be built on intelligent and
dependable people in order to stay competitive in this business. The Personnel can be
divided into 2 levels which are;
 Management Level Experience: The main duty for every manufacturing
company is to keep the costs down by controlling expenditures and running low
cost operations. Moving a manufacturer's operations to areas other than the
origin countries that have lower labor rates is a good idea. Almost every brand in
the golf industry outsources the production to the Asian countries. Some brands
outsource the entire production to third party country whereas some brands

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 send the parts back to origin country to assembly. Below are some examples of
the management experience that give the strong effect to the company.
With the progressive vision of Ely Reeves Callaway Jr. to expand the club
beside the antique clubs since 1985, Callaway could increase the sales from less
than 10 million to 500 million.
Gary Adams, the founder of TailorMade has been claimed to be the
father of modern metal wood because he began to market the metal wood since
1979. By the way, it took more than ten year for the metal wood to become
popular. In 1984, the TaylorMade metalwoods became no. 1 wood on the PGA
Tour for long.
 Knowledgeable Sale Personnel: The sale personnel is one of the key factors that
determine the company success because they are at the customer point of
purchase so the good communication is required to maintain the loyalty and to
persuade the customer who do not make decision yet. It is very important to
ensure that all sales personnel have an adequate knowledge in the product and
performance features. The communication can help stress on how the brand is
different from competitors’ brand. From the research, it is stated that 53% of
customer purchase decision came from an impulse from point of purchase.

Callaway TaylorMade Titleist/Cobra Ping Nike Golf

Strategic Factor Weight
Rating Score Rating Score Rating Score Rating Score Rating Score
Product Performance/ Quality 0.18 4 0.72 3 0.54 4 0.72 3 0.54 2 0.36
Technological Innovation 0.16 4 0.64 3 0.48 3 0.48 3 0.48 2 0.32
Price Competitive 0.15 3 0.45 3 0.45 4 0.6 3 0.45 3 0.45
Market Share 0.12 4 0.48 3 0.36 3 0.36 2 0.24 2 0.24
Management Team Experience 0.11 4 0.44 3 0.33 3 0.33 3 0.33 3 0.33
Brand Image 0.10 4 0.4 3 0.3 3 0.3 2 0.2 3 0.3
Endorsement 0.10 2 0.2 3 0.3 4 0.4 3 0.3 4 0.4
Financial Position 0.08 3 0.24 3 0.24 4 0.32 3 0.24 4 0.32
Total 1.00 3.57 3.00 3.51 2.78 2.72

Table 5: Industry Matrix

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Porter’s Five Forces Model

The competition in the golf equipment industry has being tensed and faced with the serious
troubles in 2008 from the following reasons;

 The declining in retail sales from $4 billion in 2000 to $3 billion in 2003 and had bounced
back to $3.8 billion in 2007.
 The profits sharply dropped.
 The declining in the number of golfers.
 Golf equipment manufacturers faced a hard time to pursue innovation-base strategies,
by making the easier golf game.
 The new rule of golf’s governing organizations (USGA and R&A) on the limitations of
technology and innovation.

According to Porter’s Five Forces Model, the competition aspects were analyzed into 5
dimensions which are;

1. The Threat of New Potential Entrants – Low level (3 out of 10)

The Threats of New Potential Entrants or Barriers to entry are from the following
reasons;
 Large amount of capital investment required in entering to the golf equipment
industry.
 Specific knowhow and innovations are needed in making all the equipments.
 The company needs long term reputation and there is high level of customer
loyalty.
 Rising in cost of marketing activities such as; advertisement and endorsement
contracts with the golf pros.
 The rapid declining in number of golfers from difficulty of the game, limited time
to practice, more health concerns in older golfers, and high golf fees.

It is considered Low Level from the threats of New Potential Entrants because
the declining of the industry’s growth.

2. Bargaining Power of Suppliers and Other Stakeholders

2.1. Bargaining Power of Suppliers – Low Level (4 out of 10)
Many golf manufacturers have manufacturer houses majorly in Asia. Also the
manufacturers were establishing contracts with offshore iron casting house and
they are very much selective by the quality and security aspects from preventing
off counterfeit.

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 2.2. Bargaining Power of Other Stakeholders – Highest Level (10 out of 10)
As the announcement from USGA and R&A to limit the innovations, it has
tremendous effects to the whole industry from manufacturers to golfers. For
example; large numbers of recreational golfers had been sharply declining from
more difficult game that would not allow the high technology advancement of
golf equipment. Also the manufacturer who tried to continued produce the
equipments, which against USGA’s rules had face with the failure. Since golfers
did not dare to buy any products those against the USGA’s regulations.

3. Bargaining Power of Buyers – High Level (8 out of 10)

As the number of recreational golf players were declining from many reasons such as;
health concerning, new regulation from the USGA limitation which lead to the more
difficult game, economic downturn. While the switching cost is low between rival
products and other activities which giving greater power to the buyers.

4. Threat of Substitute Products or Services – Moderate Level (6 out of 10)

From the graph below, it can be seen that golf was in the declining stage while other
sports like Tennis, Hunting, Bicycle Riding, and Running are rising in popularity.

Figure 5: Popularity of sports

Other recreational activities such as games, movies, malls, travelling along with the
health consciousness programs are in the rising of popularity trends and very low in switching
cost.

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 5. Threat of Rivalry Among Existing Firms - High Level (7 out of 10)
 Counterfeit - The rising of counterfeit in the golf equipment industry were
considerable threat, since 60% of all the golf equipment was produced in China
with the good quality almost exactly the same as the copied. However, the
counterfeit golf products aim for the customers who are the price concern than
quality concern.
 The rivals with less development technological were benefited from USGA and
the R&A limitation to technology with an opportunity to catch up technology
aspects.

From the competing among golf manufacturers, counterfeit problems, along

with the less technology required from USGA created less differentiation between
products and brands. These factors considered as the High level of threat of rivalry
among existing top firms.

Which of the five competition forces seem strongest?

From the case, the strongest force seems to be the bargaining power from USGA or golf’s
governing organization, which has the widely effect over the technology advancement
manufacturers to the declining in number of golfers. This highest level of bargaining power can
lead to the direction of the overall industry and each company needs to find its own strategic,
in order to compensate with the USGA.

Which of the five competition forces seem weakest?

While the innovation and technologies are required for large capital investment, research and
development, company’s reputation, and able to earn trust among golfers. Currently, there are
many existing companies those offer premium products and their brand is very strong and most
of them earn the customer loyalty. Thus, the new entrants are the weakest competition force.

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What is your assessment of overall industry attractiveness?

Figure 6: Strength of competition forces

From the competitive analysis of Five Force model from Porter, it can be seen that the golf
industry still being attractive in many factors such as; low threat of new potential entrants,
moderate substitute products, low threat of bargaining power over the suppliers. However the
tense areas, those needs to be careful are the threat of bargaining power of other stakeholder
(USGA) which is at the highest level of threat. The threat of rivalry among existing firms and the
threat of the bargaining power of buyers are at the high level in the same rating scale of 10.

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Competitor Environment Analysis

Strengths and weaknesses of each company are summarized as follow:

Strengths Weaknesses

Callaway  Product performance/quality  Endorsement

 Technological innovation
 Market share
 Brand image

TaylorMade  Technological innovation  Outsourcing production to

Asia suppliers

Titleist/Cobra  Product performance/ quality  Low market share in other

 Endorsement segments than golf balls

Ping  Product performance/ quality  Market share

 Custom fitting  Brand image
 Lack of variety of product line

Nike  Endorsement  Product performance/ quality

 Financial position  Technological innovation
 Market share

Analysis of current strategy and capabilities of each company

Callaway

Callaway is the market leader in this industry. Major Callaway strengths include product
performance and quality, continuous product research and development, high level of market
share, and well-known brand image. Current strategy is to develop products and to create new
innovations continually. This is an efficient strategy because new products will be able to
charge with higher price. If its competitors follow and develop same products with lower price,
it will not affect much if new products continuously come out with higher price again. Although
its endorsers are not popular like other competitors, Callaway can continue being the leader in
this market because of such continually product research and development.

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TaylorMade

In the past, TaylorMade were recognized as the most advanced in technology for the
metalwood drivers. Moreover, it maintained its lead in the driver category by continuously
launching new models to the market. Current strategy of TaylorMade is to outsource its main
production to Asia Suppliers to improve its operating margins. This is a good strategy but we
see this is a weakness. Outsourcing means that TaylorMade has to share knowledge and
innovation to external parties. There is a potential to lose its confidential information or its
competitive advantage. Next step for TaylorMade should be the same about continually
product innovation. For outsourcing, it should reduce the ratio for production outsourcing.
More than 90 percent outsourcing its production is very risky because of high level of suppliers’
dependence or reliance. It can face with crucial problem if any suppliers’ problems or conflicts.

Titleist/Cobra

Titleist golf balls are recognized as superior products comparing to its competitors. However, it
did not push much effort to expand its market share over other golf equipment. It had endorse
contracts with over than 100 PGA Tour professionals. This enhanced Titleist have good brand
image. Moreover, it provided recognized golf equipments that professionals and better
recreational golfers prefer. We suggested that the next strategy should be the same that to
continue providing high quality golf balls. Furthermore, it can use its recognition and good
image to guarantee the quality of other golf equipment. This can improve its market share over
other golf equipment. If the company is strong only in golf balls, its business has possibility to
go down in case that losing golf balls market share to competitors. As such, increasing market
share in other segment is important to accomplish. The company should not focus only golf
ball segment.

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Ping

In 2008, Ping was the leader in the iron segment by providing customers with custom fitting.
However, it had the limitation of product lines and unlikely to innovate in new areas.
Therefore, it was ranked as the fourth largest seller of drivers. As mentioned, it was the leader
in the iron segment. It should invest more in research and development and produce more
product lines. This can make Ping have better brand image and more popularity. As a result, its
market share can be improved although it will be still ranked as the fourth. The weakness over
its putter should be improved by

Nike

Since 1996, Nike continuously signed contracts with Tiger Woods to endorse Nike products.
This is a strong current strategy for Nike, the fifth golf equipment manufacturer. However, a
good and well-known endorser does not always guarantee the success. As shown in the case,
Nike Golf received the perception that its products are not good golf equipment, comparing to
other manufacturers. Therefore, while Nike Golf is strong in its brand image and endorser, its
strategy should focus on product development to eliminate the poor performance perception
in the market. As Nike Golf is a new comer in golf market, to become a leader of golf
equipment manufacturer is quite too long. Another strategy should be focused on gaining
more market share gradually during the short-term period. Well-known endorsers and
acceptable product performance are key success factor that Nike Golf must take into its
strategy. To hold the advantage of Tiger Woods endorser, Nike has to spend huge budget over
the endorser contract. This budget is not a big concern for Nike because of its good financial
position.

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Market Environment Analysis

The golf equipment manufacturers need to analyze external factors which impact on the
market in order to develop or adjust their strategies. There are various external factors as
follows:

 Target market
The target market of golf industry was focusing on American (22.7 million people in
2007), however, the number of European and Asian golfers were also significantly high
as the statistic shown that 2 million Europeans and 17 million Asians played golf in 2007.
Nevertheless, most of golf industry’s revenue earned from core golfers which
accounted for 91 percent of round played each year and 87 percent of golf equipment
sales, membership fee and green fee.
Therefore, golf industry should mainly target on American, Asian and European
especially frequent golfers.
 Degree of penetration
According to the declining in number of golfers and increasing in counterfeit
manufacturers, the competition in the market is very intense. As a result, the degree of
penetration is low. All manufacturers try to maintain and increase their market shares.
For example, six leading manufacturers created an alliance in order to diminish the
counterfeit manufacturers.
 Customers’ current needs and future needs
There are two type of golfers; professional golfers and recreational golfers. Professional
golfers need good quality and performance of the equipment while recreational golfers
need the equipments which help them play easier and perform well which its cost is not
too high.
The future needs are still focusing on the capability of the equipment which
provides good performance within the limitation of USGA and R&A. Therefore, the
manufacturers should keep focusing on product innovation within the USGA and R&A
rules.
 Distribution channels
There are three main distribution channels which are pro shops, discounters or sport
stores and online retailers. Pro shops and non pro shops provide different kinds of
products which match with the brand positioning and target customers. The leading
brand equipments are available in pro shops, which have professional for consulting,
while low-end equipments are available mainly in discounters, mass merchandisers or
sport stores. However, the leading brands are available in online retailers at cheaper
price comparing to pro shops and no taxation and this channel also sells discontinued

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 models of leading brand at very cheap price. As a result, golfers have many channels to
look for their golf equipments.
 Channel mark ups
As we mentioned before, golf equipments’ price is marked up in pro shops since there
are other services offering such as custom fitting and advice. Therefore, golfers might
purchase at pro shops if they want to get some services while some golfers might buy
via online if they concern about price.
 Price-sensitivity
The level of price sensitivity is low. Since major revenue of golf industry are earned from
core golfers and they are willing to pay more on pro shop in order to get some advice
and custom-fitting instead of purchasing in internet at lower price. They want to get the
equipments which match with them. However, new golfers and some of non-frequent
golfers don’t want to invest a lot.
 Current trends
o Limitation of innovation
According to new USGA and R&A rules, Golf equipment manufacturers are
forced to launch the equipment within the limitation. Therefore, the product
differentiation is not quite high while recreational golfers do not enjoy playing
due to lack of innovational equipment.
o The rising of counterfeit
According to outsourcing China for some products, the employees stole mold to
produce counterfeit goods or the firms run extra hours to produce goods for
black market. According to the very high differences in price, some infrequent
recreational golfers might not concern much about counterfeit goods.
o The declining of golfers
There are various factors that result in the declining of golfers as follows:
 Game difficulty: Golf equipment manufacturers are forced to follow the
new USGA and R&A rules, thus, recreational golfers are suffered from the
limitation of golf equipments. They cannot enjoy playing golf as much as
before while new golfers face the difficulty of playing.
 Time consuming for practice: According to the limited innovation of golf
equipment, golfers need lots of time to practice while they also have take
responsibility to their job and spend time with their families.
 Health concern: Over 40 years-old golfers tend to concern more about
injury from playing golf. Therefore, the proportion of this segment is
declining.
 High golf fee: Some golfers realize that golf fee is high, as a result, they
cannot practice frequently.

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Recommendation

Callaway Golf, Fortune Brands, and TaylorMade-Adidas are sharing the same target customer.
Each of them has strength in particular product, for example, Callaway expert in club head,
Fortune Brand expert in golf ball. Thus, the recommendations of particular brand are as follow:

 Customizable products: The product should provide customization function to attract

both competition golfer and recreational golfer. For example, customer can adjust some
components, such as, weight plug or club head, to the driver to increase their
performance and be able to remove it when using for competition.
 Strengthen their expert product: Since each company has strategic product, they
should concentrate more on building brand to create customer positive perception for
their product.
 Expand to new segment: As for the growth in female golfers, the companies should
develop golf equipments for female. They may launch more fashion apparel, for
example gloves, footwear, golf bags to attract this new segment.
 Expand to Asia region: As it states in the case that the number of golfers in United
States is dropping, either by race, gender and income which the municipality and public
golf course in US would like to create wide range of accessibility income level. Therefore
the golfers in Europe and Asia remained with the large number of & 2 million and $17
million respectively. The large number represents great opportunity for the overall
industry. However, the counterfeit problem will need to take to a serious consideration
in this case for both Callaway Golf and TaylorMade-Adidas Golf, since this problem is
severe over the Asian countries.

Moreover, these three companies should become strategic partner to increase overall
revenue of innovation equipments market by develop new Handicap System special for
recreational golfer. This would overcome the limitation of regulation and encourage
recreational golfer to buy more innovation products.

Table 6: The ranking in each golf equipment category by year 2007

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Reference

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