Golf Equipment Industry External Analysis

Macro-Environment:
In 2007, approximately 22.7 million Americans played golf at least once a year. This is
roughly 5 million less than the number of Americans playing golf in 1998. This rapid decline can
be attributed to many factors.

Demographic:
Men are the key demographic for golf as it was a status symbol for centuries, and in
chauvinistic society males were the only ones allowed to participate. This skewed history causes
males of today to view golf as a manly endeavor.

Women have also become more associated with the sport. Golf used to be a male only activity,
thus giving headstrong women the drive to be seen as equals on the course. This trend has led
to many women becoming core golfers over the years, and thus a key demographic in today’s
market.

Economic
The economy in 2008 is perpetually on the downturn, giving many people a sense of financial
instability. This leads to conservative spending; spending only on the essentials and cutting back
on those as well. This isn’t what one would think of as an ideal situation for an industry based
on an expensive recreational activity.

Political/Legal
Considering how many lawyers participate in golf, one would suspect that there would be little
legal issues that arise in the golf industry. There is however a major issue with counterfeiting of
products, which are sold for a fraction of the retail price. Golf equipment companies outsource
a majority of their manufacturing line to China in order to reduce cost, however these same
outsourced companies will re-create the equipment in order to sell for their own gain.
Counterfeiting is almost impossible to control due to China’s government interfering little to
none in these situations, and if a company is busted they will likely create a new alias and
location and continue their scheme.

Socio-Cultural:

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 Dating back to when royalty were the only avid players, the sport of golf has been
meant for those of elite status. Golf is a sport of finesse and strategy, often seen as a
prestigious recreational activity among its patrons.

Golf has become an extension of business collaborations, giving a much more relaxed
feeling than a conference room. In addition a full round of golf gives the collaborators a long
period of time to discuss their concerns and strategies while enjoying slow-paced recreational
bliss. This provides budding partners a bonding experience, which if it is a positive effect on
both parties will lead to higher trust and better dealings.

Global
Europe and Asia are the leading countries other than the U.S. in terms of golfers.
However, golf is primarily played by the affluent in these countries. Approximately 2 million
Europeans and 17 million Asians played golf in the year 2007.

Technological
Innovations in technology have further improved enjoyment in many of golf’s casual
players. The increase in driver size, more squared edges for wedges, and even improved spin on
balls have given players a chance for lower handicaps. This give players the satisfaction of
success that they are looking for. Technology has however been limited by the USGA and R&A
through countless restrictions on parameters and performance. These restrictions have
hindered the more technologically advanced companies, therefore giving less developed
companies an opportunity to catch up.

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Industry Analysis:

Dominant Economic Characteristics

Market size and growth rate
There is a market of 22.7 million Americans, 2 million Europeans, and 17 million Asians,
leading to a total of 41.7 million available customers as of 2007. The market is however
following a trend of reduction and is likely to be less in 2008.

Scope of competitive rivalry

The golf equipment industry is primarily composed of three large competitors; Callaway,
TaylorMade, and Titleist. However, there are two competitors to recently become known in the
industry, Nike and Ping.

Buyer needs and requirements

Buyers demand equipment that will lower their handicap at a reasonable price.

Pace of technological change

Technological change is perpetually changing in order to keep up with USGA and R&A
regulations while simultaneously satisfying the wide array of customers’ needs. Each competing
company is striving for equipment that meets the expectations of the governing organizations
and differentiates their products from the competition.

Vertical integration
Vertical integration is prominent in all competing companies. They all have expanded
their product line to include balls, apparel, putters, irons, wedges, drivers, and even so far as
energy drinks.

Product innovation
Drivers – Larger hit zone, center of gravity lowered
Wedges – More angled edges
Balls – More precise spin for the right occasion

Degree of product differentiation

Product differentiation is hard to come by due to the regulations set forth by the USGA
and R&A, giving many designs minimalistic differences between competitors. Endorsements are
becoming a more likely alternative to differentiate products due to virtually no ceiling.

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Driving Forces:
Equipment regulations and standards by the USGA and R&A
Both the USGA and R&A have consistently and constantly established a series of new
rules and regulations which create many barriers to innovation for golf equipment technology.
These restrictions are placed in order to preserve the game’s fairness, but many studies have
shown that advanced golf technology barely improves one’s performance. These restrictions
lead the golf equipment industry to put more focus on cost reductions and endorsement deals
with professionals in order to further differentiate their products.

Number of golf players

The amount golfers are a major driving force for the golf equipment industry. The
decline in player base is due to many finding the game difficult and/or too costly (financially and
time related). This leads the golf equipment industry to create products that are inexpensive
and enhance the players’ capabilities.

Competitive Forces:
Rivalry among competing sellers
Rivalry among the competing sellers is an extremely high competitive force in the golf
equipment industry. The restrictions made by the USGA and R&A have given non-technology
based competitors an advantage to catch up to those in a stable position. This leads to low
product differentiation, thus causing pricing and branding to be the determining factors in
earning market share.

Potential new entrants

Potential new entrants are a low level threat due to the industry passing maturity and
beginning to decline.

Substitute products
Substitute products are a moderate threat to the golf equipment industry. Many other
recreational activities are cheaper than golf, which is a concern in 2008’s state of financial crisis.
Many of these activities have also seen a decline in participants; however the less costly have
seen an increase.

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Power of suppliers
The power of suppliers is relatively high considering that a majority of the product mix is
outsourced, giving the supplier leverage in terms of quantity. It is unlikely that any of the
companies will be able to find a new supplier that can match the needed quantity without
extensive spending towards resources and capital.

Power of buyers
The power of buyers is becoming higher as the industry goes on the decline. This leads
to fewer customers, giving each individual better bargaining power. In addition many products
are similar to competitors in quality and price, making switching costs almost non-existent.

Competitor Analysis
Callaway
Callaway emphasizes a broad product line in all of their equipment categories. They are
also leaders in developing innovational products and testing the boundaries of USGA and R&A
regulations. Callaway appears to be in the strongest competitive position due to their high
customer loyalty, fair priced products, and wide selection to entice new customers.

TaylorMade
TaylorMade emphasizes on advanced technology in regards to drivers and hybrid clubs.
As is with Callaway, TaylorMade has a wide selection of products and models.

Titleist
Titleist focuses less on innovation and more on cost efficiency. They provide the widest
selection of golf balls at a variety of prices.

Ping
Ping focuses solely on their putters, irons, hybrids, wedges, and drivers. They have a
good reputation for high quality clubs. Ping appears to be in the weakest competitive position
because their key strategy was superb technology at a high price, which is the opposite
direction of where the industry is headed.

Nike

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 Nike doesn’t focus on innovation or golf equipment performance, but rather on
endorsements and golf apparels. They are attempting to be the low cost leader for most of
their products

Key Success Factors:

Product Performance and Technological Innovation
Golf equipment manufacturers have to come up with new technology and continuous
improvement to satisfy customers’ demand. Technological innovation provides product
differentiation along with improved performance from the products, leading to higher sales and
brand recognition.

Pricing
Pricing competitively is a key success factor in an industry where product differentiation
has slowed down to a crawl. If a company can’t create a product comparatively better than the
competition due to restrictions, then one must try to reduce costs and sell their products at a
better price.

Customer Loyalty
Creating brand recognition and therefore customer loyalty is very desirable in the
current golf equipment market. By endorsing popular professional athletes and having reliable
products at a reasonable cost, companies are able to differentiate themselves and grab market
share from their competitors. This loyalty helps increase business through word of mouth, and
helps keep customers. Holding on to one’s customer base is very important when switching
costs to the other competitors is low.

Attractiveness
The golf equipment industry has become unattractive over the last decade due to
restrictions on technology, high entry barriers, and declining customer base. Until the
restrictions on technology are lifted, all of the current competing companies are stuck in a
stagnant price war offering products with little differentiation from the other.

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