Callaway Golf Company Case Analysis

Callaway Golf Company

1.) The defining business and economic characteristics of the golf equipment industry can be measured by looking at the makeup of the industry itself. The case states that there are approximately 26 million Americans who play golf. 5.4 million play at least twice a month. These numbers are expected to grow by 1 to 2 percent a year until at least 2010. Of the U.S. golfers, 25% are seniors, 5.7 are women, and 2.1 million are juniors. The typical golfer is a 39 year old man who earns about $66,000 annually. Golf has also started to expand globally with 16 million and 2 million golfers in Asia and Europe respectfully. In 1999, the golf equipment industry took in about $2.7 billion in wholesale sales (2nd only to exercise equipment in the sporting goods category). This is slightly lower than the $2.8 billion from 1998.

2.) The golf equipment industry can be broken into two competitive groups: low-end and high-end manufacturers. The low-end manufacturers include Spalding, MacGregor, and Dunlop. These manufactures mainly sell there equipment in department type stores, for really amateur players. The high-end manufacturers include Callaway, Taylor Made, Ping, Orlimar, and Titleist. These manufacturers sell "pro-line" equipment, usually at pro shops. Probably the strongest competitive forces for the high-end manufacturers are the quality/performance of their products and also the promotion of their products. Each company is trying to capture as big a share of the market by producing high quality golf equipment. Each company has invested large sums of money on technology to develop the best possible clubs. They have also spent millions on promoting their products in magazines, displays, and endorsement deals with top professional players. I believe one weak competitive force for the golf equipment industry is price, at least for the high-end manufacturers.

3.) The drivers or key factors that cause the golf club manufacturing industry to change and remain competitive are product innovation, technological change, marketing innovation and the increasing globalization of the industry. Product innovations are seen in the development of four major innovations: (1) perimeter weighting, (2) metal woods, (3) graphite shafts, and (4) oversized clubheads. Technological changes include discovering better materials to use in creating new clubs and improving the processes (like casting) to actually produce the clubs. Marketing innovations have pushed to make sure that the golfer receives a product that will fit his/her desired needs. The customers are more satisfied with their purchases and are likely to recommend their choices to other golfers. Globalization has changed the golfing industry. Companies are now expanding their efforts in newer markets where golfing has great potential.

4.) Callaway's strategy in the golf equipment industry is to differentiate its products from the products of other manufacturers. Callaway has really captured one of the biggest pieces of the market for high-end golf clubs. Callaway figured out that spending money on research and development can greatly improve the quality of its golf clubs. This was evident when Callaway introduced the "Big Bertha" series in the early 90s. The club became a huge success and showed that investing in the design of a club could greatly make a difference when customers are selecting new clubs to buy. Callaway has proven to its customers that the $500 spent on a Callaway club ensures a high quality and well performing golf club.

5.) Callaway's financial performance looks very promising. For 1999, net income was estimated to be slightly over $55 million. This is impressive because in 1998 Callaway actually had a net loss of $26 million. 1999 was the first full year with Ely Callaway back at the helm of CEO of Callaway Golf Company. Research and development costs are at about the same levels as in previous years. Callaway has a tremendous amount of cash on hand with $112 million. This amount in 1999 is the largest amount of cash on hand for any year in the company's history. The amount of inventory is still pretty high $98 million. If Callaway can lower it inventory, then other costs will decrease and improve the financial performance.

6.) Callaway's strengths include a great research and development department, a recognizable name brand, being innovators in the golf equipment industry, maintaining strict guidelines to ensure the quality of all its products is superior, good leaders (mainly Ely Callaway) and having great customer relationship skills. A couple of Callaway's weaknesses are a relatively low stock price and high levels of inventory. Some opportunities include expanding its product lines into new areas like golf balls; going after different segments of the market like the beginner golfers; improving its marketing campaign by signing new endorsers; and building/designing new golf clubs that will continually revolutionize the golf industry. A few threats facing Callaway including losing the gap in innovation with its competitors; a downturn in the golfing environment; changes in leadership may cause the company to suffer; and losing market share to current or new competitors.

7.) Callaway structures it value chain so that each component always results in improving the product's worth to the end customer. At the beginning of the chain, Callaway tries to produce clubs that will create the best performance by its users. Callaway spends more money on research and development than any other manufacture of golf clubs. Callaway uses computer aided design software packages to initiate the process of creating a new product. Callaway can perform numerous tests and experiments in the club design all within a simulated environment. Once a simulated design is agreed upon, Callaway then will produce the club. Callaway has acquired and partnered with different production companies. Callaway also tests its products at its own testing center. Callaway will use feedback at each stage to make