Competition in the Golf Equipment Industry in 2008 By: Dan McLindon Kyle McDaniel Jeremy Smiley Tom Anderson Ray Moorman Golf Equipment Industry Key Question • Can golf equipment manufacturers continue to be profitable while still conforming to the increasingly tightening rules developed by the USGA and R&A? Golf Equipment Industry Additional Question • How can club manufactures produce equipment that makes the game fun and easier for the beginning golfer so they stick with the game and become a core golfer? • How do premium equipment manufactures create products that appeal to existing core golfers and how do they grow the market of core golfers? • What is each golf equipment company’s competitive advantage? • How do golf club manufactures plan for the future with the uncertainty of further new rules limiting club and ball technology? • Is the timing right to pursue international expansion? Will the popularity of golf rebound in the United States? A Very Brief History of Golf Origin 1452 in Scotland, as a game played by both Royalty and Commoners Growth In Europe Established game by 18th Century in British Isles with tournaments, rules and golf clubs (St. Andrews) Growth In USA Started being played in late 1700’s, mostly as a game for wealthy. Rapid growth in popularity with TV coverage in 1950’s and the emergence of golf stars Palmer, Nicklaus, and Player. Peak in popularity in 1998, 2 years after Tiger Woods turned Pro. Governing Bodies United States Golf Association and Royal and Ancient Golf Club Evolution of the Golf Equipment Industry • First equipment manufactures began in Scotland during 1700’s • Over time building materials changed, but types and design of clubs did not – Wood to steel to graphite shafts but still same club head designs – More durable and consistent golf balls • Mid to late 1990’s a period of great innovation began by premium golf equipment manufactures – Ping, Callaway, TaylorMade, Fortune Brands (Cobra and Titleist) – Innovations centered around game improving features • Larger Driver heads (ex. – Callaway Great Big Bertha) • More forgiving oversized irons • Deeper grooves in irons and woods to promote spin • Putters with larger sweet spots, face inserts • Multi-piece golf balls allowing for both distance off tee and feel around greens – Resulted in record industry profits USGA and R&A Step In • In 2004 USGA and R&A begin regulating golf clubs and balls in an effort to preserve integrity of the game Type of Equipment Regulation Year effective Drivers 0.83 COR 1998 Drivers 5x5 inches, not to exceed 2004 460 CC Drivers 5,900 g-cm MOI 2006 Irons and Wedges No more U grooves 2010 Golf Balls Restrictions on distance Still in discussions What is changing in the external environment? PEST Analysis of the Golf Equipment Industry Category Issue Threats/Opportunities Ranking (1-5) Political USGA and R&A rules on Threat 5 equipment Economic 2008 Economy Sours Threat 3 Rising incomes in BRIC countries Opportunity 3 Social Healthier, more active Opportunity 2 lifestyles Concern for environment Threat or Opportunity 2 Multiracial golf star Tiger Woods Opportunity 5 Technological New metals/alloys for Opportunity 3 larger, lighter clubs Computer technology for Opportunity 5 customer fitting What is happening in the Golf Economy? Overview of the Golf Market Total Number of Golfers 22.7 million in US, 2 million European, 17 million Asia (2007) Target Market 1/3 of golfers, about 7.5 million in US, considered “Core” and account for 91% of rounds played and 87% of equipment sales Growth Rate Number of golfers in America has declined 17% since peak in 1998 (from 27.5 to 22.7 million) Key Items Purchased Drivers, Irons, Wedges, Putters, apparel, shoes, golf balls, golf bags 4 Key Barriers for Consumers Too difficult to play Length of time it takes to play a round Too expensive Older players have health concerns Breakdown of US Golf Population • Steady decline over last 1998 2007 Percent Change decade of number of golfers in USA • People who picked up Men 20 million 16.2 million -19% the game with the boom in popularity in late 1990’s but did Women 5.8 million 5.1 million -12% not stick with it • Too difficult to get Children 2.4 million 1.4 million -41% good and did not become “Core” golfer What is the environment of the industry? Fundamentals of the Industry • Innovation limited by USGA regulations • Merchandise manufacturing is outsourced • Early bird really does get the worm • Marketing and endorsements are vital • There are strong, established leaders in most golf equipment categories • # of golfers in the USA declining over the past decade What are the changes in demand? Porter’s Five Forces HIGH Buyer Power MED-HIGH HIGH LOW Threat of Competitive Supplier Substitutes Rivalry Power Threat of New Entrants LOW Porter’s Five Forces Rank Factor 1=lowest 5=highest • Costly and takes time to build reputation • Huge learning curve....technology-driven Threat of New Entrants 1 • Current name brands are very strong • Acquisitions may be the only way ($$$) • Relationships are well established • Raw materials are abundant Power of Suppliers 1-2 • Other manufacturing sources are readily available • Customers have a wide variety of sports and Threat of Substitutes 3-4 leisure to spend their time and money on • buy used items, internet, auctions • # of recreational players declining Power of Buyers 4 • buyers forcing new pricing strategies • buyers are price sensitive now more than ever • Intense between the top dogs Competitive Rivalry 4-5 • Established brands have difficult time entering new areas of golf equipment and supplies Where are all the golfers going? 1996 2002 2007 Golfers 23.1M 22.7M 2% Running 22.2M 24.7M 30.4M ↑37% Tennis 11.5M 11.0M 12.3M ↑7% Fitness Clubs 22.5M 28.9M 33.8M ↑50% # of participants in selected sports in millions Strategy Strategy of Major Golf Brands Product Price Endorsements Innovation Callaway Diverse Diverse Low Medium Drivers: 4 lines incl. Big Well defined 12 Staff Pros Two Ball putter Bertha price ranges on 7 Contract Pros Putters: Odyssey and driver, putter, Perimeter weighted irons, premium black series iron lines. prepositioned weights on Irons: X series (high end), drivers, interchangeable shafts Bertha, Hogan, Top Flite Tight price (low end) ranges on Slow to react to changes in Other: Fairway woods, fairway woods regulation and consumer hybrids, footwear, balls and hybrids preference (driver size and hybrids) Fortune Diverse but focused Diverse, well- High Medium Focus on Balls and Footjoy defined High vs. 100 PGA pros to Push limits of USGA (Titleist/ apparel. low end use V1 ball regulations with Cobra L4V Cobra) Drivers, Woods, Hybrids, Balls: Pro VI to brand Irons: Titleist line for pros Pinnacle (value and highly skilled rec. brand) Perimeter weighted irons Cobra for rec and game Clubs: Titlest, improvement. Volkey, Putters: Cameron (high Cameron vs. end) and Cobra Cobra Strategy of Major Golf Brands Product Price Endorsements Innovation TaylorMade Diverse Diverse High High Drivers, hybrids, woods, Clubs: r7 vs. 70 Pros for driver, -Moveable weights / Adidas Irons: r7 and Burner lines Burner (low end 11 clubs, apparel -Interchangeable shafts Putters: 11 models -early entry in hybrid market Apparel: Adidas Brand Putters: Why 40 Pros for driver -perimeter weighted irons Balls: have 11 models in tight price range? Ping Diverse Diverse Low Medium Irons: 4 lines Clubs: G10 vs. 20 PGA and 12 -Fixed weights Putters: Large line Rapture (low LPGA -Perimeter weighted irons including premium end) offerings Drivers, Hybrid Woods: G10 and Rapture Nike Diverse Low High Medium Clubs, balls, and apparel Only 18 pros, but - Driver pushes USGA High end irons large financial regulation limits, but not much Club offerings not as only $600. commitment in innovation elsewhere diverse as competition Tiger Woods Clubs often priced below MSRP Strategy of Major Golf Brands Product : Be all things for all golfers. All major brands offer a spectrum of products to match a golfers level, recreational to pro. Price: Matched to level of product. Comparable across industry. Nike allows retailers to sell below MSRP Endorsements: Significant source of differentiation and brand recognition. Innovation: With the major brands having met the regulated limits, innovation is focused on increased launch angles and adjustable features. No significant innovations because of the regulations. Major brands are choosing to not go beyond the regulation specs. Operational: Key production activities are often contracted offshore. Major brands may just be an assembler. What are the internal factors affecting golf equipment manufacturers? Internal Analysis • Innovation of products drives growth – USGA rules discourage innovation and allow less technologically advanced manufacturers to catch up to industry leaders – Manufacturers struggle to differentiate their products when everyone has the same technological limitations Internal Analysis • Outsourced Manufacturing – Lowered operational costs industry wide – Allowed counterfeiters to copy equipment • Led to Golf Manufacturing Industry alliance Golf Industry Sales Figures Units of Products Sold (in millions) 25 •Total units of 20 products sold have 15 remained fairly flat 10 over last decade… 5 0 Drivers Irons Putters Wedges Golf Balls Footwear Gloves Bags Golf Industry Sales Figures 250 But… •Sales price per unit has Drivers declined for large ticket items 200 Irons like drivers •Increased for putters Putters •And remained relatively flat 150 Wedges for other sectors Sales price (USD) Golf Balls 100 •Conclusion – Equipment Footwear manufactures have moved to competing on price due to Gloves 50 challenges with differentiation brought on by Bags new USGA and R&A rules 0 1997 1999 2001 2003 2005 2007 Golf Equipment Industry Product Mix 1997 2007 171.8 165.8 156.7 Drivers and Woods 174.9 Drivers and Woods 676.8 Irons Irons 877.7 275.5 214.3 Putters Putters Wedges Wedges Golf Balls Golf Balls 458.7 Footwear 552.3 Footwear Gloves Gloves 533.4 Golf Bags 579.5 Golf Bags 142.1 190 67.6 95.6 •Not many significant changes in size of each segment from 1997 to 2007 •Size of overall pie is larger from $2.4 billion in 1997 to $2.9 billion in 2007 •20% increase in total industry sales in US despite decrease in overall number of golfers What are the strengths, weaknesses, opportunities, and threats of golf equipment manufacturers? SWOT Analysis STRENGTHS WEAKNESSES •Good following - 22.7m US golfers, 2m Europe, •Attracting & retaining new, recreational golfers 17m Asia •Innovating new products with •R&D budgets, technological advances/product rules/regulations in place innovation drives growth •Short shelf life of products – new models each •20% increase in US sales, despite less golfers year (’97 – ’07) OPPORTUNITIES THREATS •Foreign markets, India & China – large •Counterfeit equipment from China populations, Incomes increasing •USGA & R&A rules freeze technological •Align mfg’s with suppliers of grips, shafts, advances in industry, allow less technologically custom fitting systems/software. advanced mfg’s to catch up to industry leaders •Mfg’s align based on their competitive •Popularity peaked in 1998, reasons for not advantages (woods, irons, drivers, putters) playing as much (See Table) •Aging population in US – baby boomers set to retire – more time for golf Reasons for Playing Less Golf Married with Children •Job responsibilities •Lack of free time •Family responsibilities Married w/out Children or •Job responsibilities •Lack of free time Single Retired or Older Golfers •Health concerns •injuries 30% of Surveyed •High golf fees Respondents • 2003 Survey from the National Golf Foundation Recommendations for the golf equipment industry Recommendations • Penetrate Foreign Markets – Income rising in India & China • Consolidation Strategy – Align Manufactures – Invest & innovate based on competitive advantage (drivers or putters, etc.) • Vertically Integrate & Purchase Suppliers – Grips, shafts, custom fittings Recommendations cont. • Create Recreational Line of Equipment – Ignore regulations • use available technology on equipment for recreational golfers • Playing better, making the game easier will inspire more people to pick up the game and continue to play • Create partnership with competitors to change current rules – Put pressure on USGA and R&A to create separate rules for tour professionals and amateurs • Increase Community Outreach – Work with current tour and club pros to increase golf appreciation and learning – Donate overstock/excess clubs to junior players to build brand awareness Questions?
Pages to are hidden for
"GOLFV7"Please download to view full document