GOLFV7 by t4Ri061


									  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
• How do golf club manufactures plan for the future with the
  uncertainty of further new rules limiting club and ball
• 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
     – 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
     – 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
            PEST Analysis of the Golf Equipment
Category          Issue                         Threats/Opportunities   Ranking (1-5)

Political         USGA and R&A rules on         Threat                  5

Economic          2008 Economy Sours            Threat                  3
                  Rising incomes in BRIC
                  countries                     Opportunity             3
Social            Healthier, more active        Opportunity             2
                  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
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”
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
What are the changes in demand?
               Porter’s Five Forces

                       Buyer Power

MED-HIGH                       HIGH   LOW

  Threat of            Competitive    Supplier
 Substitutes             Rivalry       Power

                        Threat of
                       New Entrants

                  Porter’s Five Forces
         Factor           1=lowest

                                     • Costly and takes time to build reputation
                                     • Huge learning
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
                                     • 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
  Running       22.2M            24.7M                 30.4M

   Tennis       11.5M            11.0M                 12.3M

Fitness Clubs   22.5M            28.9M                 33.8M
                    # of participants in selected sports in millions
             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

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
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)
             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
     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

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)

•Total units of        20
products sold have     15
remained fairly flat
over last decade…


                            Drivers   Irons        Putters
                            Wedges    Golf Balls   Footwear
                            Gloves    Bags
        Golf Industry Sales Figures
•Sales price per unit has                                                     Drivers
declined for large ticket items       200                                     Irons
like drivers
•Increased for putters                                                        Putters
•And remained relatively flat         150
for other sectors               Sales price
                                   (USD)                                      Golf Balls
•Conclusion – Equipment                                                       Footwear
manufactures have moved to
competing on price due to                                                     Gloves
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
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
        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
Retired or Older Golfers                  •Health concerns
30% of Surveyed                           •High golf fees

•   2003 Survey from the National Golf Foundation
Recommendations for the golf
    equipment industry
• 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
   – 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

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