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Callaway G14

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					  “Demonstrably Superior. Pleasingly Different.”



Presented by: Danielle Luisi,
Sam Mann, Matt Mark, and Travis Hawes
             Table of Contents
Matt Mark:                    Danielle Luisi:
  History                      Demand
  Factors of Production        Supply
  Target Market                Income & Substitution
                                     Effects
                               Profit Maximization
Travis Hawes:                 Sam Mann:
  Opportunity Cost             Market Structures
  Substitutes and Compliments  Conclusion
  Elasticity
          Callaway History
Founded by Ely Callaway: 1982
Callaway moves from Cathedral City to
Carlsbad, CA: 1985


Callaway creates the first wide body, stainless
steel wood: 1991
Callaway Golf Company goes public and begins
trading on the New York Stock Exchange: 1992
          Callaway History
Callaway becomes the world’s largest
manufacturer of golf clubs: 1996
Callaway acquires Odyssey Golf, the #1 putter in
golf: 1997
Callaway purchases Top-Flite, Ben Hogan, and
Strata: 2003
#1 choice of consumers in premium golf
products and the leader in the golf industry:
2004
         Factors of Production
•   Land
•   Labor
•   Capital
•   Entrepreneurial Activity
            Land and Labor
Land                      Labor -2,300 employees
• The physical space      • Common Trait’s
  where production        • Integrity,
  occurs                  • Honesty,
                          • Daring,
                          • Enthusiasm,
• Eight-building campus • Accountability
  in Carlsbad, California
                          • Hard work
                      Capital
Human Capital                • Capital is the tools people
• Workers posses skills in     use to produce goods
  aerospace, mining and        and services.
  drilling, toy-making,
  computer and software
  development

Physical Capital
• Eight-building campus in
  Carlsbad, California
      Entrepreneurial Activity
• Recognizing and taking advantage of an
  opportunity
             Target Market
• A target market is the market segment
  which a particular product is marketed to:

• Professionals

• Amateurs

• Novice Golfers
             Opportunity Cost
•Value of next best alternative.

•Explicit Cost
     -Definite money costs.

•Implicit Cost
     -Intangible costs.
          Opportunity Cost

• Ely Callaway sold Callaway Vineyard for
  $14 million.

• Bought a $400,000 stake in Hickory Stick
  USA.
           Opportunity Cost
• Many decisions after Ely Callaway bought
  Hickory Stick USA.
  – Change of name.
  – Move of the company.
  – What direction to go in with the product.


• What does it cost to operate Callaway
  Golf?
               Opportunity Cost
• Recent purchase of Top-Flite golf balls.
  – WHY?

     •   Cost of purchase $154 million.
     •   Estimated value of Top-Flite $160 million.
     •   Standing in golf ball sales prior to purchase.
     •   Standing in golf ball sales after purchase.
                 Elasticity

• Measures Responsiveness

  – How responsive a dependent variable is to
    changes in the independent variable.
  – (ΔQ/ ΔP)*(P/Q)=epoint
                  Elasticity
• How elastic are Callaway products?

  – Golfers will golf as much as they can.
    (inelastic)
  – Golf products are very expensive, therefore a
    larger part of a person’s budget. (elastic)
  – Loyalty to a brand by many golfers. (inelastic)
  – Many and close substitutes. (elastic)
  – Substitutes are of the same quality. (elastic)
                    Substitutes
• What are substitute goods?

• New substitutes not likely to
  enter the market.
                                   vs.
• Ping, Titleist, and Nike

• Top sponsors, new
  technology, discounted prices.
                 Substitutes
• How does Callaway            -Name that
  compete?                     people know.
  - Purchase of
                               -Sponsor of top
  Odyssey, Ben Hogan,
                               profile golfers.
  & Top-Flite golf balls.
  - Cutting edge
  technology.
           Complements

• Goods or services whose demands have a
  direct relationship.

• Goods consumed together.
             Complements
• Callaway supplies many different kinds of
  products for golfers.



• Greens fees.
  – New purchases of clubs or accessories will
   increase a players demand to go play.
             Complements
• Creation of new courses.

  – The increasing popularity causes
   overcrowded courses.

  – Demand for new and better courses
   increases as more people buy more products.
                         Demand
 Law of Demand:
 As the price of a good increases, the quantity
 demanded decreases.

Ceteris Paribus Factors for
Demand:
Income
Number of Consumers
Expectations of Consumers
Prices of Related Goods
Tastes and Preferences
Change in Demand
                          Supply
Law of Supply:
As the price of a good increases, the quantity
supplied increases.


Ceteris Paribus Factors for Supply:
Input Prices
Number of Suppliers in the Market
Expectations of sellers
Prices (Profitability) of Alternative Goods
Technology
Change in Supply
                         Income Effect
As the price of a good decreases, the consumer’s purchasing power increases,
causing a change in quantity demanded for the good.

                       Substitution Effect
As the price of a good falls, the consumer substitutes that good in place of other
goods whose prices have not changed.

      Price decrease:
      P↓ Substitution Effect      Qd↑
          Purchasing Power↑       Qd↑ Normal                  Qd↑
                                  Qd↓ Inferior
      Price Increase:
      P↑ Substitution Effect      Qd↓
          Purchasing Power↓       Qd↓ Normal                  Qd↓
                                  Qd↑ Inferior
       Production And Costs
• The production function describes the
  maximum output produced using
  different quantities of inputs.
• Must make a distinction between:
  – Short run
  – Long run
  – Very long run
  Long Run Cost
LRATC “The Planning Curve”
  – Reflects the nature of returns to
    scale:
    • It slopes downward when there are
      economies of scale
    • It slopes upward when there are
      diseconomies of scale
    • It is flat when there are constant
      returns to scale
 Economies of scale     Diseconomies of scale
1. Specialization &    1. Distribution
   Division of Labor
                       2. Management:
2. Quantity Discount
                         •   Develop more layers
3. Better use of By-     •   Peter Principle
   products
4. Capital
   Goods/Technology
   Bias
5. Co-location of
   Suppliers
            Profit Maximization
A firm will make decisions that maximize its profit

Short Run: Shutdown Rule
• In the short run, the firm should continue to
   produce if total revenue exceeds total variable
   costs; otherwise, it should shut down.
Long Run: The Exit Decision
• A permanent cessation of production when a firm
   leaves an industry.
       Types of Markets
• 4 Major Type of Markets
  – Perfect Competition
  – Monopoly
  – Monopolistic Competition
  – Oligopoly
          Perfectly Competitive
                 Market
• Characteristics
  – Large number of buyers and
    sellers – “Price Takers”
  – Homogeneous Product
  – Easy Entrance and/or Exit
  – Perfect Knowledge
  – Perfectly Elastic Demand
    Curve
                    Monopoly
• Characteristics
  – One seller and many
    buyers of a product
  – Very narrowly defined
    market
  – Significant barriers
    restricting other firms
    from entering the
    market
  Monopolistic Competition
• Market that has elements of both perfect
  competition and monopoly
  –   Heterogeneous products
  –   Face downward sloping demand curve
  –   Large number of buyers and sellers
  –   Easy entrance and/or exit
  –   Tendency towards zero economic profit in long-run
                      Oligopoly
• Characteristics:
  – Few Firms- Firms recognize that their decisions will
    impact their competitors
  – Growth via merger
     • Allows firm to reduce costs by vertical or horizontal merger
  – Economies of Scale
  – Price Rigidity
  – Non-price competition- firms tend to compete in areas
    other than price
  – Significant barriers to entry into market
    What market does Callaway face?
•   Perfect Competition? No.
•   Monopoly? No.
•   Monopolistic Competition? No.
•   Oligopoly? Yes!
     – Why?
        • Few firms in market
        • Prices of one firm impact other firms- relative elastic demand
        • Tendency to merge- Callaway has merged with Odyssey,
          Top-Flite, Ben Hogan and Strata in its history
        • Difficult to enter market- capital requirements and economies
          of scale give existing firms advantage
               Types of Markets:
                  Conclusion
• Callaway is an oligopoly and must
  therefore differentiate their products in
  ways other than price
 • Advertising is one way to
   differentiate products.
    – Callaway advertises by sponsoring
      pro golfers such as Phil Mickelson,
      Rich Beem, Annika Sorenstam and
      Arnold Palmer
    So, what have we learned?
• Callaway Golf is an independent firm operating
  in an oligopoly in the market for golf products
• History of Callaway Golf
• Opportunity costs faced by Ely Callaway
• Supply and Demand of Callaway are relatively
  elastic
• There are several close substitutes for Callaway
• Callaway utilizes its factors of production to
  produce goods

				
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posted:6/12/2011
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