Nature of Situation
Callaway Golf is a leading designer, developer, manufacturer, and marketer of high quality, premium-priced, innovative golf clubs. Reasons for their success during the 1988-97 period include:
- Innovation and technology for superior golf equipment, e.g. the revolutionary Big Bertha which made golfing easier and more enjoyable for layman
- Successful marketing target on "average golfer" who perceives CGC as performance enhancing product. This market segment is willing to spend as well.
- Strong word of mouth for the brand
- Increasing public interest in golfing
However, after a decade of stunning success with the marketing concept, Callaway suffered a significant first loss of $27 million and witnessed a steep decline in sales in 1998 due to the following reasons:
- Decline in premium golf equipment as market was saturated
- Lack of innovations for CGC to sustain its growth
- Diminishing competitive advantages in innovation due to regulatory pressure and conformity in protocol set by USGA
- Increasing competition from other manufacturers that were catching up CGC's innovation, e.g.
Taylor Made, Ping, Titleist & Cobra
- Too many innovative clubs introduced that golfers were unable to justify for new purchase
- Flood of off-course shops which resulted in there being too many sharing customers in the golf business which wasn't large
Decisions, Solutions and recommendations
The decisions for Callaway to be made include: new product development, pricing, retail channels relationships & marketing strategies. Callaway should have considered the following strategies in sustaining the company's success as the product evolves over its maturing life cycle.
Research & Development: (1) Innovation has always been the key success for CGC brand. CGC should increase the percentage of money allocated to R&D it should give greater than 5%. However, this move may increase the cost burden and diminish the profit margin...