Case analysis of Callaway Golf Company

Essay by 0Penny0University, Master's April 2004

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The key issues concerning Callaway Golf Company are:

*Relationship with its retail partners

*New product development

*Marketing strategy


Callaway has experienced its first loss of $ 27 million after 10 years of growth. Competitors had finally caught up to CGC'S superior R & D capabilities and are flooding the market with new products and promotions, raising the bar for consumers on when to replace their equipment.

Callaway's strategic success in 1988 to 1997 is highly credited to its R & D facilities. Their approach toward innovation and technology provided a cutting edge against the other competitors in the market. The way Callaway was able to continue their differentiation features was through their highly skilled R & D. This was expensive which is why many companies choose not to compete in the area of differentiation. Over a five year period it spent $36.3 million on R & D alone.

Revolutionary "unanswered question" approach produced true market drivers in S2H2, Big Bertha, and titanium. Competitors could not catch up to the technology, enabling premium pricing and superior brand image.

They understood their customer well. They had the ability to identify and solve latent needs (e.g., a driver with accuracy) created a "pull" demand pattern. Pull demand made collaboration of retailers' easy and even enhanced promotion through voluntary celebrity usage. This took design expertise, in addition to understanding the addictive/obsessive/emotional relationship golfers have with their equipment. Selection of the average golfer as target customers tapped into the market most influenced by and likely to discuss golf technology. This is also one of the fastest growing segment, 27 %( 5.4m) of 20m US golfers in 1986, 32% (8.4m) of 26m US golfers in 1998.

Thus the factors that contributed to its success were as follows:

*Performance and quality of its club

*Product innovation

*Sales at of-course retailers

*Premium pricing

*Endorsements & global presence.

Competition Analysis

Five-force analysis

a. Rivalry among manufacturers of golf club equipment: Competing sellers are fairly active. The competitive weapons are product innovation and product quality. Other factors affecting the intensity of rivalry are globalization and the product differentiation. The overall rivalry is strong and likely to grow stronger, because there is little growth potential.

b. Suppliers of golf club parts and components: Suppliers have weak bargaining power and are not a source of much competitive pressure and seller-supplier collaboration is not really a factor here.

c. bargaining power of golf equipment retailers and seller retailers is collaboration moderate, about 65% of business was done in off course retails shops while, thus it is very important to have a good relationship with their retail partners. But at the same time the retailers wanted to carry Callaway brand.

d. Threat from new entrants is high e.g. Nike Golf a branch of Nike Inc. Nike, a fairly new entrant, might be able to claim a large part of the market with the introduction of Nike Golf Clubs. Nike is using Tiger's endorsement as a switching cost by linking his worldwide popularity and golfing talent with Nike products, which dramatically increases sales.

e.The threat from Government regulation is medium, but they should make regulation adherence high priority and should not pursue design that will not be marketable.

Consequently, the rivalry of the existing golf club manufacturers is the strongest force, followed by the threat of potential entry into the golf club segment, the competitive threat posed by substitutes, the bargaining power of pro shops and other retailers of golf equipment and the bargaining power of suppliers. The overall strength/intensity of the competitive forces is moderate/normal. This is one of the contributions to the great success of Callaway.

The key issues as mentioned in the beginning are something what the Callaway Company should focus on for a successful strategy.

They should try and improve the deteriorating relationship with their retailers, as mentioned in the case there are no discounts, offered to the retailers and there is inventory management problem. They should provide discounts to retailers, which will provide better margins and more services in order to influence purchaser at the point of sale. One price for all retailers avoids channel conflict. Track retailer behavior to provide varying volumes of sales call. Adopt ways to improve relationship on one to one basis. Also, think of education on retail front. Sales people are the key figures for selling their products they should motivate them, by providing incentives, rebates commissions etc the sales people should make surprise visits, as a customer to see how their products are being displayed and to study the customer's behavior towards their products. They should provide the retailers with physical space for better inventory management, loss of sales were accounted, because there was no replenishment.

The R & D facilities allowed them to continuously come up with new products in the market. In my opinion they are flooding the markets with many new products, in a way they are confusing an average golf player with too many different types of golf club.

In a hurry to bring new products they are forced to sell off old products at discount. They are in a way cannibalizing their own products.

Their target market is an average golfer, but they should also target good and experienced players, who are the opinion leaders and most golfers accepted word of mouth recommendations.

One area that I see will help them in gaining competencies is the Richard C. Helmstetter Testing Centre. Every pro and amateur can get in there to work on their skills, one can use them as an expert panel and use their ideas and experience to expand the product line and to test new products. The other area main area of core competencies is their expansion in golf balls. Thus in a way their pushing their brand and offering the convenience of buying the needed products under one brand umbrella.

Superior designs create a pull demand. Stabilize growth of R & D budget. Continue to strive for unanswered question, but work on improving the process to decrease costs and maximize value of each new offer.

They should also, put more money in their marketing campaign and like their rival Titleist, get popular golfers to endorse their products, put emphasis on their on-course sales.

Come up with a promotion message of differentiation to justify price premium. Media: TV, trade magazines, as validation: celebrity endorsements and voluntary rewards. Use integrated sales approach to retailers and focus on point of sales marketing. Initiate demo days at off-course locations too. Sustain value release upgrades every two years to prevent customers from switching. Reinforce product development with increased brand equity and greater push at point of sale.

Callaway in the past had taken quick action against companies that tried to knock off any of their products. This has got to continue if they wish to stay ahead in the industry. At the same time continually produce new and better products in the forefront of technology, because eventually there will be someone who will get hold of the technology and will make legal copy of their products.

Final Recommendations

* The business needs to put more effort into advertising and marketing. One very successful way is to engage famous golf players, who play internationally and use Callaway products, visible on his or her equipment

*The business needs to make their products fit for international standards. Customs in different countries are different. The design and make of Callaway products has to take it into consideration. Consequently, the products have to be more differentiated.

*On the national market, diversification into design, construction and/or operation has to be taken care of.

*An expansion abroad needs to be heavily done, because the growth potential in the US is limited, the market is in the mature state.

*Callaway constantly has to focus on innovations, like introduction of new irons and new drivers. The good service needs to be maintained and further developed, new features to the products need to be developed and implement, like fun, distance and spin.

*Last management needs to focus on cost reduction and the use of synergy effects. The products have to be marketed as a premium good, not to get everywhere, after the resign of Ely, all employees have to live up to his vision, because it made the business a number one firm, they should try to decrease the leverage and keep a close eye on their capital target structure.