Callaway Golf
...xhibit 4). 3. Due to the diverse purchasing behaviour of the Occasional golfer, those playing two to eight rounds per year, it is further broken down based on two psychographic characteristics: a) Occasional-Achiever: As shown in Exhibit 1 and 2, the first group possess many of the same behaviours and needs as that of the Average golfer, yet it is not directly marketed by Callaway. This segment’s affiliation to prestigious brands is a symptom of their underlying needs to be associated with the game and their determination to improve their game. What makes this group distinct from Average golfer is the motivation behind their brand name preference: because of their lower skill level and their lower understanding of the game, they are unable to discern the equipment performance, and thus choose premium brand as a safe bet. Like the Average golfer, this sub-group can be best summarized by the same psychographic qualities as those of the Achiever. This group and Average golfers share the same drive for achievement and competitiveness, though this group make less informed decisions due to their lack of product understanding and skill level. Assuming that this group is the feeder group that evolves to an Average golfer, this group has the size of approximately 3 million individuals and stands to gain a portion of the 2 million expected new golfers (estimation in Exhibit 4). b) Occasional-Striver: The Occasional golfer segment is a continuum; as shown in Exhibit 1 and 2, this second sub-group share much of the qualities with the Beginner segment and exhibits the behaviours of the psychographic group of Strivers. They are uncertain, approval-seeking consumers who are more sensitive to price. Whereas the Occasional-Achievers purchase brand names as a means to improve their golf game, this segment’s end goal is be affiliated with the prestige of the brand and the sport. Their brand loyalty and commitment to the game is questionable, since this segment is more likely to perceive golf as a frustrating sport, rather than a challenge to overcome. This segment is approximately 7 million strong and will also stand to gain a portion of the 2 million expected new golfers. 4. Beginner: The Beginner segment is a diverse group comprising a wide variety of psychographic and demographic segments. Their uncertainty and low commitment to golf is reflected by their reluctance to invest in premium products and their high attrition away from the game. They form purchase decisions based on price and the advice of the salespeople. This segment is approximately 1.5 to 3 million in size, and typically purchases inexpensive starter sets. Attractiveness: The attractiveness of the above segments is summarized in Exhibit 5. The Beginner segment is the least feasible, due to their small market size and high price sensitivity. Average golfer segment remains appealing due the segment’s relative purchasing power and market size. The Occasional-Achievers are also attractive because it is relatively untapped by CGC with the potential to benefit from the expected growth in the mainstream golf market. Situational Analysis: Company Ely Callaway grandfathered a powerful vision asserting innovative products that are demonstrably superior to and pleasingly different from the products offered by rivals translating this to true long term success. CGC’s positioning of its woods product line is vital, since these products are the main source of revenue, brand image and long-term profitability. The company’s recent decline in revenue is directly due to lower woods sales. While CGC provides support and educational materials to retail channels, it has relied mainly on technological advancements to drive market demand. CGC’s advertisements appeal only to the consumer’s need for technology advancement, which reflects the company’s reliance on R&D as a sole market differentiator. Although CGC continues to maintain its leading market position, rivals are closing the technological gap that gave CGC its advantage. The company is now presented with shortened product life cycles, reduced price points and forced closeouts due to oversupply. The company needs to reposition itself to address the problems of a matured company in a matured market. CGC’s market size allows it to spread its advertising and R&D costs over a large volume. This advantage is achieved as the per-club cost of these expenses is lower than that of its competitors. In addition, CGC’s strength includes its large coverage of off-course retailers, its premium brand image, and its ability to understand the Average golfer. Thus, Callaway needs to combine elements from these strengths along with its tradition of innovation to differentiate itself from its rivalry, and to attract and serve the broader needs of the consumers. Situational Analysis: Competitors CGC has three main competitors in the golf club market: Taylor Made Golf, Titleist/Cobra Golf, and Ping Golf. Based on the competitor analysis in Exhibit 5, Taylor Made is CGC’s principal rival, with annual product launches directed at the same consumer segment as CGC. Taylor uses rapid product launches to appeal to the Average golfer’s need to keep up with technology. The company has rebate sales promotions and prices its equipment 30% lower than CGC, which currently cannot be matched by CGC due to its higher cost structure. Titleist spends twice the amount on endorsement than CGC and seems to be able to validate their premium status better than Callaway, despite the fact that 69% of golf professionals use CGC woods. The voluntary use of CGC woods by professionals is actually a truer testament to the quality and performance of Callaway products. However, Titleist has grown from its market share of 1% to 5% over three years. Assuming that most of these sales from on-course stores are purchased by Avid golfer, CGC leads Titleist in the Avid segment. Cobra and Ping are little threat to CGC. Cobra does not appeal to the consumer’s need for competitiveness or to their need for equipment performance. Instead, Cobra offers a lower-priced product that appeals to the value-conscious consumers, who are typically women, seniors and Beginner golfers. On the other hand, Ping specializes in premium irons. As mentioned earlier, because Callaway should remain a woods-centric company, Ping Golf can only pose a threat if it introduces its own woods product line. Other factors: Retail channels may dislike CGC products because of the low-margins, but this is an issue about distribution and not about competition. In-store private labels cannot compete against CGC on performance and product-educated golfers will not choose them over Callaway clubs if their motivation is achievement Situation Analysis - Summary CGC should maintain its woods-centric focus and should maintain a premium pricing model. Game theory suggests that a price competition with Taylor Made would likely lead to a pricing war and CGC would suffer due to its higher cost structure. Additionally, large price reductions could dilute the prestige of brand. Based on the consumer and competitive analyses in Exhibit 5, 7 and 8, any of the top three segments in the market can prove successful for CGC: Avid, Average, and Occasional-Achiever segment. Repositioning CGC to expand its value proposition beyond technological innovation to these segments will allow the company to leverage from its other unique strengths, to make it more sustainable and to potentially appeal to a broader market. Alternative Solutions From the above situational analysis, CGC has three strategic options available: 1. Focus more on the Average golfers, reduce the number of on-course pro shops, continue to invest heavily in R&D, and maintain their price premium. By following this strategy, CGC is able to benefit from the increasing number of Average golfers. 2. Focus solely on Avid golfers and make this segment a niche market for CGC, remove its off-course retail channels, eliminate lower-end product line, invest more in R&D and establish a stronger relationship with country clubs. As the result CGC has the potential to raise its premium price and provide for a market that has a faster consumption rate. 3. Expand the target market to appeal to the achievement need that is common to the Avid, Average and Occasional-Achiever segments. CGC will improve its competitive position because it is able to increase R&D and advertising expenditures and spread fixed costs them over a higher sales volume. Sales growth is the result of a larger consumer base and also from growing popularity of the sport. Decision Criteria Five criterions determine the feasibility of the alternatives and how each contributes to the long-term profitability of CGC: implementation costs, future growth potential, sustainable competitive advantage, long term brand equity, and risk. The analysis is quantified in Exhibit 9. Sustainable competitive advantage is the most important factor for CGC. Narrowing CGC’s focus to the Average segment places the company in direct competition with Taylor Made. As the company analyses have shown, CGC cannot compete on cost and should not shorten the life-cycle of its products to one year, to match that of Taylo...