Golf as a sport is still en vogue
Increasing competence between private and public golf courses will lead to a further decrease of green fees and joining fees; that will furthermore lead to an enlargement of the target group
Finally the opening of golf courses in Russia may have signalized an increasing convergence of markets worldwide. Customer preferences become more and more similar. Therefore there is a big possibility that the possible size of target groups worldwide will close up to the one of the United States, where 9 % of the population are more or less active golfers. In Western Europe and Asia we are still far behind that rate, which finally means that those markets offer enormous potential.
Product innovation led to a change in buyer s behavior, it gets more and more common to have more than one driver and a series of woods, this as well improves market size.
However with a persistent tendency to globalization there might appear other companies in the business attacking the already established ones in certain target markets or just compete in their home market. As well it cannot be excluded that other major companies will entry the golf equipment industry, but because of the high grade of concentration we already see this would result in huge marketing and R&D expenses to get a high rating of name recognition. In the golf equipment industry this requires most of all high quality products, we already know that even companies with decades of experience in the golf business are experimenting heavy problems in regaining the market share they lost because of unawareness of the their clients necessities.
However it would easily be possible that companies exit the market segment. As already mentioned above it was estimated in 1997 that only six of the more than 350 competitors in the business are profitable. It is logical that companies generally not maintain an unprofitable commitment in the golf equipment sector for too long time. Indeed, exceptions are possible, for example when companies spend money they earn in other sectors to establish themselves in the golf equipment industry or maintain their position because of other reasons (i.e. image).
Marketing innovation seems to be a driver of change of less importance in the golf equipment industry, the main marketing activity remains the endorsement of pros.
Research and development already is of huge importance, the technological innovation in the golf equipment industry not only forms an entry barrier to the market, it could even lead to the disappearance from the market of companies not able to keep pace with the general technological development for whatever reason.
Anyways, mainly because of the seasonal character the industry has the capacity of remaining companies would be big enough to satisfy the demand.
Government policy changes generally are not supposed to influence the industry dramatically; it may appear an increase of direct or indirect taxes and other , indeed, but the expected consequences would be moderate because of:
relatively high income level in the target group (not very elastic to indirect taxes)
direct taxes would affect the company but could be compensated by moving the company to an other country, etc. (consequence of globalization)
special taxes levied for ecological protection are mostly related to companies causing danger to natural resources or to energy intensive industries. They would only affect enterprises who are in possession of founding facilities etc. and could i.e. be compensated by pricing measures.
More effect on the industry could have the alternations of standards established by organizations like the United States Golf Association USGA or the Royal and Ancient Golf Club of St. Andrews R&A . There is neither a guaranty that existent or future products of involved companies will not be affected by changes of the standards, nor that those changes will not effect sales dramatically. (i.e. it could be possible that a certain golf ball product cannot be used in tournaments because of a change in standards).
Changes in cost and efficiency as well are one of the more important drivers. Apart from the influence of labor unions in some countries that could affect the companies efficiency with demands for i.e. additional payments, more spare time etc. or with measures applied to satisfy their demands (call of strikes etc.) there exists a certain dependence on subcontractors and materials. In the industry there is a certain tendency to backward integrate subcontractors, but at least the prices of some raw materials, i.e. Titanium, could dramatically affect production costs.
As well costs could appear in case of unwanted violation of any patents, trademarks etc., already existing on the market. This point has as well to be seen connected with government policy and their changes, because the implementation of laws and the process of lawsuits should be categorized as part of that driver of change.
3 The companies and their strategy
3.1. WHICH COMPANIES ARE IN THE STRONGEST/WEAKEST COMPETITIVE POSITION
To determine what companies are in the strongest or weakest competitive position the first step is to compare strategic characteristics and basics on which companies compete. For this strategic group analysis we will take into account all the companies active in the golf equipment industry we can consider competitors.
That means: Callaway Golf, Cobra Golf, Karsten, Taylor Made as well as the more traditional manufacturers (i.e. Spalding Sporting Goods) and the competitors which lack a notable market share (i.e. Dunlop).
The characteristics we will review are the following:
Extent of geographical coverage
- As golf is an international sport and it is necessary for manufacturers to be present at all the most important international tournaments we cannot identify differences in that area
Number of market segments served
- Here we can identify differences. Exist companies we can see as alrounders like Callaway golf (production of clubs, steel shafts, graphite shafts, golf balls), exist as well companies who specialize themselves on a certain field like Karsten Manufacturing (does not produce graphite shafts)
Distribution channels used
- Regarding this area we can identify two groups. The first one consist of those enterprises just distributing via pro shops (custom fitting), the other group use mass merchandisers and large sporting good stores.
Extent of branding
- Callaway using more brand names than for example Karsten Manufacturing
Technological leadership
- In Golf equipment actually we can see a clear technological leadership of Callaway, companies like Taylor Made as well have a certain capacity, others like Cobra Golf are followers and do not intend to go fore a kind of technological leadership
Extent of vertical integration
- Cobra Golf is with its inhouse graphite shaft production leading in vertical integration
Product Quality
- In product quality the differences are small, the four main competitors have more or less the same quality standards.
R&D Capability
- In R&D Capability Callaway Golf with its Helmstetter Test Center still is number one
Pricing policy
- In pricing policy we can divide three groups. The first one are high end manufacturers like Callaway, Taylor Made and Karsten Manufacturing, who demand high prices for a very high standard of technical innovation. The second group is represented by cobra golf, as well offering high quality products but less innovative and cheaper because of a good vertical integration. The third group are producers like Spalding, Mc Gregor and Dunlop which mainly sell without custom fitting via mass merchandisers and mainly attract customers through a low price.
The following matrixes allow us to see how the main competitors are positioned. The first one deals with technological leadership and price.
CALLAWAY
TAYLOR MADE
KARSTEN
COBRA GOLF
SPALDING, DUNLOP ETC.
The second one relates the channels of distribution with the number of market segments served.
KARSTEN M. TAYLOR MADE CALLAWAY
COBRA
DUNLOP
Once again we can clearly extract that the main competitors use one level of distribution channels. Dunlop as an example for low end manufacturers cannot be seen as direct competitor. The first matrix allows us to define even more exact the main competitors in the high end market segment. Because of technological innovation and the same price level we can say that Callaway competes with Karsten manufacturing and Taylor Made directly, Cobras target group mainly already is different because of pricing and less advanced technology. However Cobra has a very strong position because of successful marketing and integration. Callaway has probably the best position because it is not only market leader in most segments, it as well is number one in spending for R&D and can be considered as well as technology leader. Taylor Made with Salomon has a strong parent company and a unique technology with the Bubble shaft and Karsten finally has as well a strong brand name (Ping), a good product with the fame to be very innovative, but limits itself on steel drivers. The strongest position clearly is owned by Callaway Golf.
3.2. RECOMMENDATION OF STRATEGIC MOVES
Callaway Golf is market leader in drivers and (tpgether with Cobra) in irons, with a couple of strong brands. It was as well technology leader, therefore it is important for Callaway to keep one step beyond the competitors in research & development and to avoid that knockoff imitations reduce its market share. What happened to Wilson, Spalding and Mc Gregor Golf in the end of the eighties can always happen in such dynamic markets the golf equipment one belongs to. Product differentiation is the most important factor and Callaway will do its best to make its products easily distinguishable from the ones of competitors.
As well it will be very important to draw profit from increasing popularity of some product, that means to widen the product range of a series, as we noted earlier todays golfers likes to have a variety of woods in his caddy, Callaway will try to increase sales because of that phenomenon.
Cobra Golf Company, the number three in drivers, will try to increase market share with products of high quality, just a bit less innovative than the Callaway ones but by far better in price. As well Cobra will maintain the pro endorsements in tournament and should be attentive that the name Cobra Golf is present at all the tournaments. Cobra has the advantage of a good vertical integration and as well will profit from cost sharing synergies with the other golf equipment manufacturers in the Fortune Brands combine. However, with Callaway entering the Golf Ball Segment there will be another market segment of direct competition between both companies.
Karsten Manufacturing will as it always did try to compete with Callaway in Research & Development but with a slightly different philosophy. The ongoing refuse of relatively expansive titanium drivers brings costs advantages for Karsten. Karsten as well is market leader in putters and will try to keep this position. The drivers are not very popular. Therefore for Karsten R&D and Marketing are the most important factors to respect.
Taylor Made still profits from the technologically advanced bubble shaft, which is still very popular. The driver is the industries second best selling one, which supports Taylor Made with the necessary funds to go on with research and be a threat for Callaway and Karsten. As well Marketing and the try to consolidate or even further increase the Market Share will be the next steps.
3.3. KEY FACTORS FOR COMPETITIVE SUCCESS IN THE INDUSTRY
Generally we talk about the necessary resources a company must have to compete in the business connected with the threshold competences. If a company tries to be competitive successful that may not be enough and it is necessary to have unique resources and core competences.
From the customer demand point of view there exist a couple of factors which are of critical importance for their buying decision. These are the following:
Following the clients self-assessment the willingness to pay a certain maximum price
The possibility to notably improve the golfers game because of advanced technology clubs
The availability of the clubs in reach of the potential buyer and the pre-purchase service quality
Customer perception of the companies quality (image)
As a consequence of the first one a company needs to have sufficient financial resources and as well a good cost efficiency. If a product is too high priced compared to competitors products it will probably have problems to find buyers. On the other hand the selling price on long-term view must be profitable, otherwise the company will get driven out of business. Cost efficiency is affected by supply costs, experience, product & process design and the influence of economies of scale, which we can term as key success factors.
The second point demands a good product, or better an outstanding product, which provides advantages compared with the products of the competitors. For the company it means that R&D becomes critically important (necessity of facilities) and that as well there must be an efficient quality control, better tending to Total Quality Management.
The availability links with an efficient net of distribution and sufficient production capacity to provide the customer with the demanded amount of clubs. The net of distribution includes the necessary sales personnel etc.
The perceived value by customers of a couple of factors the customers values most in golf equipment. Normally there is an hierarchical order. In the golf equipment industry we can identify more or less the following order:
1. Technical quality
2. Delivery reliability
3. Post-Sales Service
4. Overall Reputation
This order may vary from costumer to customer.
Once achieved a competitive advantage facilitates the business, but it has to be maintained. For example Cobra s in-house production of graphite shafts is a competitive advantage, which makes the company more independent to supplier power. Besides it is not very easy to imitate, it needs to undertake massive investments in facilities etc. But once gained by competitors as well a competitive advantage is not anymore. It is very important to use it to gain market share etc.
3.4. THE PROSPECTS FOR ABOVE AVERAGE PROFITABILITY IN THE GOLF-EQUIPMENT INDUSTRY
The number of golfers on the US Market has only seen a very moderate growth during the last 10 years. This might be a sign for that the target group reached its maximum size with a 9% of the total population and that golf in that market is at the climax of its popularity. Further growth of the target group could be linked to the population growth rate, but not higher. But in spite of the target group remaining at nearly the same level, we had an exploding market volume in the nineties. Thanks to advanced technology we experienced a change in costumer preferences, the costumer replaced his old iron by the new one, which promised to help him to improve his game. We experienced Research & Development as key factor in the business and companies dominating the market for decades nearly disappeared in a few years.
Because of increasing worldwide market convergence we can today preview the popularity of golf worldwide will close up to the north American level. Therefore there is huge growth potential in the industry, which we can suppose above-average.
With increasing globalization and concentration in the industry we will see a weaker threat of entry in the industry for the following reasons:
Immense marketing costs to enter
Immense R%D Investments
Market structure close to oligopoly
Built up customer preferences to stick to their company in major markets
Only a few of the competing companies will be profitable
Risk loss of R&D expenses because of intervention of R&A or USGA
Huge dependency of retailers on the companies (Pro shops)
The Buyers Power on the other Hand is supposed to increase in the future because of a high grade of concentration opposing a larger number of operators on the supplier side. Another reason is the tendency to backward integrate suppliers in the industry. The switching costs from one supplier to another remain still low.
Linked with the increase of Buyers Power we will see a decrease of suppliers power, with the exception of steel shaft producers like True Temper who possess an excellent brand recognition.
The threat of substitutes will remain stable or slightly decrease. To play golf people always will need a club and therefore will always appear generic substitution. In case of slight decrease it will be caused by the disappearance of some manufacturers from the market. With more and more implication of advanced technology it will be as well more complicated to produce knockoff imitations and attract costumers with a similar product for a lower price.