Will the Golf Industry continue to Decline ?

AA

Questions• What are the external factors affecting the industry?

• What companies are in a strong position? Why?

• What part of the industry is the ideal place to be?

• Where have companies failed so far?

• What companies bought out other companies and was it a good decision?

• Where is the money made in the industry?

• Who are the industry’s target market?

• Who has the power in the industry? Suppliers? Retail channels? Manufacturer?

What are the external factors affecting the industry?

• USGA regulations have caused a decrease in technological innovations

• As a result, golf equipment manufacturers became stifled in their abilities to pursue innovation-based strategies directed at making golf easier to play for those of modest talent.

• Decrease in the numbers of golfers playing the game

• The number of rounds of golf being played has been steadily declining

What companies are in a strong position? Why?

• Callaway- Before USGA regulations, Callaway was the industry leader in terms of technological innovations. Big Bertha Driver is the number one selling driver

• Fortune Brand- Their Titelist Pro V1 golf ball captures 40% of the ball market. While their FootJoy brand led the industy in accessories

• TaylorMade- Leading seller of hybrid clubs and second behind Callaway in drivers.

• Ping- Industry leader in the iron segment fighting for the position with Callaway.

• Nike- Signed Tiger Woods to an endorsement deal to help sell

Nike apparel. Nike golf balls gained 10% of the market share.

What part of the industry is the ideal place to be?

• Drivers

• See Slide 16

Where have companies failed so far?

Pest

Political •USGA Stifles innovation (drivers, balls, irons) -Threat•Weak anti-conterfeiting laws in China- Threat

Economical •Golf is very exposure - Threat•White dominated sport- Threat•Relationship between income ($100,000) and participation- Threat or Opportunity •China counterfeiting•Expensive sport to enter and remain competitive

Sociological •Restrictions are making sport less attractive to potential players•T.V. exposure and charismatic players increase interest- Opportunity•Asian Americans, African Americans, Hispanics- Opportunity

Technological •Online sales (legal and illegal)- Threat or Opportunity•Ceiling on technological applications- Threat

Porter’s 5 forcesCore Golfer Non-Core Golfer

Threat of substitutes Low High

Intensity of competition High ?

Threat of new entrants Low High

Bargaining power of buyer High High

Bargaining power of supplier High High/Low

Two Major U.S. Market Segments

Core Player

1/3 (7.57 million) of total golfers fit into this category.

Played at least 8 times per year,averaging 37 rounds per year.

91% of rounds are played by this category.

87% of industry equipment sold, membership fees, and green fees.

Non-Core Player

2/3 (15.13 million) account for this category

Major Barriers of Entry to the Sport

Barrier : Issue:

Cost Equipment cost is high

Green fees

Accessories (golf shoes, bags, balls)

Health Retired golfers had time, but failing health.

Young golfers had health, but no time.

Time Family and job responsibilities Length of time to play a round

Difficulty Disappointing that low scores do not come quickly.

Declining MarketMale 20 million 2000

to 16.2 million in 2007

19% decrease

Female 5.8 million in 2002 to 5.1 million in 2007

12% decrease

Junior 2.4 million in 1998 to 1.4 million in 2007

42% decrease

Market Demographics

Men account for 71.4%

Women account for 22.4%

Juniors account for 6.2%

African Americans 1.3 Million people

Asian Americans 1.1 Million people

Hispanic American 1.0 Million people

Driver regulationsRegulation Effect1998 USGA Coefficient of restitution (COR) test

Rule would defend against any spring like effect that a high-tech driver clubface might deliver.

2006 USGA regulates driver performance Characteristic Time (CT) test

The CT test required that the golf ball remain in contact with the face of a driver for 239 microseconds, plus a tolerance of 18 microseconds was considered evidence of a spring like effect and would place a driver on the R&A’s nonconforming.

2006 USGA Movement of Inertia (MOI)

MOI would be limited.

2004 USGA club head size

Ruled that driving clubs were not allowed to be larger than 5 inches by 5 inches and could not have a volume of more than 460 cubic centimeters.

Ball and Iron/Wedge regulationsRegulation: Effect:

2005 USGA ball regulation Manufactures were asked to produce balls that would fly 15-25 yards shorter than last year model balls.

2008 USGA Wedge regulation Manufacturers must discontinue producing wedges with sharply squared groove edges on irons and wedges.

Effects of Counterfeiting

• The rise of counterfeiting in the golf equipment industry was attributable to the decisions by golf executives to source club heads and sometimes contract out assembly of golf clubs to manufacturers in China.

• Reverse engineering played a major part in the ability of other companies to produce counterfeits.

• In 2003 the six major manufacturers created an alliance to identify and pursue both of those who made and those who sold counterfeit clubs. In 2005 a Nike official said that it is increasingly hard to prosecute the counterfeit companies because they just pack up and move their operations somewhere else.

• In 2008, a set of clubs from a major manufacturer cost roughly $2,000. A counterfeit set of clubs could cost as little as $150-$400.

Three phases of the sport

Phase 1:

Rich Sport

Phase 2:

Television induced growth

Phase 3:Decline

Equipment change from 1997-2007

% change in Avg. Selling Price

% change in Units sold

% change of Retail Value

Drivers -24.68% 71.67% 29.68%

Putters 56.63% -14.12% 33.71%

Irons -5.33% 15.45% 4.89%

Golf Bags -7.94% 4.38% -3.49%

Golf Balls 14.54% 5.11% 20.41%

Footwear -5.81% 37.90% 28.55%

Wedges 4.65% 37.18% 41.42%

Gloves 1.88% -8.59% 11.61%

Percent of Market Share1997 2007 % Change

Drivers 28% 30% Up 2%

Irons 22% 20% Down 2%

Putters 6% 6.5% Up 0.5%

Wedges 2.8% 3.3% Up 0.5%

Golf Balls 19% 19% N/A

Footwear 9% 9.5% Up 0.5%

Gloves 6.5% 6% Down 0.5%

Bags 7% 5.7% Down 1.3%

Market size:

1997 $2,421,400,000 2007 $2,911,300,000 20.23% increase

Company Strong Points

Calloway TaylorMade Titleist Ping Nike

Drivers X X X X

Putters X

Iron X

Wedges

Golf Balls X

Shoes

Apparel X

Competitor Analysis

• Perceptual map

• Competitive Rivarly

Perceptual Map

Price

Tec

hnol

ogy

Inte

nsity

Callaway

TaylorMade

NIKE

Titleist/Cobra

PING

Competitive RivalryProduct Performance

Brand Image

Tour Exposure

Price Innovations

Callaway High High Moderate High High

TaylorMade/ Adidas

High High High Moderate High

Titleist/ Cobra

High High High Moderate Moderate

Ping Low Low Moderate Low Low

Nike Low High High Low Low

Evaluation of each Company

Callaway

• Strength- Big Bertha driver was the best golf product of the century

• Strength- Good company image- President named the most influential golf person

• Strength- Industry leader in technological innovation

• Strength- Acquisition (Odyssey-good, Top Flite-bad)

• Weakness- Lack of leadership after the CEO’s passing

• Weakness- Late to market in regard to new products

• Weakness- Apparel

• Weakness- Competition in low market share categories (putters)

TaylorMade/ Adidas

• Strength- Leader in drivers

• Strength- Apparel is growing at an increasing rate

• Strength- Leader and first to market hybrid clubs

• Strength- Heavily endorsed by PGA Tour

• Strength- Adidas’ acquisition of TaylorMade

• Weakness- Competition in Low market share categories

• Weakness- Low market share and respect for their golf ball

Titleist/ Cobra

• Strength- FootJoy has 60% market share

• Strength- Titleist Pro V1 golf balls 40% market share

• Strength- Titleist Vokey forged Wedges 22.5% market share

• Strength- Titleist Scotty Cameron Putter 10% market share

• Weakness- Titleist’s iron line of clubs

• Weakness- Cobra line extension

Ping

• Strength- Pioneer in custom club fitting

• Strength- Ping was the leader along with Callaway in irons 2008

• Strength- Putter market share

• Weakness- Were very late to market with a hybrid club-2005

• Weakness- Did not produce a golf ball in 2008

Nike

• Strength- Enormously successful in apparel and footwear

• Strength- Golf ball- 10% market share

• Strength- Tiger Woods endorsement

• Weakness- Poor image quality when they entered the market

• Weakness- Golfers didn’t like the sound of the club striking the ball

• Weakness- Products sell below retail price

• What are the strengths and weaknesses for the industry as a whole.(Critical Success Factors)

• Past, present, future CSF of the industry

Strengths and Weaknesses for the industry

• Weakness- Technological innovations limited by USGA regulations

• Weakness- Product differentiation became more difficult so manufacturers depended on endorsement deals

• Weakness- Manufacturers had to be careful when selecting third-party suppliers for parts over seas

• Weakness- Counterfeiting

• Strength- The ability for companies to acquire other companies

• Strength- Shaft performance, interchangeable shafts

Recommendations for Each Company