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Callaway Golf Co.

Case Study Analysis

Tasha Liberman

on 29 January 2014

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Transcript of Callaway Golf Co.

Ely Callaway
Sale decreased 17% and $27 million
loss in 1998
"Gotten away with murder" with its retailers
First half year of 1999 Reached $415 m sales and $38 m net income
High Sales Volume
Premium Price
Found 1982
Product lines
Average & Skilled Playe
Metal woods
Putter & others
Magic faded in 1998?
1. Retailer relationship
2. New product development
3. Marketing strategies
How it started?
Winery ---- Hickory Stick USA in 1982
Potential benefit
Antique looking, yet modern clubs
Cost $435,000
Callaway Hickory Stick
Be differentiated
on Product mix
$2 million
Long term ---
8-10 years
to break even
The Leader of
successful Transformation
Richard Helmstetter
from Producer to
Innovation powerhouse
Short Straight Hollow Hosel
Great success in only one year
NO.2 on the senior PGA Tour
$22 million Sales
R & D approach called "RCH Tough questions" (over 400)
Three Revolutionary
Club Designs
Introduced in 1991
Larger "Sweet spot"
High price ($250) but very popular
Milestone of Golf ---- Amateur
Easier to use and more forgiving
Combine S2H2 technology and oversize clubhead
1994 more advanced technologies

Change Stainless steel to Titanium
Great investment
Adventurous spirit
In 1995 Great big bertha $500
Biggest big bertha $600
1997 hit the peak $843m
Purchased Odyssey Golf $130m
Putter product line
Technology commitment
Big Bertha X-12 Iron hit the market
(Best-selling iron)
Kid's market
Golfer's Behavioral Characteristics:
Varied emotion sense
Competitive and dependent on their equipment
Always looking for better club
Value word-of-mouth recommendations
Consumer Behavior
Higher price with higher technology strategy
Increase capibility
500,000 units in 1988 / 6,000,000 in 1998
Be differentiated both externally and internally
Product life cycle is short
Keep high customer retention rate
No true customer loyalty
R&D spending $6m to $37m from 1994 to 1998
Lead to "new product introduction" trend
Product Development
Latent Demand Theory
Distributors---Off-course retailers
Wide selection and experience
Increase slowly
1500 out of 2000 stores
Better Financed
Concentrated enough for retailing
Price---One price policy (in the US)
Trade publications
Endorse professional players
Be differentiated
Educate customers
Total $79m in 1998
Ad $33m
$25m endorsement in 1999
Contract Colin for $1m
Not titleist mkt strategy
1991 3 print ads & 3 ads magazine
TV ads & Never use prime-time
Be more serious on R&D
4 P's

1997 1998 1999
Warbird $150 $140 $85
Big Bertha Steelhead $158 $150
Great Big Bertha $290 $245 $140
Biggest Big Bertha $340 $295 $190
Great Big Bertha Hawkeye $290

Marketing Program Critical for 2 Reasons:
1. To gain profit is from the product differentiation to charge a premium
2. CGC achieved this through continuous updated technology.
Endorsed professional golfers on all five major tours
In trade magazines. Ely Callaway said,
”Not a minute of television—all word of mouth based on the performance of the product.”
Television was later used but never used prime-time TV due to expenses

Table A 1998 CGC Sales Breakdown by Country
Country Sales (in thousands) % of Sales
United States $437,628 63%
Japan $ 61,460 9%
United Kingdom $ 64,077 9%
Other foreign countries $134,456 19%
Total $697,621 100%

Current Strategy
Must be on leading edge of technology to exceed customer’s expectations
If product is on the market for too long, even if it’s the best product, sales will still begin declining
The maturity stage in the PLC
Own products are obsolete after 2 years
Customer loyalty
Reaction time and brand name help with product competition
Sells products all year, not just during the 2 golf merchandise shows

Current Strategy
Sales from US and Abroad
Within US, sold on-course and off-course golf retailers. Relied more heavily on off-course.
CGC sold products wholesale to customers. Divided the customers into A (visited weekly), B (once a month visits), and C (quarterly visits).
Demo Days - event where golfers can try clubs on own driving ranges.

Current Strategy
Differentiates product to charge a premium with new technology.
TV magazines, word of mouth, trade publications.
Endorsements move as a validation.
Media - print ads and commercials. Commercials primarily during golf tournaments on CNN and ESPN.

“Let’s discover how big the market is and then how much we can spend to develop the product so that it can have a specific minimum margin”.
In the golf market, “clubs as a status symbol” phenomenon exist.
“Products now come out at a fast and furious pace, and life cycles are too short. I think it’s too much”.
Product Life Cycles are so short, they don’t even make it through a full season which doesn’t allow consumers to even react to the product.
Every 2-3 years, an average golfer buys a new club.

Market Changing
CGC needs to keep developing new products to keep up with the changes within the current market.
How The Market Has Changed
Problem & Possibilities
To sustain a competitive advantage in the ever changing economy
Technological Innovations
Competitive Market
Discounted Prices (difficult regulations)
Other Large Players (highly competitive)
Alternative #1
Alternative #2
Expand into New Markets by Shifting Strategies
Focus marketing towards female golfers (22%)
Focus marketing towards senior golfers (33%)
Focus marketing towards apparel and accessories
Expand Globally into Asia
Increase Endorsement Contracts
Expand into new Markets
Increase PGA Endorsement Contracts
Many competitors have a substantially higher number of endorsement contracts
Increases/ creates higher brand awareness
Maintains focus on only a specific demographic
Does not solve the issue of sustainable competitive advantage
Expand Globally
Open assembly plant in China
Asia has strong GDP
17 million golfers
Huge market potential
Financial Risk; New manufacturing plant, human resource costs, operations costs, & marketing costs.
Does not address regulation issues
Does not address the issue faced in North America
Alternative #3
Expand Market Share through Strategic Marketing
Unleash a new campaign to appeal directly to female and senior golfers.
Focus research and development on products that are ergonomically advanced.
Create new endorsements contracts with PGA/LPGA for Seniors & Juniors.
Focusing on Branding Apparel and Accessories
LPGA, Senior and Junior members wearing and endorsing apparel and shoes
Touring staff members to wear and endorse clothing line
Focus research and development on innovating cutting edge apparel and accessories
Brand Name/Premium Image
Customer Loyalty
Susceptible to economic conditions
Saturated Domestic Golf Industry
International Expansion
Summer Olympics
Innovation, New Technology
Substitute Products
Intense Competition
Downturn in Economy
Backlash against technological innovation
Taylor Made
Acquired by the German Multinational Adidas-Salomon in 1997 and had deep resources to aid its efforts
Made commitment to R&D was strong and produced revolutionary bubble shaft in 1994
Used perimeter weighting to make it possible to swing the club with more power and less effort
Marketed itself to the average golfer, and its 1998 sales were $321 million
As of 1999, management did not know in which direction they were taking company
New products released yearly to maintain market share
Titleist/Cobra Golf
Titleist and Cobra owned by Fortune Brands
Unlike CGC, wanted to market itself as premium average players
Titleist marketed as professional or very good players' products
Spent twice as much money as CGC did on endorsements
Number one shoe (Foot Joy) and golf ball in 1999
Cobra was founded in 1973 and became a public company before acquired by Fortune Brand in 1996
Cobra dedicated to average golfers, especially ladies and seniors
"Wood Company" with its initial product, the Baffler wood.
Built up iron business with winning product King Cobra oversized irons in 1993

Putters are a frequent purchase,
many golfers own 5+.
Meaning this is not a brand loyal product.
Need to stay above the curve
Calloway Golf Company
One of few privately owned golf companies
Went head-to-head with CGC in irons
Started out as a putter company like CGC
famous for heel-toe and perimeter weighting, as well as custom-fitting innovations
Distributed almost exclusively to on-course retailers where management felt consumers could be properly fitted
Fewer golders were members of gold clubs, Ping began to sell to off-course retailers to make its products accessible to more people
Jamie Bonk, Tasha Liberman, Jonathan Bernard, Nate Thomas
Callaway makes it own products obsolete by designing new clubs every 1 to 2 years
Oversized clubhead w/thin, titantium plate
Lightweight body

Available in lofts (6-12 degrees)
Large, forgiving clubface
Low center of gravity
Variety of associated woods

Great Big Bertha Tungsten Titanium Irons
Larger clubhead
Tungsten inset = increased sweet spot
Graphite or Steel shafts available

Big Bertha X-12 Irons

Low center of gravity for better airborne
Unique, multilayer design to allow forgiveness w/off-center hits

Biggest Big Bertha Titanium Drivers

Largest titanium club head ever produced
Ultra light graphite shafts
Loft from 6-12 degree
Great Big Bertha Hawk Eye Titanium Driver
Big Bertha Steelhead Stainless Drivers and Fairway Wood

Acquired Odyssey Brand
Became best-selling putter on market
Known for better feel and forgiveness

When it comes to price,
"There is no set formula"

Exhibit 11 Approximate Average Wholesale Prices of Callaway Products
About 65% of CGC business was done in off-course retail shops.
The company distributed products in more than 50 countries.
Full transcript