1. Competition in the Golf Equipment Industry in 2008
By: Dan McLindon Kyle McDaniel Jeremy Smiley Tom Anderson Ray Moorman

2. Golf Equipment Industry Key Question
Can golf equipment manufacturers continue to be profitable while still conforming to the increasingly tightening rules developed by the USGA and R&A?

3. Golf Equipment Industry Additional Question
How can club manufactures produce equipment that makes the game fun and easier for the beginning golfer so they stick with the game and become a core golfer?
How do premium equipment manufactures create products that appeal to existing core golfers and how do they grow the market of core golfers?
What is each golf equipment company’s competitive advantage?
How do golf club manufactures plan for the future with the uncertainty of further new rules limiting club and ball technology?
Is the timing right to pursue international expansion? Will the popularity of golf rebound in the United States?

4. A (very) Brief History of Golf
Origin
1452 in Scotland, as a game played by both Royalty and Commoners
Growth In Europe
Established game by 18th Century in British Isles with tournaments, rules and golf clubs (St. Andrews)
Growth In USA
Started being played in late 1700’s, mostly as a game for wealthy. Rapid growth in popularity with TV coverage in 1950’s and the emergence of golf stars Palmer, Nicklaus, and Player. Peak in popularity in 1998, 2 years after Tiger Woods turned Pro.
Governing Bodies
United States Golf Association and Royal and Ancient Golf Club

5. Evolution of the Golf Equipment Industry
First equipment manufactures began in Scotland during 1700’s
Over time building materials changed, but types and design of clubs did not
Wood to steel to graphite shafts but still same club head designs
More durable and consistent golf balls
Mid to late 1990’s a period of great innovation began by premium golf equipment manufactures
Ping, Callaway, TaylorMade, Fortune Brands (Cobra and Titleist)
Innovations centered around game improving features
Larger Driver heads (ex. – Callaway Great Big Bertha)
More forgiving oversized irons
Deeper grooves in irons and woods to promote spin
Putters with larger sweet spots, face inserts
Multi-piece golf balls allowing for both distance off tee and feel around greens
Resulted in record industry profits

6. USGA and R&A Step In
In 2004 USGA and R&A begin regulating golf clubs and balls in an effort to preserve integrity of the game
Type of Equipment
Regulation
Year effective
Drivers
0.83 COR
1998
5x5 inches, not to exceed 460 CC
2004
5,900 g-cm MOI
2006
Irons and Wedges
No more U grooves
2010
Golf Balls
Restrictions on distance
Still in discussions

7. What is changing in the external environment?

8. PEST Analysis of the Golf Equipment Industry
Category
Issue
Threats/Opportunities
Ranking (1-5)
Political
USGA and R&A rules on equipment
Threat 5
Economic
2008 Economy Sours
Rising incomes in BRIC countries
Opportunity 3
Social
Healthier, more active lifestyles
Concern for environment
Multiracial golf star Tiger Woods
Threat or Opportunity 2
Technological
New metals/alloys for larger, lighter clubs
Computer technology for customer fitting

9. What are the changes in demand?

10. Overview of the Golf Market
Total Number of Golfers
22.7 million in US, 2 million European, 17 million Asians (2007)
Target Market
1/3 of golfers, about 7.5 million in US, considered “Core” and account for 91% of rounds played and 87% of equipment sales
Growth Rate
Number of golfers in America has declined17% since peak in 1998 (from to 22.7 million)
Key Items Purchased
Drivers, Irons, Wedges, Putters, apparel, shoes, golf balls, golf bags
4 Key Barriers for Consumers
Too difficult to play
Length of time it takes to play a round
Too expensive
Older players have health concerns

11. Breakdown of US Golf Population
Steady decline over last decade of number of golfers in USA
People who picked up the game with the boom in popularity in late 1990’s but did not stick with it
Too difficult to get good and did not become “Core” golfer
1998
2007
Percent Change
Men
20 million
16.2 million
-19%
Women
5.8 million
5.1 million
-12%
Children
2.4 million
1.4 million
-41%

12. Units of Products Sold (in millions)
Golf Industry Sales Figures
Units of Products Sold (in millions)
Total units of products sold have remained fairly flat over last decade…

13. Golf Industry Sales Figures
But…
Sales price per unit has declined for large ticket items like drivers
Increased for putters
And remained relatively flat for other sectors
Conclusion – Equipment manufactures have moved to competing on price due to challenges with differentiation brought on by new USGA and R&A rules

14. Golf Equipment Industry Product Mix
1997
2007
Not many significant changes in size of each segment from 1997 to 2007
Size of overall pie is larger from $2.4 billion in 1997 to $2.9 billion in 2007
20% increase in total industry sales in US despite decrease in overall number of golfers

15. Exhibit 7.2 Strategic directions (Ansoff matrix)
Source: Adapted from H. Ansoff, Corporate Strategy, Penguin, 1988, Chapter 6. (The Ansoff matrix was later developed – see reference 1.) 15 15

19. What are the internal factors affecting golf equipment manufacturers?

20. Internal Analysis Innovation of products drives growth
USGA rules discourage innovation and allow less technologically advanced manufacturers to catch up to industry leaders
Manufacturers struggle to differentiate their products when everyone has the same technological limitations

21. Internal Analysis Outsourced Manufacturing
Lowered operational costs industry wide
Allowed counterfeiters to copy equipment
Led to Golf Manufacturing Industry alliance

22. What are the strengths, weaknesses, opportunities, and threats of golf equipment manufacturers?

23. SWOT Analysis STRENGTHS WEAKNESSES OPPORTUNITIES THREATS
Good following m US golfers, 2m Europe, 17m Asia
R&D budgets, technological advances/product innovation drives growth
20% increase in US sales, despite less golfers (’97 – ’07)
WEAKNESSES
Attracting & retaining new, recreational golfers
Innovating new products with rules/regulations in place
Short shelf life of products – new models each yr.
OPPORTUNITIES
Foreign markets, India & China – large populations, Incomes increasing
Align mfg’s with suppliers of grips, shafts, custom fitting systems/software.
Mfg’s align based on their competitive advantages (woods, irons, drivers, putters)
Aging population in US – baby boomers set to retire – more time for golf
THREATS
Counterfeit equipment from China
USGA & R&A rules freeze technological advances in industry, allow less technologically advanced mfg’s to catch up to industry leaders
Popularity peaked in 1998, reasons for not playing as much (See Graph)

24. Reasons for Playing Golf Less
Married with Children
Job responsibilities
Lack of free time
Family responsibilities
Married w/out Children or Single
Retired or Older Golfers
Health concerns
injuries
30% of Surveyed Respondents
High golf fees
2003 Survey from the National Golf Foundation

25. Recommendations for the golf equipment industry

26. Recommendations Penetrate Foreign Markets Consolidation Strategy
Income rising in India & China
Consolidation Strategy
Align Manufactures
Invest & innovate based on competitive advantage (drivers or putters, etc.)
Vertically Integrate & Purchase Suppliers
Grips, shafts, custom fittings

27. Recommendations cont. Create Recreational Line of Equipment
Ignore regulations
use available technology on equipment for recreational golfers
Playing better, making the game easier will inspire more people to pick up the game and continue to play