Callaway Golf Company Essay, Research Paper

Callaway Golf Company

Ely Callaway founded the Callaway Golf Company, originally called Hickory Stick USA, INC., in 1982. The company started out specializing in hickory-shafted putters and wedges that were ?demonstrably superior and pleasingly different?. In 1988 the company expanded its product line to include a new set of irons that it designated as the S2H2 (Short, Strait, Hollow Hosel). ?This design combined a cavity back iron with an innovative with perimeter weighting, a progressive offset and a bore-through shaft with an innovative shortened hosel that moved weight from the hosel to the club?s effective hitting area.? The company also changed its name to Callaway Golf Company in that same year. In 1989 Callaway began to offer a metal woods that incorporated the S2H2 design philosophy that produced a much more efficient weight distribution throughout the club and consequently a better feel to the golfer. Both the driver and woods were made with steel graphite shafts instead of the heavier hickory ones. ?By the end of 1990, the S2H2 Driver was #1 on the senior PGA tour.? These new innovations caused an increase in from $10.3 million in 1989 to $21.5 million in 1990. Callaway entered the 1990?s with the strategy of offering a new and differentiated line of oversized metal woods that they felt would ?revolutionize the industry?. The first of these clubs was named after the World War I cannon, the Big Bertha. This club would again take the basic design of the S2H2 club and make dramatic improvements that resulted in golfers being able to obtain straighter shots from hits the were off-centered or in other words missed the sweet spot.

Golfers showed their approval of the new club by boosting Callaway?s 1991 sales totals to $54.7 million. By the end of the 1992 season, Big Bertha Drivers were ranked as the #1 drivers and the Senior PGA, the LPGA and the Nike (then Hogan) Tours. The company?s sales more than doubled that year to a new total of $132 million. The company made its Initial Public Offering on February 28, 1992 with the New York Stock Exchange; the stock has split three times since that date. In 1994 the Richard C. Helmestetter Test Center was opened greatly expanding the company?s research and development capabilities and paving the way for better enhancing golf club performance and the development of new club designs. Later that same year Callaway released the Big Bertha irons and an improved metal wood that featured the war bird sole plate. Year-end sales again soared to $448 million. 1995 saw the release of the next generation Great Big Bertha Titanium Driver that sported a longer shaft and larger club head design while maintaining the lighter feel of previously released models. By the third quarter of that same year Calloway Golf Company had become #1 in sales of woods and irons and year-end sales topped $448 million. 1996 would prove to be another big year for Calloway with five major product introductions: the new and improved Big Bertha irons, the Great Big Bertha Titanium Fairway woods, Big Bertha Gold Irons, Big Bertha Tour series Wedges and Bobby Jones Putters. Year-end sales would increase again to $678 million. During the same year, the Callaway Golf Ball Company was established and estimates that the first product will be released in the year 2000. In early 1997 Calloway introduced the Biggest Big Bertha Titanium Driver and the Great Big Bertha Tungsten

Titanium Irons. The company also purchased the assets of Odyssey Sports, Inc., the manufacturer of the best-selling Odyssey Putter. 1997 sales reached $843 million. In 1998 the X-12 Irons came on the scene accumulating more than 100,000 orders within three weeks of their availability, making them Calloway’s best selling stainless steel irons to date. Since then the X-12 has became the companies best selling iron in history. At the PGA International Golf show in August of 1998 Calloway came through with more new products by introducing the Big Bertha Steelhead Metal Woods and Little Bertha golf clubs for children. Ely Callaway also announced that he would be reassuming the roles of President and Chief Executive Officer of the company. “January 18, 1999 Callaway Golf gave golf club Technology a whole new twist with the introduction of its latest product breakthrough: Great Big Bertha Hawk Eye Titanium Metal Wood with new Tungsten Gravity screw.” “The design of each clubhead includes: (1) an extremely lightweight, very thin titanium crown plate; (2) a super-strong solid titanium face and lower body; and (3) a heavy Tungsten Gravity Screw to achieve the precise weight location and extremely low center of gravity.? Callaway Golf company promoted Chuck Yash to the post President that same year and was designated to succeed Mr. Callaway as CEO by December 31, 2000. Callaway also introduced Hawk Eye Irons in late 1999. The company employs more than 2,400 people and has 8 facilities that total a combined 728,000 feet of office, packaging, shipping, research and production spaces.

Questions

1. What is the competition like in the golf industry? The Golf industry is broken into three competitive groups. The low end or more affordable models such as Wilson, Mcgregor and Spalding that are often found and discount stores like K-mart and Wal-Mart that are sold at a reasonable price and are sometimes the club of choice for the beginning and occasional golfer. But what often happens is the beginner will buy these clubs and play them for a season or two and be influenced by the games addictive nature to spend the money for the better quality clubs in order to improve their games. The knock-off brands that try and imitates the higher quality club manufactures and offers their products at a much lower price. These companies include such names as; King Snake, Spanky and Canterbury the maker of Big Bursar irons. These companies try and copy the general styling of the higher end clubs but come up way short in club head balance and shaft designs. The third competitive group is the top end or higher quality club manufacturers that includes Calloway along with Karsten Manufacturing makers of Ping name brand clubs, Taylor made and Cobra Golf who is not ranked as high as the others in quality. What competitive forces seem to have the greatest effect on industry attractiveness? The fierce rivalry among the top end golf club producers to gain their share of the golf club market. This is evident by the jockeying for position by signing well-known and winning professional golfers on the PGA, Senior PGA and LPGA tours. This was such an important aspect of the industries competitive characteristics that many professional golfers were given very lucrative stock shares and other incentives to endorse one brand or the other. This is also visible in the places that these firms chose offer their products to the general public. Each of the top end clubs is found in either course pro-shops or golf specialty stores like Nevada Bobs. This was done so that each golfer could have his or her clubs custom fit to their body and swing characteristics.

What are the competitive weapons that rivals are using to try and outmaneuver one another in the market place? As previously mentioned the scramble between rivals to gain the endorsement of professional golfers. Also each is competing for the premium space in golf specialty stores and course pro-shop display areas. The most important in my mind are the extensive research and development efforts of this company’s. I think that any one that has played golf can easily identify with the advantage that a better-weighted and more forgiving club will bring. The game in its self is expensive just to walk on to the course, but people are willing to pay because of the feeling that they get from that one perfect shot in a five-hour round of golf. This being said, once that they have played a few rounds and find out how much better these other clubs truly are, then they are often ready to line up and get the best.

2. What key factors determine the success of company’s competing in the golf equipment industry? The drivers or key factors that cause the golf club manufacturing industry to change and remain competitive are product innovation, technological change, marketing innovation and the increasing globalization of the industry. Product innovations are evident in the development of four major innovations. These developments “made it easier for golfers to hit better shots and improve their scores; (1) perimeter weighting in the late 1960s; (2) metal woods in the early 1980s, (3) graphite shafts in the late 1980s and (4) oversized club heads in the 1990s”.

Technological change includes such things as Karsten Solhiem’s introduction and development of the investment casting manufacturing process allowing club heads to be made with molds instead of forging them from steel as in previous years. Also each company found methods of using better and more durable raw materials in the making of club heads and shafts that were all designed with the notion of allowing the golfer to make better contact on a more consistent basis with the ball on a higher percentage of swings. Marketing innovation is evident through out the industry in club design as mentioned previously but also in developing equipment and training course professionals all with the primary goal of custom fitting the set of clubs to each individual golfer. These efforts are extremely important because it gives the buyer a feeling that the company thinks that they are important and hence leaves them more satisfied with their purchase and likely to recommend their choices to other golfers. Lastly the increasing globalization of the industry has a major effect on how competitors chose to compete in the industry. The game of golf is very different in the rest of the world when compared to most other sports that are popular in the U.S. First off the game came to us from the U.K. and has been very popular in other countries for years before ever being played on American soil. So this presents an enormous market opportunity to all of the sellers of golf equipment. The PGA has several players from many different countries that are as big heroes to their homelands as many see Tiger Woods in ours. This being said, each company must sign players from around the world to endorse its products and develop viable competitive strategies in each of these markets or make a conscious decision to remain clear of them.

3. What is Callaway Golf’s strategy to compete in the golf equipment industry? Callaway’s strategy is focused differentiation that is geared towards niche members (avid golfers) that perceive their products as being superior to rival brands. Raising the performance level of the golf clubs that the customer purchases from Calloway is doing this. An examples is the Big Bertha driver, “the most innovative club in the industry when it was introduced in 1991.” “Its key features were a bigger club head, a bigger sweet spot and a longer shaft, all of which helped to improve the consistency with which a golfer could drive the ball off the tee.” Callaway also engaged in backward vertical integration strategies that would further secure its differentiation efforts. This was done by joint ventures with the providers of the raw materials necessary for the manufacturing of the company’s titanium head clubs. Calloway has also undertaken an intense research and development approach and invested heavily in the facilities and manpower to make it productive. This has produced better club designs and other tools needed to fully evaluate a golfer’s swing. Leaving customers with the impression that Calloway meets their needs more completely as compared to rival companies. Has the company’s competitive strategy yielded a sustainable competitive advantage and if so, has that advantage translated into a superior financial and market and market performance? Calloway has definitely gained a competitive advantage and it’s evident by their ability to prove to customers the worth of their product and command higher prices than their competitors for a similar product. An example of this is the Great Big Bertha introduced at a price of $500, “a heretofore unheard of price for a single golf club”.

This is a good example of the text book’s definition of a differentiatior’s basis for competitive advantage by offering a set of capabilities for delivering customer value that are unmatched by rivals. This strategy has and continues to pay off for Calloway because they are the now the number one seller in most of the top end golf club categories. They have also enjoyed a steady and upward trend in sales, earnings per share of their stocks and an ever-increasing percentage of the market.

4. What recommendations would you make to Donald Dye to improve the company’s competitive position in the industry and its financial and market performance? First I would recommend expanding the companies marketing efforts abroad. I believe that the global market place presents an enormous opportunity for Callaway and all of their competitors as well. Golf is extremely popular in most European countries and it is gaining momentum in several Asian countries as well. Although some countries have access to top end golf equipment, I think that there is a huge market for these types of clubs that is yet untouched. Secondly I would continue to acquire other companies that are in the golf equipment business and not necessarily producing clubs. I would look for a golf shoe and glove manufacturer, I think that this would be a great method of using Callaway?s extensive name recognition in gaining a new source of income. It appears as if whatever Mr., Dye decided was not to Ely Callaway likes because I notice that he is no longer with the company.