Competition in the Golf Equipment Industry in 2008By: Dan McLindon

Kyle McDanielJeremy SmileyTom AndersonRay Moorman

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?

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?

A (very) Brief History of GolfOrigin 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

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

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

Drivers 5x5 inches, not to exceed 460 CC

2004

Drivers 5,900 g-cm MOI 2006

Irons and Wedges No more U grooves 2010

Golf Balls Restrictions on distance Still in discussions

What is changing in the external environment?

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

Threat

Opportunity

3

3

Social Healthier, more active lifestyles

Concern for environment

Multiracial golf star Tiger Woods

Opportunity

Threat or Opportunity

Opportunity

2

2

5

Technological New metals/alloys for larger, lighter clubs

Computer technology for customer fitting

Opportunity

Opportunity

3

5

What are the changes in demand?

Overview of the Golf MarketTotal 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 27.5 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

Breakdown of US Golf Population1998 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%

• 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

Units of Products Sold (in millions)

•Total units of products sold have remained fairly flat over last decade…

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

Golf Industry Sales Figures

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

What are the internal factors affecting golf equipment manufacturers?

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

Internal Analysis

• Outsourced Manufacturing– Lowered operational costs industry wide– Allowed counterfeiters to copy equipment

• Led to Golf Manufacturing Industry alliance

What are the strengths, weaknesses, opportunities, and threats of golf

equipment manufacturers?

SWOT AnalysisSTRENGTHS

•Good following - 22.7m 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)

Reasons for Playing Golf Less

Married with Children •Job responsibilities•Lack of free time•Family responsibilities

Married w/out Children or Single

•Job responsibilities•Lack of free time

Retired or Older Golfers •Health concerns•injuries

30% of Surveyed Respondents

•High golf fees

• 2003 Survey from the National Golf Foundation

Recommendations for the golf equipment industry

Recommendations

• Penetrate Foreign Markets– 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

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