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 Economical Sociological Technological 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 forces Core Golfer Non-Core Golfer Threat of substitutes Low High Intensity of competition ? Threat of new entrants Bargaining power of buyer Bargaining power of supplier 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 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 Market Male 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 regulations Regulation Effect 1998 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 regulations 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 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 Share 1997 2007 % Change Drivers 28% 30% Up 2% Irons 22% 20% Down 2% Putters 6% 6.5% Up 0.5% Wedges 2.8% 3.3% Golf Balls 19% N/A Footwear 9% 9.5% Gloves 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 Putters Iron Wedges Golf Balls Shoes Apparel

Competitor Analysis Perceptual map Competitive Rivarly

Perceptual Map Technology Intensity Price Callaway TaylorMade Titleist/Cobra PING NIKE Price

Competitive Rivalry Product Performance Brand Image Tour Exposure Price Innovations Callaway High Moderate TaylorMade/ Adidas Titleist/ Cobra Ping Low Nike

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 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