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 Origin1452 in Scotland, as a game played by both Royalty and Commoners Growth In EuropeEstablished game by 18 th Century in British Isles with tournaments, rules and golf clubs (St. Andrews) Growth In USAStarted 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 BodiesUnited 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 EquipmentRegulationYear effective Drivers0.83 COR1998 Drivers5x5 inches, not to exceed 460 CC 2004 Drivers5,900 g-cm MOI2006 Irons and WedgesNo more U grooves2010 Golf BallsRestrictions on distanceStill in discussions

7. What is changing in the external environment?

8. PEST Analysis of the Golf Equipment Industry CategoryIssueThreats/OpportunitiesRanking (1-5) PoliticalUSGA and R&A rules on equipment Threat5 Economic2008 Economy Sours Rising incomes in BRIC countries Threat Opportunity 3333 SocialHealthier, more active lifestyles Concern for environment Multiracial golf star Tiger Woods Opportunity Threat or Opportunity Opportunity 225225 TechnologicalNew metals/alloys for larger, lighter clubs Computer technology for customer fitting Opportunity 3535

9. What are the changes in demand?

10. Overview of the Golf Market Total Number of Golfers22.7 million in US, 2 million European, 17 million Asians (2007) Target Market1/3 of golfers, about 7.5 million in US, considered “Core” and account for 91% of rounds played and 87% of equipment sales Growth RateNumber of golfers in America has declined17% since peak in 1998 (from 27.5 to 22.7 million) Key Items PurchasedDrivers, Irons, Wedges, Putters, apparel, shoes, golf balls, golf bags 4 Key Barriers for ConsumersToo 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 19982007Percent Change Men20 million16.2 million-19% Women5.8 million5.1 million-12% Children2.4 million1.4 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

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

13. 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

14. Golf Equipment Industry Product Mix 19972007 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