Status and Prospects of the Golf Equipment Industry - Research Proposal Example

STRATEGIC MARKETING MANAGEMENT Table of Contents Introduction 3 Key characteristics of the golf equipment industry 3 How the golf equipment industry is changing 6 The state of competition in the golf equipment industry 8 Resource based view and core competencies 11 The success of strategic marketing approaches 12 Recommendations 12 Conclusion 13 References 14 Strategic Marketing Management Introduction Throughout the development of the American economy, golf was one of the distinctive sources of financial profits. Played by millions of people in the U.S. and around the world, the golf equipment industry became the area of the hottest competition and the source of the major market controversies. Today, the golf equipment market is characterized by the declining number of players, limited innovation opportunities, and the rise of counterfeiting. Globalization and economic recession produce additional pressures. However, as the leading golf equipment manufacturers are not willing to give up their market positions, so are the need for other manufacturing companies to restructure their approaches to marketing. The time has come for Callaway Golf Group to rebuild its marketing and advertising strategies and to concentrate on building closer relationships with consumers and increasing its brand recognition in the United States and beyond. Key characteristics of the golf equipment industry Throughout the development of the golf equipment industry in the United States, innovation and technological advancement have been its definitive features. Companies working in the golf equipment market segment sought to outperform their competitors through the development of more advanced and more professional equipment solutions. With time, the pace of technological advancement in the industry reached the point, where technology no longer worked for the benefit of the professional game but, on the contrary, created an atmosphere in which equipment had to replace any players’ skills and, most probably, the player him(her) self. For this reason, the situation in the golf equipment industry changed, and today, the industry is characterized by the three essential features: limited opportunities for technological innovation and advancement. That the golf equipment industry in the United States operates in the context of limited technological and innovation opportunities is difficult to deny. “The arrival of Tiger Woods to the PGA Tour in 1996 inspired many people to take up the game of golf, but most soon found that becoming a somewhat accomplished golfer was a highly demanding task” (Gamble 2008). Not only did professional golfers require professional instruction and training, but the equipment they used had to be increasingly professional and advanced. However, everything has its limits. Where golf manufacturers actively developed and introduced innovations in the design and use of their equipment, the USGA sought to limit the scope of innovations companies could use to improve their equipment (Gamble 2008). The goal was to limit the performance of equipment and to pursue fairness and equality in professional golf. Today, the situation in the golf equipment industry is determined by the striving to preserve the rules of the golf game intact and to limit the scope of innovations in ways that would give all golfers, both recreational and professional, equal rights and advantages during the competition. The second essential feature of the golf equipment industry is “the decrease in the number of golfers and rounds played” (Gamble 2008). The rapid decrease can be explained by many factors. First, many players faced significant difficulties in their striving to become professionals. Second, many others also experienced disappointment of the low scores they were able to earn during a competition. Third, the lack of time needed to play golf and train became another predictor of the number of players decline in the U.S. (Gamble 2008). Actually, different groups of golfers justify their decline by a variety of factors. Some of them have to spend time with their family and lack opportunities necessary to successfully participate in recreational and professional sport activity. Older golfers complain suffering various health complications, which do not leave them any chance to successfully cope with the challenges of professional game. Regardless of the specific reason, manufacturers of golf equipment in America face difficulties because the number of golfers is already not so high as it used to be several years ago. Third, and final, the current situation in the golf equipment markets is characterized by the rise of counterfeiting (Gamble 2008). More and more firms from China and other Asian countries successfully enter the American market of golf equipment and goods and offer their equipment for the price several times lower than that of their American rivals. In 2007 alone, “more than $600 billion of counterfeit golf equipment products were sold around the world, with 90 percent of the counterfeit merchandize originating in China” (Gamble 2008). Even that six leading golf equipment manufacturers created an alliance to withstand the growing volume of counterfeit merchandize in the country did not produce any significant changes in the current market situation (Gamble 2008). The success of foreign manufacturers is justified by the increasingly high prices which the leaders of the U.S. markets charge for their equipment. In many aspects, Chinese products are as good as those produced in the U.S. For this reason, recreational players often choose the product for the lowest price. It should be noted, that globalization and economic recession do produce their influences on the state of the golf equipment industry in the United States. As consumer spending reduced, golf equipment and recreational opportunities are the first to become the objects of consumers’ sacrifice. In conditions when the lack of liquid material resources predetermines the amount of money each consumer is willing to pay for the basic products, golf equipment turns into the object of luxury which only few consumers can afford. Globalization is another trend influencing the development of market opportunities in golf equipment manufacturing: globalization erases geographical borders and makes it easier for the foreign players, including those which produce counterfeit goods, enter the American markets and successfully trade their equipment for lower prices. The golf equipment markets change and constantly evolve. In its current state, Calloway must understand the direction of these changes, their pace and course, and the impact which these changes are likely to produce on their market and industry position. How golf equipment industry is changing The golf equipment industry and markets change rapidly under the influence of a whole variety of factors. Globalization is fairly regarded as the basic predictor of market and industry changes. The industry learns to use the benefits of the open borders and globalized markets and, simultaneously, has to cope with the growing pressure of global competition in the golf manufacturing industry. To meet these challenges, more and more companies choose to go offshore and to apply to the benefits of outsourcing. Mainland China has already turned into Mecca for golf equipment manufacturers. More and more firms choose China as its strategic geographical location due to the cheap labor force and comfortable conditions of business performance. Globalization results in the lower rates of golf equipment product customization (Anonymous 2008). Fewer companies use customization to attract and retain their customers, compared with the number of those who customization as the source of their competitive advantage several years ago. A few companies are still confident that customization could become a viable solution to the existing and emerging problems, but it is clear that companies that claim to use customization for the production and delivery of individualized products rarely or never use customization potential to the fullest, due to the costs these companies have to incur to make customization real. Calloway is among those, which produce mass products for mass consumers and seek to target as many customers as they can. Globalization has resulted in the formation of a completely new market vision, where the growing availability of unique resources and components creates better opportunities to produce products that are not simply good but superior to the majority of the current golf equipment products (Leavens 2001). However, globalization also leads to increased competition. Actually, the golf equipment industry is among few with the highest levels of competition compared to other industries. For this reason, the superior quality of golf equipment products is not enough to satisfy the demanding customers. Rather, superior quality of products must uniquely combine with the customization and uniqueness, as well as the need to follow the basic standards of sport performance in golf. It is necessary to note that the discussed changes are not only the results of globalization and integration of golf equipment markets. Today, golf industry needs changes in order to survive. The current state of golf equipment markets reveals the growing number of market controversies, including the increasing price for golf equipment, other items and services, which lead golf equipment manufacturers to question their market position and to invent new approaches to business (IBGS 2009). The first step to improve the situation in the golf equipment market is to reduce the price individuals must pay to play golf. This is, actually, what IBGS offers to golf equipment manufacturing companies if they want to survive the ongoing market changes. This is, perhaps, one of the causes, behind globalization and the integration of global markets that led to the rise of counterfeit golf equipment products in the U.S. market. Today, when economic recession and the global financial crisis rule and change conditions in global markets, price reduction seems the only viable solution to the problem of golf equipment manufacturing, the lack of golf players, and the decline of demand for golf equipment products. IBGS (2009) asserts that the reduction of prices by the leading golf equipment manufacturers will no longer give foreign suppliers give a single chance to create their own rules of the game in the American market, because no one will want to buy these products for the price they ask for them. These prognoses, however, seem rather misty and confusing, simply because the price gap between authentic golf equipment manufactured in America and their Chinese analogues is too large to be possible. Simultaneously, the slight reduction of prices will hardly work for the benefit of golf equipment manufacturers who are trying to make their ends meet. What seems more important is that companies working in the golf equipment industry and markets must not simply change their prices, but should be flexible enough, to adjust to the changeable conditions of economic performance. For decades, the U.S. manufacturers of golf equipment had been the leaders of the global markets but the time has come to restructure their strategies and to invest more effort in their business success. All golf manufacturers, Callaway in particular, should change their approaches to strategic management and marketing, to target more customers and to build closer brand relationships with them. The state of competition in golf equipment industry When Seal (1999) refers to competition in the golf equipment industry as “ball wars” he is, certainly correct in his evaluation of competition in the industry. “The insurgents are storming the gates and the longtime industry leaders are plotting to aggressively defend their turf” (Seal 1999). Really, golf balls have always been the subject of the most heated competition simply because “balls are golf’s most lucrative and most profitable commodity – something golf players purchase more frequently than other golf equipment” (Seal 1999). In 1999, the annual retail market for golf balls covered $650 million in sales, with almost $1.5 billion worldwide (Seal 1999). Even today, in the conditions of the economic crisis, balls continue to stir the minds and hearts of golf equipment manufacturers and their consumers – the former are trying to create something revolutionary new, to attract new buyers, while the former are trying hard to choose the most cost-effective solution to their “golf ball” problems. Golf equipment manufacturers who suffer the lack of golf players and experience the rapid decline in sales consider balls as a mouth-watering commodity, but where the USGA puts reasonable limits on the technological advancement and innovations in golf equipment industry, balls turn out to be the major difficulty. The regulations on balls are getting stricter, but even rules did not stop Callaway from spending $150 million on the development of technologically improved set of golf balls (Seal 1999). Today, Callaway is bound to fight one of its major competitors, Titleist, which views itself as indestructible as the balls it produces (Seal 1999). With its 70-years-experience, Titleist seems to outperform Callaway in the extent to which it was able to establish close brand relations with the customer (Mackenzie 2005). Titleist’s commitment to excellence and the emphasis which the company makes on producing superior quality balls have already turned into the source of the company’s competitive advantage (Mackenzie 2005). Yet, balls are not the only source of hypercompetition in the golf equipment industry. Today, the premium segment of this market makes up to 10% and displays the growing demand for the use of advanced technologies in the sector. Statistically, golfers replace their clubs every two three years, and would be willing to try new clubs as long as the latter improve their game. Callaway, Titleist, Ping, and Taylor Made are the four major competitors in the present day market. Through the period between 1994 and 2001, both Callaway and Ping were able to improve the quality of their products without raising their price significantly. However, while the number of the golf equipment market players constantly increases, the hypercompetition has already spread to cover all possible areas of golf equipment manufacturing. Porter’s Five Forces provide an effective framework for the analysis of competition in the given industry. Rivalry: The golf equipment industry is characterized by intensive rivalry between several leaders, including Callaway Golf, Titleist, TaylorMade, and Ping (Gamble 2008). All competitive sellers display high level of competitive activity. As the industry is distinguished by the low growth potential and technological innovations are limited, the rivalry between leaders is likely to grow in the nearest time. Power of suppliers: Suppliers in the given industry have little or no bargaining power. Suppliers of the golf equipment materials and components do not produce any significant competitive pressure. Power of buyers: buyers in the given industry predetermine the direction of the industry growth and movement. The costs of switching from one seller to another are not high, and buyers tend to display commitment to the high quality of products, regardless of their brand belonging. To attract customers and create stable brand relations, the leading manufacturers create clubs and “distribute their products through off-course shops” (Gamble 2008). New competitors: The threat of new competitors’ entry is very high. New brands which offer quality products for the lower prices and ground their marketing strategies on endorsements and customization/ differentiation of their product line have all chances to change the distribution of forces in the industry and to reduce the presence of the traditionally leading brands. The barriers to entry are absent. Substitutes: the threat is low due to the uniqueness of the product itself and the strict standards of manufacturing and performance. The costs of developing and producing a new product are too high to result in the development of any substitutes. While firms continue competing in the price and quality of their products, “targeting deep pockets” has already turned into a new market trend. Because companies cannot fully compensate for the loss of R&D opportunities and for the limits which the USGA imposes on technological achievements and advancement, firms switch over to the new goals and want to develop new marketing solutions. Deep Pockets require that companies spend significant resources to develop new marketing campaigns, but given the level of hypercompetition in the industry, companies are not very hesitant about what it will take them to outperform their competitors. 23% of Callaway’s net sales in 2001 were spend on marketing. Nike followed the same path, with its $35 million advertising budget and a $100-million five-year endorsement contract with Tiger Woods. Whether Callaway can be successful in its market expansion depends on what consumer segments it chooses to target. Professional golfers care about the quality of golf clubs they use and the number of points/ scores that can earn with each club. Average non-professional golfers are much more concerned about salesperson recommendations and endorsements. When developing their strategy, Callaway must be more careful to what resources it has at hand and how these should be combined to turn into the source of the company’s competitive advantage. Resource based view and core competencies Resource based view is one of the basic theories in strategic management, which rules that ‘resource and capabilities a firm controls that are valuable, rare, imperfectly imitable, and not substitutable” (Barney 1991; Barney 2001; Barney et al. 2001). Core competencies are something which companies can do better than others (Conner & Prahalad 1996). In case of Titleist, its decision to concentrate on the development and manufacturing of balls was absolutely reasonable – since 1932, when the company was founded, balls for Titleist were the source of its competitive advantage and its core competency. Combined with effective brand campaigns and superior customer service, Titleist is extremely confident in that it will be able to preserve its industry position. The success of strategic marketing approaches Among the basic industry competitors, Titleist seems the most successful in its choice of strategic marketing techniques. Persistent and effective advertising and endorsements turned into the source of the company’s major success. Throughout years, Titleist has been concentrated on creating superior balls and building close brand relations with customers. In terms of golf clubs, Titleist was able to take the best from its competitors – for example, its “Cobra line of irons was designed specifically to appeal to lower-skilled golfers and has many technological features from Callaway Golf and TaylorMade brands” (Gamble 2008). Even in light of the USGA’s ban on technological advancement, Titleist continued producing sophisticated golf equipment. Actually, technology and R&D became the sources of the company’s competitive advantage and something that keeps Titleist in one of the leading market positions. Recommendations Today, when economic recession and globalization create new challenges and opportunities for golf equipment business, Callaway Golf must follow a set of recommendations to survive and improve its competitive position: Advertising and marketing must become its core targets; Callaway Golf must apply to the benefits of endorsements, which play one of the determining role in driving customers to other golf equipment companies; Callaway Golf must ensure that its products fit in the system of international standards – the tragic experience with the USGA’s standards of technological advancement implies that golf players will prefer products that are done in accordance with the standards to the products that are more professional and advanced but do not follow these standards and requirements; Differentiation of products remains one of the basic challenges in the golf equipment industry, and Callaway Golf must become increasingly attentive to the benefits of differentiation; Because golfers change their clubs every two-three years, Callaway Golf must ensure that it always has something new to offer to professional and amateur golf players. In the conditions of economic recession, cost reduction and price reduction will give Callaway Golf better chances to outperform its competitors. Conclusion The current state of the gold equipment industry is characterized by the growing competition. As the number of golf players is declining and the innovation potential are limited, companies fight for every customer and seek to develop unique marketing and management approaches. Economic recession and globalization result in the rise of counterfeit products and reduce consumer demand for golf equipment. For Callaway Golf to survive the difficult times, it must engage in active advertising and marketing, develop better brand recognition, reduce the price, and always have something new to offer to its clients. These steps will allow Callaway Golf to successfully compete with its major rivals, including Titleist. 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