Name Change To Callaway Golf Company example essay topic

Callaway Golf Company- Written Case Assignment Section I. Summary Callaway Golf Company began to take form in 1983, after Ely Reeves Callaway Jr. sold Callaway Vineyard and Winery for a $9 million dollar profit. Shortly after the sell of the winery, Callaway ventured in to the golf equipment industry and bought 50 percent of Hickory Stick USA. Callaway knew from the very beginning that this company's profits were limited as long as the product line wasn't changing. "Callaway noticed that most golf equipment had changed very little since the 1920's and believed that, due to the difficulty of the game of golf, recreational golfers would be willing to invest in high-tech, premium-priced clubs if such clubs could improve their game by being more forgiving of a less-than-optimum swing". (Thompson, c 205) Callaway then purchased the company outright and changed the name to Callaway Hickory Stick USA and then hires Richard Helmstetter as the companies' chief club designer. With the help of five aerospace engineers, Helmstetter developed line of clubs that was set apart form competing brands by its technological innovation.

In 1988, the S 2 H 2 was launched as well as another name change to Callaway Golf Company. In 1992, sales are more than double recent years and Callaway Golf Company goes public and begins trading on the NYSE. Throughout the 90's, Callaway leads the golf equipment industry with ongoing new lines of clubs and eventually adds golfing apparel. Donald Dye, Callaway's new CEO, took the much of the blame for the downturn in Callaway Golf Company. Dye was ultimately responsible for initiatives that took managements focus off golf clubs.

The company's financial and market performance suffered immensely in 1998 causing Ely Callaway to return to rebuild the company. The textbook states on page c 208, "Ely Callaway's first efforts upon his return to active management at Callaway Golf were to 'direct resources -- -talent, energy, and money -- - in an ever-increasing degree toward the creation, design, production, sale and service of new and better products. ' " In Callaway's turnaround strategy, he initiated a restructuring program and operational improvements. By the end of 1998, Callaway's strategies allowed the company to regain it's technological leadership. Callaway's approach to building competitively important resources and capabilities caused the success of Callaway Golf Company. This was achieved through its exploitation of unique resource strengths and competitive capabilities that were unmatched by many of its rivals in the industry.

Helmstetter and his engineering team were very important to the execution of Callaway Golf's competitive strategy. Callaway Golf Company consistently outspent its rivals in the industry on R&D which "allowed it to continually beat its competitors to the market with new innovations". (P c 210) In 1994, Callaway Golf opened the Helmstetter Test Center located a mile away from the main campus. The Helmstetter Test Center had two primary uses; it provided an ideal place to custom-fit clubs for the touring pros who used Callaway equipment, and it allowed Callaway R&D staff to test new products in the developmental stage.

The development of new products at Callaway Golf Company not only included the research and development staff but also the sales and advertising staff. These teams worked hand in hand together. When the R&D would come up with a new product idea, the sales and advertisement staff would look over this idea and recommend changes based on the current market interests. "Callaway's customer service department was viewed as a critical component of the company's overall level of differentiation". (p. c 215) Even before handling any customer service inquiry, each customer service representative received eight weeks of training since the entire customer service staff was empowered to make a final decision regarding a consumer or retailer complaint or warranty claim.

In other golf equipment companies, this kind of decision would normally be handled by the CEO and no one else. The strategies that Callaway had designed and passed down kept this company rolling. The wholesale value of golf equipment sales in the United States had declined from 1999 to 2001. Most manufacturers believed that industry growth had been limited by slow economic conditions.

Then in 2003, challenges confronted Callaway Golf Company. These issues included a softening economy in most major markets for golf clubs, declining industry growth rate, the entry of new rivals and onerous regulations limiting golf club performance. Section II. Industry and Firm Analysis The golf equipment industry is basically a manufacturing business that designs, develops and manufactures innovative golf clubs, and distributes golf related equipment and supplies. Industry Analysis-1. What are the industry's dominant economic features? a.

Market size- $3 billion total U.S. Market share and $7 billion worldwide Golf accessories represent the single largest sector with a share of 21.3%. Fitness and athletics equipment account for a further 13.7%. Scope of competitive rivalry-c. Market growth rate and position on the industry life cycle- The industry was expected to grow rapidly in the late 90's and into the 21st century, but because of the economic slowdown since 2000 it has stalled and is regressing now. Because of this regression all the major players in the industry started to offer major discounts.

Which has caused sales to remain about the same but revenue has decreased. The industry is currently as the stagnation stage and possibly showing signs of early decline, unless the industry does something to increase business with sales and revenue. d. Number of rivals and their relative size- Sales 04 Fortune Brands (Titleist) 21.4% $1,016.4 Callaway 20.5% $974.0 M Taylormade 16.4% $776.2 Mike 9.5% $500.0 M Ping 4.2% $200.0 M Cleveland 2.7% $126.8 M 74.7% As you can see, the industry is dominated by few large companies and the industry is going through a period of consolidation of smaller companies to the larger ones. For example, Callaway bought Top Flite. e. Number of buyers and their relative size- The types of buyers are a huge variety. From professional golf players that play to win, to even the amateur golf players that play just for fun. f.

Types of distribution channels used- There are many distribution channels from pro-sports shops to the internet highway. Callaway golf equipment is found every also in Wal-Mart and K-Mart and just about any sporting goods store. g. Pace of change and product innovation- Because of the slowdown in the industry, change of pace has changed direction form sales and revenue to product innovation and all of the major players have gone back to the R&D drawing board and started to come up with new ideas. Yet Callaway is only using 3% of sales or $31 million in R&D while other Big Boys are using 5-8% of sales. h. Are the products of rivals highly differentiated, weakly differentiated or essentially the same? Demand for the latest and greatest things form the industry will always be there so with that here will always be high demand for differentiated products.

The products, industry wide, will range form highly differentiated to the same, yet they all are part of the golfing industry. Ex: Callaway Big Bertha Driver i. Are economies of scale important? Yes, economies or dis economies of scale are one of the nine cost drivers that come into play when determining a company's costs in each activity segment of the value chain. Astute management of activities subject to scale economies or dis economies can be a major source of cost savings. j. Are key players concentrated in one location or are they spread over many locations?

The key players are spread all over the world. k. Are learning curves important? Yes, learning curves are important. The cost of performing an activity can decline over time as the learning and experience of company personnel builds. l. Capital requirements and ease of exit and entry?

Unless you have a lot of money or you have a product that will have no rivals, the ease of entry will not be there. Ease of exit can happen very easily because if you aren't keeping up with the trends of the industry, your company will fail or be overtaken. m. Whether industry profitability is above / below par. Callaway's profitability is above par. The current ratio for 2003 is 3.26 with the average in industry being 2.2 and the quick ratio being 1.37 with the average in industry being 0.9.

2. What is the competition like and how strong are Porters five competitive forces? The strongest of the five competitive forces is nearly always the market maneuvering and jockeying for buyer patronage that goes on among rival sellers in the industry. Rivalry is usually weaker when there are fewer than five competitors which is not the case with Callaway Golf. 3.

What are the driving forces of the industry? Industry conditions change because important forces are driving industry participants to alter their actions. a. The internet and e-commerce- Callaway Golf's customer service was enhance by its Callaway Connect e-business solution, which allowed retailers and sales staff to enter orders, check orders and check inventory availability via the internet. b. Increasing globalization- Nearly 50% of Callaway golf sales were to consumers outside the United States. c. Product innovation- Callaway believed strongly that developing "demonstrably superior and pleasingly different" golf clubs would result form a physics-oriented R&D effort rather than a focus on cosmetics. d. Marketing innovation- While the Company believes that its products and its marketing efforts continue to be competitive, there can be no assurance that successful marketing activities, discounted pricing, consignment sales, extend payment terms or new product introduction's by competitors, will not negatively impact the company's future sales.

Competitive / Firm Analysis: Since the Callaway Golf Company has done so well over the last 10 year of business, it is obvious that the current strategy is working quite well. Callaway golf focuses on product innovation and production and good customer service. 1. After conducting the horizontal and vertical analysis (attached) of Callaway Golf Company's financial statement for 2003-2004, it is obvious that the SG&A expense was increased by 29.18% as the Gross Profit decreased by 2.66%.

SG&A Expense Represents expenses not directly attributable to the production process but relating to selling, general and administrative functions. This increase in expense as the gross profit decreased caused an extreme decrease in net income. As a positive note, the current Port Cap lease decreased by 83.33% as well as the non-current capital leases decreasing by 80%. This major decrease in liabilities shows the company is trying to stay out of debt. 2.

After performing a SWOT analysis on the Callaway Golf company, the companies resource strengths, weaknesses and external opportunities and threats are revealed. Strengths: Callaway Golf is the market leader in the US retail golf market. In 2003, it continued to lead the woods market in both units sold and revenues. In the irons market, it had 17.2% share of units sold and 23.1% share of revenues. Another strength is the offering of wide range of products for all pricing segments. It has products for professionals as well as recreational golfers.

The differentiations in products that are offered are also a great strength of the company. This means major market penetration. The company's strong cash position and lack of debt is an important and valuable competitive advantage as well. Weaknesses: Seasonality of sales; the company's quarterly performance varies significantly and the second quarter reorder sales are heavily dependent on the weather conditions during that period.

Another weakness is the concentrated golf ball customer base. On a consolidated basis, there is no single customer that accounted for more than 4% of the company's revenues. A loss of one or more customers could have a significant adverse effect upon the company golf ball sales. Opportunities: Recent economic indicators point to an accelerating economy in the US. Consumer spending is healthier in 2004 and consumers have so far shown an appetite for Callaway's higher end golf products.

The Top-Flite acquisition included the Top-Flite, Strata and Ben Hogan brands. This provides a unique opportunity to increase significantly the size and profitability of the business and the golf ball market share. Another opportunity is the new product launches that have contributed significantly to the company's operating performance. One final opportunity that has been realized is in the apparel and footwear portion of this company. This has shown great growth in revenues in 2003. Threats: The worldwide market for premium golf clubs is highly competitive, and is served by a number of well-established and well-financed companies with recognized brand names, as well as new companies with popular products.

3. Are the company's prices and costs competitive? 4. How strong is the company's competitive position? 5. What strategic issues does the company face?

Callaway Golf Company was confronted by a number of issues, including softening economy in most major markets for golf clubs, declining industry growth rate, the entry of new rivals into the industry and onerous regulations limiting golf club performance. Section. Recommendations The final section of the written case analysis consists of a set of recommendations that should offer a reasonable prospect of success. The first recommendations that I may suggest is the target market becoming broader.

By making equipment for different sports such as tennis or baseball, their market would attract many more customers. Especially if the consumer had already heard of the brand in the golf industry, they would be more likely to try it in another industry. For example, when someone is standing at the store looking to buy a specific sporting good, they will see the Callaway brand and realize that Callaway is the best brand in golf so maybe it's just as good in baseball. Then they will buy that Callaway brand baseball bat because of the trusted name. This could bring in a much larger number of consumers. A recommendation for the weakness of seasonality of sales would be to increase the marketing in the slower months.

This is so people don't just forget about the equipment that they will need in the beginning of the next season. Offer discounts and sales and maybe even free shipping on internet sales. Offering a larger variety of winter clothes and gloves would help. This also brings back the recommendation of branching into other sporting goods. Offering goods for other sports that are going on during the off season of golf would keep the revenues up throughout the year. Some quantities of the company's products find their way to unapproved outlets or distribution channels.

This gray market for Callaway's products can undermine authorized retailers and foreign wholesale distributors who promote and support the company's products and can negatively impact its image in the minds of its customers. On the other hand, stopping such sales could result in a potential decrease in sales to those customers who are selling Callaway products to unauthorized distributors and / or an increase in sales returns over historical levels. Overall, the Callaway Golf Company has shown much success in its industry lifeline. Only minor changes and adjustments could increase their success level in the future. Making too many adjustments to Callaway's strategic vision could harm the successful industry.