Competition in the Golf Equipment Industry in 2008

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

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

7. What is changing in the external environment?

8. PEST Analysis of the Golf Equipment Industry

9. What is happening in the Golf Economy?

10. Overview of the Golf Market

11. Breakdown of US Golf Population • 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. What is the environment of the industry?

13. Fundamentals of the Industry • Innovation limited by USGA regulations • Merchandise manufacturing is outsourced • Early bird really does get the worm • Marketing and endorsements are vital • There are strong, established leaders in most golf equipment categories • # of golfers in the USA declining over the past decade

14. What are the changes in demand?

15. Porter’s Five Forces HIGH MED-HIGH LOW HIGH LOW

16. Porter’s Five Forces

17. Where are all the golfers going? # of participants in selected sports in millions

18. Strategy

19. Strategy of Major Golf Brands

20. Strategy of Major Golf Brands

21. Product : Be all things for all golfers. All major brands offer a spectrum of products to match a golfers level, recreational to pro. Price: Matched to level of product. Comparable across industry. Nike allows retailers to sell below MSRP Endorsements: Significant source of differentiation and brand recognition. Innovation: With the major brands having met the regulated limits, innovation is focused on increased launch angles and adjustable features. No significant innovations because of the regulations. Major brands are choosing to not go beyond the regulation specs. Operational: Key production activities are often contracted offshore. Major brands may just be an assembler. Strategy of Major Golf Brands

22. What are the internal factors affecting golf equipment manufacturers?

23. 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

24. Internal Analysis • Outsourced Manufacturing • Lowered operational costs industry wide • Allowed counterfeiters to copy equipment • Led to Golf Manufacturing Industry alliance

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

26. 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

27. 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

28. What are the strengths, weaknesses, opportunities, and threats of golf equipment manufacturers?

29. SWOT Analysis

30. Reasons for Playing Less Golf • 2003 Survey from the National Golf Foundation

31. Recommendations for the golf equipment industry

32. 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

33. 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 • Create partnership with competitors to change current rules • Put pressure on USGA and R&A to create separate rules for tour professionals and amateurs • Increase Community Outreach • Work with current tour and club pros to increase golf appreciation and learning • Donate overstock/excess clubs to junior players to build brand awareness

34. Questions?