Competition in the Golf Equipment
Industry in 2008
By: Dan McLindon
Kyle McDaniel
Jeremy Smiley
Tom Anderson
Ray Moorman
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?
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?
A (very) Brief History of Golf
Origin
1452 in Scotland, as a game played
by both Royalty and Commoners
Growth In Europe
Established game by 18th Century in
British Isles with tournaments, rules
and golf clubs (St. Andrews)
Growth In USA
Started 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 Bodies
United States Golf Association and
Royal and Ancient Golf Club
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
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 Equipment
Regulation
Year effective
Drivers
0.83 COR
1998
Drivers
5x5 inches, not to exceed
460 CC
2004
Drivers
5,900 g-cm MOI
2006
Irons and Wedges
No more U grooves
2010
Golf Balls
Restrictions on distance
Still in discussions
What is changing in the external
environment?
PEST Analysis of the Golf Equipment
Industry
Category
Issue
Threats/Opportunities
Ranking (1-5)
Political
USGA and R&A rules on
equipment
Threat
5
Economic
2008 Economy Sours
Rising incomes in BRIC
countries
Threat
3
Opportunity
3
Healthier, more active
lifestyles
Concern for environment
Multiracial golf star Tiger
Woods
Opportunity
2
Threat or Opportunity
2
Opportunity
5
New metals/alloys for
larger, lighter clubs
Computer technology for
customer fitting
Opportunity
3
Opportunity
5
Social
Technological
What are the changes in demand?
Overview of the Golf Market
Total Number of Golfers
22.7 million in US, 2 million European, 17
million Asians (2007)
Target Market
1/3 of golfers, about 7.5 million in US,
considered “Core” and account for 91% of
rounds played and 87% of equipment sales
Growth Rate
Number of golfers in America has
declined17% since peak in 1998 (from 27.5
to 22.7 million)
Key Items Purchased
Drivers, Irons, Wedges, Putters, apparel,
shoes, golf balls, golf bags
4 Key Barriers for Consumers
Too difficult to play
Length of time it takes to play a round
Too expensive
Older players have health concerns
Breakdown of US Golf Population
1998
2007
Percent
Change
Men
20 million
16.2 million
-19%
Women
5.8 million
5.1 million
-12%
Children
2.4 million
1.4 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
Golf Industry Sales Figures
Units of Products Sold
(in millions)
•Total units of
products sold
have remained
fairly flat over
last decade…
25
20
15
10
5
0
Drivers
Irons
Putters
Wedges
Golf Balls
Footwear
Gloves
Bags
Golf Industry Sales Figures
But…
250
•Sales price per unit has
declined for large ticket
200
items like drivers
•Increased for putters
•And remained relatively
150
Sales price
flat for other sectors
(USD)
•Conclusion – Equipment
manufactures have moved
to competing on price due
to challenges with
differentiation brought on
by new USGA and R&A
rules
Drivers
Irons
Putters
Wedges
Golf Balls
100
Footwear
Gloves
50
Bags
0
1997 1999 2001 2003 2005 2007
Golf Equipment Industry Product Mix
1997
2007
171.8
Drivers and Woods
156.7
676.8
165.8
Drivers and Woods
Irons
Putters
214.3
174.9
877.7
275.5
Wedges
Footwear
533.4
142.1
67.6
Putters
Wedges
Golf Balls
458.7
Irons
Golf Balls
552.3
Footwear
Gloves
579.5
Golf Bags
190
Gloves
Golf Bags
95.6
•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
What are the internal factors affecting
golf equipment manufacturers?
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
Internal Analysis
• Outsourced Manufacturing
– Lowered operational costs industry wide
– Allowed counterfeiters to copy equipment
• Led to Golf Manufacturing Industry alliance
What are the strengths, weaknesses,
opportunities, and threats of golf
equipment manufacturers?
SWOT Analysis
STRENGTHS
WEAKNESSES
•Good following - 22.7m US golfers, 2m Europe,
17m Asia
•R&D budgets, technological advances/product
innovation drives growth
•20% increase in US sales, despite less golfers
(’97 – ’07)
•Attracting & retaining new, recreational golfers
•Innovating new products with
rules/regulations in place
•Short shelf life of products – new models each
yr.
OPPORTUNITIES
THREATS
•Foreign markets, India & China – large
populations, Incomes increasing
•Align mfg’s with suppliers of grips, shafts,
custom fitting systems/software.
•Mfg’s align based on their competitive
advantages (woods, irons, drivers, putters)
•Aging population in US – baby boomers set to
retire – more time for golf
•Counterfeit equipment from China
•USGA & R&A rules freeze technological
advances in industry, allow less technologically
advanced mfg’s to catch up to industry leaders
•Popularity peaked in 1998, reasons for not
playing as much (See Graph)
Reasons for Playing Golf Less
Married with Children
•Job responsibilities
•Lack of free time
•Family responsibilities
Married w/out Children or
Single
Retired or Older Golfers
•Job responsibilities
•Lack of free time
30% of Surveyed
Respondents
•High golf fees
•Health concerns
•injuries
• 2003 Survey from the National Golf Foundation
Recommendations for the golf
equipment industry
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
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