Cannibalization - A breakthrough technology that would help golfers identify whether a used

golf ball was beyond degradation was struggling to find adoption simply because its inventors
were going after a segment of the market (premium golf ball makers) where the technology
would have eroded value by pushing customers toward lower priced golf balls.

1. The Performance Indicator Technology does not increase the value that can be created in the
used golf ball market. The decrease of the value would be driven by decreases in customer
benefit as well the quantity sold. Customer benefit will decrease with the customers
realization of the compromised performance level of the used golf balls. Despite no change in
the manufacturing cost, the increasing number of golfers who switch to buying new PI
technology implemented golf balls would further decrease the quantity of used golf balls.
2. The performance indicator technology increase the value in the new golf ball market. Although
manufacturing cost would increase due to greater raw material costs, the greater # of units
sold would eventually drive the market value to be greater. However, it is important to note
that the benefit of product to customer would stay the same in that the benefit of the lost and
damaged golf ball is not apparent to anybody who is actually purchasing the balls but rather
benefit is clearly visible to those who pick-up the used balls.
3. The benefit of the new technology to the consumers eyes is invisible. Therefore the increased
manufacturing cost must be consumed by the manufacturer naturally. Only when this cost is
smaller than the value created from greater # of units sold, is it possible to have a viable
business model for manufacturers to adopt.
4. First assumption - # of balls lost per round would be the same across any users especially
for target segment.
a. Selection bias qualified golfers would have answered the poll they are more experienced
enthusiasts who care about 15 yard performance difference would have largely said yes to
the replacement of golf balls. the fraction of the sales that become used balls is much
greater.
b. Assumption that the 60% applies equally to the new premium and value-priced balls. For
value priced balls the % would be lower as the...
Even though 60% would buy new balls, 40% would go to different brands

Inconsistencies
1. customer preferences
2. buying behavior
Tremendous confidence in their ability to visually assess the quality of used ball
Dont blame used balls as significant performance deterrent
Marketing requirement to tell people about this inconvenient truth
But Magazines are trying to tell people about such drawback
3. Manufacturers agenda
Increased sales
Increased profitability
PIs technology adoption
 Financial report
4. Concern and willingness to pay
5. Reliability of financial forecasts

Hypothesis
The PI technology would effectively eliminate a significant amount of used golf balls, driving increased
sales of new balls

Key Points -
While PI led used balls would increase their performance, this might lead to increase in cost for the
while colored used balls thus raising their annual expenditure on the white used balls (Reduction in
access to cheap used balls, Majority of golfers do not buy new balls)
Looking at the grey ball and apparent change in perception of the golfers towards their favorite brand

Suffered performance degradation

Little room for product innovation (stringent restrictions imposed by USGA)
Lot of golfers were not playing with new balls (lost balls were 4 times as compared to new balls)
Many golfers have ball retriever with them
The used ball is sold at half price (premium ball at value price)
The prices of new ball rose (in 1990) & inclusion of Internet
Balls found by golfers during play accounted for 2/3 of found balls
The balls could stay in circulation without showing any damage
Cost of the raw material required to implement the PI tech estimated about one-tenth of one cent per
ball

Convincing that used ball is a challenge

Might not show discernible damages nonetheless suffer significantly in performance

Assume if all of them get on board

USED GOLF BALL MARKET

The use of PI would split used balls into white used balls that shows equal performance as new ones,

and into grey balls that promise inferior quality or performance degradation. If customers do care

about the performance, their willingness to pay will go high for white used balls but still wont go up as

much that of new balls. Nonetheless, such outcome depends on the fact that if the used ball sellers
wont be able to sell the grey balls anymore because customer would not be interested to buy such

balls (playing with inferior quality grey balls would disincentivize golfers)

The cost in the used ball context mainly comes from the process of refurbishing or retreatment that is

converting experienced balls to salable used ball. With the introduction of PI technology in the golf

ball, the used ball sellers can eliminate the cost associated with retrofitting. However, the frequency

and cost associated with retrieval of used balls from water hazard would increase. The balance

between increased cost of retrieval and decreased cost of retrofitting would lead the change in cost.

Introduction of the PI technology will lead to decline in quantity because of the decline in supply. As

mentioned above, if there is no market for grey balls, the white used balls quantity would decline.

NEW BALL MARKET

Based on the above stated assumptions and outcomes, the willingness to pay for customers either

would be as is or would decline. If customers who belong to new ball buyer category foresee the new

advantage in the white used ball category, then their willingness to pay would go down.

Though the cost is not substantial, the development of new PI driven golf balls would go up and would

be carried by the golf ball manufactures.

The quantity would go down due to potential movement of golfers from buying new balls to white used

balls.

B - The customer's willingness to pay should increase, due in part to the improved quality of salable
used golf balls. One assumes that resellers would not be able to sell the defective balls (i.e. those
grayed from water damage) and thus, customers would be assured that any used golf ball purchased
would be one free of this material defect. This assumption relies on the presumption that used golf
ball buyers are concerned with the performance of their ball and/or that they would otherwise be
deterred from playing with an inferior product (e.g. would want to avoid ridicule from their golf
partners). The amount of this increase would be difficult to quantify, but one must believe that the
willingness to pay wouldn't exceed that of a new golf ball.

P - The price customers pay for a used/non-defective ball would likely increase due to the
aforementioned increase in B and the following increase in C (assuming sellers would like to maintain
profit margins equal to pre-PI).

C - Average cost per unit would increase. The case states that a single golf course could yield divers
upwards of 100,000 water balls per year (p.3); however, it doesn't state the frequency with which the
balls are retrieved. Assuming balls aren't retrieved at least weekly, and that balls lose six yards after
one week in the water (p.7), the cost of recovering balls more frequently/free of water damage could
be substantial. While this cost could be offset by advances in ball retrieval technology (e.g. golf ball
sniffing dogs could find lost balls in forests?), we have no evidence to substantiate such claims.
NO refurbished and retreated

Q - The quantity of used golf balls sold is almost certain to decline, due in part to the presumed
decline in supply...

NEW BALLS MARKET

The company, Performance Indicator, created a ball that turned grey when it was water-logged and
thus useless. When it became water-logged, however, golfers didnt specifically buy another
Performance Indicator ball. While people were brand loyal with the toothbrush, they werent with the
golf ball, Prof. Thornhill said. In this case, the underlying business economics of the strategy was
missed.

Business Terms
1) Spillover negative effect can create disinsentive to invest even if it create value for the firm
2) Coordination challenges how every firm would move together the entire industry
3) Redistribution of value is harder to get adopted
4) Although value creation is happening in the used ball option, but it cant be captured
5) Customer by customer analysis varies a lot
6) False analogy
Cost and Profit Analysis
According to the article, golfers are buying $50 million dozens new balls per year. If PIs technology is
implemented, golfers would have to buy an additional $50 million dozens balls. We said they PI
licensing price is 6 cents, for one dozen, its 72 cents. The profit they going to make will be around $
72 million per year. According to Exhibit 3, a chart on Estimation of Impact on Volume of Used Ball, we
found the original sale of new balls is 49.2 million and the estimated used balls removed by PIs
technology are 85.3 million, thus the total sale should be 134.5 million dozens. Because the licensing
price is 0.06 dollars per balls, 0.72 per dozen, their profit should be $ 96.84 million . According to
Exhibit 5, Estimation of Profit Impact, the gross profit per dozen of new premium balls is $10.61 and
the gross profit per dozen of valued-price balls is $2.49. According to Exhibit 1, for new premium
balls, Acushnet have 31.1% share of total market. For value-priced balls, they have 11.4% share of
total market. For the Spalding Company, they have 3.1% on premium balls, 14.2% on Valued-price
balls. From the original profit, we know the original sale of new balls is 49.2

New balls -
WTP -