MBA Professional Development Series (BAD 68051)

Case 1: CALLAWAY GOLF COMPANY

Hualu Zhao Team 2 Mr. Christopher Clark Feb. 18, 2012

Kent State University College of Business Administration and Graduate School of Management

Case synopsis
Callaway was started in 1983, by Ely Reeves Callaway Jr. when he ventured into the golf equipment industry and bought 50% of Hickory Stick USA. Most golf equipment had changed very little since the 1920s and Callaway 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. Richard Helmstetter is hired as the companies chief club designer. With the help of professionals across streams, Helmstetter developed line of clubs that was set apart from competing brands by its technological innovation. Throughout the 90s, Callaway leads the golf equipment industry with ongoing new lines of clubs and eventually adds golfing apparel. Donald Dye, Callaways new CEO took initiatives for that took managements focus off golf clubs and the companys financial and market performance suffered immensely in 1998. In Callaways turnaround strategy, a restructuring program and operational improvements were initiated. By the end of 1998, Callaways strategies allowed the company to regain its technological leadership. Success was achieved through exploitation of unique resource strengths and competitive capabilities that were unmatched by many of its rivals in the industry. Helmstetter and his team were very important to the execution of Callaway Golfs 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. 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. Callaways customer service department was viewed as a critical component of the companys overall level of differentiation. Each customer service representative received 8 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. The strategies that Callaway had designed kept the company rolling. The value of golf equipment sales in the US had declined from 1999 to 2001. Industry growth had been limited by slow economic conditions. In 2003, challenges confronted Callaway Golf Company - a softening economy in most major markets, declining industry growth rate, the entry of new rivals and onerous regulations limiting golf club performance.

Definition of problem and key subsidiary issue

Increase growth rate. Subsidiary issue: Improve product development, including pricing, marketing and distribution channel.

Recommendatio
a. Broaden the target market. By making equipment for different sports such as tennis or baseball, they can attract many more customers. The product base can be expanded horizontally in the value chain. b. Managing distribution channels. This grey market for Callaways products can cause losses to authorized retailers and foreign wholesale distributors who promote and support the companys products. It also negatively impacts its image in the minds of its customers. c. Revise the way it approached retailers: The on-course and off-course outlets should be treated differently with different offerings and prices.

Questions: What led to the decline of sales in 1998? What are the strategies used by CGC in order to face the tough competition in the market? What is the future direction of development for the CGC?