Callaway Golf Company

Callaway Golf Company (CGC) Harvard Business School Case Study Ely Callaway had a vision, â€Å"If we make a truly more satisfying product for the average golfer, not the professionals, and make it pleasingly different from the competition, the company would be successful† (Lal & Prescott, 2011, p. 1). Key factors that led to Callaway’s success included his vision, his understanding of consumer behavior, his product variety, and his ability to build a premium brand. Furthermore, the company’s relationship with its retail partners, the company’s new product development, and the company’s marketing strategy were key contributors to Callaway Golf Company’s success between 1988 and 1997. Callaway understood the competitive nature of the game and the competitive nature of the consumers. Golfers were consumers driven by social factors such as reference groups. According to Kotler and Keller (2009), â€Å"Reference groups consist of all groups that have a direct (face-to-face) or indirect influence on a person’s attitude or behavior† (p. 8). Reference groups expose people to new behaviors and lifestyles, influence attitudes and self-concepts, and create pressures for conformity that affect product and brand choices. Because Callaway understood the behaviors of his target market, he was able to strategically introduce new products that offered more satisfaction than the former products. With product modification , managers try to stimulate sales by improving quality, features, and style (p. 185). Callaway understood each product’s life cycle and introduced new products every two years. He discovered that after two years, the sales and prices typically declined (Lal and Prescott, 2000, p. 4), causing him to continually make his own products obsolete. However, this business process solidified the consumer’s expectation that Callaway Golf Company would always deliver a high quality product, a value-delivery system successfully established by the company. The Callaway brand was strong, therefore, giving the company marketing advantages such as improved perceptions of product performance, greater loyalty, less vulnerability to competitive marketing actions and marketing crises, larger margins, greater trade cooperation and additional brand extensions (Kotler and Keller, 2009, p. 131). There was consistent brand reinforcement with every product as Callaway’s marketing methods always conveyed what the brand represented, what core benefits it supplied, and what needs it satisfied. Additionally, Callaway conveyed how the brand made superior products that were strong, favorable, and unique. Various consumer spending and golfing behaviors left Callaway no choice but to change his marketing strategies. Callaway realized they could not depend on their 1982 original marketing strategy. Callaway believed there was no brand loyalty when it came to golfers. The bottom line was that golfers tend to purchase golf clubs they think will improve their game and will often blame the golf equipment for their lack of skill (Lal and Prescott, 2000, p. 4). Callaway knew their products had to be unique. Callaway also knew as the popularity of the game increased, golf equipment had to also increase in purpose and design. In 1998, Callaway experienced a decline in profits. The company lost $27 million because sales dropped 17%. Consequently, Ely Callaway realized he would have to change the way his company had been doing business. He refocused Calloway Golf Company’s â€Å". . . retail channels, new-product development, and marketing strategies† (p. 1). One force that drove Callaway to continuously change his strategy was the life span of the golf equipment. Callaway was quick at determining whether a product was a money maker or not. He measured the profit growth of a product within the first two years the product was launched. If sales decreased within the first two years, the product design was redesigned and â€Å"improved. † This could possibly lead to excessive inventories of one product and shortage of another. Through evaluation and control methods, Callaway was able to make the best product marketing decisions for the bottom line. Annual plan controls helped determine if the new product results were being achieved. Profitability controls determined if the new product was making or losing money. Efficiency controls balanced the spending and marketing expenditures. Strategic controls confirmed whether the company was targeting the best opportunities with the retailers, media, and advertising (Kotler-Keller, 2009, p. 331-333). Richard Helmstetter, vice president and chief of new products, joined Callaway Hickory Stick, Inc. in 1986. He transformed CGC â€Å". . . from a niche producer to an innovation powerhouse. . . † (Lal and Prescott, 2000, p. 2). Helmstetter viewed research and development differently than others in the industry. He challenged the scientists, engineers, and golfers he had hired to answer questions like â€Å"Where does backspin come from? † and â€Å"Why does a shot on the club toe hook left instead of right? † (p. 2). Helmstetter was correct in believing that by answering these types of questions the company would create better clubs. New product innovations included the development of the S2H2 (short, straight, hollow, hosel) model which redistributed the weight of the hosel. This allowed the weight to be better utilized elsewhere in the club. Following the S2H2 model was the development of the Big Bertha. It was a club with a bigger club head. The larger head allowed for fewer mishit shots and a better drive. This allowed the average player to have a better experience when playing, which led to loyalty to Callaway, despite the cost. Callaway found it challenging being caught in the middle of a changing marketing communication environment. Callaway had to take a deep look at the company’s marketing communication mix and decide if it was still effective. The marketing communication mix includes: advertising, sales promotion, events and experiences, public relations and publicity, direct marketing, interactive marketing, word-of-mouth marketing, and personal selling (Kotler-Keller, 2009, pp. 275-276). Callaway Golf Company did very little advertising. Callaway felt that word of mouth was the best way to promote his clubs Word of mouth marketing was what golfers used excessively. Whether a golfer wanted the latest, greatest style of club or testified to the improvement of a stroke due to the club, word of mouth marketing was huge amongst golfers because of the amount of time golfers spent with each other during a round of golf. Callaway knew that most non-professional golfers played in foursomes and would give live demonstrations each time they played. Furthermore, he built a premium product and recruited professional golfers who were the leaders in the sport to promote his products. These endorsements validated the products quality and superior technology. The professional golfers â€Å"not under contractual obligations† used Callaway products because of the performance enhancement the clubs provided. Eli Callaway knew his company had enjoyed many years of positive growth and he knows that many more years of positive growth lay ahead. Additionally, he knew that he would always be faced with decisions concerning what products to develop, what accounts need to be closed, what retail relationships should be developed, and what marketing strategy should be employed. â€Å"When asked if CGC could stay ahead of the competition, he said, citing Newton’s first law of motion, ‘No problem. Bodies in motion tend to remain in motion. ’ He continued, ‘It’s a hell of a story, and it’s not over yet’† (Lal and Prescott, 2000, p. 14). References Kotler, P. & Keller, K. L. (2009). Analyzing consumer markets: A framework for marketing management, 4th ed. Upper Saddle River, NJ: Pearson Education, Inc. Lal, R. & Prescott, E. D. (2000). Calloway Golf Company. Pearson custom business resources. Boston, MA: Harvard Business School Publishing Case Analysis of Callaway Golf Company, (2009, May 16,). Retrieved on April, 5, 2011 from http://www. docshare. com/†¦ /Case-analysis-of-Callaway-Golf-Company2