Student

Case Write-Up: Callaway Golf Company

Callaway's marketing strategy from 1988 to 1997

Since 1982, Callaway Golf Company (CGC) evolved from a small golf club manufacturer established in California to the world's largest manufacturer and marketer of golf clubs with sales of $842.9 million in 1997. The company's extraordinary growth began in 1988, two years after Richard Helmstetter became CGC's vice-president and chief of new products. Helmstetter led the development of the S2H2 driver. By making the S2H2's hosel hollow and short, CGC delivered a product that put more feel into the player's swing and transferred the freed-up weight into the striking area of the clubhead, thus giving players more distance in their swings. By the end of 1990, CGC's sales had reached $22 million.

Callaway incorporated the S2H2 technology into the driver that would go on to revolutionize the golf-playing experience: the Big Bertha. Introduced in 1991, this model virtually eliminated the hosel and provided a larger sweet spot which allowed a player to miss-hit the golf ball off-center of the clubhead and not suffer much loss of distance or accuracy. Both professional and average players could significantly improve their game using the Big Bertha and thus derive more pleasure from playing golf. As a result, CGC was able to price the club at $250 and still enjoy sales of 2.355 million units in 1994.

In 1995, R&D utilized titanium to introduce the Great Big Bertha and Biggest Big Bertha drivers. The greatest factor that accounted for Callaway's strategic success from 1988 to 1997 was its strength in research and development. CGC developed products that exceeded customers' expectations. Helmstetter approach of tough questions was the framework in which ideas were generated and the end-users's needs were addressed.

Important for CGC was the acquisition of Odyssey Golf, whose putters were the top-selling in the market. This importance was demonstrated in that putters and other accessories' share of Callaway sales grew from 4% in 1996 to 11% in 1998.

The figure below shows how Callaway's innovative approach made its products appealing to users.

In 1998, CGC generated 63% of its sales in the United States. The company sold to on-course and off-course golf retailers with no single customer accounted for more than 5% of revenues in 1998 within the United States. 65% of CGC business was done in off-course retail shops. One-third of off-course shops sell two-thirds of products, and two-thirds of on-course shops sell one-third of products. CGC relied more heavily on off-course shops because they are generally better financed than on-course shops.

CGC used television, golf magazines, trade publications, and word-of-mouth as its primary forms of advertising. The company also endorsed professional golfers in all major tours as a vehicle to promote its products.

Finally, Callaway was successful in offering products for every kind of golfer at every level of golf from beginner to pro. Because its clubs provided a more enjoyable golf-playing experience to beginners, the rate of them who continued playing golf after playing for the first time incremented and a new customer base was developed.

Industry changes

In 1998, Callaway reported a loss of $26.6 million. This underperformance was the reflection of how competitors were able to replicate CGC's technologies and offer high-quality clubs less expensively. The constant innovation that Callaway brought to the industry in the period of 1988-1997 made golfers have shorter club repurchase cycles, and added to that was the flood of new products from competitors. As a result, the market was saturated and confused.

Customers were no longer willing to pay a premium price for a new club two or three years after they had bought one that the manufacturer promised would stay with them for long because of its high quality. Callaway did not foresee that its competitors would catch up sooner than later with lower-priced clubs.

The problem of relying on technological innovation is that once CGC struggled trying to improve products, it was not able to sustain the high sales growth.

The proliferation of different types of clubs brought inventory management problems to retailers.