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Callaway Case

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Ely Callaway, Callaway Golf Company’s (CGC’s) 80-year-old founder, chairman, and chief executive officer, sat in the conference room one sunny day in fall 1999 contemplating his company’s remarkable story. He wondered how that story might continue in light of some recent internal and external challenges. In the span of a decade, Callaway had built CGC into the dominant player in the golf equipment business, despite charging premium prices. CGC sales had increased steadily from $5 million in 1988 to over $800 million by 1997 (see Exhibit 1 for income statements). He accomplished this with the clarity of his vision: “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.” Established in 1982, the publicly traded company designed, developed, manufactured, and marketed high-quality, innovative golf clubs, in addition to golf bags, accessories, and balls (CGC golf balls were to be launched February 2000). (See Exhibit 2 for CGC products, Exhibit 3 for CGC products’ contribution to net sales, and Exhibit 4 for a general explanation of golf club types and functions.) These clubs were sold at premium prices to both average and skilled golfers and were known for their high performance and skill forgiveness. Best known of the company’s products were the Big Bertha line of clubs and their subsequent updated versions, which originally revolutionized the golf industry in 1991. By 1998, 69% of all professional golfers worldwide played with a CGC driver. In 1998, the magic began to fade when sales dropped 17% and CGC experienced a loss of $27 million. Admittedly, CGC had “gotten away with murder” with its retail partners because demand for its products was historically so strong. While the changes initiated in 1998–1999 had begun to bear fruit (sales in the first half of 1999 were $415 million, contributing $38 million to net income), Callaway wondered if...