Callaway Golf Company

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Callaway Golf Company
Rajiv lal Edith D. Prescott

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Ely Callaway, Callaway Golf Company's (CGC) 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 Research Associate Edith D. Prescott prepared this case under the supervision of Professor Rajiv Lal. HBS cases are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management. Copyright © 2000 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545-7685, write Harvard Business School Publishing, Boston, MA 02163, or go to http://www.hbsp.harvard.edu. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any meanselectronic, mechanical, photocopying, recording, or otherwise-without the permission of Harvard Business School. 23

Source: CGC

-6% 21 % 42% 24 Part One 14% %Sales 1997 -4% 5% 8% Introduction Income3,911) 100% 58% N/A 213,765 132,704 81,061 30,298 70,724 36,848 209,189 N/A 4,586Statements 120,589 $442,800 842,927 12,000(1O) 697,621 400,127 (2,671 54,235 98,048 147,022 CGC $ (12,335) 401,607 296,014 (38,899) • (40,139) (26,564) R&.D and (benefit) Interest expense Net (loss) Income Income tax other 1998 1998 Annual Report, p. 20 and CGC 1997 Annual Report, p. 28.

EXHIBIT 1

%Sales 47% 53% 11% 12% 100% 47% 53% 14% 8% 4% 1% 25%

1996 $ 678,512 317,353 361,159 80,701 74,476 16,154
N/A

%Sales

100% 22% 49% 51 % 1995 N/A $ %Sales 553,287 270,125 283,162 120,201

2%

8,577 N/A
N/A

2%

N/A 189,828 5,804 (37) 195,595 73,258

28%

154,384 4,017

28% 1%

25%

29%

158,401 60,665

29%

16%
*In 1995, includes General and Administrative Expenses.

122,337

18%

97,736

18%

because demand for its products was historically so strong. While the changes initiated in 1998-99 had begun to bear fruit (sales in first half of 1999 were $415 million contributing $38 million to net income), Callaway wondered if CGC would have to revise the way it approached retailer relationships to make them more mutually beneficial? To address possible market confusion, should the communication strategy shift? And how should CGC balance the catch-22 of...
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