Part I.
Overarching Problems
CGC, Callaway
Golf Company, has always enjoyed a great reputation as one world-leading
manufacturer of high-end golf clubs and accessories. It is specialized in its
innovation of technology and premium quality products. However, in 1998, the
magic started to fade and sales dropped, CGC experienced a loss of 27 million.
During that
time, CGC had several significant issues: its poor relationship with retailers,
the growing R & D cost, and the problematic marketing strategy. First,
retail stores are critically important to sales turnover. With a high turnover,
CGC management team realized the product knowledge of retailers didn’t meet its
expectations. Besides that, margin was another conflict between CGC and its
retailers because CGC came up with critical finance policies which highly
restricted retailers’ flexibility on setting up prices.
In addition,
CGC usually sold their products at higher prices than other companies in the
same industry. Thus, it means that CGC has to keep developing and introducing
new products in order to hold their old customers. Therefore, CGC has to spend
much more on R & D to differentiate its products from other competitors.
Moreover,
Richard Helmester, who is in charge of CGC’s R & D department, believes
that CGC should convince the consumers that they have always wanted and needed
its goods. CGC’s sales are made up of the U.S. and abroad markets. However,
CGC’s marketing program was critical since CGC’s sales were largely replied on
the products differentiation and at the same time CGC charged premium prices.
In the process of differentiating CGC’s products from other competitors’, it’s
extremely important for the end consumers and retail salespeople to fully
understand the benefits of their new products.
Part II. Root
Causes of Overarching Problems
According to
the case description, it is obvious that CGC has encountered problems such as
communication strategy and new product development, which would require
significant changes in marketing strategies. The weaknesses of CGC can be
concluded into four aspects:
1. Different
retailers had different views on product knowledge training, and some resisted
it due to the lack of demand form store managers. Store managers thought it was
such a waste of time to talking with manufacturers’ representatives. However,
some retail salespeople thought the training of product knowledge was so brief,
therefore, they felt undereducated about CGC’s technology, and finally made it
hard for them to explain to consumers why CGC’s price is so high.
2. CGC spent
more developing expense to differentiate. The sales will reduce if a product
stayed in the pipeline for a long time. This theory suits for not only basic
products but also best sellers. Customers will not buy one product after the
first two years of this introduction. The other reason for CGC to keep its
technologically superior products is preventing golf club members to switch
brand. Some golf club members will drop their club after having joined 15
years. They would think they can be better with other golf clubs if the CGC is
not the best golf club. The financial statements indicated that Callaway Golf
Company experienced an operating loss of $27 billion in the gulf ball business
due to the expansion of its product line, the reduction of prices (Exhibit 7
& 8) to remain competitive and to defend its market share as a dominant
player in the golf equipment business. Secondly, rapid introduction of new golf
clubs or golf balls could result in closeout of existing inventories at both
the wholesale and retail levels.
3. CGC
considered less on retailers. CGC have two types of retailers which are
on-course and off-course. There are tremendous variations between them. The
finance abilities are different. The on-course retailers are poorer financed
than off-course. However, CGC keeps the “one price” finance policy with all customers.
It does not provide volume discounts. In addition, rapid introduction of new
golf clubs or golf balls could result in closeout of existing inventories at
both the wholesale and retail levels. Therefore, the closeouts will lead to
reduce margins on sale of order products, thus the sale of both new and
existing products. One of the retailers of CGC said, “I think manufactures
should slow down the pace of new-product introductions. The products need more
time to be given a chance and to get out to the public before the clubs are
discontinued.” This statement indicated that retailers were experiencing very
low inventory turnovers, which could bring them serious liquidity problems.
4. CGC’s
marketing was critical for them but was very limited that it focused on
promotion through pro golfers. It was good for the professionals to validate
their products’ quality and technology, however, a broader range of target
customers and marketing costs were to be considered. Last but not least, it is
very hard for CGC to track the imitations, which would result in high
administration cost and loss of revenues, according the financial statement
statistics.
Part III.
Strategic Recommendations
According to
the analysis of Overarching problems and Root causes, we have come up with
several major recommendations:
1. Try to
improve the relationship with retailers. From the cases, we found the major
cause for this issue is critical financing policy which highly restricted the
flexibility of retailers' margin. The best way to solve this issue is providing
discounts to retailers, which will provide them with better margins in order to
attract more purchasers at the point of sale. Also, Sales people are the key
figures for selling their products. Thus, help them to get a better
understanding of the products becomes fairly important, we suggest they should
providing training program for sales people who are new to the industry.
Moreover, we suggest the company provides commissions to the sales people in
order to motivate them.
2. Slowing
down the new product introduction. Bringing too many new products will confuse
their customers and they will be forced to sell the old products at discount.
So they will be cannibalizing their existing products, which bring more
drawbacks than its advantages.
3.
Stabilizing the growth of R & D and General administrative expenses. From
the income statement we found out these two expenses grew year by year but they
don't necessarily bring positive effects to the sales. However, it is one of
the major causes of the net loss in 1998. Stabilize doesn't mean that they
should stop R & D. Conversely, they should work on improving the process to
decrease costs and maximize value of each new offer.
4. Focusing
more on advertising and marketing strategy. We suggest them to come up with a
stronger promotion message of differentiation to justify why their product is
better so the price is premium. Also, they need to put emphasis on their
on-course sales.
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