The #1 Ball in Golf

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The Sporting and Athletic Goods Manufacturing Industry, NAICS code 339920 is aptly comprised of establishments primarily engaged in manufacturing sporting and athletic goods, excluding apparel and …

The Sporting and Athletic Goods Manufacturing Industry, NAICS code 339920 is aptly comprised of establishments primarily engaged in manufacturing sporting and athletic goods, excluding apparel and footwear. This marketing analysis will be concerned with Titleist-branded golf balls. Titleist is one of the five holdings within the golf portfolio of Fortune Brands, Inc. Fortune Brands is a holdings company with operating companies engaged in the manufacture, production and sale of Home and Hardware products, Spirits and Wine, and Golf products. Fortune Brands manufactures its golf products through its subsidiary Acushnet Company, which makes golf balls, clubs, shoes, gloves, bags, apparel, and accessories (refer to Figure 1a).

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  • 1. Assignment I Situation Analysis and SWOT Sporting and Athletic Goods IN FOCUS – “The #1 Ball in Golf” Prepared by: Mary Jo Espinoza Lindsay Meyer Kevin Vater 25 September 2007 Page 1 of 40
  • 2. Introduction The Sporting and Athletic Goods Manufacturing Industry, NAICS code 339920 is aptly comprised of establishments primarily engaged in manufacturing sporting and athletic goods, excluding apparel and footwear.1 This marketing analysis will be concerned with Titleist-branded golf balls. Titleist is one of the five holdings within the golf portfolio of Fortune Brands, Inc. Fortune Brands is a holdings company with operating companies engaged in the manufacture, production and sale of Home and Hardware products, Spirits and Wine, and Golf products.2 Fortune Brands manufactures its golf products through its subsidiary Acushnet Company, which makes golf balls, clubs, shoes, gloves, bags, apparel, and accessories (refer to Figure 1a). Spirits & Wine Home & Hardware Golf NYSE: FO Holdings Company Operating Segments Five Brands which comprise the Golf Segment 1 US Census Bureau. Accessed at http://www.census.gov/eos/www/naics/htmls/3/339920.htm on 15 September 2007 2 Form 10-K for the Fiscal Year ended December 31, 2006. Fortune Brands. Accessed at http://edgar.sec.gov on 15 September 2007. Page 3. Page 2 of 40 Figure 1a – Organizational chart of Fortune Brands shows the three operating segments. The golf segment is comprised of Titleist, Cobra, FootJoy, Pinnacle, and Scotty Cameron.
  • 3. Industry Size In 2002, it was estimated that 850 million balls were manufactured and shipped giving rise to a business with $550 million in sales globally.3 As recently as 2005, the Acushnet family of branded golf balls – Titleist and Pinnacle, had captured a 76% market share.4 Of this 76%, it is estimated that Titleist accounts for ~50% of market share, Pinnacle ~26%.5 Despite structural headwinds in the golf industry (see Product Lifecycle on pg. 5), sales of golf balls increased between 2002 and 2005 by nearly 40%. In 2005, the U.S. dollars spent on golf balls was approximately $762.9 million and U.S. dollars spent on Titleist golf balls was $364 million.6 In recent years, shipments of golf balls have moderated (see Figure 1b) and sales have decreased proportionately. US Shipments of Golf Balls, 1992-2010 (projected) 400000 500000 600000 700000 800000 900000 1992 1997 2002 2004 2005 2006 2007 2008 2009 2010 Year (1992-2004 NOT TO SCALE) ($000's) Source: US Dept. of Commerce The international profile of golf balls has been elevated due to shifting import-export characteristics. In 2004, the US exported $158 million and imported $45.5 million of golf balls. Between 3 "Golf Ball." How Products are Made. Ed. Stacey L. Blachford. Gale Group, Inc., 2002. Accessed at http://www.enotes.com/how- products-encyclopedia/golf-ball on 16 September 2007. 4 “USGA explores changing golf balls, Companies worry about rule changes.” USA Today, Sports, Pg. 09c. April 19, 2005 5 Fortune Brands Inc. Company Report. Accessed at http://galegroup.com on 13 October 2007. 6 “The US Market for Golf Equipment.” Accessed on MarketResearch.com on 23 Septemeber 2007. Page 3 of 40 Figure 1b – US Shipments of Golf Balls shows moderating demand
  • 4. 2000 and 2004, exports grew at an annualized rate of 7.3% while imports grew at 8% over the same period.7 Exports were primarily to the UK, Canada, and Japan, while US imports of golf balls were from Japan, China, Taiwan, and Korea.8 Imports from the UK showed an excellent growth trajectory between 2000 (5,943 units imported) and 2004 (107,445 units imported). Market Share Trends Within the golf ball business, Adidas Salomon AG (TaylorMade brand), Callaway Golf Company, Nike Inc, and Bridgestone Sports are considered core competitors. Titleist golf balls are the leading seller holding close to half of the market.9 Callaway holds second place in the market with a market share of 35%.10 Nike and Adidas rank third and are near equivalents in the golf ball industry with a market share of about 8%.11 Market Share 8% 8% 35% 49% 7 “The US Market for Golf Equipment.” Packaged Facts, a Division of Market Research. Feb 2006. Pg 21. 8 “The US Market for Golf Equipment.” Packaged Facts, a Division of Market Research. Feb 2006. Pg 22-23. 9 Fortune Brands Inc. Company Report. Accessed at http://galegroup.com on 13 October 2007. 10 Callaway Golf Company. Accessed at http://galegroup.com on 13 October 2007. 11 2007 Fortune Brands Earnings Conference Call - Final. (26 April). Fair Disclosure Wire. Retrieved October 16, 2007, from ABI/INFORM Trade & Industry database. (Document ID: 1264407791). Page 4 of 40 Figure 1c – Market share trends
  • 5. Profitability From a profitability perspective, Titleist’s Q2 ’07 operating profit from the golf franchise was $88.8 million, up 8.2% from $82.1 million in Q2 ’06. The golf segment posted an operating margin of 18.7% in Q2 ’07 versus 14.6% in Q1 ’07 and 19.3% in Q2 ’06. In comparison, Titleist’s biggest competitor, Callaway Golf, produced operating profit of $40.4 million. Callaway posted an operating margin of 4.3% in 2007.12 As an industry, the manufacture and sale of golf balls is modestly profitable. Initial investment in production facilities and raw materials is countered by the standardization and lower costs to assemble, package, and distribute golf balls. Titleist’s dominance in other golf-related markets (ie: golf clubs, golf apparel) makes associated overhead for marketing golf balls variable. Robust brand equity makes Titleist well positioned to co-market its products and increase profitability within individual segments like golf balls. Product Lifecycle Despite the introduction of new technologies into the golf ball industry, total industry sales dollars and profit have been leveling off in recent years as the product continues to mature. Data collected by Simmons Market Research Bureau illustrates a decline in participation among all types of golfers – seldom, occasional, and frequent players since 2003.13 One important driver of demand, golf club memberships, has also showed patterns of decay. In 2003, golf memberships were 1.7%. By 2005, this figure had fallen to 1.3% as busy lifestyles have negatively impacted membership rates.14 Between 2005 and 2010, the shipment of golf balls is expected to decline at a normalized rate of -0.5% each year.15 With declining demand dynamics, Figure 1d demonstrates that as golf balls mature further, sales and profit begin to moderate noticeably. 12 “Callaway Golf Company Profile.” Accessed at http://galegroup.com on September 20, 2007 13 “The US Market for Golf Equipment.” Packaged Facts, a Division of Market Research. Feb 2006. Pg 75. 14 “The US Market for Golf Equipment.” Packaged Facts, a Division of Market Research. Feb 2006. Pg 78. 15 “The US Market for Golf Equipment.” Packaged Facts, a Division of Market Research. Feb 2006. Pg 21. Page 5 of 40
  • 6. Introduction Growth Maturity Decline Salesdollarsorprofit + 0 - Stage of the product life cycle Total Industry Profit Total Industry Sales Dollars Marketing Orientation Titleist aspires to serve the needs of the serious and recreational golfer with value added products and services that have a competitive advantage worldwide by being a market driven company.16 But the company is not alone in this mission. The wide marketing efforts by all players in the golf ball industry demonstrate a keen marketing orientation. Because the golf is rapidly approaching maturity, capturing market share is equally if not more valuable than generating additional sales. Going forward, Titleist must continue to stave off complacency by rejecting the urge to become comfortable with their leading position in the golf ball market. The company has long demonstrated its prowess in brand strategy via creative print ads, successful professional sponsorships, and effective television campaigns. By touching potential and existing customers in numerous settings, Titleist is able to exert considerable influence within this category. Company Profile From a corporate perspective, Fortune Brands depends on its top 15 brands – including Titleist, to bring in $100 million each, annually. 17 Titleist golf balls accounted for 6% of revenues and 4.2% of operating income of Fortune Brands during 2004.18 Titleist relies on a distribution network including pro 16 Titleist Corporate Mission. Accessed at http://www.titleist.com/corporate/mission.asp on 23 September 2007. 17 2007 Fortune Brands Earnings Conference Call - Final. (26 April). Fair Disclosure Wire. Retrieved October 16, 2007, from ABI/INFORM Trade & Industry database. (Document ID: 1264407791). 18 Fortune Brands Inc. Company Report. Accessed at http://galegroup.com on 20 September 2007 Page 6 of 40 Figure 1d – Product lifecycle curve for the golf ball industry. Curves demonstrate recent flattening of sales and profits as the product and industry continues to mature.
  • 7. shops, sporting good stores, and mass merchants throughout the United States, Canada, South Africa, and parts of Europe and Asia. Brand Strategy In February 2005, Titleist launched five unique ball offerings: DT SoLo, NXT Extreme, NXT Tour, Pro V1, Pro V1x) to align with the different needs of their core customer groups. The golf balls were sold in the usual dozen and three ball arrangement but featured new packaging. The five new products were promoted through print media, television, Internet advertising, and weekly e-newsletter updates. Product Mix The DT SoLo has been the ball of choice for recreational golfers worldwide for over thirty years. The high-lift design helps maximize flight distance with “average and moderate swing speeds seeking the ultimate combination of distance with soft feel and guaranteed cut-proof durability.”19 The DT SoLo has also become known as the “the Feel Good Ball” and is characterized with a red “1” under the Titleist logo. Recent upgrades to the DT have made the ball capable of getting between six to sixteen additional feet at swings between 100-160 miles per hour. The NXT Extreme was designed to attain distance without sacrificing “soft feel and greenside playability.” With a replacement guarantee for cut-through (cracked) balls during the course of normal play, Titleist stands behind its newest offering 100%. The NXT Tour takes this design a step up for average to highly skilled golfers seeking high performance control in addition to soft feel and long distance. This model has both an inner and outer polybutadiene core and fusablend cover with 392 dimples. The Pro V1 and Pro V1x lines are the most popular. Featuring an Alignment Integrated Marking (“A.I.M.”) sidestamp to improve putting alignment, the Pro V1 offers long, consistent distances when hit with drivers and irons. Around the green, the Pro V1 boats Drop and Stop™ control. The Pro V1 is the most durable of all Tour-played Titleist golf balls and is characterized by a black “1” under the logo.20 Since the December 2000 launch of the original Pro V1 series, ProV1 has been the nation’s best selling 19 Titleist DT SoLo. Accessed at http://www.titleist.com/golfballs/dtsolo.asp on 23 September 2007. 20 Titleist Pro V1. Accessed at http://www.titleist.com/golfballs/prov1.asp on 23 September 2007. Page 7 of 40
  • 8. golf ball. The “x” marked counterpart of the Pro V1 differentiates itself with 332 dimples and higher short game spin due to its urethane elastomer cover. For most players, the Pro V1x will be longer off the tee than the Pro V1.21 The Pro V1 is made of three layers while the Pro V1x is fashioned with four. Price Points Price points for each of the five Titleist models are given in Figure 1e. Price Points for Titleist Golf Balls $28 $34 $40 $58 $58 $0 $15 $30 $45 $60 DT SoLo NXT Extreme NXT Tour Pro V1 Pro V1x Price Source: Company Website Promotion Strategies As the number one seller of golf balls,22 Titleist strives to keep their consumers informed and satisfied. The company webpage features an interactive Tour Blog, the Titleist Performance Institute, and Titleist Fitting Works. The Tour Blog allows enthusiasts to stay up-to date on the latest golf news and current player rankings. The Titleist Performance Institute offers an exclusive membership to Titleist customers and bills itself as “the largest collection of golf-specific health and fitness information from the 21 Titleist Pro V1x. Accessed at http://www.titleist.com/golfballs/prov1x.asp on 23 September 2007. 22 “Nike banking new ball sales will go distance.” USA Today, Sports, Pg. 09. June 14, 2005. Page 8 of 40 Figure 1e – Price points for the five Titleist golf ball models
  • 9. world’s leading experts in the game.”23 Titleist Fitting Works is an algorithm for fitting golfers with clubs to optimize their game, demonstrating the company’s commitment to improving all aspects of the golf. Connecting with golfers in cyberspace has been a highly effective strategy as marketers have been forced to take their tactics online. Advertisements and promotional campaigns rely on large number of touring and club professionals endorsing the brand. In partnership with the Scotty Cameron brand and the Titleist Performance Institute, Demo Days are hosted across Europe and Australia to allow the public to try out the latest Tour Proven technology. Titleist also currently airs 11 different television commercials related to their golf balls. In general, Titleist golf balls are promoted in stores and trade shows with trial displays, point of sale material, launch packs and signage. Unique sponsorship opportunities exist for Titleist due to the gaining prominence of pro-golf events such as the PGA Tour. The essence of this spirit is captured in a quote from their 2006 Annual Report… “Our strength in golf is built on our powerful brands, our continuous development of next- generation products and our unparalleled relationships with on-course PGA professionals who serve as the game’s ambassadors to millions of recreational players.”24 At present, Titleist is the ball sponsor for an impressive roster of 50 players including Vijay Singh, Adam Scott, Steve Stricker, and Davis Love III (see Figure 1f). Titleist Pro V1 Players Steve Stricker Adam Scott Nick O’Hern Scott Verplank David Toms Hunter Mahan Chris DiMarco John Senden Bernhard Langer Ryan Moore Taylor Vaughn Paul Goydos Heath Slocum Shaun Micheel JJ Henry Camilo Vellegas Troy Matteson Titleist Pro V1X Players Padraig Harrington Geoff Ogilvy Vijay Singh Luke Donald Zach Johnson Angel Cabrera Arron Oberholser Aaron Baddeley Brett Wetterich Woody Austin Ian Poulter Boo Weekley Richard Sterne Rod Pampling Anders Hansen Mike Weir Davis Love III Jose Maria Olazabal Robert Karlsson Lee Westwood Jerry Kelly Jonathan Byrd Toru Taniguchi Mikko Ilonen Jeev-Milkha Singh Simon Dyson Kenny Perry Peter Hanson David Holwell Pat Perez Ben Curtis Johan Edfors Bart Bryant Titleist Pro V1x Players 23 “What is myTPI?” Accessed at http://www.mytpi.com/joinMyTPI.asp on 23 September 2007. 24 Form 10-K for the Fiscal Year ended December 31, 2006. Fortune Brands. Accessed at http://edgar.sec.gov on 15 September 2007. Page 13. Page 9 of 40 Figure 1f – Titleist sponsored players
  • 10. Promotional Spending Among golf equipment manufacturers, Fortune Brands Inc. – the parent company of Titleist, was the biggest spender on advertising, spending a total of $36.8 million on promotions in 2004 (see Figure 1g). Callaway followed closely with total ad spend of $29.2 million.25 The Titleist Brand was responsible for $12,537 million in promotional spending (see Figure 1h). 26 US Total Ad Spend of Golf Equipment Manufacturers, January- December 2004 Company Ad Spend* Fortune Brands Inc. $ 36.8 Callaway Golf Company $ 29.1 Adidas-Salomon AG $ 17.8 Bridgestone Corp. $ 2.0 TOTAL 85.8$ *$000000's US Ad Spend of Golf Equipment Manufacturers by Brands, January-December 2004 Titleist Product Ad Spend* Media Used Titleist DT Solo Golf Balls $ 1,121.8 Magazines Titleist Golf Balls and Clubs $ 0.4 Spot TV Titleist NXT & NXT Tour Golf Balls $ 1,893.0 Magazines Titleist NXT Dist & NXT Tour Golf Balls $ 5,075.7 Network TV, Cable TV Titleist Pro Titanium Clubs & ProV1 Balls $ 229.1 Magazines Titleist Pro V1 & Pro V1X Golf Balls $ 2,227.3 Magazines Titleist Pro V1 Golf Balls $ 1,934.3 Network TV, Cable TV Titleist Pro V1X Golf Balls $ 55.8 Magazines TOTAL GOLF BALL SPENDING $ 12,537.4 *$000's 25 “The U.S. Market for Golf Equipment.” Accessed at marketresearch.com on 12 October 2007. 26 “The U.S. Market for Golf Equipment.” Accessed on marketreseach.com on 12 October 2007. Page 10 of 40 Figure 1g – Fortune Brands Inc. tops the list of US Ad Spending for Golf Equipment Manufacturers. Figure 1h – Titleist spent approximately $12.5 million on promotions in 2004
  • 11. Social Trends The rise of younger golfers on the PGA tour including Sergio Garcia and Michelle Wie has increased demand for age-appropriate merchandise designed to reflect the style and performance preferences of this cohort. Women’s golfing has also gotten a boost in recent years with the emergence of players like Annika Sorenstam and Natalie Gulbis (whose reality TV show recently began airing on the Golf Channel). Natalie Gulbis is to golf what Anna Kournikova is to tennis… young, talented, and attractive. Many working professionals do a majority of their business on the golf course. As a result, courses must cater to these businessmen and women who want to appear classy but feel relaxed enough to enjoy themselves and take care of business. Titleist could further penetrate this demographic by offering a high end product that is respectable but not ostentatious. As the baby boomers continue aging and retiring, one fad that has swept the nation is golf course retirement communities. Not only are these complexes “lifestyle communities” but they also provide very easy access to private courses designed for residents. This creates additional prospects for golf merchandisers because this cohort is thought to have deep pockets and a desire to live comfortably. Golf had been without a poster child since Arnold Palmer left the game many years ago until Tiger Woods arrived on the scene in the late 1990’s. To many, Tiger is the best golfer in the game. After winning numerous tournaments in run away style, Woods has become the primary figurehead of golf. Furthermore, he has helped bring racial diversity to the game shattering the stereotype that golf is a rich, white sport. As a result, Titleist must constantly evaluate their marketing tactics in accord with the shifting ethnic background of interested groups. Page 11 of 40
  • 12. Natalie Gulbis Annika Sorenstam Tiger Woods Michelle Wie Sergio Garcia Economic Trends Golf is not a necessity, so when people’s incomes change, the amount of money spent on golf and leisure activities changes commensurately. Recent trouble in the sub-prime mortgage market has led to increased defaults and a precarious interest rate climate, causing some anxious consumers to save more than spend. Pair highly elastic activities like golf with an uncertain economic environment and challenges for merchandisers like Titleist are inevitable. With the dominant foothold in the market, moderating economic growth is likely to impact the biggest names in the business the most. This will require the marketing department to re-position the brand as being characteristic of exceptional value and longevity. Recent concerns about the widening income gap have come to benefit companies who have produced ‘platinum’ editions of their product for sale only to high net-worth individuals. Sales of high end art, jewelry, autos, and yachts exemplify the recent success of the luxury market. Depending on the status of the economy, Titleist might consider entering this market since many wealthy people enjoy the status associated with golfing. Historically, golf has its roots as a private institution in which people pay high membership fees in addition to fees for each round. Recently, more publicly-owned golf courses have opened in less affluent areas. This has made golf more accessible for middle-income families who may not be able to afford country club memberships. Most of these courses are well-maintained and Page 12 of 40 Figure 1i – Michelle Wie and Sergio Garcia have caught the attention of younger golfers, while Natalie Gulbis and Annika Sorenstam have also created a new face for women interested in the game. Tiger Woods is now considered the new face of the sport.
  • 13. serve a dual-purpose in being great starter courses for beginning golfers. The rise of public courses suggests that Titleist may have a broadening customer base to reach out to. While manufacturing high- end products to the wealthy could prove a very successful venture for the company, Titleist must remain wary of alienating their core customer. Competitive Trends Because Titleist dominates their market space, few competitors pose an immediate material threat to their business. Many industry analysts would concur that Titleist’s biggest competitor is Callaway. Unlike Titleist, Callaway Golf does not operate as a wholly-owned subsidiary of a holdings company. From a corporate perspective, this allows Callaway focus intensely on the golf business. While Titleist might be somewhat restricted by governance from Acushnet or Fortune Brands, Callaway has more flexibility to chart its own course. Callaway had net sales of $214.8 million from golf balls in 2006. This represented 21% of its overall net sales of $1.02 billion (see Figure 1j). Callaway markets golf balls under the Callaway Golf, Top-Flite, and Ben Hogan brands. Their golf balls are generally a 2-piece golf ball (consisting of a core and cover) or a multi-layer golf ball (consisting of two or more components in addition to the cover). The company’s golf ball products include covers that incorporate a traditional dimple pattern as well as covers that incorporate non-traditional designs, including the company’s HEX Aerodynamics (ie: a series of hexagons and pentagons separated by tubular ridges and dimple-in-dimple technology). The company’s products compete at all price levels in the golf ball category. In general, the company’s multi-layer products sell at higher price points than its 2-layer golf balls.27 27 Form 10-K for the Fiscal Year ended December 31, 2006. Callaway Golf. Accessed at http://edgar.sec.gov on 23 September 2007. Pages 2,3. Page 13 of 40
  • 14. Acushnet (includes Titleist) Callaway Golf Golf competes for attention with other sports on both a domestic and international scale. Pro football (NFL) and auto racing (NASCAR) are among the most highly-watched sports in the United States. People in South America, Europe, and Africa enjoy watching soccer. As a result, golf is not the number one sport of preference on a global basis, despite new offerings by cable television networks for 24-hour golf channels. Technological Trends Technological differentiators between golf balls are not that conspicuous. Titleist and Callaway have both developed proprietary golf ball technology capitalizing on nanotechnology to make products stronger, lighter, more durable, and stiffer to increase product lifetime. These advancements help the golfer hit the ball further and more accurately. The recent efforts of these golf titans have not gone unnoticed. In 1990, the average driving distance on the PGA Tour was 262 yards. By 2004 that distance had visibly improved to 287.3 yards – the farthest distance in history.28 Regulatory Forces As improvements in technology have aided driving distances markedly, some golf courses have become too easy for the professionals to play and are becoming obsolete.29 In March and April 2005, the United States Golf Association (“USGA”) and Royal and Ancient Golf Club (“R&A”) issued notices to golf equipment manufacturers requesting that they participate in a golf ball research project by manufacturing and submitting balls that would conform to an overall distance standard that is 15 and 25 yards shorter 28 “The US Market for Golf Equipment.” Packaged Facts, a Division of Market Research. Feb 2006. Pg 52. 29 “The US Market for Golf Equipment.” Packaged Facts, a Division of Market Research. Feb 2006. Pg 52. Page 14 of 40 Figure 1j – Relative proportions of net sales for Acushnet (Titleist) and Callaway
  • 15. than the current standard of 317 yards.30 The results of these studies are still in deliberation and could result in further ball regulation, potentially impeding innovation. Strengths Titleist’s core strength is its globally-recognized and respected brand name. It is highly trusted among merchandisers and an informal survey of store shelves at discount retailers Target and Wal-Mart demonstrated that Titleist was the most popular-stocked brand.31 As such, Titleist has captured the leading share in the market for golf balls as a reasonably priced, high performance ball for seasoned pros and rookies alike. Effectively hedged against adverse events to its golf ball business, Titleist also sells golf clubs, golf bags, and golf apparel. Weaknesses While Titleist has a strong professional following, one of company’s primary weaknesses is that Tiger Woods no longer uses their ball. In 1999, Woods received $20 million from Titleist for endorsing Titleist products and $40 million from Nike for wearing their apparel. When Woods was seen around the world dribbling a Nike golf ball on a golf club in a television commercial which first aired during the 1999 NBA Finals, Titleist immediately sought an injunction in Boston to stop the commercial from airing.32 This conflict of interest began a bitter separation between Titleist and Tiger and is a manifestation of what many critics view as Titleist’s biggest weakness. Opportunities Currently, 35% of Achushnet’s sales are to international markets33 but a stronger push into India and China can be expected as these nations continue to develop. Going forward, Titleist might also consider entering the real estate business via sponsorship or co-development of a domestic golf- 30 Form 10-K for the Fiscal Year ended December 31, 2006. Fortune Brands. Accessed at http://edgar.sec.gov on 15 September 2007. Pages 9, 10. 31 Independent Research. Conducted by Lindsay Meyer on 22 September 2007. 32 “Tiger Woods Nike ad spurs Lawsuit.” Accessed at http://www.sportslawnews.com/archive/articles%201999/Woods.html on 23 September 2007. 33 Form 10-K for the Fiscal Year ended December 31, 2006. Fortune Brands. Accessed at http://edgar.sec.gov on 15 September 2007. Page 9. Page 15 of 40
  • 16. community, capitalizing on the strength of their brand name. However, this would only be a sound business decision in an expanding economy with a high demand for this specialized type of housing. Leveraging technology will also help Titleist expand their revenue base. Inclusion of micro tracking chips in balls for a GPS-aided search and rescue effort represents one such possibility. Golf swing video analysis is also gaining in popularity to help amateurs learn to swing like the pros. While magnetic resonance imaging (“MRI”) technology is already used at the Titleist Performance Institute for this purpose, the company might consider developing their own software program for wider distribution. Threats With the leading market position, it’s safe to say that the biggest threat to Titleist’s golf ball business is changes in the economic environment. Rising commodities prices in metal and energy markets pose a real threat as increased cost of inputs eat away at profits. Being that 35% of sales are to international markets, movements in the foreign exchange market could also adversely affect profitability. Downturns in the housing market may also impact consumer sentiment and decrease demand for elastic goods. While moving into China represents a great opportunity for Titleist, the country is also responsible for producing thousands of counterfeit Pro-V golf balls that have been appearing on store shelves. Wholesalers of Titleist golf balls and equipment are often sourcing the product from the internet, rather than direct from Achushnet. Don Bach, founder and president of Cam Golf found his company as the target of a $5 million lawsuit when Acushnet discovered 1,000 fake balls in a Cam Golf warehouse in May 2006. Achushnet General Counsel Joe Nauman summed the situation well by stating, “Having our name on counterfeit products diminishes brand value. Left unchecked, this kind of activity will erode sales over time.”34 Despite these threats, it is clear that Titleist is a brand leader. A succinct SWOT Analysis is included in Figure 1k. 34 “Titleist Going After Foul Balls.” Jargon, Julie. Crain’s Chicago Business. Published 22 May 2006. Accessed http://www.chicagobusiness.com/cgi-bin/news.pl?id=20697&seenIt=1 on 23 September 2007. Page 16 of 40
  • 17. STRENGTHS WEAKNESSES OPPORTUNITIES THREATS •Best-in-class brand equity with customers and store owners •76% of the market share •Diversified product line •Positive financial picture •Product innovation •Top Golfer Tiger Woods switched from Titleist to Nike (PR disaster) •Fragmentation of Fortune Brands into wine, golf, and hardware whereas competitors can focus specifically on the golf market •Favorable demographics (younger, female, diverse) •Increasing international sales •Appealing to high-net worth clients •Developing golf communities in Florida and other southern states •Expansion into virtual swing lessons •Creating GPS-assisted ball tracking systems •Regulation from USGA inhibits innovation •Domestic economic deterioration including rising commodities prices and unfavorable foreign exchange rates •Counterfeit balls from China •Gaining prominence of NFL, MLB, and the MLS Page 17 of 40 Figure 1k – Titleist SWOT Analysis
  • 18. Assignment II Customer Analysis Sporting and Athletic Goods IN FOCUS – “The #1 Ball in Golf” Prepared by: Mary Jo Espinoza Lindsay Meyer Kevin Vater 18 October 2007 Page 18 of 40
  • 19. Introduction As a brand, Titleist has risen to recent success in the golf ball market with a 50% penetration rate in 2004.35 Extrapolation of this dominance dictates that demographically, there may not be a “typical” Titleist golf ball user. If half of all American golfers rely on Titleist, sizing up their customer base proves difficult. Due to the brands massive scale, the key assumption henceforth is that the broader trends within the golf industry are leading predictors of demographics for Titleist users. The “Typical” Golfer According to Simmons Market Research Bureau, there are 27.2 million adult golfers. As a group, they are predominantly male, middle-aged or in their early retirement years. Most earn well above average incomes in careers as business proprietors, managers or independent professionals. More specifically, American golfers have higher than average household incomes, with two thirds exceeding $50,000 annually36 (see Figure 2a). US Household Incomes vs. Household Incomes of Golfers 55.8% 29.0% 9.6% 3.0% 1.2% 1.4% 33.3% 38.6% 19.8% 5.3% 0.9% 0.6% 0% 10% 20% 30% 40% 50% 60% <$50,000 $50,000 - $99,999 $100,000 - $149,999 $150,000 - $199,999 $200,000 - $249,999 >$250,000 Percent % of US Households % of Adult Golfers Source: Simmons Market Research Bureau 35 “The US Market for Golf Equipment.” Packaged Facts, a Division of Market Research. Feb 2006. Pg 85. 36 “Golf Tourism-International- April 2006.” Accessed at http://academic.mintel.com on 12 October 2007. Page 19 of 40 Figure 2a – Adult golfers have higher household incomes than average US households
  • 20. Demographic Trends There is increasing participation in golf among women and ethnic groups. The number of adult women golfers has increased from 6.1 million in 1990 to 6.9 million in 2004.37 Players like Michelle Wie, Natalie Gulbis, Anika Sorenstam, Morgan Pressal, and Paula Creamer have brought the needed female face to the game of golf. The trend is also reflected in participation figures for the Executive Women’s Golf Association Network. Currently, the group has approximately 20,000 members across the United States and Canada.38 Key players like Tiger Woods have elevated the game’s popularity among African-Americans. According to a poll conducted by ESPN Sports, in 1996 only 2.5% of the African American population in the U.S. could be classified as avid golf fans.39 This percentage had increased to 12% by 2003. The same poll indicated a 90% increase in Asian golf fans, from 25.5% in 1996.40 These statistics are most likely influenced by the recent success of professional minority players on the PGA Tour. Today’s average golfer is also younger. In 2004, there were 2.9 million junior golfers or golfers between 12 and 17 years old.41 Around one million of them played eight or more rounds in a year and were classified as core golfers. Young people, however, still do not represent the core consumer group for equipment marketers, probably because they do not have a stable source of {disposable} income. Types of Participants Golfers are broadly classified into six groups, based on the number of rounds played in a year: avid golfer (25 or more rounds), core golfer (8-24 rounds), occasional golfer (less than 8 rounds), junior golfers (aged 5-17), alternative users and range users. In 2004, 12.8 million participants, accounting for 42.4% of all golfers for the year, played over eight regulation rounds and can be classified as avid or core.42 Core golfers have approximately double the average US household income of $45,000. Two thirds have household incomes greater than $50,000, and one third have an income in excess of 37 “The US Market for Golf Equipment.” Packaged Facts, a Division of Market Research. Feb 2006. Pg 106 38 “The US Market for Golf Equipment.” Packaged Facts, a Division of Market Research. Feb 2006. Pg 91 39 “The US Market for Golf Equipment.” Packaged Facts, a Division of Market Research. Feb 2006. Pg 91 40 “The US Market for Golf Equipment.” Packaged Facts, a Division of Market Research. Feb 2006. Pg 101 41 “The US Market for Golf Equipment.” Packaged Facts, a Division of Market Research. Feb 2006. Pg 92 42 “The US Market for Golf Equipment.” Packaged Facts, a Division of Market Research. Feb 2006. Pg 92 Page 20 of 40
  • 21. $100,000. There is one female core golfer for every four male core golfers, but in general, female core golfers are older and wealthier (see Figure 2b).43 Core Golfer Profile, 2004 Male Female Average Age 45.4 51.3 Average Household Income $84,780 $91,540 Average Rounds Played/Year 37.7 36 Average Years Played 23.2 19.3 Percent Playing on Private Courses 20% 28% Percent Maintaining a Handicap 35% 43% Average Score 92.4 106.6 Source: NGF According to NGF statistics, almost two thirds of American core golfers are over 40 years old.44 Older consumers participated in golf more often than younger consumers. Those aged 65-74 are more likely to play ‘every chance I get’ (index 126) than those aged 18-24, who were more likely to play “seldomly” (index 165).45 While the average golfer is getting younger, golf is not a sport particularly favored by young people because it is relatively expensive to participate, it requires time to play, and is viewed by many as an activity for those in their middle ages. Purchase Cycle Among sports enthusiasts, golf balls are a favored purchase item. According to Mintel, obsessed sports enthusiasts purchase golf balls significantly more frequently than casual sports enthusiasts, with a ratio of 41% to 21%.46 Core golfers exhibit an overall sense of optimism and personal security. One reason for their fundamental sense of comfort is that they are far more likely than other fit consumers to feel financially secure and are more likely to express confidence in their ability to manage money. As a 43 “Golf Tourism-International- April 2006.” Accessed at http://academic.mintel.com on 12 October 2007. 44 “Golf Tourism-International- April 2006.” Accessed at http://academic.mintel.com on 12 October 2007. 45 “Golf Tourism-International- April 2006.” Accessed at http://academic.mintel.com on 12 October 2007. 46 “The US Market for Golf Equipment.” Packaged Facts, a Division of Market Research. Feb 2006. Pg 93 Page 21 of 40 Figure 2b – Characteristics of core golfers
  • 22. consequence of this comfort level, core golfers are the most frequent buyers of golf balls.47 Golfers between the age of 55 and 64 are the most likely to have purchased golf balls within the past 12 months. College graduates as well as those who earn more than $100,000 a year are among the top to buy golf balls most frequently.48 Product Utility The utility created by the purchase of Titleist golf balls has elements of form, place, time, and possession. Form utility is a result of careful product production and reinvestment in the latest golf ball technologies; Titleist customers are generally pleased with the flight trajectories of their balls. Place, time and possession utility are all derived from the convenience of prevalent product placements in retailers, pro shops, and clubhouses. The ability of consumers to locate and purchase golf balls with ease has proved to be a useful asset by creating brand awareness and extending the reach of the Titleist brand. Maslow’s Hierarchy of Needs To the right in Figure 2c is Maslow’s Hierarchy of needs. It is set in a pyramid shape where one must have a strong base to finally reach the top of the pyramid for self-actualization. Self- actualization is the best point that a person can attain and the person is striving for this point throughout their life. Along the way of achieving self- actualization one must first attain basic needs such as food, water, shelter and clothing then security needs such as a society that protects its citizens against 47 “The US Market for Golf Equipment.” Packaged Facts, a Division of Market Research. Feb 2006. Pg 75 48 “Golf Tourism-International- April 2006.” Accessed at http://academic.mintel.com on 12 October 2007. Page 22 of 40 Source: Abraham Maslow, Motivation and Personality, 2nd ed., Harper & Row, 1970 Figure 2c – Maslow’s Hierarchy of Needs
  • 23. violence and hunger and other forms of psychological fears. The next achievement level is love and belonging to people. Esteem needs, or uniqueness are next. After esteem needs are experiencing purpose, meaning, and realizing, all inner potential. Finally one reaches self-actualization. Titleist golf balls can fall anywhere between belonging needs and purpose. Because golf is either a profession or a relaxation event, it can be assumed that a golfer would first need to fulfill his physiological and security needs. Golf balls can be classified under love and belonging needs because those needs include appreciation and friendship. Most golfers golf in pairs or foursomes. This inherent social aspect of the game then makes golf an avenue for friendship and meeting new people. When a golfer buys a Titleist golf ball it is because they know that Titleist is one of the best golf balls available. Therefore, he can buy the ball to look smart and play better thus earning the respect of his fellow golfers as well as gaining friendships with his golfing group. However, golf balls can also be included in the esteem needs as well. Esteem needs are defined as the need to be a unique individual with self-respect, and to enjoy the general esteem from others. Many people define themselves on the golf course, whether by a business outing with the boss or a friendly game with close friends. Therefore, they buy the Titleist golf ball that best suits their particular style of play. For higher flight and longer distance one would choose the Titleist Pro V1. However, for lower flight and longer distance one might choose the Titleist Pro V1 X. For outperforming the boss off the tee box one would favor the Titleist NXT Extreme for maximum distance. After a round of golf there is a very strong collegial atmosphere between the golfers, which fills the esteem needs from Maslow’s Hierarchy and moves to the purpose needs. While most people who buy golf balls find themselves between the belonging and esteem needs, some people (like professionals) see the game as their purpose for life. These people are very serious golfers who play as many times as the can a day for as many days as they possibly can. These people breathe golf and live and die on the greens. They are highly educated on what type of golf ball is best suited for their style of play and are capable of tailoring their play towards the type of ball they have. As a product, golf balls reside in Maslow’s Hierarchy between fulfilling needs of love and belonging through esteem needs, and finally ending at the person’s purpose needs. Because golf balls Page 23 of 40
  • 24. fulfill several different needs, they have wide appeal to many consumers. When segmenting customers, Titleist must analyze multiple indices to obtain the full picture of their target consumer. Segmentation of Golf Balls In order to market Titleist golf balls, the producer must first know two crucial consumer groups. These groups are people play golf (Segment #1) and own golf balls (Segment #2). By finding out who specifically plays golf, Titleist can design their marketing strategy around the probable mediums which will attract the golfer. These mediums can range from magazines to pro shops. Once the core consumers have been identified lifestyle surveys allow segmentation by consumer attitudes (Segment #3). SEGMENT #1 – Who Plays Golf A recent Simmons Market Research survey asked a random group of people how often they played golf. The four responses they could choose were: I play every chance I get, Occasionally, Seldom, and Never.49 Out of these four different possibilities, Titleist can disregard Seldom and Never because Titleist does not want to market golf balls to people who don’t play golf. People who don’t play golf do not have a need for golf balls. However, Titleist does want to focus intensely on the people who responded “I play every chance I get” and pay attention to those golfers who play “Occasionally.” When reading an index, it is important to pay particular attention to scores that read over or equal to 110. This 110 is important because in most cases it can be considered a large enough deviation from the mean of the population to be important as a possible group segment. The first index is the captures statistics for golfers who play “every chance [they] get” (see Figure 2d). 49 “The US Market for Golf Equipment.” Packaged Facts, a Division of Market Research. Feb 2006. Pg 90. Page 24 of 40
  • 25. US Golf Participation: “Every Chance I Get” Basis Category Index 2003 Index 2005 Age Group Age 55-64 121 123 Age 64-77 90 126 Gender Male 170 171 Household Income $100,000 or More 156 165 Region East Central 136 117 West Central 114 126 Source: Simmons Market Research Bureau In Figure 2d above Titleist will first look at the age of the golfers who play the most. In 2005 those golfers that played a lot of golf were between the ages of 64 and 77 (Index = 123_, consistent hypothesis that retirement affords this strata additional time for leisure activities. Male golfers dominate golf with a 170 index rating. This means that men are 70% more likely to play golf than women. This tells Titleist that they can put a masculine spin on their advertising to increase sales, such as advertising balls that are all about distance. Men are very interested in the power and distance aspect of golf and often lose balls on the course. Having several spare balls is essential during each round and may be an element of their purchase behavior. As was alluded to on page 2, household income is a very major differentiator amongst active golfers. Those people who earned over $100,000 annually were the most likely to golf with an index of 165. This shows that Titleist can market its golf balls to a high-end group who is very interested in the best things in life. Finally, looking at what region of the United States to market in is quite helpful. The East Central and West Central regions are most saturated with golfers. SEGMENT #2 – Who Owns Golf Balls The U.S. Ownership of Golf Balls survey was conducted for people who currently own golf balls. This is a relevant segmentation strategy for Titleist because golf balls are long-lasting durable goods. Since most golfers remain loyal for life, the information can easily be extrapolated to attain a proxy for demand (people who need golf balls). Page 25 of 40 Figure 2d – US Golf Participation Index Figure 2e – US Ownership of Golf Balls
  • 26. US Ownership of Golf Balls Basis Category Index 2003 Index 2005 Age Group Age 35-44 128 127 Gender Male 137 139 Household Income $100,000 or More 158 172 Region East Central 136 117 West Central 114 126 Race White or Non- Hispanic 119 124 Educational Status Bachelors Degree 165 168 Graduate Degree 171 153 Source: Simmons Market Research Bureau In the U.S. Ownership of Balls Chart, age is an important aspect of segmentation. Per data in Figure 2e above, the middle aged population, those between 35 and 44 are most likely to own golf balls (Index = 127). Per expectation gender again shows that men are the most likely buyers of golf balls (Index = 139). Because men play the most golf, it is not surprising that they purchase the most golf balls. Other divisions in the ownership segment include race, educational status, and household income and exhibit the previously established tendency to favor well-educated whites. Educational status is supported by the index of 168 and 153 for bachelor and graduate degrees respectively, which bring along higher earnings power. This is reinforced by the largest income bracket owning golf balls which is over $100,000 with an index of 172. Finally the location in the U.S. is a large part of segmentation. The two highest locations for golf ball ownership were East Central (Index = 132) and West Central (Index = 125) United States. The Pacific region was the lowest (Index = 90). For the ownership segmentation strategy, Titleist would want to focus their marketing efforts on highly-educated men on East Central or West Central United States. SEGMENT #3 – Attitudes of Golfers (Most Important) It is very important to understand more than just the socio-economic features of a customer. Titleist must consider the attitudes of their potential consumers and play to them when they design marketing programs. Consumer attitude is the most important index for Titleist to look at when crafting their marketing strategies. Page 26 of 40
  • 27. Attitudes of Golf Ball Consumers Play Golf Every Chance I Get Occasionally Worth Paying Extra for Quality Goods 113 109 I want to get to the very top in my career. 110 109 I like control over people and resources 110 109 Real Men don't Cry Attitude 142 86 Source: Simmons Market Research Bureau An assessment of the attitudes of golf ball consumers shows a special focus on quality. 50 A score of 113 was observed for the people who said they play golf whenever they can, with regard to paying extra for quality goods. The ambition of these people is also important. Among those who played golf in the past twelve months the two highest statements agreed with most frequently were: “I want to get to the very top of my job” (Index = 110) and “I like control over people and resources” (Index = 110). This shows that golfers are more likely to be determined people who are very passionate about succeeding. Those people who are strong and independent with a “real men don’t cry” mentality played golf at every chance they got with a strongly favored index of 142. We believe that the attitude segmentation is the most important because it can relate to a broader range of people because people’s attitudes towards a product are more powerful than the physical or socio-economic position of the person. As mentioned in the Introduction, demographically, the average Titleist enthusiast is more a reflection of a golf enthusiast due to their deep market penetration. With the profile of an average golfer continually evolving, prevalent attitudes carry more salience than demographics alone. These attitudes transcend many boundaries and thus can reach the ideal consumer for Titleist. Having identified attitudes as the most important segment for Titleist, additional segmentation by specific mentality (ie: adventurous, ambitious, optimistic) is feasible. Customer Purchase Decision For first-time purchasers of golf balls (new buy situations), the buyer might seek the advice of a family member, friend, or co-worker with experience in purchasing golf balls (see Figure 2g). In this 50 “The US Market for Golf Equipment.” Packaged Facts, a Division of Market Research. Feb 2006. Pg 101. Page 27 of 40 Figure 2f – Attitudes of Golf Ball Consumers Index
  • 28. instance, the guidance received by the buyer is likely to influence his final purchase decision. Other criteria that may influence the purchase include: price, attractive packaging, availability of brands and models at the selected retailer, input from store personnel, and existing brand preferences. For example, if a consumer had recently purchased Titleist golf clubs, they might be more inclined to purchase Titleist golf balls than Nike golf balls. While the decision time required for this initial purchase might exceed that of a straight or modified rebuy situation, the relative simplicity of golf balls suggests that brand choice and ball type is more of an impulse buy. Catering to this market segment, Titleist specifically markets their DT SoLo ball to beginners and recreational players and has priced the product appropriately for this target. Through the use of the Titleist Performance Institute, aggressive advertising campaigns, and extensive product descriptions on its website, Titleist also seeks to involve repeat buyers in the purchase decision by providing outlets for product research. However, the degree of customer interaction is largely dependent on the customer. If a customer prefers a more active buying decision, Titleist has created high-touch mediums for customer involvement. For repeat customers who desire lower-involvement purchases with no outside consultation, Titleist strategically places golf balls in a wide range of retailers and golf-related destinations (courses, specialty stores, etc.) to accommodate fast and convenient purchase. Problem Recognition Information Search Alternative Evaluation Purchase Decision Postpurchase Behavior Golfer seeks a high-quality ball with long distance and control around the green Consults others, does an internet search and reads golf publications Considers brands on the basis of price, perceived quality and performance Selects Titleist and makes the purchase Heads to the course and tees off! Reviews ball performance with others Customer Decision Process: Golf Balls Psycho-Social Variables Page 28 of 40 Figure 2g – The five stage buying decision process for Titleist golf balls
  • 29. Golf is a sport that has been saturated with highly-educated, high-income earning, white, male participants.51 As illustrated in Figure 2h,52 those who participate in golf regularly have been characterized as having a keen sense of adventure. Both occasional and frequent golfers also exhibit a strong interest in physical fitness captured by a higher index score for those who indicated they exercised regularly (115- 124), versus those who responded that they “should exercise more” (96-100). This group is also less risk averse than those who do not regularly participate in golf. Consumers who consider themselves “optimistic, strong, and independent” showed a higher incidence of claiming to be “good at fixing mechanical things” and demonstrated a greater tendency to be purchasers or owners of golf products.53 Psycho-Social Variables 136 120 100 124 133134 115 96 115 131 0 20 40 60 80 100 120 140 160 Enjoys taking risks Keen sense of adventure Should Exercise More Exercises Regularly Good at Fixing Mechanical Things Characteristic SimmonsMarketResearchIndex Play every chance I get Play occasionallyFrequency of Golf Participation Brand Loyalty 51 “The US Market for Golf Equipment.” Packaged Facts, a Division of Market Research. Feb 2006. Pg 75. 52 “The US Market for Golf Equipment.” Packaged Facts, a Division of Market Research. Feb 2006. Pg 87,89. 53 “The US Market for Golf Equipment.” Packaged Facts, a Division of Market Research. Feb 2006. Pg 87. Page 29 of 40 Figure 2h – Graph of common psycho- social characteristics that vary according to frequency of golf participation.
  • 30. As a diversified conglomerate, Fortune Brands is highly dependent on repeat purchases of golf balls by past Titleist customers. Fortunately, Titleist has been able to capitalize on recent innovation within golf ball technology by trading up to higher quality materials and streamlined design features. Aided by the launch of five new golf balls in 2005, Titleist has easily attained 50+% market share. Golfers seeking the latest technology have depended on Titleist for years to provide them with a best-in-class product. The agility of the company to respond to this customer need in a timely manner has fostered intense loyalty among golfers of all skill levels. Effective brand management over extended time periods via reliable product performance and creative marketing strategies is not only a textbook definition of creating brand equity, but the innate pedagogy of Titleist. This leading position has been captured by continued strength in financial performance of the golf segment, despite the structural headwinds in the broader golf equipment market. With golf participation on the decline since 2003 and shipments of golf balls declining at a 2.3% compound annual growth rate between 2002 and 2005,54 the sustained earnings power of the Titleist brand has proved a valuable asset for Fortune Brands. 54 “The US Market for Golf Equipment.” Packaged Facts, a Division of Market Research. Feb 2006. Pg 20, 75. Page 30 of 40
  • 31. Assignment III Market-Product Focus Sporting and Athletic Goods IN FOCUS – “The #1 Ball in Golf” Prepared by: Mary Jo Espinoza Lindsay Meyer Kevin Vater 20 November 2007 Page 31 of 40
  • 32. Introduction In the first two segments of our comprehensive marketing analysis on Titleist, we focused on the competitive landscape and the customer. In this third and final segment, we will move from commentary into a more pointed discussion of brand strategy. In doing so, it will be necessary to draw upon previous remarks and assumptions made in the first two installments. Our judgments are based on the understanding of the organizational goals and past marketing actions of Titleist but will likely differ materially from what Titleist actually chooses to do. In addition, different scenarios which we can not predict nor control may also impact our conclusions. These factors include, but are not limited to: changes in company leadership, macroeconomic conditions, and supply shocks to required commodity inputs. However, for the purposes of this assignment, we will assume that economic conditions are relatively static. Our analysis will begin with a short discussion of Titleist’s marketing objectives and target markets and converge into a recommended marketing program. Finally, we will discuss critical success factors in light of our recommendation. Titleist’s Marketing Objectives As is the case with most market-oriented firms and brands, Titleist seeks to develop a set of processes to create and communicate value to its customers. With above-average competency in marketing, Titleist’s parent company, Fortune Brands, has devised a framework for innovation that affords considerable latitude to its portfolio companies. As a conglomerate, Fortune Brands has attained success by effectively balancing a diverse group of brands across its spirits, home/hardware, and golf segments. It’s not surprising that Fortune Brands would delegate marketing responsibilities to each portfolio company. This practice allows for specialization and enables keystone brands like Titleist to assume responsibility for managing their own marketing programs. It ensures uniqueness among vastly different product lines and fosters strong feelings of ownership within the Titleist marketing organization. If Fortune Brands attempted to control the marketing activities of their individual brands, it would likely erode brand equity because strategies would become commoditized. While the current structure (in which individual brands market their own products and services) may not be the most cost-effective for Fortune Brands, there is a strong lineage of positive financial returns to support this practice. Page 32 of 40
  • 33. While Fortune Brands has an isolated approach for marketing its products (similar to the way ConAgra Foods might market its diverse food holdings), this does not mean that companies within the same segment can not form alliances to co-market products.55 Traditionally, within the golf ball business, Titleist has not explored these possibilities due to its paramount individual success. However, within the golf club business, Titleist partnered with Scotty Cameron (one of Fortune Brand’s four other portfolio companies) to develop specialty putters. Cannibalization concerns within the golf ball business have likely compromised co-marketing efforts for Titleist. For high end Titleist golf balls, a maturing product class, the marketing strategy has included well-timed new product launches, plentiful professional sponsorships, a series of television and print ads, and more individualized pursuits such as the Titleist Performance Institute. In keeping with the times, Titleist has also gone tech by catering to the internet- savvy with its Tour Blog and visually attractive website. In the short term, it may be tempting for Titleist to get caught up in chasing profits. However, as the leading brand in a saturated market with relatively undifferentiated products, Titleist is likely to do more harm than good by capitulating to a volume-focused strategy. Maintaining quality and re-branding products with stagnating sales have been two effective tactics for Titleist. Continued growth in the golf ball business will be hard to come by in future years. Sales appear to have peaked in the early 2000’s and a variety of factors seem to be decreasing the demand for golf equipment. Consistently delivering a top of the line product and maintaining brand equity commensurate with the Titleist image is fundamental for Titleist. Current Brand Targets As we established in Part 2 of our analysis, we believe that Titleist’s target market aligns with a group of people that share a similar set of beliefs and attitudes. Attitudes transcend many boundaries and help Titleist reach their ideal consumer – someone who is adventurous, ambitious, goal driven and has a positive outlook on life. These characteristics are important because individual attitudes toward a product are more powerful than the physical or socio-economic position of the individual. Our conclusions are further supported by a 2006 publication by MarketResearch.com which describes the customer as, 55 For example, Fortune Brands golf segment also includes: FootJoy – the #1 shoe and glove in golf, Pinnacle – a value conscious golf ball, and Cobra – high performance golf clubs. Page 33 of 40
  • 34. “those who played/participated in golf regularly or occasionally, showed a higher inclination towards taking risks, have a keen sense of adventure, and pursued an active lifestyle and interested in physical fitness.” The publication also noted that “regular and occasional golfers were highly skewed towards quality products as is evident through the strong inclination towards paying extra for quality goods.” 56 New Target Markets As the leading player in the golf ball market by a long shot, it is very difficult for Titleist to acquire additional market share. A crude analysis of Titleist’s marginal cost of advertising to obtain one additional customer, relative to the marginal profit that one additional customer will contribute demonstrates the high cost of reaching out to new demographics. Television advertisements can cost upwards of $30 million and unless careful placed, and brilliantly produced, can erode profitability. In the last five years, the game of golf has received publicity throughout the nation as more than just a country club sport. Admittedly, many people could be pigeonholed into Titleist’s core attitude profile, but the classic demographic has always been overwhelmingly white, male and well-educated. Careful consideration of the broader golf market and emerging trends suggests that there is still room to grow. People young and old of all different economic statuses represent new targets for Titleist. Developing a ball specifically with the unique needs of children in mind has the potential to create lifelong Titleist customers, particularly if their parents are already connoisseurs of the brand. There are few barriers to entry into new markets for the darling of premium golf balls. Capturing new targets will require Titleist to keep up their aggressive advertising scheme as well as their brand reputation. Seasoned golfers know that the Titleist brand signifies the best quality at the best price. When novice golfers solicit ball recommendations at pro shops, Titleist must continue to come up in conversation. Status quo, this reputation is carrying the brand and will undoubtedly be the driving force as Titleist tackles new and non-traditional markets. Staying on top of trends will allow the brand to attain new commercial success. Functional Points of Difference 56 “The US Market for Golf Equipment.” Packaged Facts, a Division of Market Research. Feb 2006. Pg 20, 75. Page 34 of 40
  • 35. Titleist’s golf ball offerings are tiered to meet the needs of different levels of golfers ranging from recreation to professional. Despite technological differentiators between products, Titleist golf balls maintain characteristics consistent with best-in-class performance. • High quality – All designs are crafted for an individual’s needs. Whether that is to attain distance or improve putting alignment, they each have the same goal: to advance golf performance. • Reliability and Durability – Made with top quality material, every Titleist golf ball is replacement guaranteed. Each ball is uniquely designed with next generation products to offer the consumer the absolute best. Emotional Points of Difference While Titleist offers strong functional points of difference, the brand offers an equally resilient emotional attachment to its customers. Boasting a powerful pipeline of professionals who use Titleist golf balls, the brand helps amateurs aspire to higher standards for better play. The use of high-touch internet- based communication channels has created a community of golfers with a passion for the game and an outlet to entertain that zeal. • Professionalism – At present, Titleist is the ball sponsor for an impressive roster of 50 players including Vijay Singh, Adam Scott, Steve Stricker, and Davis Love III. • Community – The company webpage features an interactive Tour Blog, and links to the Titleist Performance Institute. The Tour Blog allows enthusiasts to stay up-to date on the latest golf news and current player rankings. The Titleist Performance Institute offers an exclusive membership to Titleist customers and bills itself as the “largest collection of golf-specific health and fitness information from the world’s leading experts in the game.”57 Positioning Statement With continuous development of next generation products, Titleist forms “unparalleled relationships with Professional Golf Association professionals who serve as the game’s ambassadors to 57 “What is my TPI?” Accessed at http://www.mytpi.com/joinMYTPI.asp on 23 September 2007. Page 35 of 40
  • 36. millions of recreational players.”58 For golfers of all levels, Titleist is the leading brand of golf balls providing proven performance and unmatched prestige. Recommended Product Strategy In early 2005, Titleist brought their current golf ball offerings to market. As outlined in Part 1 of our analysis, these five balls include the DT SoLo, NXT Extreme, NXT Tour, Pro V1, and Pro V1x. The DT SoLo has been the ball of choice for recreational golfers worldwide for over thirty years. It is the most affordable selection of the product line at $28 per dozen. Despite being an economically- minded ball, it boats several advanced features including high lift to help maximize flight distance with “average and moderate swing speeds seeking the ultimate combination of distance with soft feel and guaranteed cut-proof durability.”59 The DT SoLo is known as the “Feel Good Ball.” Recent upgrades to the DT have made the ball capable of getting between six to sixteen additional feet at swings between 100-160 miles per hour. We recommend that Titleist continues to position this ball as a high grade golf ball at a low price. As the company goes after new demographics, it is likely that this is the ball they will be most successful with due to its low price. The NXT Extreme was designed to attain distance without sacrificing “soft feel and greenside playability.” Selling at $34 per dozen, Titleist sends its customers a clear a message that the NXT is a cut above the SoLo. The NXT Tour takes the NXT Extreme design a step up. It is designed for average to highly skilled golfers who seek high performance control without sacrificing soft feel and long distance. This model has both an inner and outer polybutadiene core and fusablend cover with 392 dimples with a market price of $40 per dozen. Because this ball shares a prefix (NXT) with the Extreme, we encourage Titleist to consider an ad campaign which articulates to golfers what the differences in the two models are, given the $6 price differential. The Pro V1 and ProV1x lines are the most popular among the 58 Form 10-K for the Fiscal Year ended December 31, 2006. Fortune Brands. Accessed at http://edgar.sec.gov on 15 September 2007. Page 13. 59 Titleist DT SoLo. Accessed at http://www.titleist .com/golfballs/dtsolo.asp on 23 September 2007. Page 36 of 40
  • 37. professional crowd. As Titleist’s most advanced golf ball, the company uses prestige pricing at $58 a dozen. Featuring an Alignment Integrated Marking (A.I.M.) sidestamp to improve putting alignment, the Pro V1 offers long, consistent distances when hit with drivers and irons. Around the green, the Pro V1 boats and “Drop and Stop” control. The Pro V1 is the most durable of all Tour-played Titleist golf balls and is characterized by a black “1” under the logo.60 The “x” marked counterpart of the Pro V1 differentiates itself with 332 dimples and higher short game spin due to its urethane elastomer cover. For most players, the Pro V1x will be longer off the tee than the Pro V1.61 We recommend that Titleist fully leverages its network of professional players in promoting the Pro V1 and Pro V1x. These opinion leaders have tremendous influence within their sport and can likely further the brand image on the cheap for Titleist since the relationships have already been established. Product Packaging Product packaging correlates to the five product offerings. On all packages, minimal wording explains the standard features. Every package is marked with the slogan, “#1 ball in golf.” While Titleist offers five golf balls on a pricing a tier, each ball’s pricing is captured in its packaging. For example, the DT SoLo is the classic and most affordable ball of Titleist and its package mimics this description with red and blue American colors. In contrast, the most elite golf balls offered by Titleist, the ProV1 and ProV1x, are packaged in glossy gold and platinum boxes. The glossy finish provides a first class feel, making customers feel as if they are purchasing an object that compliments their golfing style and abilities. Promotional Mix Titleist has taken on numerous different marketing initiatives in recent years. The 2005 launch of the DT SoLo, NXT Extreme, NXT Tour, Pro V1, and Pro V1x were met with trial displays, trade presentations, point of sale materials, launch packs and in-shop signage. Titleist was very focused on product penetration. A recent visit to the Titleist website showed that Titleist was offering personalized 60 Titleist ProV1. Accessed at http://www.titleist.com/golfballs/prov1.asp on 23 September 2007. 61 Titleist ProV1x. Accessed at http://www.titleist.com/golfballs/prov1x.asp on 23 September 2007. Page 37 of 40
  • 38. golf balls for the holiday season. Custom imprinting allows other businesses to design specially-marked balls and packaging for important events and occasions. This is one of the latest creative efforts on the marketing front and allows Titleist to gain additional brand exposure by working with other companies. In establishing this new custom imprinting business, Titleist is sending the message that they want to be there for all of life’s important milestones. Titleist communicates with their consumer through network television and magazines. As emphasized in the chart below, nearly 99% of the advertising done by Titleist is through these two channels. This is because it is both economically and strategically easier to target potential customers through these two medians. Titleist will reach more consumers through golfing magazines than through sending out pamphlets in the mail. Because most golfing events are nationally televised it is convenient for Titleist to advertise during open commercial slots. The US Masters also brings a big target market to the TV to view Titleist advertisements. The message that Titleist sends to the consumer by spending so much on network TV is that Titleist is inseparable from the sport of golf. Methods for Effective Distribution Titleist relies on a distribution network including pro shops, sporting good stores, and mass merchants throughout the United States, Canada, South Africa, and parts of Europe and Asia. Maintaining a direct to retailer strategy will help Titleist combat problems with counterfeit balls and Page 38 of 40 Titleist Ads by Source Figure 3a – Titleist relies on magazine and network television advertisements as part of its promotion strategy
  • 39. questionable sourcing. As direct to consumer online retailing has recently gained momentum, Titleist should consider offering their golf balls on their website. Pricing Strategy Titleist is a top-tier brand, yet one which is well within reach for most golfers. With five unique golf balls to align with the different needs of its core customer groups, Titleist uses price lining among their five golf balls, and at the top tier, employs prestige pricing. At the low end ($28), customers laud the inherent value of the Titleist name. The high end ($58) golf balls have a proportionately higher number of special features for very skilled golfers. Because Titleist is in the broader golf business as well, they may be inclined to use product-line pricing in tangent with their golf clubs and apparel. However, because Titleist has been unequivocally associated with being the market leader in golf balls for so long, golf balls would retain their historically dominant role in a product-line pricing scheme despite higher margins on related products like golf clubs. Critical Success Factors As we’ve established in this final installment of our analysis, Titleist’s objectives include maintaining market share and brand perception, and staying ahead of the technological curve. Success will follow naturally as new target markets emerge and well-prepared companies like Titleist are opportunistic about them. As Jim Collins suggests in his bestselling book, Good to Great, the hallmark of “great” companies includes having an accurate perception of reality, a passion for a product, and a respect for innovation. These concepts are pivotal for Titleist in its transition from a growth brand to mature company. Embracing the hard truths – that industry sales are flattening and profits may decline, will force Titleist to think carefully about how it allocates resources to new and existing marketing initiatives. For nearly 75 years, Titleist has been the undisputed leader in golf balls by remaining focused on its core competencies and committed to developing customer loyalty. This strategy has worked for decades as the sport of golf gained prominence but comes with the continued challenge of sustaining growth in the face of industry stagnation. Going forward, Titleist must tread along responsibly in their Page 39 of 40
  • 40. quest of being the best in technologically advanced golf balls so as not to engulf all of their resources. Instead, they must perform careful due diligence on what technologies have the highest probability of delivering the biggest payoffs at the lowest economic price. A metaphoric win for the Titleist brand won’t happen on the golf course. While victories on the PGA Tour definitely help raise awareness for the brand, higher-level success will be measured by small percentage gains on seasonally-adjusted sales each fiscal quarter. Understanding the dynamics of their industry and its customers while upholding a tradition of being the “#1 ball in golf” will ultimately allow Titleist to maintain market share and brand perception for many more years. Page 40 of 40