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Callaway
Golf Company
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Callaway Golf Company’s competitive strategy was rooted in Ely Callaway’s philosophy that true long-term success comes from innovative products that are "demonstrably superior to, and pleasingly different from" the products offered by industry rivals. Ely Callaway believed that due to the difficulty of the game of golf (there was tremendous room for variation in each swing of the club and for off-center contact with the ball), serious golfers would be willing to invest in high-quality, premium-priced equipment, like the Big Bertha driver and the titanium Great Big Bertha driver, if such clubs could improve their game by being more forgiving of a less-than-optimum swing. Since the introduction of Callaway’s S2H2 line of irons in 1988, the company had sought to develop, manufacture, and market the most technologically advanced golf clubs available. In addition, Richard Helmstetter and his team of engineers sought quantum leaps in club performance, rather than incremental improvements, with each new line of clubs introduced by the company.
Callaway Golf Company’s ability to develop "demonstrably superior and pleasingly different" golf clubs was a result of activities performed by the company throughout its value chain. Callaway’s differentiation was achieved through both its unique value chain and through its ability to out-execute its rivals where value chain similarities existed.
Product Development and the Helmstetter Test Center When Ely Callaway purchased Hickory Stick USA he believed strongly that developing "demonstrably superior and pleasingly different" golf clubs would be more closely related to the company’s physics-oriented R&D than would a focus on cosmetics. Richard Helmstetter and his engineering team were critical to the execution of Callaway’s competitive strategy. As of 2000 Callaway Golf had consistently outspent its rivals on R&D. In 1999 alone, the company spent $27 million on research and development related to its golf club business—more than most of its key rivals’ combined R&D budgets. The company’s R&D efforts allowed it to continually beat its competitors to the market with new innovations. Callaway’s engineers developed the first oversize driver in 1990, were the first to make clubheads even larger by using titanium, and were the first to use a combination of materials (titanium and tungsten) in clubhead design.
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Callaway Golf opened the Richard C. Helmstetter Test Center in 1994 to support its research and product development efforts. The test center was located about a mile from Callaway’s main campus and included a laboratory and a golfing area. The test center laboratory was home to Helmstetter’s engineers, who worked both on teams and individually to develop new models of clubheads and shafts. Callaway’s products were designed on powerful workstations running computer-aided design (CAD) software similar to that used in the aerospace industry. The CAD software allowed engineers not only to design new clubheads and shafts but also to conduct aerodynamic and strength testing in a simulated environment. Actual physical models could be created from the computer-generated images through the use of numerically controlled systems. The center’s "destruction and durability" laboratory used robots and air cannons to establish minimum thresholds of strength and durability for prototypes of new models of clubheads and shafts.
The club-fitting and specifications area of the test center used the company’s Callaway Performance Analysis System to match equipment to a golfer’s swing characteristics. The internally developed proprietary video and computer system used stereo imaging techniques to capture a sequence of eight multiple exposures of the clubhead and ball at various time intervals immediately before and after a golfer hit the ball into a net approximately 10 feet from where it was struck. Callaway’s proprietary computer software analyzed the video images of the clubhead’s approach to the ball and the ball’s rotational patterns over its first few feet of flight to make a variety of calculations needed to project the ball’s ultimate path. The projected path was displayed on a six-foot video screen that showed the ball’s flight along the 18th fairway at Pebble Beach. The computer system also recorded the clubhead speed, ball velocity, side spin, back spin, attack angle, and launch angle to calculate the efficiency rating, carry, roll, total distance, and dispersion (deviation from a straight path). All of these statistics were projected on the screen, along with the image of ball’s flight down the fairway. The equipment allowed the company to build a set of clubs for the touring professional that had the perfect swing weight, frequency, loft, lie, and length to maximize distance and accuracy.
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The Helmstetter Test Center’s golfing area was an 8.1-acre outdoor testing facility that included three putting and chipping greens, a deep pot bunker, a shallow fairway bunker, and a 310-yard fairway that was 80 yards wide at its narrowest point. Sensors located along the fairway recorded the distance and dispersion of any ball landing in the test area. Atmospheric conditions, such as wind speed, direction, temperature, barometric pressure, humidity, and dew point were recorded by three weather stations located around the test site. The facility also included an artificial tee box and green that accurately simulated a real green. Ball reaction on the simulated green was almost identical to that on the other three greens and allowed the company to continue testing while the natural test site was being irrigated or mowed.
The Helmstetter Test Center had two primary uses: It provided an ideal place to custom-fit clubs for the touring pros who used Callaway equipment, and it allowed Callaway R&D staff to test new products during their developmental stage. Once a professional’s new clubs were fitted using the video and computer capabilities of the Callaway Performance Analysis System, the touring pro could then use the golfing area to hit balls and fine-tune his or her clubs by requesting minor modifications to the clubhead or shaft. Callaway included nontouring professionals in addition to engineers among its R&D staff. The golfing staff was critical to the product development process since engineers were able to refine new prototypes based on the feedback and recommendations of Callaway’s R&D staff golfers. Callaway’s engineers also tested prototypes with robots to evaluate the distance and accuracy of the club, but only a human could evaluate the feel of a golf club striking a ball.
Callaway’s Purchasing and Production Processes Once its clubheads were designed on a CAD system and tested in the Helmstetter Center, stainless-steel master plates were cut by Callaway to the exact specifications called for by the system. Each clubhead mold was made by pouring liquid wax between the stainless-steel master plates. The wax clubheads were removed from the master plates and sprayed with a mixture of highly heat resistant material. The wax was melted out of these heat-resistant molds, leaving a hollow core. The hollow molds were then sent to an investment casting house, where either stainless steel or titanium was poured into the molds. The casting house then broke away the mold and welded, sanded, and painted the clubheads before sending them to Callaway for further assembly.
Callaway Golf used five investment casting houses, all of which underwent extensive screening and were closely monitored during the casting process. Callaway management believed that it was particularly important to supervise the casting process since poor casting could produce clubhead inconsistencies that could lead to poor performance or product failures. Callaway had entered into a joint venture with Sturm, Ruger & Company in 1995 to produce its clubheads but had since recognized that quality clubheads could be obtained through outsourcing. Even though Callaway Golf was certain it would obtain high-quality clubheads through its sourcing agreements, it made daily inspections of incoming clubhead shipments using the materials analysis and durability-testing capabilities of the Helmstetter Center.
Like Callaway’s clubheads, all of its shafts were designed and tested at the Helmstetter Center. Callaway manufactured all prototype shafts by hand at the testing center but contracted shaft production out to independent shaft manufacturers once specifications were established for the various graphite shafts used in its product line. As with clubheads, shafts were drawn from incoming shipments and tested at the company’s R&D facility. Steel shafts were contracted out and inspected in a similar fashion. Callaway had produced as much as 50 percent of its graphite shafts internally during the late 1990s but outsourced 100 percent of its shaft requirements in 2000.
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Callaway Golf’s cell manufacturing process allowed the company to include quality control inspections throughout each club’s assembly . In addition, the assembly plant was highly automated, with all processes requiring very tight tolerances performed by computer-controlled machinery. For example, the drilling necessary to produce Callaway’s tapered bore-thru hosels was done by a series of precision drill presses that ensured that each hosel was drilled at the correct angle. Once the hosel had been drilled through, the clubhead moved to a production station that checked the lie and loft angles of the club and made any necessary corrections by slightly bending the clubhead to the proper angle.
Each shaft was inspected for fractures prior to insertion into the clubhead, and then the entire assembled club was weighed to assess the swing weight. Callaway production workers could choose between medallions of four different weights to bring a finished iron to the exact specified swing weight. The chosen medallion was permanently affixed to the back of the clubhead with a press. Swing weights for assembled woods were brought to their specifications by inserting epoxy through a small hole in the rear of the clubhead.
After undergoing a baking process that dried the glue used to attach the shaft to the clubhead, each club was fitted with a grip using a laser alignment device, airbrushed with details like the club number and Callaway trademarks, and then visually inspected for blemishes or other imperfections. Each finished club was wrapped by hand to protect its finish during shipping.
Sales and Customer Service New product development at Callaway Golf Company was a cross-functional effort that included not only the R&D staff but also the company’s sales and advertising staffs. Callaway sales and advertising personnel would evaluate new designs created by the company’s aerospace engineers and recommend design changes based on their knowledge of the market. Once a new design was settled on, Callaway’s sales force and internal advertising staff would create a name for the new product line, an advertising campaign, and promotional materials that would accompany the product launch in parallel with the R&D staff’s developmental and testing processes.
Callaway’s customer service department was viewed as a critical component of the company’s overall level of differentiation. The customer service staff was made up of experienced employees who were offered a generous compensation package that included commissions for superior performance in meeting the needs of Callaway’s retailers and consumers. Many of Callaway’s rivals viewed customer service as a low-value-adding activity and typically made customer service a place for entry-level employees to become acquainted with the business. Each of Callaway Golf’s customer service representatives received eight weeks of training before being allowed to handle a customer service inquiry. No other company in the industry provided more than three weeks of training to its customer service personnel. In addition to providing extensive training, Callaway promoted a team-oriented atmosphere that allowed the company’s knowledge base to expand through the mentoring of newer employees by longtime customer service employees.
The entire customer service staff was empowered to make a final decision regarding a consumer or retailer complaint or warranty claim. Callaway customer service personnel were allowed to make decisions that might be pushed to the CEO at some other golf equipment companies. For example, if a golfer was vacationing and had a problem with a club, a customer service staff member could instruct the consumer to visit a local retailer to pick up a replacement club. If the consumer was out of the country and was not near a Callaway retailer, the Callaway employee was allowed to send a new club to the customer via Federal Express. Callaway customer service staff members were also known to send a gift to club owners who had experienced problems with Callaway equipment. Callaway’s two-year warranty on all of its products entitled the owner to replace any defective product with a new product rather than return the product for a repair. In addition, Callaway generally chose to replace defective or broken clubs for the life of the club rather than stick to its two-year warranty period. A Callaway sales executive remarked, "A bad experience with a Callaway product usually winds up making someone a Callaway customer for life."
Metal Woods Callaway Golf’s Big Bertha driver was the most innovative club in the industry when it was introduced in 1990. Its key features were a bigger clubhead, a bigger sweet spot, and a longer shaft, all of which helped to improve the consistency with which a golfer could drive the ball off the tee. Callaway wasted no time in capitalizing on the explosive popularity of its new driver; company managers understood that once a driver developed a following among golfers, these golfers usually wanted other woods to match it. The company subsequently introduced a series of fairway woods—a 2 wood, a 3 wood, a 5 wood, two styles of 7 woods, a 9 wood, and an 11 wood—to complement the Big Bertha driver. Many golfers rushed to buy not only the Big Bertha driver but also the company’s other Big Bertha metal woods; it was common for Big Bertha enthusiasts to have three or four of the Big Bertha fairway woods in their bag.
Four years later, the company again moved to set itself apart from rival equipment makers (most of whom had by then come out with imitative versions of the Big Bertha line) by introducing the Great Big Bertha driver, made out of strong, lightweight titanium. The driver had a clubhead 30 percent larger than the original Big Bertha driver but was still just as light because of the substitution of titanium for stainless steel in the clubhead and the use of a graphite shaft; the Great Big Bertha (GBB) was the industry’s most technologically advanced golf club and retailed for $500 (a heretofore unheard-of price for a single golf club).
Callaway’s introduction of its titanium Biggest Big Bertha in 1997 again caught industry rivals off guard as they moved to match the size of the GBB. The Biggest Big Bertha (BBB) was 15 percent larger than the titanium Great Big Bertha (and the titanium clubs produced by Callaway’s rivals) and was equipped with a 46-inch lightweight shaft. The total weight of the BBB was less than the total weight of the titanium GBB and the stainless steel Big Bertha drivers, which had 45- and 44-inch shafts, respectively.
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The size of Callaway woods began to decrease with the introduction of its Big Bertha (BB) Steelhead metal woods in 1998 and Hawk Eye titanium metal woods in 1999. The BB Steelhead line was created in response to the popularity of the shallow-faced woods introduced by Orlimar and Adams in 1998. BB Steelhead drivers and fairway woods had a lower center of gravity than GBB and BBB woods, but had a higher profile than Adams and Orlimar woods. The BB Steelhead line incorporated the best features of both competing club designs by maintaining a very low center of gravity but having a larger clubface, which prevented the golfer from hitting below the ball, as was frequently done by amateur golfers using shallow-faced woods.
The BB Steelhead Plus was introduced in January 2000 as an improvement to the BB Steelhead line of drivers and fairway woods. Like the BB Steelhead line, the BB Steelhead Plus included a precision-cast steel chip to lower the club’s center of gravity but featured variable clubface thickness that optimized energy transfer between the clubhead and the ball. Callaway’s Variable Face Thickness Technology, developed through computer modeling and player testing, allowed the company to vary the clubface thickness to maximize perimeter weighting while keeping an elliptical area near the center of the clubface relatively thick. This thickness directly at the sweet spot of the clubface provided more energy transfer when a ball was well struck, while the perimeter weighting and thin walls near the outside edges of the clubface provided more forgiveness if a ball was mis-hit. Callaway’s BB Steelhead Plus metal woods and its Variable Face Thickness Technology are described in the Callaway print ad shown in Exhibit 7. Callaway’s Great Big Bertha Hawk Eye titanium drivers and fairway woods featured a titanium body and crown plate and Callaway’s exclusive tungsten gravity screw, which accounted for only 2 percent of the clubhead volume but 25 percent of its overall weight. The lightweight titanium clubhead body and crown plate allowed Callaway to increase the overall size of the driver and the sweet spot, while the tungsten screw performed a number of functions. First, the use of tungsten low in the club created a low center of gravity, which helped the golfer produce a high trajectory.
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The tungsten screw also was strategically positioned in the sole of the clubhead to create Callaway’s Draw Bias Technology, which drew the clubhead square at impact and reduced the likelihood of a slice. The tungsten screw also increased backspin, which helped produce greater distance . Exhibit 8 presents a print ad for Callaway’s line of GBB Hawk Eye metal woods. (Real Video for 56K, Real Video for LAN)
IronsTo capitalize on the initial popularity of the Big Bertha metal woods, Callaway Golf introduced lines of stainless-steel and graphite-shafted Big Bertha irons in 1994. In 1997 the company introduced Great Big Bertha tungsten-titanium irons, which included a tungsten insert located in the sole of the club that lowered the clubhead’s center of gravity. The use of titanium allowed Callaway to increase the overall size of the clubface, creating a larger sweet spot, while the tungsten insert allowed Callaway to keep the center of gravity low and add weight to the sweet spot. This low center of gravity and concentration of weight in the sweet spot allowed the irons to hit higher, straighter shots.
Callaway’s Hawk Eye
tungsten-injected titanium irons, introduced in 1999, included innovative design
improvements over the original GBB tungsten-titanium irons. The Hawk Eye titanium
irons included a hidden cavity that ran the length of the clubhead and extended
upward behind the hitting area. Small, uniform tungsten spheres were added by
a computer weigh station to the cavity through a port and then covered with
a dense molten metal to permanently lock them into place. Each iron contained
a different number of spheres depending on the optimal center of gravity for
the loft of the club. Once the appropriate number of tungsten spheres and the
molten metal were added to the clubhead, the weight port was hidden by a Hawk
Eye medallion. 
The
Tungsten Weight Matrix that resulted from the addition of the spheres occupied
only 27 percent of the volume of a Callaway Hawk Eye 5-iron yet accounted for
45 percent of the clubhead’s weight. The weight matrix created a low center
of gravity that acted much like the gravity screw used in Hawk Eye metal woods
and allowed golfers to create a high shot likely to maintain a straight path
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Callaway Golf replaced its stainless-steel Big Bertha irons in 1998 with its Big Bertha X-12 irons. The X-12 line of irons included a number of improvements over the Big Bertha irons and became the best-selling iron in the company’s history. The X-12 line featured a narrower sole than Big Bertha irons, which made it easier to hit shots out of the rough. Big Bertha X-12 irons also had a multilayer design effect on the back of the clubface that allowed Callaway designers to locate the center of gravity at the ideal location for each length iron. The introduction of a variable 360-degree undercut channel also aided Callaway engineers in placing the center of gravity at the best possible location on the clubhead.
Callaway
replaced the X-12 line of irons in 2000 with the Big Bertha X-14 Steelhead line.
The X-14 featured Callaway’s Variable Face Thickness Technology, which tapered
the clubface from top to bottom and from heel to toe to create better perimeter
weighting than previous generations of Callaway irons.
The technology also allowed Callaway engineers to move the center of gravity
to the ideal location on each iron. For example, the X-14 short irons had a
higher center of gravity to provide extra control on approach shots, while the
midlength irons and long irons had a lower center of gravity to produce a higher
ball flight. Exhibit
9 shows a sample ad for Callaway Golf’s X-14 irons.
(Real
Video for 56K, Real Video for LAN)
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Putters Callaway Golf Company manufactured and marketed Bobby Jones, Carlsbad, and Tuttle lines of putters and the Odyssey brand of putters. Callaway had moderate success with its own Callaway putter lines, but its acquisition of Odyssey in 1997 made it the leading producer of putters in 2000. The 12 Bobby Jones putters and four Carlsbad putters were all made from stainless steel and came in blade and mallet styles. The Tuttle putter came in one model, which was unique in that it actually resembled a Big Bertha driver but was the size of a putter. Odyssey became known as an innovator in putters when it became one of the first companies to introduce polymer clubface inserts. Many golfers preferred putters with an insert since the soft material created a softer noise and provided more feel when putting a ball. Callaway’s Odyssey putter was one of the two leading brands of putter in 2000 (Ping and Odyssey regularly exchanged the number one title) and was available in 26 different blade and mallet designs. Each of Odyssey’s 26 models of putters featured its Stronomic polymer insert, available in three degrees of softness. In early 2000, Odyssey introduced its White Hot line of putters, which used Callaway’s golf ball material as a clubface insert.
Ever since the Big Bertha driver had gained mass acceptance by professional and amateur golfers, Callaway Golf had been attacked by small golf companies offering clubs that were so similar in design and appearance that they infringed on Callaway’s patents and trademarks. Although they looked like the branded clubs, the knockoff clubs were of inferior quality and typically sold for as much as 75 percent less than name-brand clubs. Some knockoff brands outsold the brands offered by such well-known makers as Hogan, Cleveland, and MacGregor. Callaway Golf was extremely committed to battling the makers of knockoff and counterfeit clubs. The company hired a retired U.S. Army counterintelligence expert to investigate trademark infringement cases and also worked in this area with private investigators, U.S. Customs, and U.S. marshals. In early 2000, Callaway Golf carried out a four-state sweep against illegal club makers that netted $65,000 worth of Callaway golf clubs that had been stolen and were being sold over the Internet; officials seized 5,800 golf clubs, including Canterbury Big Bursar V-17 irons and Connection Golf Big Bernard Steelclad metal woods. However, even when patent infringers and counterfeiters were caught and convicted, it was difficult to collect damages because such companies usually had minimal assets to seize.
Callaway Golf also aggressively protected its legal rights when it believed that a branded rival infringed on its patents or made false claims about either its own products or Callaway’s products. In 1998 Callaway brought a suit against Spalding Sports Worldwide for trademark violation after Spalding created a line of System C golf balls and claimed they were specifically designed for Callaway clubs. The two parties settled in 1999, with Spalding agreeing to pull the line of golf balls. In addition, after a legal challenge from Callaway, Orlimar Golf was ordered by the court to retract advertisements falsely claiming that it was the number one metal wood used on the PGA tour. In 1999 Callaway Golf saw that the vice president of Callaway Golf Ball Company could in no way be involved with Taylor Made’s golf ball operations after the Callaway employee left with company trade secrets to become Taylor Made’s president and CEO. Callaway Golf also forced an apology from the CEO of La Jolla Golf after Callaway found that La Jolla’s chief executive had used a fictitious name to make untrue and disparaging remarks about Callaway golf clubs on the Internet.
Callaway golf clubs were popular with both professionals and amateurs alike. Callaway drivers were endorsed by the professional golfers listed in Exhibit 10. However, many professional golfers used Callaway equipment even though they were not paid to endorse the company’s products. In 1999 Callaway drivers were used in 61 wins, Callaway irons were used in 37 wins, and Odyssey putters produced 36 wins in a total of 186 PGA, LPGA, Senior PGA, Nike, and European PGA professional tournaments. A comparison of clubs used by professionals in all five tournaments is presented in Exhibit 11.
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Callaway
Golf Company
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