Product development has historically been successful through cross-integration of departments, and with exceptional customer service they have enjoyed significant market share, a strong brand name and, apart from 1998, continued profits. With this formidable brand name they would certainly have reason to believe that they would "have almost a guaranteed "try" on (our) new products," and with their present financial status are definitely in a strong position for some sort of growth.
It seems CGC is restricting itself to the top-end of a market which it once dominated. Now the top end of the market is increasingly congested CGC is being pushed into being a top-end "niche" marketer, and have loss mass market appeal. It is a large, undiversified business that is currently neglecting other potential markets, hence with ever increasing competition, needs to be at the forefront of innovation to stay ahead which has meant spending more and more each year on R&D. It has backed its future on the large margins in the golf ball industry, but there is no certainty in this strategy. .
A "Five Forces" analysis (see Appendix D) shows that there are two favourable "forces" in this industry: the low bargaining power of suppliers (since it is easy for CGC to switch from one supplier to another,) and small threat of new entrants because of the technical complexities of the market.
There are, however, 3 unfavourable forces which dominate that show that the golf equipment industry is not very attractive at this point in time - a worrying situation for CGC who is heavily invested in this market. These forces include: a high degree of rivalry amongst competition; the high bargaining power of consumers who can easily switch from brand to brand; and the ever increasing threat of substitute products from competitors, both legal and illegal.
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3. Problem Identification.
CGC's greatest strategic issue is the dramatic increase in R&D, COGS & S,G&A expenses as compared to sales and revenue (refer to Appendix B) from 1993 to 1999, and the associated decreases in Return on Equity and Share Price that the shareholders have witnessed.
