This case study is about Altius Golf. Altius Golf may be the clear leader in the baseball market despite the fact that there has been a decline in the amount of golfers and a drop in sales following a financial meltdown. Altius Golf still maintained its good position in the market by introducing generations of higher level, top quality tennis balls that allow their clients to copy professional golf players. The business suffered a loss because of competition who had been cutting the prices down and the Chief Executive Officer really wants to introduce a fresh program called Elevate to foster another generation of golfers.
With the introduction of Elevate, Altius Golf will introduce a ball that's smoother and better to drive for long distances and provide it at a cost 40% below the business's flagship product. Elevate will undoubtedly be available through "off the course" channels such as for example golf specialty stores and big box retailers rather than "on the course" professional shops where in fact Altius Golf sells its products and services.
The board of directors is divided on whether to go with this decision or against it. Quantitative analysis of the CEO's proposal may be performed to comprehend the potential risks and gains prior to making the final recommendation. The whole dilemma ultimately takes the form of a great learning exercise.
Altius is a leading manufacturing of Golf balls that is facing a long-term decrease in the quantity of golfers and immense drop in contracts coming about because of money-related crisis. The firm has consolidated new eras of cutting edge, super-premium golf balls that permit clients to copy proficient golfers. Due to highly cost products and the lack of innovation, the organization has been losing the piece of the pie to its opponents. The CEO in this way needs to dispatch another item called Elevate to encourage the up and coming era of golfers.
With Elevate, the firm will present a ball that is all the more sympathetic and simpler to drive for separation and offer it at a cost 40% below the organization's flagship brand. Elevation will be accessible through the channels, for example, golf strength stores and huge box retailers rather than the expert shops where the firm commonly offers its items. The top managerial staff is partitioned on whether to encourage the choice or not.
What has been Altius Golf’s distribution strategy to date?
The company is using on-course distribution strategy in which they focus a number of professionals and they buy from the pro-shop directly from the firm, it is also called an selective distribution strategy, in which only one distributor, retailer and wholesaler is involved that trade in their particular geographical area. It is the most common strategy that gives high prestigious image and highly priced product.
Therefore, the company is introducing its new product as elevate Golf ball and they are making plan of using the off-course strategy, which typically sells its products by golf specialist and big box retailer as they convey effectively the features of the product.
(a) Why have they lost market share? Make sure to define the ‘loyalist’ customer segment. Is this segment growing or declining?
During the recession trend from 2008 to 2010, the whole golf market seemed to be in declining trend, which represents that the company’s golf ball products which were charged as high priced as compared to its competitors led them to suffer from short units sold.
The case shows the main reasons that led to decline in the sales, it includes:
In the 2008 recession period, the consumer survey shows that the customers had cut down their spending on the purchase of golf balls, which affected badly in the golf industry.
The USGA is very particular for the production of the golf ball in terms of its size, shape, and its material, which showed reasonable effects to the company's goodwill for not following the USGA regulations.
The company's as well as the industry analysis shows that the professional experts were declined during the recession period.
Altius’ price in the market was much higher than its competitors that results in new golf players were not ready to buy the expensive golf balls.
These above main issues elaborate that the company is losing its market share because of the highly competitive market. The company is now trying to produce golf balls and equipment, which would be highly comfortable and easy to use that will help them to move along with the industry trend.
The comfortable golf balls will help the new golf players to hit the bang as they require. The company is producing the golf balls for also the professional players, but the survey shows that after the recession professional golf payers had been declined so as the revenue of Altius is declined.
Altius’ distribution marketing position is very unusual, which is based on the number of matches won by its golf balls as well as it offers expensive balls as compared to its competitors, where customers think twice to spend money on the purchasing of high priced balls. This results in following results:
35% of outside customers quoted cost factor for not buying their balls, and 20% of current customers blamed non-confirming ball.
Based on the USGA survey, after the recession 6% children and 23% women had quit playing golf ball and investments in the industry fell by 40%.
Two main rivals of Altius are: Primera and Meridian; both the companies gained market share by adopting the cost effective strategy.
What should the company’s objectives be? (15) (a) What are the trade-offs of maintaining the status quo vs. launching Elevate strategy?
The main objective of launching the elevate golf ball is to change the market strategy by decreasing the price and targeting to the professional golf equipments to its low cost and producing fun oriented golf equipment to attract the new golf players that will increase the profitability of the company. The company is now focusing to fulfill the USGA requirements that will provide relaxed rules of playing with the golf ball for new players. Therefore, it is the best time to introduce the elevate golf ball by extensive marketing strategy of low cost, which will help new golf players to throw the ball perfectly. This new elevate golf ball will be sold at the discount of 40% of its premium of the Victor TX brand that will help the company to attract the new customers.
The tradeoff of maintaining the current strategy will make the company outdated very soon, so it is better to introduce new golf ball to compete in the industry that will help the company to get the competitive advantage by not sticking to the previous status quo and also by entering in the market with not so costly product. This would result in the decrease in the profits by 70% of which 10% is utilized in the tradeoffs in order to achieve the recreational market. The long-term goal of the company should be to create the impression of the brand by producing high-quality products that motivate players to improve their performance.
The another tradeoff is used by considering the environmental factors that create the possibility of searching the lost balls and repairing them and selling them at the low cost with the high quality for those who are not willing to spend more on expensive golf balls. Altius is offering only the golf balls for the professional players, therefore launching of the elevate golf ball is a better idea at this time as the industry trends show the recession has decreased the number of professional players so the industry is trying to attract the new customers by offering them the low cost of golf balls.
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3. (a) What are Altius’ and its competitors’ 2012 revenue and gross profit? Use 2012 numbers to figure out what are each brand’s market share and profits.
The table shows Altius revenue in 2012was265.65 and its major competitors such as Primera and Bantam have revenue of about 72.45 and 5.06 respectively. Altius’ gross profit for the year ended 2012 is 676.20 and its competitors have the gross profit of 446.78 and 429.39 respectively calculation is shown in the excel file.
As per the 2012 data, the three main products of the Altius are Victor TX , Victor, and the new product is Elevator with the different prices of $48, $39 and $ 27 respectively. The retailer margin of each product is 15%, 15% and 20% which results in retailer margin of $ 7.2 million, 5.85 million and $ 5.4 million respectively. In 2012, the company's manufacturer margin was70% of Victor TX and Victor and 60% of the elevator of the golf ball sales with the amount of $ 483 million and it resulted in manufacturer margin of $33.6 million, $11.7 million and 10.8 million of three brands.
Therefore, the company has the highest revenue of 265.65 million though its sales were declined as compared to prior years better than its competitors. Its gross profit is 676.20, which is greater than its competitors such as Primera and bantam have the gross profit of $ 446.78 million and 429.39 million respectively with the highest market share of 55% of Altius, 15% of Premier and 17% of Bantam in the year ended 2012.
b. What is the break-even cannibalization rate between the Victor TX and Elevate?
The cannibalization shows the negative impact of newly introduced product of the company performance with respect to its existing product. This shows the impact on the market share and sales volume that will lead to investment in the new product but demand of existing product increases.
The cannibalization rate is calculated as the old product unit contribution divided by the old product unit contribution. The Unit contribution margin of Victor TX is $ 48 per unit and the unit contribution margin of the new product that elevates golf ball is $ 27 per unit. It resulted in the breakeven cannibalization rate of 56%. The percentage shows the sales of the new product that is used from the old product. This is the largest percentage; the company's maximum cannibalization rate should not be greater than 10% of an old product.
The Cannibalization rate of Victor and Victor TX that is acceptable for Altius from the increased sales of Elevate:
The table below shows the cannibalization rate of Victor TX and the Victor (as old products), which results in the 56% and 69% of the sales used in the new products. The Victor TX rate is acceptable from the increased sales of the elevate golf balls.
The value of a point of market share for Altius:
The below shows the total market value of Altius in units is 9.7152 million calculated as the unit sales of the industry (17.6 million) multiplied by the Altius market share that is 55.2%. The total market share of the company is calculated by its value of the sales of 2628 million which results in total market share in the amount of $ 1,450 million. The company is using the high price and small sales volume in its pricing strategy that has the large impact on the market share.
Based on your findings above, and the state of the market, should Altius implement the Elevate strategy?
The Altius should implement the Elevate golf ball strategy, as it is generating low profit as compare to other two products due to new product in the market and after the recession the Victor TX sales also decreased, so by considering its following main elevate strategies the company should invest in the Elevate golf ball, it includes:
It will increase the company’s market share, increase sustainable growth with good quality product at lower prices.
The elevated strategy would increase the retailer margin by increasing the sales
This is the best way to attract the beginners and non-professionals by creating the brand awareness in the market that will generate high revenue by introducing medium priced elevated golf ball.
The Altius should implement the Elevate strategy by considering following reasons:
Increase in market share: As many people were not satisfied with the high price, in fact, 35% of professional golfer, 45% of lapsed golf players and 53% of non-playing golfers stopped buying because of the high price. Therefore, the medium priced elevate would lead to increase in high sales and market share for the company.....
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The external environment of Altius Golf consists of: the golf industry, its competitors, regulatory bodies such as United States Golf Association (USGA) and the golf players. External environment includes some opportunities as well as threats for Altius Golf which is discussed below:
Growth in industry has just restarted after a period of recession; hence this is an opportunity for Altius Golf to acquire the market share of reviving golf industry.
Moreover, recent consumer study carried out by the United States Golf Association (USGA), has revealed that high cost of golf equipment is one of the reasons for the lack of interest in golf sport, however; Altius Golf can capture the market growth by…show more content…
The public interest in playing golf is falling in the U.S, consequently; sales of golf equipments are falling and this is clearly a threat to Altius Golf for its future sales in the U.S. One of the major competitors of Altius Golf, Primiera, has introduced a campaign for marketing of golf equipment which is specially designed for new learners of golf to help them play the sport and learn it easily. This strategy has been successful as it has captured the market share of Altius Golf and some other sellers in the golf market. Primerra’s strategy is a potential threat for Altius as it can gain a major market share from Altius Golf and may become a market leader in near future.
Internal environment of Altius Golf includes the process, culture, differentiating point and strategies of the Altius Golf, which affect its performance.
Altius Golf has competitive advantage over its competitors through its sales of Victor TX and Altius Golf has become the market leader in providing golf balls under Victor TX line; additionally, this advantage has given Altius Golf the benefit of economies of scale.
Moreover, Altius Golf has an already established chain of “off-course” and “on-course” outlets for selling its different range of products, which has given its customer easy access to its golf equipments.
As per calculations made in spread sheet, market share of Altius Golf is higher than other competitors in the golf