Why Has Altius Golf Lost Market Share? What Will Happen If Altius Maintains the Status Quo?

QUESTIONS FOR ALTIUS CASE

1. Why has Altius Golf lost market share? What will happen if Altius maintains the status quo?

Ans.

Reason 1: Global recession and Decline in interest among premium customers

The global recession of 2008-2010 hit caused decline in the golf industry. Many golfers lost interest in golf due to high cost, lack of time, and difficulty of the sport. With the decline in the people’s interest in the game, the industry had decline in the equipment sales. The trend is seen clearly through the drop-in sales of golf balls from 552 million USD in 2007 to only 483 million USD in 2012(Exhibit 1).

Also, upcoming new golfers and remaining golfers who were still participating in the game considered themselves less serious players and more price-sensitive. Altius offered only Victor TX (premium tier) and Victor (mid-range tier) golf balls at the time. From Exhibit 2, we can see that Altius saw a 3.5% decrease in retail dollar sales while the lowest price competitor, Primiera, enjoyed a 2.5% increase in retail dollar sales.

Reason 2: Low-priced golf balls in Off-course Channels

The lack of low-priced golf ball offering in the increasingly growing off-course channel also caused Altius to lose market share. In 2008 to 2012, there was a rise in dollars sales of off-course channel from 54.1% to 55.8% in comparison to a decrease in dollars sales of on-course channel from 45.9% to 44.2% (Exhibit 2).  Without a value-priced product line, Altius still continued to offer the same premium-priced Victor TX and Victor through off-course stores when the consumer interests had shifted to casual and price sensitive, leading to a drop in the dollar sales in the Off-course channel from 50.8% to 45.5% in the 2008-2012(Exhibit 2).

Effect of Maintaining the status quo:

If Altius maintains their existing business model, they will continue to lose market share to other manufacturers such as Primiera and Bantam, who have introduced low price equipment and golf balls in off-course “big box” stores targeting the shift in the customer value. While its competition still lagged far behind, product innovations, marketing campaigns, and more competitive pricing had helped other manufactures slowly chip away at Altius’ market share. Primiera had already triggered marketing campaign to counter Altius position. By ignoring this new casual market, Altius will miss out on the opportunity to build brand loyalty with new golfers at an early stage.  As industry comes out of the negative trend due to the recession, the new consumers who would have started out with value-priced products from competitors may move from value-priced options to premium options still sticking to the same brand they were using before.  As a result, its market share in both the value and premium segment will be slowly captured by other competitors.

2.

a) What is Altius’ and its competitors’ 2012 revenue and gross profit?

b) What is the value of a point of market share for Altius?

c) What are the implications for Elevate, considering its unit contribution and gross margin compared to Victor TX and Victor? (Calculate the cannibalization break even revenue).

Ans.

a)