Altius Golf

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Athabasca University, Athabasca *

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601

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Economics

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May 27, 2024

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1. Larger industry trends include a decline in interest in golf which was fueled by the 2008 recession, lower penetration of off course outlets and lower price products offerings from competitors. Consumer preferences had also changed from premium balls to more entry level balls. This can be seen by the survey Altius performed which indicated that 45% of lapsed golfers and 53% of non golfers cited price as the reason for not playing. Altius had also seen a decline in the demand for their premium ball the Victor TX. 2. While it’s tempting to try to increase profits via branding, I don’t believe that this makes sense in this case. It’s clear that Altius continues to distinguish itself as the premium brand. This is best supported by the fact that professionals continue to prefer their ball to any other. In addition, high end golf stores (on site) consistently offer the Victor TX, recognizing that when customers come to a high end store they need to be able to purchase high end balls. It may also be tempting to increase profit margins via lower operating costs. The issue with this approach is that in an attempt to lower costs, Altius may inadvertently lower ball quality, eroding their brand image and giving away their premium ball market share. The clear best choice seems to be to expand market share. Currently, the firm is seeing a decline in sales (50% to 45 % of dollar sales) at off-course retailers as the typical customer at these stores is less likely to spend on premium golf balls. 3. Total market worth = $483 million 1% of market share = $4.83 million Altius margin = 70% Competitor margin = 55-60% Given that 1% of the golf ball unit market share = $4.83 million, and Altius’s golf ball margin is 70%; ( 4.83 M ) ( 0.7 ) = 3.381 M Meaning that for each 1% of market share gained, Altius will see an additional 3.381 million in profit. Altius’s competitors on the other hand: ( 4.83 M ) ( 0.55 ) = 2.66 M ( 4.83 M ) ( 0.6 ) = 2.90 M Would only see between 2.66 and 2.9 million in profit due to their lower margins.

4. Assuming retail margins of 15% and manufacturer margins of 70%: Data per dozen balls Victor TX Victor Elevate Retail Price to Consumers in $ 48 39 27 Altius’s Selling Price to Retailers in $ 40.8 33.15 22.95 Altius’s Unit Cost in $ 12.24 9.945 6.885 Altius’s Unit Gross Margin in $ 28.56 23.205 16.065 Example calculations: (Retail price)( retail margin) = wholesale price (48)(0.15) = 40.8 (Wholesale price)(unit margin) = unit gross margin (40.8)(0.7)= 28.56 (wholesale price)-(unit gross margin)= unit cost (40.8)-(28.56) = 12.24 5. The obvious strategic advantage of launching Elevate is exposure to new customers. Firms ought to be careful not to cannibalize their existing products with the introduction of new products but it doesn’t appear that this would be happening. Clearly, there exists a distinct difference between committed golfers who only want to play with the best and those who want to play at a reasonable price. While some customers may migrate from the latter category to the former over time, we would not expect any single customer to be in both categories at the same time, reducing the risk of cannibalizing the profits for the Victor brand. The strategic disadvantage is that they are entering an already crowded market, the entry level golf ball market. Further, customers who shop in this market already have preferences, so it may require additional funding to get them to switch. That being said, I still believe it makes sense to launch the brand so long the firm ensure that there is a clear differentiation made between its premium brand and its entry level brand. 7. In my opinion it would not make sense to do a price cut. I say this because the Victor brand has been advertised year after year as a premium brand, used by the pros and reflected as such via the pricing. While Altius could possibly see an uptick in sales from a price, this would be relatively short lived as they would no longer be differentiated from their competitors. Further, at a lower price point the firm would need to sell significantly more balls just to make the same level of profit. After the initial influx of it’s premium balls selling better due to a lower price point, the firm should expect to see further loss in market share due to its diluted premium golf ball brand. 8. Market total worth= $483 million Altius 2012 market share = 35.1%

Victor line sales = 70% of all sales Altius golf ball margin = 70% Therefore: Total profit = ( 483 M ) ( 0.351 ) ( 0.7 ) ( 0.7 ) = $ 83,071,170 ∈ profit ¿ Victor sales Since : Volume ∈ units ¿ Break Even = Total profit at old price Unit margin at new price Volume ∈ units ¿ Break Even = 83,071,170 M 16.065 = 5,170,941.18 Additional volume required for a 2 dollar reduction: Volume = $ 83,071,170 ( $ 39 − $ 2 )( 0.85 )( 0.7 ) = 3,773,389.51 Additional volume required for a 4 dollar reduction: Volume = $ 83,071,170 ( $ 39 − $ 4 )( 0.85 )( 0.7 ) = 3,989,011.76

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