Inconsistency Between Sales-Pitch and Willingness to Pay Performance Indicator (PI) has developed a technology that will enable the golf industry to reduce the number of used golf balls in the market place by indicating which balls have had their performance degraded due to an extended duration in the water. Approximately 85 million used golf balls (approximately 50% of all used balls) are thought to be replaced through this technology, hence increasing the sales of brand new balls. They are also, in effect, attempting to create a quality assurance mechanism for used golf balls in circulation.
Theoretically, golf ball manufacturers stand to benefit from filling the “gap” created in the market by removing the performance degraded used balls. Although PI is selling directly to the golf ball manufacturers, the golfer using the ball that is known to be in good condition determines the real value creation. The main inconsistency derives from not all golfers standing to benefit from the adoption of PI technology. The manufacturer must determine if this perceived benefit to the golfer is worth the additional manufacturing costs and market/brand implications.
There is a segment of the market that will continue to buy new balls. Both professional and average golfers utilize used golf balls; however, neither group will derive enough consumer surplus to be willing to pay for this technology. We believe the additional value created by the improvement in performance does not justify the additional cost of having to purchase new balls. Used balls can be purchased for significantly less or even found by many golfers and have an acceptable performance level. Diminishing the used golf ball supply may cause frustration for the average olfer. If this technology were universally adopted by all manufacturers, there may be benefit to the industry as a whole. However, value brand manufacturers feel that brand image might be tarnished by concern about consumer’s “infringement on their access to cheap used balls. ” Additionally, high-end manufacturers’ sales, which represent 67% of total new balls market, will be reluctant to adopt the technology due the belief that the consumers may buy new value brand golf balls rather than their own premium brand golf balls.
The decision for an individual manufacturer to adopt PI’s technology will be determined by the potential increase in sales as golfers replace performance degraded balls with their brand. It is reasonable to assume that individual manufacturers are hesitant to pioneer this technology because there is no assurance that a performance degraded golf ball would be replaced with their own. The data indicate that golfers are comfortable using used balls, or value brands. By removing approximately 50% of the used balls from circulation, numerous golfers may utilize the lower cost alternatives to fulfill their required quantities.
In attempting to convince potential customers of the perceived value of the technology, Performance Indicator provided data related to the estimated profit impact of removing the performance degraded balls from the market. The two problems identified with this presentation is the failure to establish a true value and the underlying assumption that the market split between premium brands and value brands will remain the same. In fact, there may be a shift towards value brands based on the technology. Exhibit 5 Estimation of Profit Impact| | | |
A manufacturer would be more interested in their total manufacturing cost and revised profit utilizing the new technology. A revised approach to presenting this data is offered below. Based on the lack of value added to the golfer from this technology, it is unlikely that a fundamental market shift will occur. However, in this revised exhibit, the data more clearly displays the potential range of profits a manufacturer could achieve from the shift in the market. By translating the quantities of golf balls into amounts of profits, the case for adopting the technology could become more apparent.
In conclusion, value is created when the customer’s willingness to pay exceeds, or even significantly exceeds, the cost to produce the golf ball. In this example, the PI technology does not add, or is not perceived to add, sufficient value to the golf ball market. In order for PI to gain a customer, this value must be perceived and realized by one of the golf ball manufacturers. The additional demand created by removing defective golf balls through their technology was thought to translate into increased profit by increased sales of new balls. The inconsistency in strategic thought was neglecting the golfers’ benefit.