Ok for fun I'm going to talk about something other than the book.
So TaylorMade has just launched their new M2 brand of clubs. That’s about 6 months after their predecessor the M1. OK granted this involves minor modifications to the existing platform but nonetheless it is a new launch. So it begs the questions, is it really necessary to lauch this many new ranges and can / do TM make any money doing it?
I'd love to see the business case for TM and in fact a lot of the other OEMs. They all, except for Titleist and Ping seem to release new clubs twice a year. They must need to sink in a chunk of change to make this happen, but at the same time they must be making some sort of return on each new release, right?
I'm thinking some hypothetical numbers for the M2 range, I'm sure my estimates are way off, but for shits and giggles let’s assume the following for the new M2 driver.
- R&D costs (incl. testing) - $0.5m (This is low but I'm assuming it was part of the M1 project, an anticipated spin-off for similar technology).
- Pre and production costs for ?? 20K units? All materials as well as accessories (headcovers, shirts, hats etc.) - $1.5m. I'll assume that they can make the driver for $50 per unit plus all the other bits and bobs.
- Marketing and hype costs? Ads, endorsements etc. - $1m
- Training and support - staff, clubfitters incl demo clubs etc. - $0.5m
- Product cannibalization - TM must include a forecast of lost sales from other TM products - $1.5m
- Again let's assume they forecast to sell all 20K drivers at an average price of $250 (assuming discounts and anticipated price cuts).
If I have worked it out right they would make $5m in sales and it would cost $5m in overheads / costs, so anything less than 20K units will cost them money. OK, I have made some wild guesses in reaching this conclusion, so I'm happy to get educated.
But it makes you think, right?