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by J. J. Keegan, Managing Principal of Golf Convergence
Author of the ING Media Award-Winning Book
The Business of Golf—What Are You Thinking?
Hello – Brave New World
It’s a beautiful day,the tee sheet is largely empty, there are only a few groups on the course, and in walks a foursome. They confirm that the rack rate is $75 including cart. They offer to pay $50 per player with lunch included. Do you take their offer?
The need for golf course operators to maintain rate integrity by properly conditioning a course, developing a customer database, and deploying integrated TTRS/POS technology to efficiently market to thecore, acquired, and defectors has been chronicled. However, those practices have only been implemented by the adroit to stem the tide of falling rounds and yield throughout the industry.
With supply forecasted to exceed demand for the next decade, until market forces become balanced, golf course operators may be subject to a new —trend—negotiated pricing of individual tee times. Which offers do you take or decline?
Negotiated Transactions Dominate the Commercial Landscape
Consider how prevalent negotiable pricing has become. Cars, houses, airline tickets via Expedia or Orbitz, hotels via Priceline, and stocks via limit orders are merely a few purchases for which negotiation/bargaining is commonly used. While haggling dominates in the U.S. for infrequent high-end purchases, it is common on most purchases throughout the world. Would you ever pay retail for any item in Asia? Not likely.
Discounting, affinity, and customer loyalty programs are pervasive in nearly all industries. Ranging from Starbucks Gold Card (1 free drink for every 15 purchased), to Office Depot’s quarterly credit on purchases, to merchandise and travel rewards from American Express, or cash back on Costco and numerous other credit cards, paying the asking price for a commodity is the exception rather than the rule.
Revenue Management has not escaped the golf industry, as it has been a prevalent practice for nearly 100 years. Many golf courses offer over 100 different rates by time of the year, day of the week, time of the day, and age of the golfer – all forms of discounting. With banquets, weddings, tournaments and outings long subject to flexible pricing, is negotiation of every tee time not far away?
Impaling Themselves
If negotiated tee times appear at golf courses, that practice will be introduced because many golf course managers eschew effective marketing and rave against third-party companies. They will have narrowed their opportunity to attract and retain golfers through these viable alternatives.
Marketing by golf courses has largely been ineffective. Golf courses are often reluctant to spend money on marketing because they can’t or don’t track the efficiency of the dollars spent to determine a return on investment.
As a result, golf courses delegate their marketing efforts to third-party companies in exchange for bartered rounds. In turn, golf course managers get upset when these firms liquidate the bartered times earned for the marketing efforts.
With the increasing resistance to third-party marketing companies golf course owners will have no option but to assume the responsibility for negotiating every time out of frustration for their declining financial plight.
Readily Accessible Information Will Accelerate Negotiated Pricing
The thought that golf will become a negotiated transaction is perhaps an inevitable result of current price pressures that will be compounded by another market force – greatly enhanced information available to the consumer.
Evolving technology is enabling the consumer to find the lower price for a commodity instantly.Recently, Blackberry launched shopsavvy.com. A consumer merely scans the bar code or the QR code of the product, and the price of that itemat neighboring stores is displayed.
An IPhone application, savebenjis.com, provides“a comprehensive price comparison” in your hands. The strength of this app is its ability to compare a product across multiple vendors. You can search by product name, bar code, manufacturer, keyword, and a half dozen other criteria. It also has the ability to add product reviews. [1]” Google Search offers an identical service.
Thus, superior information is allowing the consumer to make an informed decision. Currently, the numerous third-party tee time sites are, in essence, providing a comparable service by displaying theprice of various golf courses on a single screen. Thus, golfers can learn the “instant pricing” within their market.
One of the historical key tenets of capitalism is based on the inefficiency of the market place. The informed can leverage superior information to the disadvantage of the uninformed. With the introduction of new technology, the balance of power in purchasing decisions is switching from the vendor to the consumer.
Determining the Proper Rate
Fair market value is defined as “the price for which property can be sold in an ‘arm’s length’ transaction; that is, between informed, unrelated, and willing parties, each of whom is acting rationally and in its own best interest.” [2]
In theory, if the green fee were properly set for each individual tee time, it is logical to assume that 100% of the available times would be sold.
Some golf course owners establish green fees based on cost plus desired return on investment. Others set the green fees based on market value of nearby courses. Still others base their fees on some subjective perception of the value of the golf experience. This subjective valuation method results in one facility charging over $125 per round competing against another course that charges less than $30, yet both are between 6,000 and 7,400 yards, have 18 holes, and take roughly 4½ hours to play.
None of these three methods works well long-term. None of these will give you any clue on whether you should accept a negotiated price from a golfer.
Golfers are Value Driven
There is a formula, often invisible to the golf course operator, that determines the correct green fee rate – the value perceived by the golfers.
Golfers are very astute. They subconsciously decide where to play based on a simple formula: value = experience – price.Golfers measure their experience based 90 percent on the course (slope, strategy, conditioning, grass texture, ambience, and amenities) and 10 percent on the service standards encountered.
To the extent that the experience received equals or exceeds the price paid, customer loyalty is created. To the extent the experience received is less than the price paid, customer attrition occurs.
A Golf Course’s Proper Focus: Matching the Price to the Experience
A golf course’s ability to create a consistent experience, while manageable, is limited by the positive cash flow available for reinvestment plus additional capital, debt or personnel committed.
What is totally controllable by the golf course operator is the price. The green fee rate can be adjusted at whim based on numerous subjective or objective factors.
The golf course operator who adjusts the rate subjectively or intuitively is likely to influence rounds at the expense of yield per round. The correct price based on value created can be measured, in advance of the golfer’s arrival, not based on a rate that will generate a return on investment, a competitor’s pricing, or some subjective criteria, but based on an objective standard of value that measures the 34 key components a golfer subconsciously considers in assessing value. (See www.golfconvergence.com/library/interactivecontent to calculate the value your golf course creates.)
Why Negotiated Tee Times May Become A Reality Within Five Years
Having traveled to 41 countries where I visited more than 4,000 golf courses, it is my opinion that golf course managers and staff are more largely reactive than proactive. In their defense, perhaps they are so consumed with operational tasks that the more valuable strategic and tactical planning tasks get short-changed.
However, even though it will be challenging to train counter staff on which deals to accept and how to record them within the industry’s ill-suited POS systems and thereby accommodate individual pricing, negotiated tee times are likely to appear soon.
Golfers will have superlative information as to current rates in a local market and a plethora of choices, while golf course operators become even more focused on rounds at the expense of revenue. Golfers will control prices by voting with their feet.
Golf course operators would be wise to know the value of the experience they create and take all offers that equal that price.
About the Author: As Managing Principal of Golf Convergence, J. J. Keegan has traveled in excess of 2,300,000 miles on United Airlines visiting more than 250 courses annually and meeting with owners and key management personnel at more than 4,000 courses. Having successfully combined his passion for golf with his business acumen, his direct knowledge and interaction with the golfing community makes him uniquely qualified to offer expert opinions on trends and issues facing golf courses today. In July, 2010, Keegan published the ING award-winning book, The Business of Golf—What Are You Thinking? How to Increase the Investment Return of a Golf Course, which has been purchased by astute golf course managers in eight countries to date.
