Survival Of The Fittest (6 Of 7 In A Series) – Discounting: Course Management By Revenue Management

By Steve Dowling

Golf has become affordable, at least to those who haven’t lost their jobs. Play golf, my friend, while the golfin’s good!

Airlines used to promote friendliness, perception of comfort, quality of their food service, or on-time record, and even the glamour of their flight attendants. Until 1978, the U.S. government, through the Civil Aeronautics Board (CAB), regulated many areas of commercial aviation such as fares, routes, and schedules. The Airline Deregulation Act of 1978, however, removed many of these controls, thus changing the face of civil aviation in the United States.

This deregulation allowed carriers to create their own pricing in the face of growing competition. American Airlines introduced the “Super Saver” fares in 1978, which was the first broad based, capacity controlled discount fare system. Thus airline discounting was born.

Prior to the Super Saver there was no discounting, but with deregulation competitive discounting flourished leading airlines to the financial brink including the demise of dozens of airlines (remember Pan Am, Eastern, Braniff, Western etc.?). Subsequently, “revenue management” was developed to maximize revenue generation. Over the years third-party distribution systems e.g. Orbitz, Travelocity, etc., introduced themselves.

Until a few years ago golf courses did not discount. While the golf industry was never regulated (and will never be a candidate for a government bailout!) it has reached a stage of perceived oversupply with price competition overshadowing the claims of course qualities and amenities. Like with airline deregulation, the concept of price discounting is now part of marketing action plans. If you talk to a course operator, it’s “How do I get more people paying more money to play my golf course?” leading to the question of how far will discounting go with a public that feeds off such things as coupon books and a ‘never pay retail’ attitude?

On Minnesota’s golf landscape it could be construed discounting started with The Wilds Golf Club innovative offer to “Pay the Temp” to keep the tee sheet full during the chillier shoulder golf seasons.

With the appropriate discounting pricing strategy, golf course operators can drastically improve golf course rounds and revenue. There was a time, not too long ago, when the mere mention of the word “discounting” was sure to raise the hair on the back of the necks of many golf course owners. Asked how they felt about lowering the price of a round of golf at their facility, their responses often were laced with words like “price war” and “diluting our product” and “cannibalizing”. Fast forward to 2011 and those words seem to have been replaced by “market reality”.
“I look at it no differently than an airline or a hotel using marketing tools to increase
usage,” says Bill Block, Owner, White Eagle Golf Club, North Hudson, WI. “We’re trying to motivate people to come to our course versus our neighbor’s. From a marketing standpoint, offering incentives can be an attractive lure.” Asked about the need for some form of discounting in today’s market, Mr. Block, says, “Ten years ago, you built places like this and any knucklehead could run them. Now you better have an idea of how to market, generate business and compete.”

Of course, if you ask Bill Block if he discounts, he’ll say no. “We don’t use the word ‘discounting’, we introduce ‘initiatives’,” he says. “What we do is add value.” As an example White Eagle offers a unique product of “All Day Unlimited Golf”, with significant savings the more holes you play, as well as a very unique 7-Hole pattern for those who are short on time.

There are dozens of “Value-Added” initiatives out there. Some have a day-of-the-week theme:

“Marvelous Mondays” at Gopher Hills GC:
Greens Fee, Cart, Lunch @ $32.00 (33% Savings)

“2-For-Tuesdays” at Willingers GC:
Green Fees, Cart, Grill Lunch for 2 golfers @ $39.50 each (40% Savings)

“Wonderful Wednesdays” at Clifton Highlands GC:
Greens Fee, Cart, Lunch @ $32.00 (36% Savings)

“Thrifty Thursdays” at Gopher Hills GC:
Greens Fee, Cart & Steak Dinner, @ $35.00 (50% Savings)

“Couples Fridays” at Legends Club:
As many holes you can play after 4pm @ $59 for two (60% Savings)

Other local forms of marketing pricing initiatives include a broad spectrum of offers: Buy a Summit Golf Club, Cannon Falls, season pass for $200 and pay $11 per round all season (a “2011” theme) or get a 2011 Majestic Oaks GC, Ham Lake, ‘Buck-A-Hole’ card for $75 then pay $1 per hole all season on the Crossroads Course (with cart). StoneRidge Golf Club in Stillwater offers “TimeZone” pricing where time of day determines your price. At Crystal Lake Golf Club, Lakeville, you can play for $35 with cart if you’re a LifeTime Fitness Member a 40% savings. Hundreds of offers for Minnesota golfers!

Some would say operators utilizing the value-added strategy are deluding themselves if they don’t equate the offer of a free lunch with discounting. Is there really no such thing as a free lunch? Is it just semantics?

There’s “a good way and a bad way” to discount. The industry has seen what should be considered many samples of bad discounting practices. In the early days of the golf discounting phenomena some course management sold discount cards, which offered rounds for a cart fee only. This is like selling steak at hamburger prices. Pricing strategies have eliminated that kind of business in favor of the value-added approach.

Not all golf operators are sold on the value-added strategy with the argument that golfers shopping for an inexpensive round of golf respond better to an attractive green fee than a freebie tossed into the deal – it’s more of a bottom-line dollars and cents issue for those guys. Anything on top of an attractive green fee is fine, but it’s not going to take the place of the price is the chant of this group. The cost sensitive golfer usually knows the value of the place they want to go play, and if they can get it for that price, they act on it.

There’s a potential problem, when all the key players in a market decide to employ the value-added plan. When everyone goes from one low price to an even lower price, it makes it very hard to compete on a value-added basis. The thought is courses should always try to add value, but also recognize and capitulate over time to situations where the marketplace has set a ceiling for this type of experience. However, golfers should be aware that poor decisions and excessive discounting made by a few operators, can cause the downfall of their course and have a ripple effect throughout Minnesota.

More and more operators are concluding that in a competitive environment, where participation remains flat in many markets, it’s time to do something different. For these operators, teaming up with an online marketing partner that helps them build their loyal customer base while filling their tee sheets is an appealing proposition. Third parties, such as Golf Now, post tee times on their Web sites that client courses have turned over to them to market at discounted rates.

Courses use third parties to help attract that golfer that is not going to come to their course unless they get a special offer to play at times when the course isn’t busy. Those are also times when services are at a minimum at some courses. There may, or may not, be a beverage cart making the rounds, for example. But the value shopper is willing to sacrifice service for the right price. It’s a win-win for the course and the golfer. Despite philosophical differences on how best to attract value conscious golfers to their courses, most course marketers are beginning to agree that a third-party provider is a valuable resource in helping them market their courses.

There are four basic ways that golf courses (and other perishable inventory businesses like airlines and sports ticket sales) can run their businesses. First they can establish their price based on profitability goals vs. expenses, and hope that they hit the number right (this is how the golf industry has operated for the most part in the past 50 years). Second is after seeing a decline in business they can revamp and lower their pricing and their expenses to maintain profitability (some operators have tried this but realized that the ability to raise prices back to old rates is next to impossible). Third they can hold on to their rack rate pricing and then, when faced with unsold inventory, use last-minute discounting to fill open tee times hoping they drive enough rounds to maintain profitability (this is the golf industry of the last 8 years). Finally, fourth is to yield manage the tee sheet by creating a demand-based pricing model that effectively allows pricing of rates based on the ability to sell inventory by time-of-day, day-of-week, or by how far out they book. Most of the perishable inventory businesses like hotels, airlines, and sports ticket sales have all moved to this fourth model and most, due to technology, are achieving some level of success while literally none of them is doing any of the first three. The point is that running a golf course in this day and age takes tons of experience and wisdom, along with a good understanding of the marketplace.

The “blanket discounting” concept is very bad for the golf industry. You cannot “set it and forget it” discount on an ongoing basis. Courses must manage tee sheets and be able to make pricing changes on the fly based on factors such as utilization, weather, course conditions and days in advance. The rack rate as we know it should go away. Instead courses should publish a rack rate range. “Fees range from $60 to $75.” Consumers are used to paying more or less for a commodity based on timing, convenience and other factors. This thought introduces what is becoming the future of greens fee pricing that roughly follows the airline pricing evolution – “Revenue Management”.

Revenue management is the new controversial buzzword in the golf industry. In straightforward terms, revenue management is a technique to optimize income revenue from a fixed, but perishable inventory. Revenue management was born within the airline industry out of the need to fill at least a minimum number of seats without selling every seat at discount prices; the idea was to sell enough seats to cover fixed operating expenses. Revenue management uses the basic principles of supply and demand economics, in a tactical way, to generate incremental revenues.

There are three essential conditions for revenue management to be applicable:
• There is a fixed amount of resources available for sale.
• The resources to sell are very perishable.
• Customers are willing to pay a different price for using the
same resources.

Obviously, golf has a fixed inventory of tee times to sell; these tee times are extremely perishable; any tee time that is unsold is gone forever. There is also no question that different segments of business are willing to pay different rates under various circumstances.

Revenue management is of especially high relevance in cases where fixed costs are high as compared to variable costs – such as golf courses. Golf courses without professional marketing on staff, or without access to shared marketing expertise will be outdistanced by competitors in the same manner as those long gone air carriers.

Despite course operators feeling the pinch, these tough economic times mean cheap golf in the form of discount green fees, value-added offers, great deals on membership fees and more. The downturn in the economy could turn out to be golf’s silver lining, at least for a while, and golfers will be the short-term beneficiaries. Posh country clubs are opening their doors to public play for part of the year just to raise revenue, other private clubs are lowering or eliminating initiation fees altogether, and daily-fee golf courses are coming up with all kinds of creative ways to get you to come out to their courses. This could actually grow the participation in the game – more golfers.

It started with initiatives like “Pay the Temp” and free golf on your birthday. Bargains like these are typical and not difficult to find these days, it didn’t start last week with the recession announcement. If you’re a daily-fee player, here’s a bit of advice: Get on as many course e-mail lists as possible. Some deals are better than others, but they seem to keep getting better and they blast them out daily to their customers.

The golf industry has changed. Courses can no longer price each tee time the same. Once informed, golfing customers can conclude that at a fair price, they’re going to be happier with a “value experience” instead of a cheap one. Old school golf operators that declare “all discounts are bad” are just repeating the tired rhetoric from lazy management who are not willing to put in the time to manage their tee sheet and maximize high demand and discount lower utilized periods. Revenue Management is the future of greens fee pricing.

“Play golf, my friend, while the golfin’s good!”

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