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?
These are very challenging times within the golf industry. The game has peaked. Supply exceeds demand. Revenues are soft. Expenses are fixed. Rounds are too long. Lifestyles have changed. Ours is a time-crunched culture. All of these factors have a direct impact on the business of golf.
For the next decade, the golf industry is projected to be flat. The demand/supply imbalance of 8% will take that long to reach equilibrium, as increases in demand from golfers will only mirror the growth in the population.
Supply will constrict slowly. The National Golf Foundation forecasts that 500 to 1,000 golf courses will close during the next five years . Private to public conversions are now in vogue. “More than 400 private clubs have opened their doors to public play in the past decade. Although course closings tend to generate more headlines, there have been 10 of these private-to-public conversions for every private course that’s gone under,” says NGF President Joe Beditz.
With golf in a blustery swirl, often vision is clouded and execution dulled. Today, many courses are implementing operational and tactical changes that lead to strategic failure.
Among those operational changes, discounting is the new norm and will be a dominant factor in the golf industry until demand and supply become balanced.
Many Forms of Discounting Green Fees Have Emerged
While masked as yield management, discounting 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 the age of the golfer – all forms of yield management. Banquets, weddings, tournaments, and outings have been long subject to flexible pricing.
What has changed in the last five years is the plethora of methods by which discounting of green fees occur. Historical charity coupon books are accompanied by sports section advertising, golf magazine discount cards, PGA Tour Player’s passes, third-party,online tee time sites, and Groupon email promotions to list merely a few.
All of these programs have the single focus of trying to capture theattention of golfers and motivate them to play a specific course. A few of these programs are prudent. The rest represent a slow death for the golf course operator. How do you determine which ones to choose?
A Basic Primer
Before selecting which discount programs to participate in, an understanding of the basic principles of yield management is beneficial.
Marketing programs are designed to stimulate revenue-attracting customers at desired price points. Unfortunately, most marketing programs are created without accurately answering a simple question, “What customer segment are we trying to target?” Golf courses have historically used a shotgun rather than a rifle approach to target the various unique segments. This shotgun approach has been necessary, as few courses effectively identify golfers by marketing segment:
The message and the medium for each one of these customer segments varies greatly. When golf course operators fail to identify the target market, discounting programs applicable to all become the marketing program by default.
In melding these diverse interests, operators become myopically focused on numbers of rounds and lose focus on the more important statistic—gross revenue. Finding the balance between the revenue and rounds per round is essential. The objective is simple: maximize revenue. The only benchmark that truly matters is noted below:
Many golf course managers are lulled into the economic trap of believing that selling more rounds, albeit at slight discount, is a best practice. Discounting is a slippery slope. The following chart highlights the perils:
Additional Rounds Required to Offset Discount
During these difficult times, which discount program is best?
The simple answer is that the best programs are those that:
- Are sold at the least discount, i.e. 4 for 3 promotions.
- Generate upfront revenue and are unlikely to be redeemed, i.e. Groupon, which has only a 20% redemption rate, or annual pass programs that have a break-even exceeding 75 rounds. Yes, the course will get “beat” by some golfers, but not in total based on the yield per round achieved (total revenue from season passes/total rounds played > revenue per tee time).
- Sell tee times that are otherwise unlikely to be sold, i.e. Monday-Thursday between noon and 2 p.m., coupon books, newspaper advertising.
- Attract new golfers to the facility, i.e., third-party tee time providers.
Unfortunately, none of the most popular discount programs meet all of those achievements.
What are the downsides to each program?
Coupon books are attractive, as the redemption rates are low, can be structured for off-peak times, and can attract new golfers. However, those programs most often favor thepublisher over the golf course.
To illustrate, in 2011, a Colorado regional magazine is generating (for the magazine) $399,750 from selling 5,000 passbooks at $79.95 each. The golfer receives the opportunity to play 53 different courses, including three private clubs and nine resorts, at average green fees of $41.33 inclusive of cart. Green fees range from $9 to $99. Thirty-eight courses allow weekend play, of which 12 courses provide for unlimited play at an average discount of 40%.
While the above program may be onerous, coupon books can be structured that are beneficial to the course.
Another discount medium that can be beneficial is third-party tee time firms. They often provide software services including email blast capability and development of web sites, affording access to a large database of golfers. The proper use of these tools can clearly generate incremental revenue, often from new customers.
While riled against by many for getting between the customer and the golf course and lowering effective yields, a negotiated agreement with firms that specified the following would be mutually beneficial to both parties:
- Defined value of the marketing services to be rendered by the third party.
- Specified minimum price for which the bartered rounds could be liquidated.
- Customer data for bartered rounds provided to the golf course.
- Commitment by the golf course operator to pay in cash annually the differential between 125% of the services rendered less the cash derived by the third party in liquidating tee times. The differential represents the risk assumed by the third party in selling the tee times consistent with the golf course operator’s restrictions.
A recent phenomenon that is drawing much attention is Groupon, a coupon emailed daily to subscribers. According to Joe Assell, President and CEO, Co-Founder of GolfTEC, CEO of GolfTEC, “The jury is still out.”
GolfTEC has used Groupon in 49 different markets, offering only a 30-minute swing diagnosis, in essence, a quick teaser for $35 (59% discount), or a 60-minute swing evaluation for $60 (60% discount). For each promotion, about 350 coupons are purchased.Despite proactive follow-up with coupon purchasers, the redemption rate is amazingly only 10-15%.
The key for GolfTECis that Groupon is selling introductory programs during the fall/winter when they have plenty of capacity. Only 30% of their lessons given by GolfTEC occur during September to February.The additional revenue has been welcome during the slower part of the year. The coupon offered does not offend their current customers, many of whom purchase 25+-lesson packages.
The downside, according to Joe Assell, “Groupon is very difficult to work with. They bump you if they have another promotion they believe will generate greater revenue, and they pay you over 60 days.”
Though Groupon has assembled massive databases in nearly every metropolitan market, extreme caution in utilizing Groupon’s services, in addition to the caveats advised by Joe Assell, is recommended.
Groupon requires the golf course to sell its goods or services with at least a 50% discount from the rack rate. Groupon’s commission is 50%. Thus, the golf course nets only 25% of retail. If a golf course were selling rounds of golf, they would have to increase play by 400% merely to break even – highly unlikely.
HighlandPacific, a new investor group, recently purchased Victoria, British Columbia. Seeking to attract new customers, the new owners tried Groupon with amazing success – sort of. Their coupon was for 50% of two green fees plus power cart and range balls. The program was suspended when 600 had –sold–the morning of the second day. A small group of their Loyalty Program members complained that Highland Pacific did not let them know and participate—a customer service problem out of the gate.
A more amazing example of the perils of Groupon was seen over the 2010 Holidays in Denver. A promotion for eight rounds of golf and 10 one-hour lessons valued at $1,080 was offered for $189, an 83% discount. The golf course manager specified that a cart was mandatory and that the tee times were only valid on Monday – Thursday, and Sunday after twelve.
Unfortunately, Groupon failed to list the restrictions until four hours after the promotion had been displayed. At that time, 543 coupons had been purchased.
Groupon’s response upon learning of their mistakes was they would only refund the monies of disgruntled customers. No consideration was provided to the golf course and to the potential public relations nightmare created.
During the two-day promotion, 1,643 individuals (3% of the Denver database) purchased the coupon, representing $460,040 in tee times ($11.81 per round) and $924,188 in lessons. The revenue generated ($310,527) was allocated as follows: $155,264 to Groupon, an estimated $50,000 to Jintu, a marketing agency, and $100,000 to the City and County of Denver. Incredible profit for Groupon for little work.
Are rounds at any price a solution? Clearly not. Discounting, while a short-term fix, is a long-term path to failure.
Studies done by Golf Convergence conclude:
- The golf course that discount lowers the “average daily rate”by 31%.
- The golfer who receives a discounted round will spend less than $10 in the pro shop.
- The golfer who receives a discounted round has only a 16% probability of returning to that course and paying the rack rate.
- Sixty-four percent of golfers who redeem a coupon usually bring only one other player.
The winner in this game of discounting is already known, although not formally announced. Those golf courses that create value and protect their brand for the price charged will prevail. As for the others, they will be among the fodder of the 500 to 1,000 golf courses forecast to close over the next 5 years.
About the author: As Managing Principal of Golf Convergence. J. J. Keegan has traveled in excess of 2,040,000 miles visiting over 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, he is uniquely qualified to offer expert opinions on trends and issues facing golf courses today because of his direct knowledge and interaction with the golfing community. In July, 2010, he published the ING award winning The Business of Golf – What Are You Thinking? an informational book that has been purchased by astute golf course managers in eight countries to date.