By David Gould
In pricing, nothing's simply black or white
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A British economist with a mustache like Gary McCord’s drew a pair of intersecting lines back in 1890 to represent supply and demand. The place on Alfred Marshall’s graph where the lines crossed would determine a commodity’s market price. Since then, business people have struggled to perfect what Marshall sketched out. Armed with data points and common sense, they’ve been projecting demand, setting prices, and forecasting a fair profit for their businesses.
The price-setting part of that exercise has been painful of late for golf operations. So many forces have exerted downward price pressure that it’s been tough even to strategize about rate recovery. Such is the current viewpoint of Hal Brown, head professional at Ballantrae Golf Club in Pelham, Alabama.
“In our market [greater Birmingham], things at least seem like they’ve leveled out,” says Brown. “Three area golf facilities have shut down over the past four years, and our club has picked up some of their members.”
Although his green fees have ticked downward over that four-year span, Brown holds out some hope that “the next price move could be in a positive direction—even a couple of dollars would help.” He’s asking himself, for the first time during this long downturn, whether one competitor’s rate rise would spur others to follow suit, rather than motivate rivals to remain bearish and try to undersell the market.
From California to the Carolinas, there are news reports telling of green fee increases at golf courses. Naturally, those news articles refer to municipal courses, which are on the hook to disclose business decisions a privately owned operation wouldn’t wish to publicize. In Los Angeles County, the green fee for golfers went up on March 1 by $1 for weekday play and $1.50 on weekends. In Dallas, the city council forecast $504,000 in new revenue from its 2012 plan for green fee and cart fee increases at six courses. Tucson officials boosted golf prices last year, by an average of $3 per round, including a hike in the cost of their golf rewards cards. Small-town America was also part of the trend. Officials in Fergus Falls, Nebraska, which sells a one-week golf membership to entice the stay-cationing resident, increased the price for that privilege 13 percent, to $85.
A notable case of muni golf costing more comes out of suburban St. Paul, Minnesota. The town of Inver Grove Heights based its 2011 rate increase on disillusionment with an industry consultant who one year earlier had advised fee reductions. The municipality had been told, according to course manager Al McMurchie, “that if we lowered our revenue per round, we would do better on the volume side and we would make more money.” Harking back to the days of Alfred Marshall, that theory has proven reliable—drop your price and you’ll increase sales volume. Rounds did rise at Inver Woods Golf Course, but not enough, and for the first time it posted a net operating loss. In response, the town’s recent upward move on golf fees was a robust 10 percent, from $36 for adults on weekends to almost $40.
It’s worth noting that muni systems in places like New Jersey, Arizona and the city of Baltimore, Maryland, have gotten feisty about revenue losses from missed tee times. No-show charges—either the full green fee or a portion of it—are becoming common in the government-owned sector. These penalties are also found in privately owned public golf, but not universally. It could be argued that getting tough on no-show activity marks a first step in the long march back toward pricing power.
Τhe descendants of Marshall—including modern-day economists like MIT professor Dan Ariely—study consumers closely to figure out why they’re willing to pay certain prices for certain goods and services. Based on his principle that vendors should redefine a service as they re-price it, Ariely would approve of tactics like the “1-Day All-Inclusive Package” at Moody Gardens Golf Course in Galveston, Texas. A golfer there can enjoy a full-day experience for the round-number price of $100 in mid-week or $125 on weekends. The package includes 18 holes of golf with cart (shared rental), one dozen new golf balls, a large practice bucket on the range, and unlimited food and (non-alcoholic) beverages. The club’s rate sheet has included this offer for just more than one season, according to Bill Pushak, the general manager of Moody Gardens who brought the idea with him from a previous position in Ohio. The customers who take advantage of the deal are clearly pleased, Pushak reports, but so far his volume of all-inclusive sales is running below expectations.
“If you followed an average golfer around here, you’d see that his [or her] total spend goes over the dollar price we’ve set for these packages,” Pushak says. “If that golfer paid the all-inclusive price, I’m sure you’d see him or her gain extra value, versus their normal day.” That includes arriving early to enjoy a healthy breakfast—the day includes two meals, not just lunch. “Our no-limit on f&b extends to the beverage carts, too,” Pushak adds.
In the resort business, the theory behind all-inclusive pricing is that it permits indulgence by removing reminders of the expenditure. A vacationer gets a chance “to be a kid again,” says psychologist and author Judy Belmont, and therefore “you get a better bang for your buck psychologically.”
To a degree, member-only clubs provide this benefit, asking for just a member number or a signature as various add-on charges occur during the day. “Our concept was to keep people here for a full day instead of having them show up, play and leave,” says Pushak, who continues looking for better ways to promote the concept.
Viewing this offer through Ariely’s lens would likely lead to a “Starbucks syndrome.” In that famous example, an individual vendor proved that the value of coffee can be redefined upwards in a consumer’s mind, with help from a convincing mix of props, décor, fancy names and staff training. “We’re not very good at figuring out what we are willing to pay for different products and services,” Ariely writes, and his fascinating experiments with consumers prove that assertion dramatically.
In that respect, the operators of Moody Gardens may need to slightly redefine their offering. They could, perhaps, add a one-hole playing lesson with a golf professional (the hole that gives that golfer the most fits, as determined by a performance tracker) or offer a choice of ancillary services like spike replacement or re-gripping a few clubs.
Meanwhile, there’s an opposite tactic for course owners to consider as they try to redefine and thereby re-price what they’re selling. “Unbundling” is the term for this ploy, and the major airlines are the most obvious (some might say notorious) practitioners. Fees for changing a reservation, checking baggage, sitting in a row with extra legroom and other such services have been successfully levied upon air travelers. In golf, this concept seems like a non-starter. It would end up in charges for range picking, golf cart recharging and other unacceptable add-ons.
There is, however, at least one possible exception to the belief that basic golf services can’t be unbundled and presented to the customer as an added value. It involves pace of play—the time-guaranteed round—and it’s being offered to the public player by at least three golf facilities in the Midwest and Northeast. At least so far, no up-charge is levied at Crystal Springs Resort in New Jersey, Gleneagles Country Club outside Chicago and Terrace Hills Golf Course in Altoona, Iowa, but these properties are indeed offering an assurance of a no-delay round that ends in four-and-a-half hours or less. In exchange, a facility like Terrace Hills Golf Course outside Des Moines, Iowa, “charges rack rate and uses our pace-of-play promise to justify it,” says general manager Joe Riding (see “Playing Against the Clock,” page 26).
The proposition as it’s laid out by Gleneagles owner Mike McNulty is focused on Sunday play and designed to keep golfers from being “irritated after a six-hour round.” Although McNulty could elect to charge a premium, he isn’t doing so currently. That being said, this is indeed a case of a new product being offered for sale as a way to boost demand.
A principle means of building that demand is attracting golfers who might instead spring for a private-club membership, given that uncrowded first tees and well-paced play are the two bedrock golf benefits of member-only clubs. For a daily fee course, gathering people who are unanimously committed to up-tempo rounds is the real trick. In Gleneagles’ promotional message, “the perfect ingredients” for this experience are identified as 10-minute tee times, a supportive staff and golfers “who appreciate four-hour golf and abhor slow play.” The facility has two regulation 18-hole courses—neither one of them a backbreaker—so only one layout has to provide the pace-of-play guarantee on a given day. At Crystal Springs Resort near the New Jersey/Pennsylvania border, the pressure to deliver on no-delay golf is limited by the decision to devote only the first dozen Saturday and Sunday times to its “Fast Track” golf program.
Last fall, a National Golf Foundation attitude study delivered the unkind news that consumers had not been viewing golf as increasingly more affordable, despite what felt to owners like years of down-to-the-bone discounting. Asked about paying for golf over the 2007-2012 period, 50.1 percent of respondents said fees had grown either “somewhat less” or “much less” affordable. Eroded household income was deemed a major cause of this, but either way it seemed that something dramatic might be required to change that belief or at least soften consumer attitudes. The marketing term for such a strategy is “reverse sticker shock,” and on certain occasions it can alter perceptions significantly.
The global auto industry has been leveraging this practice in recent years, producing new cars in standard configurations that sell for under $7,000—even under $4,000 for the smaller models. At Cherry Island Golf Course in Elverta, California, director of instruction Dan Condie has been marketing a $10 golf clinic and attracting new business in the process. “In a more upscale area, you would be able to charge more,” says Condie, “but some pricing just clicks and you build momentum with it.”
Value is guaranteed to the clinic-goer because high turnouts trigger a promise by the instructor to extend the one-hour session and begin his one-on-one work with golfers who have to leave earliest. “We’ve sold a lot of beginner sets off this program,” says Condie, “and revenue has been going up steadily for our teaching business.” And yes, that $10 price does get linked to an upsell—the clinic plus nine holes of twilight golf for $39.
If and when public golf can claw its way back to more sustainable fee structures, course operators will learn even more along the way about rack rates, third-party resellers and even dynamic pricing. Thinking back to the aforementioned municipal courses, their publicized fee hikes of $2 to $5 for 18 holes were meaningful to course managers, since a muni’s published rate is what golfers generally pay. Yet with the public course that’s privately owned, published rates have less consequence due to the much higher likelihood of digital discounts occurring online. Jack Fleissner, head golf professional at Rock Barn Golf and Spa in Conover, North Carolina, greets golfers in his shop who have interacted with a Jonas Software module that shows them the whole tee sheet and its matrix of higher and lower prices based on pre-determined demand.
“People enjoy using the software and seeing their options,” says Fleissner, noting that some of the traffic arriving at his open-source tee sheet is driven there via a third-party reseller, which can perform its own adjustments (downward) to the prices in the time blocks. “We’re accommodating the consumer’s newer way of shopping and trying to strike a balance. We have to monitor it—some of the sales happen at a lower price than we would want—but in general we’re pretty comfortable.”
Meanwhile, Fleissner says, the golfer in Rock Barn’s market “is starting to loosen up.” The club has tweaked its cart fee upwards and even increased a few of the rack rates in those online tee sheet blocks.
No doubt, British economists from the 19th century wouldn’t recognize current society’s glowing computer screens with goods and services for sale at the click of a mouse, but the underlying laws of demand, supply and the price that will optimize sales would be a familiar concept. Golf course owners and operators looking to get ahead rather than being left behind would do well to familiarize (or re-familiarize) themselves with those principles as well.
David Gould is a Connecticut-based freelance writer and frequent contributor to Golf Business.