By David Gould
Dynamic Pricing is changing more than just rates – it’s changing bottom lines, too
We’re told by the U.S. Transportation Department that 1.7 million passengers board domestic flights every day. We know from our own experience these flyers aren’t turning to the guy in the next seat and asking how much he paid for his ticket.
You get where this is going, right? Dynamic pricing, a profitability miracle for airlines and hotels and for that matter, Uber, is still resisted by the golf industry. That’s not for no good reason. Air travel and hotel stays are necessities in many instances, while rounds of golf are always discretionary—price-sensitivity therefore is naturally higher. And while travelers favor a certain airline or hotel chain over others, there isn’t that we-are-family experience connected to such purchases, compared to what golfers feel for courses they choose to patronize.
Employed now at a member-only facility, Chad Craft doesn’t have to concern himself with green fees, but in discussing the topic with colleagues he has “heard mixed reviews” of dynamic pricing. “Golf managers I talk to suspect that dynamic pricing is more likely to take you from your rack rate downward than from rack rate upward,” offers Craft, head professional at the National Golf Club at Tantallon, in Fort Washington, Maryland.
Jon Janik of town-owned Tashua Knolls Golf Course in Trumbull, Connecticut, does serve the public player each day, and he doesn’t think his facility could sell those folks on the concept. “Dynamic pricing is a strategy worth considering,” he says, “but to me, it’s very particular to the environment you’re operating in. At our course, it would alienate some or maybe most of the residents—they’d find it unfair, I’m pretty certain.” Meanwhile, the upside in Janik’s view isn’t worth the risk. “During our highest-demand times we could premium-price our $66 fee up to about $75, using a dynamic formula,” he estimates. “That wouldn’t be worth the risk.”
One of those particular environments Janik refers to seems to be the 80 golf courses grouped under the banner of the Myrtle Beach Area Golf Course Owners Association (MBAGCOA). Inspired by the zeal for Big Data now sweeping through the corporate world, MBAGCOA is on a mission Tracy Conner succinctly describes as “collecting data and maximizing profit.” Conner is the affable but goal-oriented executive director of the Grand Strand owners group, tasked with leading MBAGCOA on its ascent toward ever-higher levels of sophistication in the strategic use of digitally captured data.
“We are huge proponents of dynamic pricing,” says Conner, who was a public-golf manager himself, before taking on his current role. “Our twist on it is to use data to price smarter. Supply and demand is complex in this business, and so much of what you need to know is hidden from view. But we feel we have our headlights on and we can see what we couldn’t before.”
The formula for getting those headlights on involves an investment of time and budget dollars, not surprisingly. One vital asset in the process is the work of Dr. Cathy Enz, whose title on the Cornell University faculty even has the word “dynamic” in it. She is the Schaeneman Professor of Innovation and Dynamic Management in Cornell’s much-admired School of Hotel Administration. Over recent years she has executed a series of projects for the Myrtle Beach course owners that address this issue.
The PGA of America took notice of her work and last year retained Dr. Enz to develop five classes on yield management to be delivered via podcasts. The point of this work was reportedly to demonstrate that most courses underprice, and that any particular public course is, according to Enz, “held captive to the dumbest competitor in the marketplace.”
Further bolstering MBAGCOA’s drive for data-based profit maximization is Chris Hendrick, a PGA professional who years ago did a career pivot out of the golf shop to found and operate Summit Golf Services, known for its sharp work in data-driven revenue-management services. Hendrick is on retainer with the MBAGCOA and is relied on for accuracy and continuity in rounds-and-revenue tracking, capturing and analysis. But that’s really just baseline stuff—Hendrick also helps Conner and his team brainstorm for new ways to leverage what they’ve got in the name of higher return on investment for all concerned.
“At a certain point each year,” says Conner, “Chris and I will review what we’ve done over the previous 12 months and I will say to him, ‘OK, what’s the next step? How else can we help our cause by leveraging data?’ We feel we are just getting going, in terms of what data can provide us.”
There is turning out to be some “margin magic,” if you will, in the analytics and formulae produced by data-driven revenue management programs that are well designed. For example, in the Myrtle Beach market, gross demand for golf has been relatively flat over the past two years—but flat when you look at it from the 30,000-foot view. Within a full year of green fee selling, there are always going to be hot spots, and the idea is to understand how hot some of them really are.
“Through Chris, we analyzed data and looked at our peak time of March, April and May,” explains Conner. “We picked 10 days that we saw would be the busiest, through historical sales as well as current pre-booking. Then we communicated this to our MBAGCOA guys and promoted the idea that we should treat these days differently.”
A group-wide decision was reached to set pricing for that 10-day period at no lower than rack rate and work upward from there, each course deciding individually on next steps. Among the array of Myrtle Beach owners and managers, some pushed the envelope just lightly, others more aggressively. When Hendrick ran the numbers on the backside, they pointed to an experiment that had worked. “Out of that campaign, as a group,” Conner reports, “we generated roughly $1 million in excess revenues, over what we would have generated during those 10 days had we not created the initiative.”
Pinehurst, Ocean City, the Jones Golf Trail in Alabama and similar clusters of courses come to mind as Conner is asked about other places this approach might garner welcome results. One important factor is the amount of pre-book a market enjoys, through visitor play. The tallies that Summit Golf Services provides to its Myrtle Beach clients aren’t just historical, they include a so-called pacing report, so everyone knows on January 15 of 2017 how reservations for the coming March-April-May period currently stand, versus how they stood for that period on the same day in 2016. “And it’s not just rounds in that pacing report,” notes Conner, “it’s also revenue.”
He makes that latter point emphatically, in a way that sheds an even brighter light on MBAGCOA’s strategy and mindset. For all the statistical attention they receive, rounds are the product, divided into units over time and place. Revenue is the valuation of that product. Think of it this way: If a wealthy golfer heard voices telling him to play 18 holes at your course next Saturday at noon because his life depended on it, and you charged him a green fee of $25,000 (with cart), you could send that player off the tee and otherwise do zero business, but still likely enjoy a record revenue day. Rounds-played wouldn’t matter.
With that in mind, the Myrtle Beach group is looking harder these days at supply and demand out ahead, viewing demand more precisely through the lens of prices golfers are paying. If in the January 15 pacing report the month of March is dead even in rounds (versus prior year) while revenues are ahead by 3 percent, demand is obviously up—and the price needle might not mind a little push to the high side.
“We’re giving that analysis a close look this spring, as we start to get more and more granular,” Conner says. “We want to look at opportunities based on times of day and other relevant factors, even in our shoulder seasons.” Already there is a percentage-of-booked-available-rounds level—90 percent—they see as their green light for going dynamic with price.
Two other critical drivers of the consortium’s revenue-maximizing effort require mention. One is the circumstance of all 80 courses signed on with a common booking engine, that of Chicago-based EZLinks Golf. Without that common tee-sheet platform, data-gathering and sharing on this level wouldn’t be possible—at least not until technology arrives to connect one platform with another, although some say that day is not far off.
The second key factor isn’t digital but cultural—course owners in this golf-intense region “play well in the sandbox together, and have a historical bias toward cooperation rather than having everybody in their silos,” says Conner. “In my travels, I haven’t found that cooperative spirit isn’t as common as cutthroat competition, and it’s becoming clear that you need cooperation to get the most out of your market.”
That being said, the path that MBAGCOA is embarked on has not, should not and likely would not lead to a loss of autonomy in business operations for each owner. The data and analytics produce a sharp picture of what’s actually happening in the supply-demand calculus, real-time and forward-looking, which offers the group and the individual members a chance to act on it. A basic consensus on not discounting during high-demand periods has, not surprisingly, been fairly easy to reach. After that the courses make their own decisions about potential upticks in rates.
“This isn’t about telling courses how to make operating decisions that are best for them,” Conner points out. “My role is improving the information flow that will empower to make effective decisions.” Within this particular course-owning community, there is a general inclination to “think about pricing differently,” in Conner’s words.
In MBAGCOA meetings, time is set aside for group members to share their viewpoints and experiences relative to data and pricing. The anecdotal feedback is valuable, often revealing to the more conservative operators how productive it can be, revenue-wise, to turn the dial further toward premium pricing. “The ones who have really worked the program talk about their results,” says Conner, “and it makes a pretty strong impression on the others.”
Strength in numbers, as witnessed in greater Myrtle Beach, has the potential to serve as a particular catalyst for the dynamic-pricing model generally. Obviously, there are many individual owners or managers who have embraced the concept, not needing a network around them of like-acting operators. Few have done so as boldly and unapologetically as Sacramento-based Morton Golf Management, which not only employs the principle at Haggin Oaks Golf Course and its other facilities, but extols its virtues to daily-fee golfers in a prominent message above the digital tee sheet.
That message reads, in part: “By definition, dynamic means constant change. Rates will be adjusted—both higher and lower—in real time, based on demand, availability and other changing factors. While this may be new to golf, airlines, hotels and even your favorite sports teams are utilizing this powerful new pricing strategy. Dynamic pricing gives you the chance to find the rate and time that works best for you.”
Thus does one of the most successful public-golf companies of the modern era get past what for others is a squeamish feeling about green fees going the way of room-nights and airfares.
You need very good data to execute this strategy well, and doing it in a group context like MBAGOA’s carries certain advantages, but the more you scrutinize the practice and ponder its benefits, the more likely you are to see it as a best practice that will only grow in popularity, going forward.
You need very good data to execute this strategy well, and doing it in a group context like MBAGCOA’s carries certain advantages, but the more you scrutinize the practice and ponder its benefits, the more likely you are to see it as a best practice that will only grow in popularity, going forward.
David Gould is a Massachusetts-based freelance writer and frequent contributor to Golf Business.