_July/thedynamicsofpricing.jpg "The Dynamics of Pricing")
By Steve Eubanks
Love it or hate it, adjusting rates in real time is becoming a crucial strategy in golf course management
It’s a hot topic and a minefield of opinion, misconception and emotion. Just mention dynamic pricing to a golf course operator and you’ll either be regaled with wondrous stories of business-changing success—tales of growth in collapsing markets and seemingly unsolvable problems working themselves out—or you’ll hear that it’s the work of the devil and leading to the ruination of the golf business as we have known it.
There seems to be no middle ground. When talking about the effects dynamic pricing has on the industry, no one is agnostic. You either love it or loathe it; you believe it’s either the salvation of the business or a cancer that will lead to its systemic demise.
First, a quick primer: Dynamic pricing (also referred to as yield management) is simply the fluid and constant online changing of tee time prices based on supply and demand. It’s the same principle as buying a hotel room or airline seat, where the price you’re quoted is determined by the time and day you want to travel, the room or seat that you want, and how far in advance of your travel date you book. If you’re trying to lock up a room for a Friday night in New Orleans during Jazz Festival, the price will be substantially higher than it would be on a Tuesday in August when the temperature and humidity are both near 100. If you wait until the week before you travel to book your room, the price will be even higher, as computer algorithms calculate shrinking supply, anticipate demand, and adjust prices accordingly.
By the same token, a flight from Phoenix to Dallas can be booked at a great rate if you plan far enough out and remain flexible on what time of day you travel. As flights fill up, the prices go up accordingly. Then, 10 minutes before the plane is scheduled to take off, airline employees, spouses and “buddies” are allowed to take whatever seats remain with no revenue coming back to the airline at all. This is a perk of employment, one some airline personnel value more than raises and bonuses.
In recent years, sporting events and concerts have formalized the dynamic pricing model. Instead of scalpers gobbling up tickets to the Fleetwood Mac tour and hiking prices past the absurd, artists and venues now price dynamically. If section 115 of an amphitheater books to 50 percent capacity in 15 minutes, the price will automatically tick up. If it reaches 60 percent in the next five minutes, it will tick up again, and so on. The amount of the increase is generated automatically based on the speed of the sales. If sales slow or stop, the prices adjust downward.
It’s the equivalent of a stock or commodity trade for a perishable service, and it’s sweeping industries far and wide. Many Major League Baseball parks now adjust seat prices based on demand. If you want to sit in Row E, Section 125 of AT&T Park for a San Francisco game, you’ll pay substantially more in September when the Giants host the Braves than you will for an afternoon game in June against the Rockies.
“As usual, golf has been slow to the party,” says Jeff Smith, CEO of Walters Golf Management in St. Louis, Missouri. Smith is a vocal advocate for dynamic pricing, which he has instituted at all of his 15 properties. As a result, in a St. Louis golf market that, according to Golf Datatech, was down 11 percent overall in 2013, revenues and profits at Smith’s facilities were up between 8 percent and 16 percent.
“This is a hot-button issue and one that, in my 30-plus years in the business, is the one thing that I believe could change the way golf operates,” Smith says. “I’ve been in the business since 1986 when I left a Fortune 500 company (McDonald Douglas) to become the executive director of the Gateway [PGA] Section. I built a pretty good business, but about 18 months ago when I saw this, the lights went on and I felt like a thimble-head. Now I’m asking myself, how can all these golf courses have been operating for all these years without figuring this out?”
There are various ways dynamic pricing works in golf. Certain automated tee sheets have features that allow for automatic triggers to tick prices up or down based on how full a block of time gets. So, if the 2 p.m., to 3 p.m., window is only 20 percent full 24 hours out, the program could be set to automatically discount the price. By the same token, if the weather forecast changes from rain to sun and demand for the 8 a.m., to noon times increases 24 hours in advance, the system will recognize it and the prices will tick up, sometimes going higher than a course operator has ever seen.
In California, where the market remained stagnant last year and per-round yields have shown a steady decline for the last decade, several course operators logged robust growth, increasing revenues some 13 percent. And in the mountains of North Carolina, an area where the pre-2008 development boom saturated every cliff with a stone entry statement and a new, elaborate golf facility, one course that was so damaged in a landslide that it had only 17 playable holes saw its average yield grow by $4 per round and yearly revenues increase by 12 percent in 2013.
So, you may ask, how are these types of dramatic gains possible? And what do other operators need to do to make it happen?
“You make every hour on the tee sheet its own business,” says Ryan Ott, general manager and director of golf at Sequoya National Golf Club in the mountains of North Carolina. Ott spent the better part of two years working with EZLinks (now TeeOff.com) to customize dynamic pricing software for his specific operation. He has used that knowledge to his advantage at Sequoya National, where he and his staff set initial prices, not based on any rack rate but on what’s happening in the market.
“We begin with our casino rate,” Ott explains. “But the advice I would give to any operator is to start at whatever price you would accept for a time if a customer were to call and negotiate with you on the phone. Then, once a specific block of times fills to 70 percent capacity, the software automatically raises the rate. When we hit 80 percent, it goes up again, then it goes up again at 85 percent capacity. That allows us to increase rates and maximize revenues at our peak times.”
Yield management also gives Ott the flexibility to experiment with what the maximum value of a tee time might be. In the fall, when the leaves in the mountains are turning but the days are short, a 9 a.m., tee time could start at a rate that’s higher than any summer tee time. Ott has also found that dynamic pricing solved a problem that has plagued golf operators for decades.
“Dynamic pricing has allowed guests to choose either a time or a rate that best suits them,” Ott says. “If rate is important to you and you have some flexibility with your time, our staff finds a time at a rate that works. The same is true if you need to be done at a certain time and don’t mind paying a little more. Now, play is more evenly distributed and things move smoothly. What this has done for pace of play is nothing short of miraculous.”
What’s more, yield management encourages golfers to book early so they can get the best rates. This helps operators in scheduling staff and in budgeting more accurately.
“When a twosome pays $65 and the twosome playing with them pays $95, that usually leads to a conversation back in the golf shop,” Ott says. “But our answer is very simple: book early. The guest understands that. If they book early, they get a better rate. They’re used to it in every other aspect of their lives. They’ve been on StubHub. They’ve flown. They’ve booked a hotel room. They’ve been to a ballgame. Only in golf are they conditioned to wait until the last minute to try to get a discount. That’s a mindset we’re changing, and it’s one we need to change because it’s hurting the business.”
There are some fascinating psychological aspects tied to dynamic pricing as well. For example, some operators have discovered that a tee time on the hour will sell for up to $10 more than the times on either side of it. So a 9 a.m., time is worth $10 more to a customer than the 8:52 or the 9:08. Morning times on major championship Sundays are worth so much more that operators have not only charged a substantial premium for those times, but also run two-tee or shotgun starts to get customers off the course in time to catch every shot of the tournament on television. “I ask everyone, ‘If you had five 8 a.m., tee times, how many could you sell?’” Smith says. “The answer is every one. Then why aren’t you charging more for the one that you do have?”
The biggest criticism with dynamic pricing is that it’s just a fancy word for discounting. Operators equate the myriad third-party dynamic service providers with the dreaded online discounters, and they fear that fluctuating prices will lead to downward pressures and a race to the bottom.
“There’s nothing wrong with selling golf for less in times of low utilization as long as you have no problem selling golf for more in times of high utilization,” Smith says. “At the same time we’re selling tee times for less in non-peak times, we’re selling golf for more in peak times. In the old days at Gateway National (one of the Walters properties in St. Louis), the highest rate we ever charged was $69. We sold golf on many occasions last year for $85.”
Even in spots where per-round yields have declined with dynamic pricing, many operators are happy. “It really depends on what you’re looking for,” says Flint Nelson, general manager at Champions Club at the Retreat in Corona, California, a club that has been pricing golf dynamically for more than a year. “Yes, we’ve seen our dollar-per-golfer decrease since we contracted with Dynamic Revenue Services (one of the third-party providers that manages entire tee sheets for operators). But the Temescal Valley was one of the hardest-hit areas in the Great Recession, and according to a lot of experts, we will probably be the last to fully recover. So, yeah, our yields are down, but our total revenues are up. And in this market, that’s all I can ask.”
Like all innovation, dynamic pricing is only as good as the user makes it. If an operator is unwilling to research his or her market and raise prices when demand dictates, then any dynamic change will, indeed, be a discount. But for the operator who is willing to react to market forces, eliminate the old rack rate model and let the free market dictate prices on a minute-by-minute basis, dynamic pricing could be the key to survival.
“You have to be willing to respond to forces around you,” Ott says. “If one of our competitors has aerified their greens, we know that and will adjust our prices to reflect the increase in demand.”
Lowering and raising rates based on weather and the popularity of certain tee times is nothing new. But using technology to adjust those prices up and down on the fly is not just new, it could be revolutionary.
“How do I know it’s working?” Smith asks rhetorically. “Because I have 14 facilities in St. Louis and we’ve been through the worst winter in history and those properties have money in the bank. There’s no better measurement than that.”
Steve Eubanks is an Atlanta-based freelance writer.