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November 2020

Revenue Management and Golf

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By Scott Kauffman

Cornell University professor emeritus Cathy Enz made a career out of mastering revenue management practices for the hotel, airline and car rental industries and she continues to teach the subject and give consult on competitive strategy. When the Myrtle Beach Area Golf Course Owners Association (MBAGCOA) reached out to her a few years ago to see if these hotel and travel-related pricing principles had relevance to golf rounds, Enz gladly accepted the assignment.

For Enz, not only was it a compelling project to explore whether revenue management practices could be transferred to other “non-traditional” industries like golf, there was a personal connection now: Enz is an avid golfer after picking up the game about 10 years ago.

According to Enz, the ultimate goal of the initiative started by MBAGCOA executive director Tracy Conner was to determine if price elasticity concepts commonplace in hotels would produce similar results for Conner’s 80-plus member courses. Simply put, Enz says, the study was charged with figuring out the following question: Will golf demand rise if you drop price, and is there a connection?
In other words, does the business of selling golf tee times have “price elasticity,” a fundamental principle behind the revenue management approaches used by hotels and airlines to manipulate prices and effectively maximize revenue? As it turned out, the more Enz pored over Myrtle Beach’s open-book performance data, the more she discovered some “really unique things about golf” that are actually the opposite of what goes on in hotels.

“The short answer is golf demand is price inelastic, meaning demand will not rise when price falls,” Enz notes. “That is not to say that golfers don’t love lower priced rounds. And if prices drop closer to the day of play, they will wait (to book a tee time).  Many have argued golf and all these other industries can be revenue managed using the principles developed in airlines and hotels.
 
“This is somewhat true, but you better know this business because it doesn’t work the same. We found that given the discretionary nature of golf, some of the taken-for-granted principles that apply to hotels and airlines for last-minute bookings are not the same in the golf industry. Hotel rates rise closer to stay while golf rates fall closer to tee time. This makes booking windows very different (in golf).”

Enz also discovered interesting aspects about “high-demand tee times” and concluded the Grand Strand and golf in general feature unique opportunities to enhance revenue in other ways. And Enz is now helping empower the overall golf industry on matters of revenue management through a five-course continuing education program in conjunction with the PGA of America titled, “The Fundamentals of Golf Course Revenue Management.” 

One of the more profound results of the Myrtle Beach initiative was that “superior revenue performance was associated with capturing a higher proportion of demand early in the booking horizon, rather than protecting inventory at higher prices for late bookers,” according to 2019 study published in the Journal of Hospitality & Tourism Research by Enz and fellow hotel and hospitality administration experts, Cornell University professor Linda Canina and Pennsylvania State University professor Breffni Noone.

Of course, this proved to be the polar opposite from “traditional” revenue management models.  For instance, advertising lower prices early in the booking horizon is an age-old tool used to liquidate more hotel rooms or airline seats sooner rather than later. Consequently, travelers are conditioned in order to secure that “better rate” or more desirable airline itinerary and/or hotel reservation they must commit well in advance with the transaction or they risk paying more later or losing it altogether.

Then, to further maximize the management of their inventory and drive greater revenue, airlines and hotels often reserve last-minute inventory for that non-discretionary demand or transaction typically made in the form of a higher-paying business traveler forced to book later rather than sooner.
In the published study co-authored by Enz, “The Uniqueness of Revenue Management Approaches in Nontraditional Settings: The Case of the Golf Industry,” the researchers went on to note: “Competitive price positioning in which price was higher than the competition during within-day peak-demand tee times also shaped revenue gains. Similarly, conversion management was found to be most critical during within-day peak demand periods.”

The paramount practices necessary to become more effective in revenue management, Enz says, are truly preserving price integrity and tweaking precious peak tee time prices/slots to the operator’s benefit. Avoid succumbing to golf’s decades-long cultural practice of avoiding consumer conflict, Enz adds, and simply avoiding these time-consuming management habits by publishing golf’s ubiquitous weekday rates and posting slightly higher rates for “peak” weekend play.

“Golf has more inventory than supply (or golfers),” Enz says. “You have to protect your best tee times and create a booking curve so prices actually rise as you get closer to day of play. Incentivize those late bookers to book early.”

For instance, one suggestion for golf is adopting more of the hotel model where consumers are conditioned to make a credit card payment as a means to secure that “better rate” or desired tee-time. And, in a measure to protect the price integrity of tee times and further steer this consumer behavior to the operator’s benefit,  golfers need to start understanding they will risk losing their deposit and/or tee time if it isn’t canceled within a certain time frame.

Enz emphasizes the last thing golf courses should be doing is slashing prices just for the sake of doing it – in the hopes it will drive demand as a counter position to another course dropping its green fees. This is a recipe for revenue management disaster, she will tell you, because those that simply embrace this strategy are being “held captive by the dumbest competitor.”

Enz came to these aha golf discoveries after MBAGCOA granted her rare access to financial performance data  on practically “every player in a given market,” comprising about 80 Myrtle Beach-area courses, some 2-3 million annual rounds over a three-year period from 2012-15 and endless weather-related data for every day of the year.

To be sure, there are many courses and golf professionals with successful revenue management and dynamic pricing practices in place, particularly the larger more sophisticated multi-course owners like Billy Casper Golf that have dedicated staff assigned to these tasks. Jay Miller, director of golf course operations for Sterling Golf Management Inc., in Newton, Massachusetts, single-handedly mastering revenue management throughout his Newton, Mass-based company’s eight New England properties he oversees with an algorithm he introduced to the company after using it for 10 years as the owner of Hidden Valley Golf Club in southern California, which was named 2011 NGCOA Course of the Year.

According to Miller, he spends about 12 hours every two weeks evaluating and tweaking the prices of his eight courses on five different booking engines, including thorough analysis of his GolfNow software/data that show every rate, every hour and every day of a time frame selected.

“I check the liquidation percentage and what prices are selling, where I can get rack, where I need to lower and where my top revenue will meet my demand,” adds Miller, who was one of the first GolfNow clients in ’07 at his former course in Norco, Calif. “If one booking engine is 100 percent sold out, then I know it is too low; if it is less than 70% liquidated, then I know the price is too high. … Using dynamic pricing software is the easy way out, where the operator either is lazy or simply does not know how to track rounds, categories, prices and what they are taking in on average vs. rack rate at all time periods, and each day for a certain period of time.”

The payoff can be instant and sizable. For instance, Miller also regularly tracks the average rack rate per cart and the percentage breakdown of riders at various time slots. Sterling Golf customers might expect perhaps an additional $2 fee for taking a cart during the prime-time hours on Friday-Sunday (7:30 to 11:30 a.m.).

“That alone will bring in $480 a day or $1440 for the weekend,” Miller notes. “That can mean an extra $43,200 for the year. … The word manage is the key, yet to do it is time consuming and many don’t want to put the time in. Sterling Golf Management went 25 years without a person like me doing this. Asking your GM if they are busy is one thing; analyzing every time period, every rate, every day is a huge next level to maximize your revenue.”

Enz couldn’t agree more, when asked what distinguished one Myrtle Beach course from outperforming another. “If you look at the same tier in the same market, what’s the difference?” she asks rhetorically. “It’s simple. The ones who are successful know how to better manage their peak periods and maintain the right price.”

 

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