PRICE WARS.

GOLF IS THE BIG LOSER

By Dave Gremmels You pick up the paper and read about a new cut-rate promotion that an area golf course competitor has just launched. The groan is unknowingly audible to your spouse in the next room. You escape to the radio to sooth your nerves with music only to catch the tail end of another ad by another area golf course touting their new cut-rate deal. Sound familiar? You are not alone; price-cutting has become, and is becoming more and more common practice in the golf industry. Over building of new golf courses, the flat growth of new golfers and the sluggish economy has sent golf courses into unchartered waters. Golf courses are faced with problems that are completely new to them. Very simply; decreasing rounds and decreasing revenues coupled with ever increasing expenses. In the not too distant past I attended a Crittendon Golf Expo for golf course development. In one of the seminars I attended one of the attendees in the audience made a statement that rattled my line of thinking. He stated that he was from a university and current research indicated that golf was elastic in its price sensitivity (a reduction in price is met by a more than proportional increase in consumption). I had always felt that golf pricing was relatively inelastic in nature. I felt that people would not play very much more golf if the price dropped due to the time constraints inherent in golf combined with other obligations, work, family and other demands of their time. I had always felt that if price was an issue for a particular group of golfer, they would simply shift their play to a less expensive course. Armed with the idea that both theories were true I decided to take a deeper look at the economies of golf as it relates to price sensitivity. I wanted an answer to how both price elasticity concepts could be true. With 25 years of experience in the golf industry, current owner of two 18 hole golf courses, a Bachelor degree in Finance, Accounting and Economics I set out to examine price sensitivity of golf, the state of our industry, and what can be done.

PRICE WARS.GOLF IS THE BIG LOSER

Unfortunately I have uncovered a paradox in golf that will take education and understanding to overcome. What an individual course owner does in the short run will eventually come full circle to defeat him in the long run. The paradox is clear cut, but how can we expect human nature not to kick in and cause someone to resort to desperate measures when no one is coming through the doors and bill collectors are pounding harder and harder at the door? The logic of this statement will become clear. First we must examine some basic economic principles as it applies to the golf industry. Mainly supply and demand when it comes to golf. Demand for Golf: In order to understand golf we must first examine the demand for golf and its sensitivity to price. The advent of public golf over the past decades has made it possible for golf to grow and break the price barriers that once existed. Years ago it was all or nothing. Private clubs were dominant, if you didnt join a private club or have parents that played golf and belonged to a private club; there was not much of an opportunity to take up the game. If you were only going to be an occasional golfer, it didnt make much economic sense to join a club and pay full benefit dues. Our free enterprise system kicked in gear and provided a supply for a demand. Public golf courses allowed people to ease into the game at their own pace. They now had the opportunity to pay green fees only when they wished to play. The rise in public golf courses expanded the boundaries to availability to all and contributed to the rapid growth of golf across all economic sectors. Todays golf market in any geographic area is made up of a wide variety different type golf courses meeting the particular individual needs of any golfer. There are elite private clubs, blue collar private clubs, semi-private clubs, low end daily fee, mid range daily fee, high end daily fee, Signature courses, 9 hole courses, executive courses etc., something for anyone. An elite private club member may not even play much golf but wants the business association or status the club offers.

PRICE WARS.GOLF IS THE BIG LOSER

The patron of a high end daily fee may want the flexibility to play a variety of courses, demand a course of quality and can afford the price. A low-income golfer can frequent a low-end daily fee or semi-private club. A beginner may play a 9hole or 18-hole executive course. The main point is that golf now offers something for everyone who wishes to participate in the game. The law of supply and demand in our economy has evolved the game of golf. Demand Elasticity: The price barrier of golf has been broken. Granted there is a basic entry-level cost that does create some price barriers. Its not like a pick up game in basketball. There is an economic barrier at the entry level. A $2 round of golf is not common even on the lowest end golf course. However used golf clubs, balls and a low green fee course can be obtained even by those at even the most modest income levels in todays market. We must now examine the demand elasticity of golf. It is defined as a measure of the responsiveness of number of rounds played to a change in price. Demand is said to be inelastic if a change in price either up or down produces relatively little change in the rounds played (or the demand for golf). Demand is said to be elastic if small price changes produces a relatively large number of rounds played (or demand for golf). Illustration 1a and 1b graphically demonstrate elasticity.

PRICE WARS.GOLF IS THE BIG LOSER

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In economic theory every commodity has elasticity. Some are elastic, inelastic or unit elasticity (a proportional drop in price results in a proportional increase in demand). A commodity that is unit elastic would yield the same revenue at P1 and Q1 as at P2 and Q2. The importance of golf elasticity is extremely important to golf as it relates to overall revenues. If golf were elastic then a course that drops price from P1 to P2 would result in a greater proportion of rounds as Q2 increases greater than proportionally as illustrated in Illustration 1a. If P1 is $30 and Q1 is 20,000 rounds then revenues are $600,000. If P2 is $25 and Q2 is 30,000 rounds then revenues would be $750,000. However if golf is inelastic as shown in illustration 1b, and P1 is $30 and Q1 is 20,000 revenues would be $600,000. If price is dropped to $20 as demonstrated by P2 and Q2 is 22,000 rounds, revenues would be $440,000, a drop of $160,000.

PRICE WARS.GOLF IS THE BIG LOSER

If golf were determined to be elastic, then a drop in price would be expected to generate more revenue. If golf were inelastic then a drop in price would be expected to generate less revenue. Is golf elastic or inelastic? Economic theory dictates that the elasticity for golf could be theoretically determined and quantified by and formulating an index. Such sophisticated modeling could yield a theoretical index. In the absence of such an index we can conceptually determine the price elasticity of demand for golf. Commodities such as staple food items such as sugar, milk or foods in general are inelastic.
1

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example all foods have an estimated elasticity of 0.4; Automobiles are 2.1 (elastic). Foods are less than one and are inelastic. Conceptually you can easily conclude why. We all have to eat as a basic need. If the price of food increases we will still have to consume relatively the same quantity. Our current gas situation is an example of inelasticity. Even though gas prices have skyrocketed, our consumption has changed much less than the proportional change in price. Durable items like appliances are elastic. The logic being that if the price of Televisions increases we can hold on to the one we have a bit longer. We are not in dire need of replacement. However if TVs go on sale for 50% off, by economic theory, a proportionally larger number of TVs would be sold. Consumers that werent even thinking about a new TV would purchase, and consumers in the market for a new TV may purchase two. Overall revenues of TVs would increase substantially. Why then dont retailers drop the price 50% and increase revenues? The answer is obvious; if the mark up of TVs were 20% they would cover the cost with every TV sold, a situation where the cost exceeded the selling price. We will revisit the concept of cost to a golf course operation at a later point. It has significant meaning and is misunderstood by many golf course owners and managers.

Economics 5th edition Lipsey & Steiner

PRICE WARS.GOLF IS THE BIG LOSER

Is golf elastic or inelastic? At first glance you would think it is elastic. It isnt a necessity such as food. You would think it would be more like a television, an item you dont have to have. The unique feature about golf, as a commodity is an extra important characteristic not possessed by food and TVs. TIME is a major factor. If the price of golf were to be cut in half, we may be able to afford twice the amount of rounds at the courses they currently play, but do they have the time to do so? Conceptually it is easy to conclude, the answer is no. People have jobs, families other hobbies and commitments. Even retired golfers have other interests and commitments in their lives. It is an investment in time to play golf, 4 to 5 hours worth. The NGF (National Golf Foundation) and the NGCOA (National Golf Course Owners Association) have identified that time commitments are a major component to the retention of golfers. You can buy two TVs in the same amount of time it takes to buy one, time is not a factor. It can be concluded that golf is relatively inelastic. A change in price will yield a less than proportional change in demand or rounds played. This is not to say that its totally inelastic (a change in price yields no change in demand). Other factors such as people displacing other leisure activities for golf, lower economic income levels able to enter the golf market produce some elasticity. I previously expanded on the point that golf has pretty much broken the price barrier. If people want to play golf (a leisure activity) they can pretty much find a price point they can play at. They may prefer to play a higher end course, and would if possible, however they dont have to. If the price of golf were reduced by 50% it wouldnt mean that they necessarily would play more golf, they would now be able to afford a once higher priced course. This logic would mean that they would just displace a round at a lower end course to one of a higher end. The concept of displacement will soon become very important. There are other economic factors that do affect the demand of golf such as income elasticity. It does have an effect on the demand of golf and may affect the

PRICE WARS.GOLF IS THE BIG LOSER

elasticity of demand to golf to some degree. Income elasticity has become more of an important factor to the overall health of golf as golf has evolved. Golf was once thought to be relatively recession proof. However, as golf has expanded its appeal through affordable public golf to blue-collar workers it has become more susceptible to the general economic condition of the United States.

Golf Market: Having just made a case that golf pricing is inelastic, how would it be possible for it to be elastic? After all it cant be both, can it? What was discovered is that golf can be elastic in the short term yet inelastic in the long term. It is very possible for a golf course to increase their short tem revenue from a drop in price (price elastic). Its the long run affect that tells a different story. In order to make sense of this statement, it is important to understand a golf market. As previously mentioned a golf course market (a given geographical area) will consist of many different types of golf course. This is illustrated in 2a below.
Rounds Played

9 hole low budget 18 hole low budget Elite private Blue collar private Semi private Executive Mid range daily fee Upscale daily fee

Illustration 2a

PRICE WARS.GOLF IS THE BIG LOSER

If the entire pie in illustration 2a represents the total rounds played in a year, every course type participates in its own share or piece of the pie. Each is serving demand or market niche for the golf patrons. What happens when a new course is built? The pie doesnt become larger; we dont create new golfers over night tailor made for the new course. The new course will participate in the pie or the total rounds played. In order for this to happen they will have to take a share of each of the market share enjoyed by the area courses. Some of the courses will be affected more by the new comer than others. The courses closest to the new Courses market niche will be affected the greatest. The affect of a new upscale signature golf course to the market is shown in Illustration 2b. The total size of the pie, or the total rounds has not been affected. A new golf course did not artificially create measurable new golfers. There is the argument that having a new course will increase the total rounds played due to proximity to area golfers. The course is more accessible to area golfers in a geographic region. This has a minimal effect on the total rounds played. The long-term affect of more people exposed to golf and becoming golfers would have a much greater impact.
Total Golf Rounds and Market Share

Signature upscale 9 hole low budget 18 hole low budget Elite private Blue collar private Semi private Executive Mid range daily fee Upscale daily fee

PRICE WARS.GOLF IS THE BIG LOSER

The 9 hole low budget course is virtually not affected while the upscale daily fee is affected the greatest. There are several points to be made about the analogy presented. First, in a situation where the golf market is undersupplied (courses to capacity, courses too crowded), the pie presented would not be representative. In this case the pie would expand and become larger as golfers who wanted to play but did not would now be able to get on the course. Second, there would be a rapid growth of golfers who wanted to play but were discouraged by the crowds, unavailability of tee times at the time they could play. Golf has long enjoyed this situation. A new course could be added without effect on other area courses. Third, an addition of a new course doesnt always take away rounds in just one market. They may overlap with other markets and share in their total rounds. It is important to realize that golf markets consist of a series of golf markets each overlapping with another. It can become extremely complicated. The analysis presented is simplified but effectively illustrates the net affect. The state of golf in many markets is where golf courses are not at capacity and the concern among area courses is great. It sets the climate for price-cutting to boast revenues. Golf GNP: If we take the same area market pie and translate it into golf GNP, the total dollars spent on rounds of golf. It is defined as the dollars generated from memberships, green fees, cart fees and all revenues associated with all the rounds of golf played in the market area. The pie would change a somewhat in shape. An upscale course may have played less rounds but would get more revenue per round and generate more overall revenue than market share of rounds. Be cautioned that this does not mean profitability; higher end courses traditionally have higher

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maintenance costs and debt service. Illustration 3a depicts the market area GNP after the signature high-end course was added.

GNP

Signature upscale 9 hole low budget 18 hole low budget Elite private Blue collar private Semi private Executive Mid range daily fee Upscale daily fee

Illustration 3a The addition of the new signature golf course has hurt revenues and profitability almost across the board for area golf courses. If we assume the new comer is totally dissatisfied with its market share, revenues and profitability and is looking to make a change. They carry a higher debt service, higher maintenance costs and are running in the red. They look at the parking lot and see very few cars on a daily basis. They have tried aggressive advertising promoting their very special design, magazine testimonial of a top 10 new course to play, and immaculate course conditions. They are the top dog and they cant obtain the level of play they anticipated. With the mentality something is better than nothing they resort to price slashing. In the short run they are amazed at the increase in activity on the course, cars are actually occupying spaces in the parking lot and hotdog sales soar. They

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however are surprised at the modest increase in revenues. Still they are pleased that they have experienced some increase in revenue. They could even have experienced a negative effect, or decrease in revenues. This could be the result of not catering to its primary market. A situation where they dont attract enough golf rounds from new markets to make up for the loss in per round pricing. The upper end patron may even be discouraged and leave from a decrease in service and quality. Golfs short term elasticity characteristic is responsible for the modest increase, or no increase, or decrease in revenues. The problem they have created is short lived in a free enterprise system. When the top most prestigious and expensive course cuts prices they cut into many of the markets below them. If they become the same price as a semi private golf course and a mid range daily fee course, human nature dictates that many golfers in those markets will make a shift and include this new course in its golf circle more often. Consumers are value oriented, if they can play or buy a better product for the same price as an average product they will do so. This does not have anything to do with price elasticity; it has to do with value. To maximize what you get for what you pay. The inelasticity of golf is not a factor in this situation. In case example, the signature golf course owners have concluded that golf is price sensitive, they drop their price and generate additional revenue than the had previously. This seems to go against the conclusion of that the price of golf is inelastic. However what we really are dealing with is displacement of golfers, not price sensitivity. I will deal with the concept of displacement shortly. The new market pie is shown in illustration 3b after the price-cutting by the signature golf course.

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The point was made that the effect of price-cutting for our signature golf course was short term. The effect could very well be permanent if the signature golf course was not part of a free enterprise system. Competitors are free to react and respond to their surrounding environment. A look at the long term effects in a free enterprise system of this case study we may be surprised at the end results. The signature course entered the market as the most premium course in the market. The decision to have a top designer was one of economics. It was determined that the premium paid for a name architect would be financially beneficial due to premium prices that could be charged. This determination should have been thoroughly concluded from the feasibility study. The next closest to this market was the upscale daily fee course, they new they could charge more than this existing course. If we look at the comparison of the market shares of the market pie after the new signature upscale course entered the market and after they slashed prices we can find some interesting results. This comparison is depicted in Illustration 3c below. First the share of the total GNP for the upscale course has grown. Their revenues have increased, thus they end up a greater share of the total GNP. Second, the total pie represents all revenues generated in the golf industry of all golf courses, has not increased. The pie has not grown. The pie is the same size after

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the price slash as it was before. No measurable increase in total money spent for golf. Nothing has happened to increase the total GNP of the golf market. There has not been an addition of new golfers or anything that caused existing golfers to play more golf. All that has happened is that golfers have been displaced from other markets. Third, from the comparison of the two pie charts it can be concluded that the courses closest to the market of the signature course lost the greatest percentage of revenue. This includes the upscale daily fee course and the mid range daily fee course. It stands to reason that lower end markets would be the least affected. Golfers frequenting the executive, 9 hole and low-end 18 hole courses were not

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Illustration 3c previously in the mid range market or the upscale daily fee market before the pricecutting. Nothing has happened for them to make any real adjustments in their golfing habits. The response by the courses affected is predictable. They have seen their market share erode, revenues have declined and people arent playing their courses as they use to. They are the same situation the signature course was in previously,

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declining revenues, increasing expenses and profits turning red. The recourse for them is to slash their prices to regain revenues and profitability. Once they cut prices, they will affect the courses close to them, and regain some play that previously went to the signature course. As we continue with the market adjustment, it filters down the line and will end up back where it started with the total market shares back in balance. However there is one big difference! This is demonstrated in illustration 4a.

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Illustration 4a The total money spent, or GNP for golf decreased in the market. Everyone has their original share and the original number of rounds is the same. Golfers are playing the same number of rounds but now paying less per round. The price of golf has ends up dropping in this market. Note in illustration 4a that the pie has gotten smaller. All the courses have lost revenues in the end. The money that people were previously using to play golf will go to some other market other than golf. They are still getting the level of leisure activity in golf they had previously, but now have a little more disposable income available for other needs. In this overview the inelasticity of the demand for golf rears its ugly head. It should be

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noted that the analysis presented is a simplification. In actuality there would be some increase in overall rounds. Golf is not completely inelastic (a drop in price would not increase rounds at all). For reasons previously mentioned, an overall drop in price would increase rounds played by some degree. The point to be made is that the increase in rounds would be less than the proportional drop in price. This is a situation where the overall GNP would be less than before the decrease in price of golf. This makes the conclusion of the analysis solid. At this point the paradox in golf becomes clear. The very thing an entrepreneur must do to survive in the short run could eventually be the worst thing possible in the long run. In free competitive markets only the strong will survive. When competition becomes intense and the economic climate of the industry declines, many will go out of business. However the golf industry has another unique characteristic, the assets of a golf course are not easily transformed into another line of business. If a factory making lawn mowers closes down, another industry could easily modify the factory to fit their needs. A golf course does not easily have an alternative use. If it was in an urban area where land is valuable, it possibly could be turned into subdivision or a sight for a factory. In reality, a golf course will remain a golf course. It may change hands several times until the debt service becomes such that it becomes a viable operation. The notion that one golf course owner is going to run another course out of business is absurd. They will only end up competing with a new owner with less debt service and in a better position to compete against them. Golf Round Displacement: The analysis just presented demonstrates a situation where everyone loses. One serious problem many golf course owners have is understanding the cost of a round of golf. It is easy for a retailer selling TVs to know if the TV costs X$ than in order to pay my overhead I have a minimum amount over cost that I can sell TVs for no

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matter how many I sell. For some reason golf course owners feel that a round has no real cost to them. The mentality seems to be that the course is there whether anyone uses it or not. This is a big misconception; a cost per round is the total operating expenses including dept service divided by the number of rounds played. If your total revenues from green fees, carts and memberships divided by the number of rounds played is less, then you have sold your product below cost the entire year. It doesnt matter how you calculate your rounds, 9 holes, 18 holes or a combo of both the result is the same. The problem is that the golf industry has not recognized a new concept I will call golf round displacement. Golf round displacement is defined as the replacement of a more expensive round of golf a golfer was willing to pay and replacing it with a cheaper one. The net result is a shrinking GNP as previously demonstrated. To best understand this concept, consider the following; It is an overcast rainy windy day and 2 golfers have played all day. A van of 8 golfers show up and come in the pro shop and say to the pro, manager, or owner..We will play your course today if you give us 50% off your price or we will leave and find another place to play. Would you let them play? After all something is better than nothing. Letting them play would be below your cost per round. If you let them play, you have just practiced golf round displacement. It is displacement because you had a group setting out for the day willing to pay twice what they ended up playing. The golf GNP of the area will never get that back. The inelasticity of golf says that wont necessarily play more golf just because they got this round cheaper. Again we have a paradox, if I dont do it then some other golf course will cut my throat and give them 50% off. Letting them go may be the best thing you could do because you will end up making more money in the end. Before you through this article down and declare you knew I was crazy give me one chance to explain.

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Lets say this group of 8 gets together three times a month to go play a golf course. Financially they can all afford a $75 course and dont mind paying that because they want a nice course in good condition. There is a list of several courses in the area in their market choice. They get together and make a choice of where they want to go. If you let them play for 50% off the rainy windy day, do you think next time they get together and play you will be on the top of the list? Probably not, they will want to play someplace different. They will probably end up playing the course they would have gone to if you had said no, and paying full price. So you end up with a 50% off round revenue and your competitor got full rate. If you said no, the competitor would have gotten the 50% revenue and you would get the full rate. Or if you and your competitor both believed in round displacement, you would both have ended up with full rates. Ask your self a question, If that group I have described got 50% off that day, would they be likely to change their golf habit and play an extra time because they got a deal? I have seen golf round displacement go on for quite a while, not just the past couple of years when price slashing has been more and more practice. It has been happening with golf cards. There are many different cards on the market allowing holders to get big discounts at selected times. The sellers of the card all make the same pitch, we will drive you rounds at times you are not busy, getting a cart fee is better than no fee isnt it. You will sell more cokes, beer and food. If you believe in the concept of golf round displacement you could see how such practice could hurt golf revenues in the entire market area. A word of caution: Up to this point it has been presented what the inelastic nature of the demand of golf has in a price war situation. The argument has been against cheaper golf practices. I want to stress that golf is not completely inelastic; there is some price sensitivity that will encourage new play. In addition the proximity of an affordable

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golf course will have an influence on the amount of play. If a course in the area has a price drop it would encourage new golfers who were discouraged from riding across town to get to an affordable course. golf round displacement. Interdependence of Golf Courses: Competition and a variety of different type of golf courses is not a bad thing. Having a variety of courses in different markets is essential to grow the game of golf. If you have something for ever golfers needs, you are not keeping a potential golfer from not playing because there is no course type that fits there needs. A mid priced daily fee course and an upscale course should be glad there is a low budget course in the area. That low budget course could be serving a golfer who will eventually increase their income and move up to a more expensive course. The championship course should be thankful for a beginners course. Their current golfers will become their future golfers as their skills improve. As part of where do we go from here, the concept of working together is explored. Where do we go from here? It seems much that has been presented up to this point indicates a no win situation. I dont believe this to be the case. Understanding the economics of golf is essential to finding the solutions. The problem is they are not easy nor in many cases a quick easy fix such as cutting prices as we have found out. So what can we do? Some of the obvious answers are long term, grow the number of golfers. This means expanding the GNP and number of rounds played. Remember our pie graphs, illustration 5a demonstrates what the effect of growing the game means. Discounted rounds if used very carefully can actually work for a golf course, help the game of golf and not cause

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Illustration 5a If the total pie grows then all revenue is increased for all golf courses as shown by new revenues for each part of the pie. The NGF and NGOCA have already recognized the need to grow the game. Many new programs are underway to do just that, grow the game. accomplish this. A golf course must look at ways to expand their piece of the pie, not shrink the GNP as price slashing accomplishes. One way is obvious in a given market, which is to grow that market. The only way to grow that market is for area courses to work together to expand grow the game on a smaller scale. Working with parks and recreation to bring new golfers in the game is one such example. If each course spends the time to identify their market niche, maybe adjust it somewhat a given market area of courses could have a wide complimenting mix of golf courses appealing to all golfers needs. Get Linked, Kids on Course etc are targeted to

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The 5 alternatives to price cutting: Growing the game is a very logical answer to an ever-increasing problem of too many golf courses and too few golf rounds. The problem is long term. What are we to try to do now? The five alternatives are important, but each one needs to be long term oriented. Golf courses must look to the short run solutions but be committed to the long term. Market Identification: Take a careful in depth look at the golf market and your placement within it. I could spend an entire paper on market identification. Basically it is looking at the needs in the market by golfers and what courses supply those needs. If there are several courses in your market, for example a mid-priced 18-hole course, can you make a shift to an upper priced 18-hole course or a low-end daily fee? Many variables would have to go into such a decision. If your course were difficult to maintain, i.e. steep banks, several traps etc. would it be feasible to cut maintenance costs and be a low-end daily fee? How difficult is your course, and how expensive would it be to make it easier? Many questions would have to have answers before shifting in your market position. Another market shift could involve the structure of the course. If you are private, can you become semi-private without losing most of your members or go public and not offer memberships but discounts for season passes. Or you could look at a public course becoming private or semi private because of so many new public courses in the area. What is it that your golf course can offer that would fit the needs of area golfers? The possibilities are many. It takes some extensive investigation to find the answers to these questions. Know who you are, dont try to be all things to all to appeal to as wide of market of golfers as you can. It just doesnt work. You must be consistent and send the same message. One case study in my area was a signature course upper end doing well in an urban market about an hour away. It however was doing poorly in the

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local market. The feasibility study should have shown them they would not do great in the local market due to income demographics. Wanting both worlds they set out to cut prices for the local market while charging premium fees for travelers and the urban market. This inconsistency did not go over well as one might expect. How much sense did it make for someone to drive an hour and pay double what the local in front of him paid? Extend Your Golf Market: Beware of the tendency to cut course maintenance expense. The tendency to keep expenses down in the face of falling revenues is very tempting. Evaluate this very carefully and be sure to cut expenses that will not affect course quality unless you are ready to make a market shift. Try to extend your golf market. Illustration 6a demonstrates this concept. The extended market represents new play outside the current market. A golf course has a primary and a secondary market. The primary market includes golfers within a close proximity, 10 to 20 miles for example. A secondary market may go from 20 to 40 miles. The market boundaries for given golf course can be wide ranging. For example an urban area golf course might have a 10-mile primary market and a 15-mile secondary market. A course in a rural setting may have a 20-mile primary market and a 60-mile secondary market. The point is that the more effectively you can pull golfers from your secondary market and beyond the more rounds you have without price cutting and displacing rounds in your market area as represented by the pie. This can be done by researching beyond and within the outer edge of your market to

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G
E x t e n d e d m a r k e t

S 9 1 8 E B S E M U

i g n a t u r e h o l e h o le l i t e l u e e m x i d p s i lo w l o w

u p s

c a l e

b u d g e t b u d g e t p r iv a t e

p r i v a t e c o l la r p r i v a t e d a il y fe e

e c u t i v e r a n g e c a l e d a i ly f e e

Illustration 6a determine an area weak in the type of golf course you have. Target those markets in your advertising and come up with programs to attract those golfers. For example, if you are private or semi-private and there is a market you have identified lacking an affordable membership course you may offer an out of area membership for reduced cost. Another example I have personally found effective is to offer a golf package combined with over a hotel stay. Getting together with another golf course or two and discounting your golf down to the point of making it an attractive package will open up other markets and new rounds without displacing rounds in the local market. A golfer in your local market could still take advantage of the package. However would they? Probably not, why would they stay in a hotel and incur that additional cost when they live close by? There are several creative ways to expand your market without price cutting in your local market.

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Work together with other area golf courses: Area courses are not going to go away. They may change hands, but the lack of alternative uses for a golf course means it isnt going away. Why not work together to increase local golf participation. The better a beginner course attracts new golfers, the more likely a championship golf course will eventually gain new golfers moving up in skill levels. Create on a smaller scale new Jr., Ladies and beginner programs by working together combined with local recreation departments and YMCAs. As the previous section pointed out, golf packages with other area courses could end up being a win-win situation for all courses involved. Join the NGCOA and work to get state and local chapters. By working together on programs for growing golf on a state and local level will go a long way to increasing rounds in your area. A state chapter could gain the power to influence many state sponsored courses. State and municipal courses often run in the red and are subsidized by governments. If your state and local organization has the power to lobby those government-sponsored courses to make them financially responsible, round displacement could be held to a minimum. These type of government sponsored courses are allowed to run in the red because of greater purpose they serve such as affordable golf and revenues generated through tourism not golf related. However if you can demonstrate that affordable golf is available and privately held courses have the capability to attract tourism you may be able to get legislators to shift there pricing policies. Some states have been successful in promoting golf as tourism for all courses, not just government owned courses. Doesnt this make sense? If we all work together we can help each other. While this makes sense and sounds great, there are some inherent problems with this idea which will be discussed shortly.

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Expand your business operations: Look for other revenue sources to help fill the void in revenues from golf. Do you have a facility for banquets? A full service restaurant? Is there a market for a fitness room? Do you have a pool that you could offer separate pool only memberships? Can you offer a bar and grill with entertainment? How about your golf shop, could you expand and advertise your clothing and equipment? Where is your closest golf shop? To find out the possibilities you must evaluate your facility and the needs of the community around you. From this you can weigh the cost of shifting into the new business venture against the potential revenue. Advertise wisely: One of the hardest thing I have found to do is determine where and how to advertise. I have read countless books on golf advertising and have yet to find an out front winner whether it is TV, radio, paper etc. There doesnt seem to be a clear-cut answer. Golf advertising is very expensive for one big reason; you are only reaching a certain percentage of you target audience when you advertise. The golf participation rate is 11.4% nationally. When you advertise in by a broad media such as radio, for every 100,000 people you reach only 11,400 will be your target. You can increase your numbers by being specific to the listening audience you advertising to. For example a sports talk radio program has a high degree of listening audience in the demographics suited for golf. The point is that you end up paying advertising fees to reach a certain number of people, however the effectiveness for your business is much less because the numbers you pay to reach

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are not all golfers. Most of the ads using broad media are usually products or services used by a large cross section of the population. Using broad media is effective when you have a specific message you want to get out. For example; a new league, tournament or a new promotion. Golfers hearing it are likely to tell other golfers who didnt hear, read or see the promotion if it is newsworthy enough. The effectiveness of e-mail marketing and direct mailings has been documented as being successful because they are targeting a specific market, a golfer. In these modes of advertising there is a high return of dollars spent to reaching a target audience. Check out your local golf publication circulation and advertising rates. Which would you rather advertise in a TV commercial that reaches 300,000 people or a golf publication reaching 100,000 for the same cost? Remember that the golfing circle is pretty tight. Word of mouth of a good product with value goes a very long way. The more effective you can become about being the positive topic of conversation in the golf society the more your business will sore. There are many alternatives to increasing your bottom line without participating in the price cutting war. It is a losing game and the game that loses is golf. The ultimate result will be decreased revenues countered by decreased course quality. It is very tempting and sometimes necessary to participate in this game. If you can weather the storm by keeping your own identity in tack the better you will be in the long run. Once a course cuts price it is so hard to go back, you become what you do. Remember people are value oriented, if you offer them an enjoyable experience from clubhouse courtesy to course quality for what they pay, they will be back. THE BIGGER PICTURE:

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A Rising Tide Lifts All Boats! It sounds great for all golf course owners and operators to get together and come to a consensus to work together instead of against one another. Even presenting a clear understanding of the principles discussed in this document can leave the owners in agreement, but economics predicts that human nature will not lead to the fruition of a well thought out plan.. From the principles presented a clear case has been made that price alone does not lead to enough increase in play frequency to overcome the revenue per round reduction. The solution is to create an environment where the tide will be raised and all boats will be lifted. Remember the golf economy circle representing all revenue spent on playing golf? The logical solution is to increase the GNP or pie, and every one will get the benefit from increase in golf revenues.

G G

o lf N P

G G

o lf N P

The logical solution would be for all those in the golf GNP pie to work together and expand the circle. Unfortunately, the best of intentions will fall short due to the economic principle of self preservation. To illustrate the point I will use a

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lighthouse example. There are 5 shipyards in a cove with a reef at the entrance that causes numerous accidents to the boats of each shipyard. The average cost of boat damage a year is $20,000 for each shipyard. Building and maintaining a lighthouse would eliminate the damage to all the boats. A meeting was called for the 5 owners of the shipyards, shipyard A and shipyard B being the largest. It was presented that the average cost of building and maintaining a lighthouse would cost a total of $35,000 a year. If each owner would contribute $7,000 per year, each owner would save the $20,000 in damage in boat repairs. The $13,000 in savings each year made it a unanimous decision for the owners to proceed with the lighthouse plan. Owner E, the smallest shipyard, got thinking that if he pulled out from his contribution, it still would make sense for the other owners to build and operate the lighthouse, and he would still benefit. With only 4 owners left, owner D figured if he pulled out also, it still would make sense for the other 3 bigger shipyards to continue on with the lighthouse plan. Shipyard C followed suit as he determined that it would still make sense for A and B to build the lighthouse. As you might predict, A and B decided not to build the lighthouse, why should they incur all the expense with little return while the other 3 shipyards received the benefit?. This is why we pay mandatory taxes and have government bodies. The revenues collected are then redistributed for the greater good. Think about roads, can you imagine trying to get everyone together to share the cost of building highways? After all, everyone benefits. This is where associations for golf can play a vital role, through the dues of its members; the members can redistribute the funds to serve all its members. The only problem is that dues are not like taxes, they are not mandatory, which brings us back to our lighthouse example. The only way an association can be effective is to offer benefits that only serve its members. The Myrtle Beach Golf Course Association is a prime example of this concept. They have created a situation

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where if you do not become a member, you are handicapped in the local golf market. When you deal with a general benefit target, such as growing the game, it is virtually impossible to target only the members. All golf course owners want, and would benefit from expanding the golf GNP by growing the game, but they would like someone else to do it. In times of rising costs, decreasing revenues, who could blame them? It is apparent that our golf associations like the NGF and the NGCOA have to operate in a difficult environment to be effective. Without the full support of the golf industry members, they are severely handicapped in what they can accomplish. What Can Be Done? In order for any association or collective agreement to be effective it must have a direct benefit to its members. Taking a page out of the success of the Myrtle Beach Golf Association, we find a target benefit. In the lighthouse example this would be synonymous with implementing a system where the lighthouse only shines when the member ships pass by the reef. Instead of the golf associations targeting broad objectives in one program, like growing the game they would be better served to breakdown the general goal into segments. Targeting each segment to those that will benefit the most would be much more effective. Economics, human nature, broken down in its simplest terms is cost verses benefit. If the benefit outweighs the cost and the benefit cannot be enjoyed without the cost, a free market system will determine that the cost will be incurred. After all, If you have a championship golf course, not conducive to beginners, why should you see your dues go to grow the game programs where beginner courses benefit? No doubt, you will benefit in the long run, but we operate in the short run while we keep sight of the long run. The short term benefit from increase revenues will go to the beginner courses.

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If the overall goal is to increase the golf GNP we must target specifically all areas of golf and implement programs that create a direct benefit from those in each segment that will receive the benefit. Dave Gremmels davegolf@direcway.com Copyright 2006 2nd edition