Golf Revenue Management 12.8.14 sl

Revenue Management: Golf Course

Group Project: Revenue Management in Golf Course Management

Linda Phommana

Sharon Litchfield

Haoyuan Pan

University of South Florida Sarasota-Manatee

HFT 6938 – Graduate Seminar in Revenue Management

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Introduction

The hospitality industry is all encompassing, from retailers who service you at the mall to

casinos in Las Vegas who cater to every gambler’s addiction. It also includes the lucrative

market of tourism and most often is associated with restaurants, hotels, and resorts. Ancillary

service providers like airlines and other forms of transportation providers are involved as well.

You could think of it as: “If you provide a service to someone you’re in the business of

hospitality. If you don’t provide a certain level of hospitality, then you’ll soon be out of

business.”

Revenue management is important to the hospitality industry, just as it is in every

industry. In addition, there is always the unknown factor of human resources that may negate

your best efforts of a profitable bottom line. You have to develop strategies not only for your

business but also for your employees. Some may ask, "what does revenue management have to

do with your employees?" We would suggest that it has everything to do with them.

We will present a case for the golf industry and some of the strategies that have been

used in their revenue management procedures. Just like other hospitality sectors, the demand for

golf varies. Managers are presented with many problems and it requires creative problem

solving. When members ask for something, managers must try their best to oblige; otherwise, the

business will risk losing members and have difficulty recruiting new members as evidenced

since 2002.

The History of Golf

For over a hundred years, golf and country clubs have represented exclusivity for upper

class people in the United States and elsewhere (Gordon, 1990). To be a member of a private

golf and country club, an invitation is needed (Gordon, 1990). Then, to ensure exclusivity and

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financial health of the club, an initiation fee becomes a requirement. Monthly dues and other

fees come along with it. We also have to include capital assessments. It is a sizable investment to

belong to a luxury market and live the traditional golf and country club lifestyle. For those in

certain economic classes it means “you’ve arrived”, you belong to a country club. You are in

effect an owner in the club, a “shareholder” (Gordon, 1990).

Many professionals in the hospitality industry and board members of these clubs are

wondering what the future of the private, member owned golf and country club would look like

in the future. As the demographics and trends change the look of golf and country clubs, it bears

discussion to the future of initiation fees and their necessity in today’s marketplace along with

what else will make their club sustainable in other areas of revenue management.

From a Country Club to a Developer Club

When golf and country clubs were first established there were not homes surrounding it.

It was typically developed from a parcel of property. Usually an apple orchard that was no longer

in use or swampland in Florida (Gordon, 1990). But, during the real estate booms, developers of

large tracts of housing figured out that if they put in a golf course and certain amenities such as a

clubhouse, tennis facility, and a food and beverage department, it would differentiate themselves

from the rest of the developers. It would give them an advantage of selling homes (Goldfield,

2007).

The idea worked successfully. There are more golf courses built in this manner from the

seventies to present day. Thus, when the real estate market experiences a bust, so does the

private golf club market, and the decline of golfers. In addition, when the developer was built

out, meaning he had sold all the homes, he would discontinue financing the expenses of

operating golf and country club. As a result, the responsibility was turned over to the members

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who had invested in the club when purchasing their home. Often times, this meant that members

who had no experience operating a golf and country club were not prepared for the financial

undertaking involved. This situation could leave them vulnerable to various consequences such

as, bankruptcy, closure, or public play, which in many cases would devalue their homes

(Goldfield, 2007).

The Economics of Golf and Country Clubs

Golf and country clubs, like the economy, has had its ups and downs. It is a very cyclical

sport and industry. If there are people who can afford a private membership, golf and country

clubs will exist. However, because of their structure, it is very easy for many to fail. For

example, at the end of the “Roaring Twenties” and before the stock market crash of the 1930’s

there were over 4400 private member owned golf and country clubs (Beditz, 2008). Today, there

are approximately 4000, almost a 10 percent decrease within the industry, most of which can be

linked directly to the overbuilding of golf and country clubs during the real estate booms and

busts over the past thirty years. (NGF Dashboard Newsletter, February 2014).

Other factors to consider are the costs of membership (initiation fees, dues and

assessments) along with the disengagement of players, especially those with families with young

children. With so many other opportunities demanding their share of the sports and hospitality

dollars, sometimes a country club is the furthest thing from a prospective member’s mind, unless

they grew up in the golf and country club environment.

Recently the National Golf Foundation (NGF) reported statistics showing the decline of

the private golf and country club, stating that 74 percent of U.S. golf facilities are now open to

the public, which means that only approximately 26 percent private clubs are left in the United

States. In addition, the number of private member golfers has gone down exponentially, from

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approximately 2.9 million at its peak in 2008 to just over 1.9 million in 2013. (NGF Dashboard

Newsletter February 2014).

Why Has the Number of Golf Rounds Played Decline?

According to Licata and Tiger, 2001 was the peak year for golf (2010). With the terrorist

attack on 9/11 resulting with the uncertainty in the stock market and in the US economy many

members, and prospective members, were rethinking their decisions to make a substantial

investment of being a golf club member. Suddenly, there were more important things to consider

like pension funds, 401k’s, retirement and war. Since 2002, the number of rounds played has

remained flat. In fact, the number of courses expected to close in 2008 is larger than the number

of courses expected to open (Licata & Tiger, 2010). Now, golf course designers are heading to

new markets where the popularity of golf is rising, such as China (Licata & Tiger, 2010).

Through a study conducted by Licata and Tiger, it was found that people play golf for

various reasons. Those reasons include leisure, status, competition, and family activity. The

survey also found that people quit playing golf because the game took too long, the cost is too

high, or the game is too tough.

The number one request for change is that courses should be shorter and more playable.

The way golf is being played has changed. In prior generations, golfers would take all day

Saturday or Sunday to play golf with friends as a leisure activity (Licata & Tiger, 2010). It was

an activity that took the whole day and the golfers would stay and have lunch before heading

home. In today’s world, people do not want to spend the whole day at the golf course. Instead,

they must steal time to play a quick round (Licata & Tiger, 2010). Family activities are most

important, so today’s golfer would like to quickly play their game and return home for other

family activities. The problem golf course managers now face is that they must come up with a

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strategy to increase interest in players, while increasing revenue (Licata & Tiger, 2010).

Revenue Management in Golf

So how exactly do we apply revenue management to golf? Rasekh and Li say that

managers should develop a reservation policy (2009). Optimally allocating tee time reservations

with different price points to increase revenue. In their study, the highest demand time blocks

(peak time) will demand a higher price. Discounted prices could be offered to times that are not

as popular. This is to ensure that the golf course will be effectively allocated to different

customers.

This would be good revenue management technique for a public golf course, but today,

many of your golf and country clubs are either part of a gated community and membership is

mandatory and private, or it is a private club in a gated community where membership is not

mandatory and presents a more difficult revenue management challenge. Why? Because private

non-equity owned membership clubs are not owners of the golf club. In most cases, they are

owned by corporations, (Troon, Heritage Golf, ClubCorp) and therefore, are not responsible for

the revenue of the club. The corporation is like most other hospitality corporations, they are in

business to make a profit and that is when revenue management is even more important.

Therefore, offering discounted pricing may not be a good idea. Many members would see it as

devaluing their membership.

However, golf clubs that are private have become increasingly aware that members still

want a bargain, but do not want it offered to the public, thereby negating their “private” status.

Private golf clubs today are offering specials that only apply to members. Those offers include

discounted greens fees for friends and family, twilight fees, for those members who are still in

the workforce, promotions to join for those moving into the area, and trial memberships.

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In addition to promotional pricing specials, Licata and Tiger suggest a two-part revenue

management system (2010). The first part is to increase output, inventory, or usage. The second

part is maximizing price. For the first part, the authors say that tee times can become the

manipulated variable because we need to control the duration of the game before we can

maximize profit. Reducing tee time intervals will reduce the time it takes to complete a round. In

return, output is increased and it leaves more tee times available. This allows a fence to be put in

place where consumers that are willing to pay a higher price, based on their demand, will pay the

higher price.

While it is true that golf tee times are part of the inventory calculation, in the private golf

club industry, it is already a normal practice to have timed play, where the norm is 4 and half

minutes per hole. Tee sheets are scheduled from 7:00 a.m. – 6:00 p.m. and will vary upon the

season. Most golf courses in this country are open during seasonal periods, spring and summer

versus fall and winter. In Florida, most golf clubs are open year round, but still have slowdowns

due to weather constraints that include: hurricane season, 100-degree days, and rain. In the

northern climates, they are even more constricted due to snow and severe cold weather and have

a relatively short season, sometimes not more than 3-4 months. Northern golf club operators are

more concerned with revenue management than their southern counterparts. This is why you do

not see as many corporate owned golf courses in the northern portion of the country. They are

concentrated more in the southern states where the climate is more conducive to year round

openings.

So, the question is, “If you have a perishable product like tee times on a golf course what

should your revenue management plan be?” The first thing that most private clubs will do is

develop a strategic plan that entails all the variables of their club which would include the

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demographics, the history of the weather patterns and weather predictions, and so forth. They

would also analyze each area of a golf club such as golf retail, food and beverage, and golf

course maintenance to develop a plan to address each area. Budgetary guidelines will be created

from the analysis and which the department heads of each department will be responsible.

If it is deemed that rounds of golf (ROG) will be an issue, then selling tee times to a third

party channel such as Boxgroove will be considered. Boxgroove is a company who recognized

that many private clubs had unused tee times, so they decided to make a business out of “selling

unused tee times”. They recruit private country clubs who will ‘release or sell” unused tee times

to their company. They also sell memberships to their company and the members then have the

ability to make tee times to any private club in the country that are members of Boxgroove. This

third party channel has assisted many golf clubs to ensure they do not have unused tee times on

their tee sheets, much like a hotel would use Hotels.com.

As discussed earlier the issue of the time involved to play golf is a problem. It can take

four hours to play a normal round of golf. The USGA has recognized this as one of the issues of

the day and developed a program call “Get Golf Ready”, which many clubs started adopting.

This program was designed for the novice golfer who wants to learn the etiquette of golf and also

have some lessons that would enable them to play on the golf course without slowing down play

for other golfers. For a fee, typically $100, you sign up for this program and it will encompass

five days of lessons and play which gives the golfer the confidence to play without fear of

holding up play for others. It has been very successful and can actually contribute to retention of

current members and recruitment of others.

A second initiative started by USGA was to create a program called “play it forward”

which was again to improve pace of play within the game. This plan encourages players whose

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handicaps might be high to play to their handicap tee, not what they think they should play based

on their gender.

First, we have to explain that every hole has a tee box which several starting points,

which changes the distance for the player’s first drive. Most men would play from the blue or

white tees, which are the farthest distance from the green (their target). For women, it would be

the red or green tee, which represents the shortest distance from the green, which is based upon

the perception that women have less power than men, thus they have to have more strokes than a

man.

The new “play it forward” program takes the gender issue away. If you have a high

handicap, they want you to enjoy the game and keep the pace of play with other golfers. So,

instead of choosing a tee to play from based on gender you play to your handicap. If you have a

high handicap (30+) you would play from the most forward tee and if you have a low handicap

(15-) you would play from the farthest tee. This accomplishes two things if implemented

correctly. First, members enjoy the game more because they have the opportunity to make par

and second, they keep the pace of play within a reasonable time and everyone on the course is

happier. We have reviewed most of the revenue management opportunities, but what could some

of the pitfalls if you don’t have a revenue management plan in place to address this question?

For the second part of the revenue management system, we must find out the player’s

attitude towards golf and how they view wait times. Licata and Tiger found in their study that

there are two groups of golfers (2010). The first group is called the tolerant group. These groups

do not mind wait times. They view the waiting as part of the game. The main reason they play

golf is for social benefits and it was found that they would not pay more for faster golf plays.

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To deal with these two groups, the authors make suggestions that will attract both groups.

For the tolerant segment, it is found that they have more time than money, and golf is a social

event; therefore, nonpeak pricing is viewed as attractive (Licata & Tiger, 2010). To make up for

the discount given to these groups, the golf course can offer promotions for large parties or

special events during off peak times in a value-added bundle. There are typically different

membership types that the clubs will use to target this market segment as well with a lower

initiation fee and lower dues. But there are always restrictions which correlate with the lower

pricing. The impatient segment tends to be younger and more time sensitive (Licata & Tiger,

2010). Keeping their games short will command premium prices. Once again, they are playing

for mastery of the game, so they will also be attracted to a certain type of value-added benefits

offered by the club. Those packages could include tutorial events and seminars, tournaments, or

exhibition matches. The second group of golfers is labeled as the impatient group. These groups

do not like waiting. They play golf to gain mastery of the game. These players will pay premium

price if their wait is kept to a minimum, there are also specific memberships that will allow them

to pay a premium initiation fee and monthly dues in order to have better tee time availability.

Licata and Tiger warn that there may be more tolerant groups than the impatient segment

(2010). It is best to determine which segment is valuable to the club and create packages that are

best suited to attract them.

The second largest revenue generator for clubs is food and beverage, followed usually by

a golf retail shop. Most golf clubs will have two dining rooms, one for the members and one for

banquet services. A successful food and beverage operation will again, develop an annual plan

that will appeal not only to their golfers, but also to their social membership. Social memberships

are important because they support the club in this department much more than the golf

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members. The food and beverage department also has to work closely with the golf department

to ensure that every member tournament and outside event has a food and beverage component

attached. This way, they are able to bring revenue into the club, and to their bottom line.

Some of the functions from the food and beverage department would include a party or

holiday event, such as Valentine’s Day. They also have to plan for their biggest events like

weddings and major holidays like Thanksgiving and Easter, two of which are traditionally the

most attended all year long. In addition to this they also usually mandate a minimum food and

beverage that needs to be spent within a year. This ensures that their costs and expenses are

covered and anything they make beyond the minimum could be profit.

The other area that generates revenue is the golf retail shop, which tends to have a higher

percentage of cost of goods than food. This is the more difficult area to manage due to the high

price of the products sold from the perspective of the member who does not want to pay more

than what they would at a standalone golf retail store. This has traditionally been the biggest

challenge, but some shops have overcome this by meeting competitor’s price, which does put

them at a disadvantage because national golf chain stores typically pay less for their products.

You have to be very smart and investigative before going down the path of meeting your

competitor’s prices.

Another area that is part of the golf department is the tournament management system.

One of the main reasons people join a golf club is for the enjoyment of the sport with like-

minded individuals. Tournaments are a weekly and monthly event on the calendar and it takes a

lot of human resources and good management to ensure you’re not losing money on a

tournament. For example, if you charge $50 for an event, $25 of that is for the cart fee and the

other $25 is for the luncheon or dinner. Then prizes valued at $20 are given out. You have

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already lost money. Before every event or banquet the management team should work together

to create

This goes back to the beginning of strategic planning and is a part of revenue

management. Each department has to really develop critical thinking skills and review prior year

historical numbers to develop a profit and loss statement that will help them organize and

manage the event to produce the profit they need. It is imperative that the departments involved

work together to have an overall profitable bottom line.

Solutions for Increasing Golf Interest and Revenue

The solution may be twofold and simultaneous. First, instilling interest in golfers to join

an exclusive, private golf club is the first hurdle. As we have learned, it comes down to branding

your product and ensuring you are ahead of the competition in everything you offer. This can

include offering one golf course to two golf courses, or a network of clubs, a beautiful

clubhouse, a playable course, great food and beverage, and above all else, excellent customer

service. Second, would be the retention plan you have for your current membership. What are

you doing to ensure they’re playing as much as they want to and also enjoying the other

amenities the club has to offer, i.e. F&B. The goal is to give your members an experience they

will not forget.

Strong strategic business plans must be in place, and it has to have buy-in from all your

stakeholders, which includes your employees and your members. Human resources, your biggest

asset is invaluable and must be managed accordingly. Like most hospitality employees the

turnover can be high and you have to develop a strategic plan that includes your employees,

especially your “front line” staff who interact with the members every day. It takes strong

employee management skills and training and development plans to ensure your employees feel

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valued and who therefore want to work for you and your members. As we’ve learned there are

both intrinsic and extrinsic forces that motivate employees. It’s in the best interest of any golf

club to have a human resource department that knows how to recruit, develop and retain top

talent. You can have revenue management software and “experts”, but unless you have great

people all of that preparation can be negated by negative, poor performing staff.

Technology as a Tool

As mentioned before, people are hesitant to play golf because it can take too long. New

technology has been introduced to reduce cycle time and increase throughput. The first is the

Segway Golf Transport (GT). A study by Spears and Tigers found that the GT reduced the round

length and increased the number of rounds played even with different tee time intervals (2007).

The reason for this is because the GT allows one player on the vehicle and a more direct route

can be taken which reduces time when traveling from one hole to another. The use of RFID golf

balls also reduces time when searching for lost balls. Finally, range finders are used to reduce the

time in determining yardage to the green to a hazard. Incorporating these technologies will

improve the pace of play and increase revenue.

Currently, the dominant way to reserve tee times is through a telephone call (Heiton,

2013). However, there is a shift toward online booking. Companies such as EZLink assists

customers in finding a time that meets their need and helps the course attract more players. This

particular company thinks of themselves as Open Table, but for golf. Their goal is to support golf

operations by bringing more players onto the course. They have partnered with a thousand

courses and since their funding in the 1995, they have processed more than 400 million tee-times

(Heiton, 2013).

Courses that want to remain competitive can think about partnering with a similar

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company. The shift toward online booking is gradual in the golf industry, but it is headed in that

direction. As the use of technology grows, golfers will soon utilize it to book their tee times.

Also, partnering with this type of company gives the course more exposure. Golfers may not

have known about their club until they see that you have an open slot that meets their need.

Another way for golf courses to increase revenue with the help of technology is by

holding night golf tournaments. In Phoenix, golf courses experience their slow season during the

summer (Schwab, 2013). In order to make up for lost revenue, The Palo Verde Golf Course

began a night golfing program. To do this, the course uses glowing necklaces and balls, as well

as flight lights. The program started in 2000 and by 2012, the course has been able to fill up all

tee times (Schwab, 2013). It has also increased the number of games played in the daytime.

Golfers that played during their night tournament would return to play in the daytime. Most did

not know about the course until the tournament. This particular course has been able to increase

their revenue during their slow season and increase awareness about their course at the same

time.

Golf Course Marketing

Once the right type of revenue management has been put in place, managers will want to

be sure they have implemented the right marketing tactics. Garland, Brooksbank, and Werder

write a paper that claims strategic marketing contributes to the success of club performance

(2011). The authors write that clubs should adopt value-focused marketing strategies. It is

important for clubs to use non-traditional ways to set them apart from their competitors.

Garland, Brooksbank, and Werder also compare high performing and low performing

clubs (2011). The marketing activities undertaken by these clubs vary and it leads some clubs to

be more successful than other clubs. High performing clubs perform the following activities to

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come out ahead: undertake comprehensive situational analysis, set long-term goals, take

proactive approach to future, focus on select target, avoid head-on competition by being different

from other clubs, use small, focused group to achieve short-term goals, and use inclusive

approach when it comes to club governance and decision-making (Garland, Brooksbank, &

Werder, 2011).

In addition to marketing in traditional ways, many clubs are joining associations that

represent them, like HFTP, NFG, USGA, their local chamber and Economic Development Corp.,

along with catering and marketing associations to network and learn with colleagues to grow

their industry and their club.

Conclusion

From the research conducted for this paper, it can be said that just like any business, golf

courses present complex issues that must be dealt with directly. Depending on the type of

consumer, demands will differ. Many opinions and desires need to be taken into consideration.

As stated in the beginning, we also believe that human resources, your most valuable asset, are

vital in making your revenue management strategies work. If your staff doesn’t have buy in and

follows through with the policies and procedures in place, all of the revenue management you

have worked hard to implement may not come to fruition. A good employee training and

development program are necessities into today’s golf marketplace because it is often the

perception of the service you provide, everything else being equal, that will separate you from

your competition.

Many researchers have proved that using revenue management is the key to allocating

resources and increasing revenue. It was learned that time is detrimental to golf rounds played.

Many things can be done to reduce this issue. It takes a strong manager to implement changes,

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but in the long run, guests’ satisfaction will be increased. Michael Latta, Mark Mitchell, Albert J.

Taylor, and Charles Thrash write that getting additional rounds of golf from golfers that already

play at the club is more effective than attracting new golfers with discounts or complementary

rounds (2007). So, remember to take suggestions from customers and your employees to do your

best to accommodate, but remembering you have a responsibility to your members or your

owners to operate at breakeven or profit. If you begin losing revenue, your club could go the way

many private clubs have in the past five to ten years, closed or being converted to a public

course. Being creative with the strategic plan can put your club way ahead of other clubs and

ensure the longevity of your club and membership.

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Reference

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Cronin & Conde. (2013). CMAA Finance and Operations Report, 2013, p47

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