The Pellucid Perspective - March 2014 - (Page 2)

TEE TIME PRICING Where is golf pricing headed in 2014? By Jim Koppenhaver H opefully all of you recognize the above headline as being rhetorical. Heck, if I knew that, I wouldn't be sitting here writing this column this month; I would have bottled it, sold it to the highest bidder and been lying on a beach somewhere instead of worrying about this month's deadline and the pleas of the Editor-in-Chief to get my content submitted. That said, I wouldn't have raised the question if I didn't have some sort of informed, professional opinion on the topic, so you're not completely out of luck if you've made it this far in the article. Every year in the 4th and 1st quarter (depending on what climate zone you're in), the average facility operator has to sit down and wrestle with the important question, "What should my pricing be for the upcoming season?" While I would propose that the initial question to be answered is, "What should my long-term pricing strategy be?" let's stay in the land of reality and recognize that most operators are simply trying to figure out pricing along two dimensions: 1) Should I raise/lower/hold my prices? and 2) What are my key competitors likely to do? While we all know that the option of raising prices in any meaningful way hasn't been a viable one over the last 5-7 years due to market forces (continued supply glut, widespread discounting), it does appear that in 2012 and 2013 we've seen some stabilization of pricing and even a glimpse of limited pricing power returning to the least oversupplied markets (and those where 3rd party tee times aren't as prevalent). The primary quantitative support for this belief is the fact that PGA PerformanceTrak has been reporting for the entirety of the last 2 calendar years that Revenue-per-Round and Facility Total Revenue-per-round has been flat or increasing in two very different situations. In 2012, we saw those numbers increase in the face of a 5%+ increase in rounds demand (i.e. we got the double benefit of an increase in volume and higher realized pricing), while in 2013 we saw rate improvement of 5%+ which completely offset the volume decline experienced. (So we were able to raise prices in a declining volume environment, that's quite a feat!). That would suggest that across-the-board pricing increases of 2-5% should be a nobrainer, which I'm not quite ready to concede. Another approach being explored by Pellucid business associate Stuart Lindsay and multiple partners in the dynamic pricing space, is starting with an understanding of how demand aligns with the various price points intraweek and intraday. The first thing we understood coming into this exercise is that you have to introduce weather impact to the equation; otherwise you associate weak demand for certain days and times that's due to weather vs. consumer disinterest. The other thing you have to be able to do is keep track of the shifting days of the week if you look at multi-year periods (which we recommend). You can't aggregate and compare July 7th in 2012 to July 7th in 2013 because one was a Saturday and the other a Sunday. After incorporating those two factors, and with detailed data and the right tool, you can now start to see where demand vs. pricing identifies 2 The Pellucid PersPecTive both "cold spots" (i.e. might want to consider a lower price point) and "hot spots" (i.e. where you have nearly 100% utilization at the current price point). Our early research suggests that part of the challenge is you can have these hot and cold spots at varying times throughout the day and generally not corresponding with any existing time range on which we traditionally price (i.e. we're not seeing a lot of situations where Tuesday 9AM-12PM as a continuous range of times is hot or cold). This brings up the fundamental questions of demand-based pricing: "Can it be implemented within the operational constraints of the facility?" (i.e. can you physically manage the complexity of more different prices intraday or intraweek) and "Will the consumer revolt and seek out facilities with the traditional Weekday/Weekend, AM/PM/Twilight type pricing structure?" The truthful answer is, "We don't know." What we do know however, is that the consumer currently is telling us through their play patterns relative to the legacy pricing structure that certain times even within the same rate window are more desirable to them than others after factoring out weather and day-ofweek variances. We also know that the technology and tools are available today to solve for these variances and provide guidance on where the hot and cold spots exist. What we're currently recommending to clients asking our opinion, is some combination of the art and science (the qualitative and quantitative) to test setting up smaller windows of value-based pricing to see what consumer response might be. To be fair, this isn't for the faint of heart but, as a parallel example, think what it took for the first airline to test and commit to the concept of charging for checked bags. From that nervous and auspicious beginning, a revenue (and profit) stream has emerged that has restored many of them to profitability. This isn't to say that the consumer has both accepted and endorsed the concept (well, accepted yes, endorsed no) but the airlines saw an opportunity to increase their revenue line by exploiting a need (you can't carry it all on and the leisure traveler who's paying the bargain basement fee is most exposed to this surcharge) and someone took that first step into the unknown. So, instead of this year just doing the same, "We'll take a 2% increase acrossthe-board, do some discounting and hope that our neighbors don't go all "irrational competitor" on us," why not consider looking at hot and cold spots in your inventory based on the last two years of demand and try something different? One of two things can happen: 1) The customers revolt and you have to do some "damage control" to win them back (that's assuming you tested it for a limited period of time in the windows in the tee sheet that would do the least damage) or 2) The consumer begrudgingly goes along and you've found a way to eke out another 1-2% in your revenue line on the same volume. It likely won't get you back to the glory days of pre-2000 but, as all of you know, in today's current golf economic climate, 1-2% may make the difference between being profitable or not. n March 2014

Table of Contents for the Digital Edition of The Pellucid Perspective - March 2014

Where is golf pricing headed in 2014?
The feminine touch
Colorado Section PGA enters tee time fray
Historic course going back to nature
February '14 golf weather impact: Tough sledding for golf
Overdevelopment storm still blankets Minneapolis
ClubCorp acquires Prestonwood CC and its two courses
The crime of the century

The Pellucid Perspective - March 2014