Science of Revenue Management for Golf Environment

Science of Revenue Management for Golf Environment

The Science of Revenue Management:

Revenue Management -- RM is the appropriate application of information systems and pricing strategies to assign the precise capacity to the befitting customer at the right location and at the right time. Its use has spanned a wide range of industries and is routinely applied to the airline and hotel industry. Its use is currently being extended to golf courses as the ultimate objective of RM is ensuring that the enterprise generates the maximum possible profits taking into account the present customer demand and price sensitivities. Application of RM techniques would ensure that certain businesses equipped with sales force are able to augment revenue and profitability as it offers an innovative procedure to calculate marketing performance in a fresh and creative manner. The technique also gives a baseline for measuring the specific asset value of Sales Executive's time. Besides, it also offers a roadmap for increasing the success of the enterprise through better appreciation of the costs and benefits the sales force experiences while dealing with customers. (Siguawa; Kimesb; Gassenheimerc, 2003)

Application of RM Within the Golf Industry:

An in-depth analysis of the mechanics of the game of golf reveals that the two important strategic levers are 'round duration' control and 'demand-based pricing' which can be deployed in a RM programme. Prior to gearing up for a RM programme, golf courses must in the first place define their capacity. In golf, the most controllable factor of capacity is the tee-time interval. Reducing the interval among parties will result in an increase in revenue. Across the industry, RM is generally used for measuring performance by estimating their revenue or contribution per available time-based inventory unit. For instance, the Mobile telephone industry calculates Average Revenue Per User -- ARPU. Similarly, airlines have their revenue calculation as revenue per Available Seat-Mile. Taking a cue from the above, the golf industry should calculate their revenue per available tee-time -- RevPATT, however the definition of availability cannot be as accurate as in other industries. The total number of available tee times is impacted by controllable as well as uncontrollable factors. Controllable factors cover the length of a round of golf, the dispatching rule employed, maintenance and the 'tee time' interval. (Kimes; Schruben, 2002)

There are also a lot of uncontrollable factors like the number of hours of daylight and the weather. It is here that the golf operators must have a transparent definition of their capacity, in the absence of which they will be unable to measure the performance of their RM systems. The tee-time interval is the most easily controllable factor impacting the overall course capacity in the game of Golf. Development of a suitable model can be used to make a quantification regarding the trade-offs in arriving a suitable 'tee time' interval. A judicious reduction of the time interval among the parties may result in throughput and revenue, nevertheless reduction in 'tee time' interval might intensify the effects of the variations in the speed of progress of the game and outcome in a lowered RevPATT. (Kimes; Schruben, 2002)

Choosing An Appropriate RM Strategy:

It is important to note that the features which render a business appropriate for Revenue Management are also common to the Golf industry. The time period of golf tee times being a perishable inventory, the game can be a good candidate for RM. Golf courses have limited capacity and are booked through reservations. Different times and golf courses have differential pricing structures. As the cost implication is negligible for booking an additional tee time, unit pricing can have a marked effect on the overall revenue. Among the three constituents of RM, the discount allocation is most applicable to the golf environment. Diverse rates and availability can apply based on the reservation advance time, season of the year, special events, size of the player party, location to calculate the optimum and the most profitable mix of reservation on the tee sheet. (Acemicrotech, n. d.)

Open Tee is an emerging solution launched by OpenCourse Solutions a San Diego-based provider of systems automation to the Golf and report industries. Under OpenTee, all tee functions are automated which is then integrated into the tee sheet with other business systems and includes RM tools into the mix. This apart, Discount Allocation -- a vital component under RM is available by permitting management to control authorisation of low-price availability that is performed at two levels viz 'Management level & Reservation level.' Management workforce can configure the system to turn availability on and off on various attributes like season, time, package, type of player, party size, golf course and rate type. These variables provide management with a broad assortment of alternatives for configuring availability and rates based on previous experiences, special events and forecasts. Coming to Reservation levels during the reservation process, an automated 'reservation wizard' applies the rules fixed by the management. (Acemicrotech, n. d.)

Reservation officials or customers are helped through a series of screens to land at the best possible time and price based on the player type, preferences and golf package. The rules that are utilised by the Wizard are able to be adjusted by the management in real time to make room for unforeseen variations in demand situations. The core issue under RM are the underlying decisions which are needed to calculate demand and its features, and to manage that demand through the use of price and capacity control. Three basic categories of demand management decisions are available under RM which is structural decisions, quantity decisions and price decisions. The OpenTee handles each of the categories of these decisions which is shown in Exhibit -- I. (Acemicrotech, n. d.)

An insight into the functional mechanism of RM within the Golf industry:

Within the confines of the Golf industry, RM entails charting all relevant revenue streams of the golf course by Departmental area. This includes green fees, annual dues revenue, pull-cart rental feature, power-cart rental feature, merchandise revenue, food and beverage revenue, driving range revenue as also other revenue like club rentals and advertising. Considering the important areas of the operation which require attention within the reporting structure, the following logical question is how or what information must be pulled out so as to successfully handle the operation. With a view to put revenue figures into perspective, revenue is needed to be tracked as per its most relevant driver. In case of golf operation, the number of round played is a determinant of the revenue lines. (Client material-File name: Mod2RM.doc)

Thus, having a strong revenue tracking by source as also the number of round played is the key to better understanding the revenue flows and the manner in which to enhance them or understand that they are excellent or below par. To have a grip over greens fee or membership revenue as also the manner in which to deliver the available tee times on a daily basis, the golf operation should be capable of relating the round played, the revenue derived and the quality of the product being offered. The quantifiable needed to make this relation are net rate per round and the no. Of rounds per day per hour. (Client material-File name: Mod2RM.doc)

Considering the revenue streams, almost everything can be comprehended as a function of round played. This implies that an 18-hole equivalent round played and not the total starts. For example, pro-shop merchandise revenue per round is crucial while assessing the efficacy of the merchandising endeavours. Benchmarks for the best practices in the industry as regards merchandising revenue per round varies from a low figure of USD 3 per round in a lower-end golf course to more than USD 20 per round in a resort or a premium corporate golf facilities. Notwithstanding the type of facility that is owned or operated, the crucial aspect is attuning the available merchandise to the clientele and putting an attractive logo. The logo can be used or a suitable brand name with are in sync with consumers. The vital data in calibrating the effectiveness of RM practices in net rate per round. Best practices benchmarks within the golf industry recommend that the well managed golf facilities will reach a net rate per round percentage of 70-75% of the average posted greens fee rate. (Client material-File name: Mod2RM.doc)

It is important to note that rounds per day per hours are also vital in order to access on a daily basis so as to obtain a plan to "sell down" rounds. A lot of operators will wait till the month completion in order to access the number of rounds player on a daily basis; nevertheless waiting till the end of the month sometimes becomes too late. Thus, daily tracking of rounds and expectation of 'slack-time' intraday remains crucial to prescribing RM techniques to sell rounds on a daily basis. Several Departmental expense totals are able to be calibrated as a percentage of total gross revenue as evaluation of understanding and assessing expense management. But, in lot of instances, the best operators will always make these comparisons and ratios less pertinent as they regularly locate routes to offer exceptional value, drive revenue and make revenue rationalisation. (Client material-File name: Mod2RM.doc)

Besides, some of expense categories like the greens department happen to be more a function of maintainable acreage compared to total revenue. Expense benchmarks signify a broad range because of the differing types and quality of golf facilities across the geography as also climatic zones. These numbers also can differ depending on the number of holes at the facility available. These are green department, green expense per maintainable acre USD 2500 to USD12,000, merchandise cost of sales percentage 60% to 75%, pro-shop, Pro-shop expense as a percentage of gross revenue 9% to 12%, administrative and club house, administrative and clubhouse as a percentage of gross revenue ranging from 20% to 30%, food and beverage cost of sales percentage 30% to 35% and food and beverage labour percentage 35% to 45%. Under marketing efforts, the costs will vary which is dependent on the type of facility and the setting. (Client material-File name: Mod2RM.doc)

Nevertheless, it is still helpful to comprehend the relationship between the marketing costs and the total revenues of the golfing facility. As a general industry benchmark, effective marketing efforts will transform into a marketing budget which can be in the range of 2% to 5% of the total gross revenue. However these numbers can differ dependent on whether the golf course is a new one available before the market, a resort or a corporate event facility and the competition ferocity in the market area. Considering a customer feedback strategy, though normally calibrated by means of customer comment cards, can also be achieved by the staff in the course of their daily duties. Even though conventional comment cards continue to be relevant, the best operators guarantee the adequate training and the building up of an upward-feedback system. This renders a greater and dynamic and proactive service team which generates regular customer satisfaction and recurring business. (Client material-File name: Mod2RM.doc)

Adequate training of staff will be able to inculcate a total consciousness of profit so as to generate responsibility with a suitable bonus system based on the profit to align personnel interests with that of the management and ownership. This is vital to giving qualitative service in a manner which is feasible while making certain a proactive approach to RM. The above discussion are some of the important functional numbers and important industry benchmarks which successful operators must appreciate, manage and look forward to in order to maximise profit. (Client material-File name: Mod2RM.doc)

These are the benchmarks that are also useful in addressing more problematic operating questions revolving around whether the level of service and conditioning offered are apt for the pricing charged or available in the market. However the point to be noted is that not all premium-end high revenue golf courses are branded the most successful from a ROI -- return-on-investment point-of-view. Certain issues like the inability to implement the right expense control mechanism can convert a high-revenue golfing facility lose its profitability from a ROI investment angle compared to those which rationalise expenditures and compete in a greater price-sensitive markets. (Client material-File name: Mod2RM.doc)