I’ve been thinking a lot lately about the concept, strategies and tactics of price. My last blog post about bartering revealed (albeit in a tongue-in-cheek fashion) my discomfort with the practice of what I will call “total price abdication through barter.”
To recap: barter isn’t bad, but giving up price control in the barter deal is a steep, slippery slope. And I’ve twice watched Jeff Smith from Walters Golf Management give presentations on the dynamic pricing and revenue management work they are doing, and it’s making me wonder how long it will be when more and more single course operators will be doing this, or when more of this is will be automated by clever software systems in golf. One thing Jeff is making clear at his courses – there is no more such a thing as “rack rate.” And who hasn't heard about the hedge-fund-manager-turned-pharma-CEO,Martin Shkreli, who raised the price of an immune-system deficiency drug by more than 5,000% because, well, because he could. But he could, until he couldn’t, because the world attacked him through social media. The demand for his pharmaceutical was obviously high, but he crossed a line.
Then I think about how AirBnB was able to launch their juggernaut of a web site and charge the traveller a 10% fee for booking a vacation rental or a room in an apartment, whereas most of the major OTAs apply their booking fees only to the hotels. AirBnB gets a fee from the guest AND commission from the host. And then there is Ticketmaster, who seems to get away with adding very high fees to the price of attending a concert. There is also Uber and their “surge pricing,” which boosts pricing in a city when demand for Uber drivers is hitting a certain threshold (i.e. rush hour). It all makes me wonder about price and where golf may be going.
Sometimes, pricing tactics employed by companies reveal themselves for what they are – not-so-clever money grabs. My use of the term “money grab” accurately reflects my mood recently after booking a flight on American Airlines. Airlines have been great at dynamically pricing their tickets based on demand and the ticking clock of the reservation window (the closer you get to the day of travel, the higher the price). They’ve even priced things according to one’s desire to cancel or change a ticket with or without a refund. Consumers grin and bear it (well, I wouldn’t say grin…we just bear it). But inside the fuselage itself, there have generally been two prices – first class and economy.
It seems to have been a couple of years since airlines introduced various up-charges back in economy class. Now, you have the honor of paying an extra $10-50 to grab that exit row seat, or maybe the aisle seat towards the front of the plane, or one with 2 inches more of leg room. Even the dreaded middle seats, but toward the front of the economy section, can demand an extra fee. Today, when I chose to book an economy ticket on American Airlines, and then went to choose my seats, I noticed that the only seats available in economy were ones that required an up-charge. I felt fooled, because my ticket price on the reservation screen indicated one price, but the final price was going to be different. "Dynamic pricing” (in this instance) just left me ticked off as a consumer.
Dynamic pricing is raising or lowering price with the fluctuations of demand. While the golf industry has employed some dynamic pricing for a long time (Saturday morning is rarely the same price as Tuesday afternoon), taking it to the next level has not been in our industry’s repertoire of strategies like it has for the other industries. Among the multiple layers of management at hotel companies, the rising star seems to be the “revenue managers.” These people scan the marketplace and maintain vigilance over all their distribution channels and market conditions with the end game of pricing their rooms in the sweet spot. The sweet spot of dynamic pricing is basically to price as high as you can at the right times and under the right conditions to capture customers, but also not so high asd to lose your customers to the competition. It’s a delicate combination of being proactive and reactive: reactive to your direct competition (if they drop their price, should I?), marketplace conditions (Saturdays in Clemson, South Carolina in the fall may cause some dynamism in hotel pricing), time of year (January in Bangor, Maine?)…and yet proactive about the quality and brand you are working hard to support (the Ritz Carlton will simply be more expensive – all the time – than any Hampton Inn within the same market). But to further illustrate my point about dynamic pricing, the Hampton Inn in Manhattan on New Year’s Eve very well may be more expensive than the Ritz Carlton in Atlanta on the same night.
But there’s also a sensibility about rate setting that, if violated, can leave consumers feeling taken advantage of. Business owners should be aware of this when looking for opportunities to price dynamically.
Can you imagine the uproar if Disney started charging twice the price for tickets around Spring break for entrance to the parks (although I’m sure their hotels employ dynamic pricing)?
In golf, consumers understand the concept of (and are generally accepting of) the fact that green fees may go up and down based on certain variables, especially time of day or day of week. But can you imagine the uproar if cart fees also rose and fell based simply on time of day? $50 for a cart on Saturday morning, but $25 on Wednesday? That might violate that fairness sensibility. I’m not sure if this is really a “fairness” thing, or an “I’m just so used to this way of pricing” thing.
Obviously, I’m coming at this issue as a consumer. And my day job is to represent businesses, so it may seem like a bit of dissonance for me to be lambasting American Airlines’ attempts to increase profitability. After all, I want golf courses to be more profitable. No question about it. What I’m getting at, though, is to make sure we in the golf industry avoid the tipping point of going from reasonable dynamic pricing strategies to being straight up opportunistic money grabbers. Some people may accuse some golf experiences as being expensive, but I’ve never known anyone to think of course owners and operators as money grabbers. As we dive into the workshops at industry conferences and read articles in industry rags about dynamic pricing, let’s remain cognizant of the tipping point. Where is it for golf? I don’t know, but there is one. It could be deciding to price golf car rentals dynamically, not just the green fees. Can you imagine the day when the price of rounds of golf fluctuate based on the weather forecast for that market? Looks like it’s going to be 75 degrees with a 0% chance of rain, so there will be a 30% “weather premium” in pricing! But the way revenue managers in other industries are moving, I don’t see that as far-fetched.
The fact is that many courses are leaving money on the table on account of wanting to keep their price management as simple as possible. They have golfers who are willing to pay more, but don’t pay more, because you’re not asking for more, when you could ask for more. It’s easier to just set your seasonal rates…your weekend/weekday/twilight rates…and leave it at that. And I get that – you’ve got a million other things to do as a small business owner and may not have the staff to monitor and change pricing on the go. But at a time when the participation needle isn’t moving, some fine-tuning on price can mean the difference between being in the red or being in the black as a course operator.
Let’s embrace the dynamic pricing discussion. And as we do, my advice is to:
- Always maintain control of your pricing (avoid “total price abdication through bartering”).
- Realize that changing the price by a few bucks here and there (and being surgical about it) won’t likely cause customers to leave you; and you can probably go even higher on those times that are always sold out (an old rule of thumb in the lodging industry is that if you are sold out or have very high occupancy, it’s time to raise your rates).
- There are likely more variables in the total golf experience that will allow our industry to employ dynamic pricing strategies; let’s explore them!
And let us be cognizant that there is an invisible tipping point, over which if we go, we can be viewed as taking advantage of our customers. If you find that tipping point at your course, share it with your peers at NGCOA. After all, we are in this together!
Jay Karen
Chief Executive Officer at National Golf Course Owners Association (NGCOA)
Published on December 28, 2015
Reproduced with the permission of Jay Karen.
Jay Karen spoke at the Golf Business Forum – in Melbourne in July 2016