Dynamic Pricing & Yield Management - Which Should You Be Doing?

There seems to be growing discussions around the pricing of tee times and the issue of yield management in the golf business. This is not a new subject at all and golf clubs have been practicing simple yield management tactics for a long time - early bird or twilight times are simple examples - but in most cases, never to the sophistication of other industries such as the airline business, hotels, car rental and other travel related businesses.

Golf tends to lag behind other business sectors in the adoption of such techniques and dynamic pricing and yield management is no exception.

So what exactly is "dynamic pricing" and "yield management"?

Both concepts are based on the simple principle that you can sell what are in effect the same product / service at different pricing depending on a number of factors. Yield management more specifically is the objective of maximising the price you can sell your inventory of product / service at, each given time, to produce the maximum revenue and result overall.

For years, the hotel and other industries have been using technology, analysis of data, external factors and employing "yield or revenue managers" to deliver the maximum revenue for the inventory they have to sell i.e. bed rooms, airline seats etc. The principle very much opens up the selling of tee times to the market forces of supply and demand and the fact that two tee times, 30 minutes apart (even 10 minutes apart!) are not actually the same product, as the demand for one of them may be significantly higher, due to a range of factors, than the other.

It should not be confused or thought of as discounting, which is based on the assumption that there is a fixed rate or a "rack" (highest) rate for a tee time and all you are doing is discounting until someone buys. Whilst the practice will lead to tee times being sold at prices which potentially have a wide range, in fact the price for certain tee times may increase above your previous rack rate and the objective is to achieve a higher average achieved rate ("AAR") over a given period than you would otherwise and also to increase the quantity of tee times sold.

What is the price of a tee time?

You actually have to move away from the concept of a "set" price - ie, if someone asked what was the price of a flight to London from Edinburgh, no one could or would expect to provide a definite answer - it would probably be along the lines of;

"what time of day, which day of the week, is it is a bank holiday and even how close to the date of travel you are when booking "

This is dynamic pricing in a nutshell. Sure, other issues for each business will impact such as branding, image etc - but ultimately these are all decisions which underpin the pricing and yield management objectives.

Golf clubs have employed some pricing techniques to maximise sales and revenues (yields), such as peak and off peak pricing, week day and weekend pricing, early bird and twilight offers, discounts and incentives for groups for example, which is all aimed at increasing sales and maximising revenues. Plus increased footfall can also have the benefit of increasing secondary spends in the retail, hire, food and beverage etc.

But from activity in the industry and discussions I have heard in recent marketing bootcamps we have supported with Andrew Wood of Legendary Marketing, it is clear there is interest and perhaps the appetite to take this further.

A couple of examples, one from the US and one from Ireland are very interesting. Walters Golf Management have been employing a "dynamic pricing" approach to some of their golf properties and some of the results they have found are interesting and are actually increasing their revenues on green fees by up to 17% compared to the competitive market performance.

They have found that the following factors impact the supply and demand of their tee times and with the appropriate pricing, have allowed them to generate this increase in AAR, rounds and overall revenue.

  • Time of day, even to the extent that a tee time on the hour is more valuable than the tee time either side (who has ever asked for the 8.52am slot instead of the 9.00am slot?).
  • day of the week
  • daily weather
  • competition
  • sporting or other major events that are taking place in the town or city of the club
  • seasonal factors
  • traffic flow
  • historical data
  • school closures
  • how quickly the tee times are selling out and remaining inventory to sell
  • and over 20 other factors of supply and demand in your area

So at their clubs in St Louis, they have adopted this dynamic pricing and no longer have a set or public rate for tee times, but the online systems or over the phone you are quoted a price based on the exact time you want. If you have a budget range, they will provide details of the tee times which come within this range – so there is always likely to be an option within your price point.

This has been so successful they have set up a company called Dynamic Revenue Services to offer the service to a wider audience. For more details see http://dynamicrevenueservices.com

A bold move by Mount Juliet

Another live example and I would consider a bold move is from Mount Juliet in County Kilkenny, Ireland, the Resort featuring a Jack Nicklaus designed golf course. The course operates as a fairly typical resort business model with membership and green fee access and their rack rate was at the high end. But they felt that having a fairly high end rack rate meant they could only discount a certain amount for off peak golf and as such had spare inventory, which in golf (like hotel rooms and airline seats), if you don’t sell it you cannot get back – it is a perishable resource in effect.

Therefore when you now go to the website or enquire about tee time prices, you get the following information;

 Green fees rates will be quotes depending on;

  • the time of year, the day of the week and hour by hour! 

What Mount Juliet state that this allows them to do is actually increase their highest rate for the high demand times (for the time sensitive golfer) and without “discounting”, offer a rate for those tee times which have lower demand and ensure they have an offer for the “price sensitive golfer”.

Whether they will apply other factors mentioned previously that Walters Golf Management do and vary the price according to other external factors such as booking pace, lead times etc is not known, but you would imagine that they will introduce more factors to maximise utilisation and AAR.

In effect Mount Juliet and Walters Golf Management are focused less specifically on the AAR they generate, but the AAR in conjunction with the utilisation on the golf course, which is termed as RevPATT (Revenue Per Available Tee Time). In the Hotel business, the RevPAR (Revenue Per Available Room) has long been one of the priority Key Performance Indicators (KPI) of any hotel performance and golf courses would benefit from such a shift in focus as well.

Yes, the positioning and perception of the business has to be taken into account but ultimately a more commercial view on the financial performance has to be high priority.

So, would this work in the UK and Europe?

Many would argue that for golf, people do not like to pay different prices for what is on the outside the same product or service – but we do it every day and accept it when we book airline seats, hotels, rental cars etc – so why not golf? And for the golf courses, this may be a way to actually move away from pure discounting from a “public rate”, from discount vouchers such as 2 for 1 etc and allow clubs to take more control on their pricing and focus on maximising their assets (tee times) and maximise secondary spend in retail, food and beverage etc.

I have questions about how this would work with 3rd party tour operators for businesses who depend on this source of business, given they like to have fairly stable, set rates to deal with, but this is dealt with in the other industries without too much fuss and so should be with golf I guess? Look out for further blogs on this issue and subject.

It will be very interesting to see if this model is started to be adopted by more golf clubs as Mount Juliet have and how it may impact the future of how we price and book our golf? It won’t suit everyone, but I believe we will see more and more of this approach in the future.

A commercial focus to management and operations of golf clubs is critical in today’s challenging financial climate. Braemar Golf operate clubs in both mature and emerging golf markets and ensure a commercial approach and sales culture is developed into the businesses we work with.