Applying Yield Management to the Golf-Course Industry

Abstract ...................................................................................................................................2

1. INTRODUCTION ...............................................................................................................2

2. A “4-C” STRATEGY FOR YIELD MANAGEMENT.........................................................3

3. YIELD MANAGEMENT FOR GOLF - COURSES ............................................................4

3.1. Problem Background .....................................................................................................4 3.2. Typology of Yield Management ....................................................................................5 3.3. Concept for Golf- Courses.............................................................................................6

4. GOLF - COURSE DURATION MANAGEMENT..............................................................6

5. SUMMARY AND CONCLUSION......................................................................................8 REFERENCES ........................................................................................................................9

Abstract

Yield management consists of two strategic levers: duration control and demand-based pricing ¹ . Golf courses have been willing to try managing duration but have been reluctant to apply demand-based pricing because of fears of possible customer dissatisfaction. While golf courses do us demand-based pricing when offering higher prices on weekends and promotions such as twilight specials and league play, they have been loathe to vary price by time of day, time of booking or condition of play. Golf courses operators may well have support for their fears in the fairness literature. Researches have found that customers will refuse to patronize companies perceived as unfair. ² If demand-based pricing in courses is viewed as unfair by golfers, the golf course may suffer a loss of business.

1. INTRODUCTION

Yield or revenue management has developed into a powerful strategy for boosting revenues and improving the flow of customer demand. To accomplish those objectives, yield management uses the basic strategy of providing the right service at the right time to the right

¹ Kimes, S. E. & Chase, R. B. (1998)

² Kimes, S. E. & Wirtz, J. (2002)

customer at the right price ³ . Yield management has been widely adopted in the airline, hotel and rental car industries ⁴ , but has only recently gained attention in the golf industry ⁵ . Companies using revenue management have reported revenue increases of 2 to 5 % ⁶ and the potential revenue gain for the golf industry can be substantial. Each element of that strategy involves specific strategic levers that allow a manager to conduct an effective and profitable yield management strategy. The most important strategic levers connect price with timing. These article explain those strategic levers and give the step for applying them in a revenue management for golf courses.

The key concept underlying yield management’s strategic levers is to match the timing of service delivery with the customer’s willingness to pay for a service rendered at that time. The time element is a key to yield management, both in terms of when a service is ordered or reserved and when that service is performed. Most yield management strategies involve price related methods of shifting demand according to a consumer’s price sensitivity and the duration of the service involved ⁷ . To shift demand, a manager must be able to predict the peak and valleys, either by keeping track of past experiences or by watching reservation patterns.

2. A “4-C” STRATEGY FOR YIELD MANAGEMENT

The goal of a successful yield management strategy is to gain control of customer demand by using the time- and price-related strategic levers. Four factors enter into the tactics used to execute this strategy. These factors can be remembered as “4Cs”: calendar, clock, capacity and cost. The 4-C factors are inextricably bound together as yield management revenue levers. The calendar-related tactics involve controlling when the sale or reservation is made. Clock-related tactics revolve around the timing of the service delivery ⁸ . The capacity issue involves clearing the market by selling available capacity, while smoothing out the peak and valleys in customer demand. Finally, cost is the price of service, which is set at a level that

³ Kimes, S. E. (1997)

⁴ Carroll, W. J. & Grimes, R. C. (1995)

⁵ Kimes, S. E. (2000*)

⁶ Hanks, R. B., Norland, R. P. & Cross, R. G. (1992)

⁷ Kimes, S. E. & Chase, R. B. (1998)

⁸ Kimes, S. E. & Chase, R. B. (1998)

permits the effective functioning of the other factors. Ideally, a manager can control the flow of customer demand by setting a market-clearing price according to when the sale is made and when the service is delivered, so that the business sells its available capacity for the most possible revenue. Yield management is not a discounting strategy, even though it does involve adjusting prices and giving discounts under certain conditions. What sets yield management apart from blanket discounting strategies is that yield management sets rules known as rate fences ⁹ on offers of discounted prices. Yield management works most effectively at the margin

- as companies seek to expand overall sales by adjusting and service timing to fill out demand for a given period (whether that is a meal period, a room-night, or an airplane flight). From the company’s point of view, yield management is a way to maximize revenue during buys time and to obtain at least some revenue from service units that would otherwise go unused (e.g. unsold hotel room-nights, empty restaurant seats).

3. YIELD MANAGEMENT FOR GOLF - COURSES

3.1. Problem Background

As we already find out, yield management is the application of information systems and pricing strategies to allocate the right capacity to the right customer at the right place at the right time ¹⁰ . The determination of “right” entails achieving both the most contribution possible for the golf course, while also delivering the greatest value or utility to the customer. In practice, yield management has meant setting prices according to predicated demand levels so that price-sensitive customer who are willing to purchase at off-peak time can do so at favorable prices, while price-insensitive customers who want to purchase at peak time will be able to do so. The application of yield management has been most effective when it is applied to operations that have relatively fixed capacity, demand that is variable and uncertain, perishable inventory, appropriate cost and pricing structure, and varying customer price sensitivity. Those attributes are found in the golf industry.

⁹ Hanks, R. B., Norland, R. P. & Cross, R. G. (1992)

¹⁰ Kimes, S. E. (1997)