Do Golfers Make "Value" or "Price" Decisions When Choosing Courses?

With the recent sluggish golf economy, many people believe that there will continue to be a "flight to price" among golfers in choosing facilities. This hypothesis is based on three key assumptions:

1. Golfers will "trade down" from their current facilities to lower-price facilities to maintain frequency of play
   
2. In leaner economic times, the quality of the experience at higher-priced facilities won't support the price premium
   
3. Higher-end public access golf will suffer disproportionately and lower-priced facilities will benefit in this environment.

Seeking to better understand this dynamic and help their clients evaluate the potential impact on their individual facilities, Galloway Golf worked with Pellucid Corp, a Chicago-based golf information and insight company, to provide an educated perspective on whether current rounds demand trends would support or refute this hypothesis.

There are two potential ways to answer the question of whether golfers, as consumers, make "price" (absolute lowest price) or "value" (price for experience delivered) decisions in choosing facilities. One approach would be to ask consumers in a survey about their habits in choosing courses as their individual economic situations change. We are preparing consumer survey scheduled for 2003 which will include questions to better understand how (and if) consumers move up and down the price/value spectrum along with their economic fortunes.

The more immediate way to shed some light on this issue would be to look at which course formats are currently producing the highest rounds "velocity" (rounds per hole) which we can interpret as consumers voting with their wallets. If in fact golfers are as price sensitive as many believe then we should see lower price facilities always being rewarded with higher rounds than their higher-priced counterparts.

First we need to segment golf facilities by price points with annual rounds "demand" for each of those groups. For this analysis, we'll look at the "velocity profile" at the U.S. level and then also for two sample Metropolitan Statistical Areas (MSAs) to see how consumer behavior differs across markets in choosing facilities. We used the GOLF Magazine Golf Course Guide (GMGCG) as the data source for this analysis augmented by their own course segmentation and rounds projections from the courses reporting rounds to the GMGCG.

Over a year ago, Pellucid introduced the concept of "consumer-based" course segmentation in response to two industry anomalies: First, they didn't believe that golfers made course decisions based on who owned the golf course (i.e. they don't differentiate a $40 municipal course vs. a $40 daily fee course) and second, the traditional industry sources claiming that "high-end, daily fee is overbuilt" had no such classification as high-end daily fee to validate that assertion. To address these issues and attack the question of "price vs. value", we'll use Pellucid's course segments as defined below:

• Private Holes = Holes for facilities designated as Private in the GMGCG, does not include Semi-Private
  
• Military Holes = Holes for facilities designated as Military in the GMGCG
  
• Resort Holes = Holes for facilities designated as Resort in the GMGCG. An important distinction here is that resort defined by GMGCG is a golf course attached or affiliated with a hotel or destination property. A better definition going forward would be courses which get a majority of rounds from non-local play but, until Pellucid figures out how to capture that information, we'll have to stick with the current definition
  
• Alternate Facilities Holes = Holes for facilities classified by Pellucid as Alternate using the Golf 20/20 industry guidelines (less than 18 holes & reduced yardage and par in general terms)
  
• Public-Regulation-Price Holes = Holes classified by Pellucid within each MSA that are in the lowest price cluster, calculated using in-season, peak, weekend greens fees for each facility
  
• Public-Regulation-Value Holes = Holes classified by Pellucid within each MSA that are in the middle price cluster, calculated using in-season, peak, weekend greens fees for each facility
  
• Public-Regulation-Premium Holes = Holes classified within each MSA that are in the highest price cluster, calculated using in-season, peak, weekend greens fees for each facility

Using these segments and this approach, let's look at the "velocity curve" for the U.S. in total. In order to provide a valid assessment across facilities of varying hole configurations (9, 18, 27 holes etc.), we chose the measure of "rounds per hole" vs. traditional analyses of "rounds per facility". We believe this provides a more accurate measure of activity. The "rounds per facility" would say that a 27 hole facility doing 27,000 annual rounds is better than an 18 hole facility doing 18,000 rounds (whereas "rounds per hole" would consider those two facilities equal in rounds velocity).
Given the operational and economic structure of courses across price points, we would expect that lower-priced courses will always have higher velocity. And, we expect that as we go up in price points, velocity will come down. This is mainly attributed to the fact that at higher greens fees operators don't necessarily need to (nor want to) run hundreds of thousands of rounds across the golf course. Thus we would expect the normal "velocity curve" to look like the U.S. average picture below:

Our approach to the "flight to price" theory would be if golfers really are driven by absolute price, then price courses in every market would always be rewarded with the highest velocity and that the velocity curve for the vast majority of markets would be similar to the U.S. profile above. Going through the 316 MSAs and looking at their velocity profiles, we found a surprising number which don't follow the velocity curve outlined above. Below are two examples of the market groups that don't follow the US profile:

In Raleigh, we see a "hump" in the velocity curve with "value" courses being rewarded with the highest velocity in this annual snapshot from year-end 2001. This suggests that the middle price tier of public access golf courses in Raleigh are providing a superior experience than the lower priced courses and the "value" courses are being rewarded with higher play velocity. This suggest that the golf consumer is more sophisticated and they are not always simply motivated by price even during an economically challenging environment.

Also of note is the fact that "premium" facilities are also winning the velocity battle vs. "price" courses and don't trail the "value" courses by a significant margin. In simple terms, the golfers in Raleigh seem to be discriminating consumers selecting better overall "experiences" vs. absolute lowest price golf. Let's take a look at another type of market where the premium facilities are outperforming both value and price formats, Boston:

What appears to be happening in Boston is that the higher price courses (much of them new) are being rewarded with higher velocity due to some local circumstances. Without in-depth knowledge of the Boston market, one could speculate that there are nice new courses in the area and they're benefiting from the initial rush to play the new layouts. It also could be that the premium facilities have found the optimum balance of price vs. experience and they have developed a loyal patronage of a more affluent local population that can afford to spend significant money on golf on a weekly basis.

In summary, while we've just done a cursory overview of a few markets, there is sufficient evidence in analyzing velocity across markets in the U.S. to suggest that the golfer is an educated consumer and that they don't always flock to the lowest price point. We see this as encouraging that golfers will reward a better "experience" with their play even at higher price points in light of the current environment where the mix of facilities has shifted to more expensive, public access golf. This supports a welcomed alternative to price discounting strategies that many operators tend to adopt in overly competitive golf environments.

The danger is that many of the recently added high-end facilities may be simply built on the basis of a great layout or a signature architect's name. Many are not delivering the ongoing requirements of being well-positioned (i.e. what do we stand for); well-marketed (i.e. we understand our customer's needs better than our competition), and well-operated (we maintain our facility at the "experience" level our price should deliver).
More questions remain in helping operators understand their competitive position in the marketplace and the size and value of the golfer base. The people at Galloway Golf, working in conjunction with partners like Pellucid, are committed to helping interested operators compete effectively through better insight into their facilities and the marketplace in which they operate.

In writing this article Galloway Golf collaborated with Pellucid Corp., a Chicago-based golf information and insight company. Pellucid uses proprietary, licensed and public domain information sources covering consumer behavior, facilities supply, rounds demand and US Census demographics.