"A Snapshot" Look at Our Industry - Low Price Guarantee - April 2011
Low Price Guarantee on our Website - Can We Make it Work?
Point: “Our customers can always find our Lowest Fares Guaranteed and No Online Booking
Fees at AA.com.” – Web Press Release, American Airlines, December 21, 2010
Counterpoint: "American is going to get hammered in the marketplace.” – Kevin Mitchell,
Chairman of the Business Travel Coalition, TravelMarket.com, December 24, 2010
American Airlines recently made major decisions on how they utilize third-party online travel agencies (OTAs). By negotiating terms to their advantage, American now ensures consumers will always find the lowest fares guaranteed at aa.com; fares that can not be found on Expedia or Hotwire. In addition, the airline completely removed its fares from Orbitz altogether. American cited “price integrity” and a dispute over how customer information was passed on as the main reasons for their recent decisions.
American is not alone in the travel industry when it comes to evaluating third-parties. Most major hotel chains have also instituted “low price guarantee” policies on their own websites to counter the pricing problems they created for themselves through the use of OTAs. And just this month, Enterprise Holdings, operator of the largest fleet of rental cars in the world under the Alamo, National and Enterprise brands, terminated its relationship with Orbitz citing “unacceptably high commission rates and concern over consumer trust and choice.”
This recent activity in the travel industry of trying to cope with a “pricing nightmare” caused by their own decisions to use OTAs in the first place, got us thinking about the ongoing discussions happening in the golf industry regarding third-parties, and it seems we’re not alone. On January 23, 2011 a conference call took place with several NGCOA Regional Association Executive Directors and Rob Brown, an executive with Southwest Airlines. It should be noted that Southwest long ago decided NOT to use OTAs and has handled all online reservations through its own website. It should also be noted that Southwest is the most profitable of all major airline carriers over the past decade.
So what does this have to do with the golf course operator? Plenty! Here are a few questions we get asked regularly by our clients:
Should we offer online reservations? You would be surprised at the number of courses that do not offer online reservations. That is part of the reason why Internet reservations account for less than 10% of all rounds booked. We think every course should offer Internet reservations as a convenience for its golfers, particularly to accommodate after-hours and travel-related demand.
Should we develop third-party relationships? As long as you control the pricing, there is nothing wrong with having relationships with hotels, travel packagers, corporate partners or many other channels that can be used to promote your golf course. In every case, you need to be able to set the price of every round sold through a third-party.
Should we use third-party resellers? There is a big difference between various third-party relationships; some resellers actually “buy” (or barter) your inventory and then sell it again, while other travel packagers negotiate a “wholesale rate” and guarantee that they will re-sell the rounds at a price you agree on upfront. The second method is preferred. If the third-party reseller will not agree to a set price that you specify for a round, you are headed for trouble. Just ask the travel industry what they have been doing for the last 10 years as we evidenced above in their battle to regain “price integrity” and customer contact control. In short, if a third-party allows you to set the price of the inventory you grant to them, it’s OK; but if they don’t, chances are you will be compromising the value of your product in the marketplace.
Should we offer a “low price guarantee” on our website? That depends. If you control the pricing for all the rounds you have available, you can honestly offer the “low price guarantee”. If you use a third-party that does not let you set a price for your inventory, you can’t really afford to make that guarantee. If you participate in coupon books, Groupon or other Internet-based pre-sale methods, you have to be prepared to match those rates on your website. The $64,000 question still revolves around who has pricing control and can use it most effectively.
In the end, all of the debates regarding airlines, hotels, rental car companies and golf courses use of third-party distribution boil down to “price integrity” and what methods can be used to achieve the highest revenue possible. Many golf course operators are being besieged with “Yield Management” ideas and tools, along with an increasing number of coupon-based schemes such as Groupon, the new Google Groupon clone and GroupGolfer type offers.
We all need to take a step back and look at what we can learn from what is going on both within the golf industry and outside of it. When doing so, we need to pay attention to the following:
1. Airlines, hotels and rental car companies are trying to recover “price integrity” problems they brought on themselves through the wide adoption of using OTAs. They believed they could trade a traditionally commission-based model for a larger “wholesale discount” to the OTAs and make up for the larger discounts with volume.
2. With the exception of American Airlines and Southwest, virtually every other major airline has filed for bankruptcy over the last decade – United (twice), Northwest, Delta, US Airways, Midwest, and the list goes on……
3. The airlines and hotels are using the “low price guarantee” on their branded websites as one tool to regain “price integrity”, but are also strengthening their ties to commission-based OTAs and even traditional travel agents.
4. Current “Yield Management” programs have proven largely unsuccessful, with hotel occupancy rates falling and the continued financial woes of the airlines. We would also add that rounds played in the U.S. fell for the third consecutive year in 2010 (and take it from us, it was not only the weather).
It is clear that the current methods are not working very well. Fortunately, the golf industry has not been impacted as much because of the relatively low level of Internet-based reservations. The real trick will be to avoid the mistakes the travel industry made over the past decade when it comes to “pricing control” and control of customer information. Based off of these lessons learned, here are our recommendations for your Internet pricing strategy.
• You need to control your own pricing.
• Lowest price guarantees need to be available from your course website (and over the phone and/or in person) – price consistency should be your goal.
• If you use a third-party reseller, you need to control the lowest price available through the reseller. If you don’t think GolfNow makes that option available to certain courses, you are mistaken.
• You need to be guaranteed immediate access to ALL of the customer information for every golfer booking a tee time through a third-party.
• If you use a third-party reseller, track the performance and cost of doing business with a third-party.
To inject a little airline/hotel/rental car humor in a golf context, how do you think a golfer would respond to the following?
• All of our rounds are priced from the white tees, would you care to upgrade to the blue tees for $5?
• Would you like your bag to go with you on your cart? That will be $3.
• There’s a 45% chance of rain today, would you like to purchase rain check insurance for $5?
• I’m sorry, we have to charge you a change fee of $10 if your fourth can’t get out of bed on time.
I apologize for the largely philosophical content of this article, but it is an important subject. We have spent many hours over the past couple months doing some very specialized data mining regarding various discount programs, player acquisition/retention and the actual cost/value comparison of some of these programs. Some of the results surprised us, but all the data confirms the fact that pricing control and the availability of customer contact information will be essential to any future successful attempt to improve revenues at your golf course. Stay tuned for a later issue on discounting that will be long on math and shorter on philosophy.
Stuart Lindsay
"Lindsay, a lifelong Milwaukeean, has made a career of a seemingly
thankless task: Helping businesses and individuals understand the
inner workings of the golf industry. He began delving into golf course
economics while with Deere & Co., and continued after founding
Edgehill Golf Advisors in 1989. The work combines his naturally
analytical mind with his passion for golf." - Golfweek, April 2008
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Edgehill Golf Advisors
10134 N. Port Washington Road
Mequon, WI 53092
Telephone: 262.241.7088
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