Demand Management Decisions
Central to yield management are the decisions needed to estimate demand and its characteristics, and to manage that demand using price and capacity control. There are three basic categories of demand management decisions within yield management: structural decisions, price decisions, and quantity decisions.1 OpenTee addresses each category as shown in the table on the following page.
Other Revenue Management Tools
In OpenTee, yield management is considered a subset of a larger group of revenue management controls that include the following:
* Volume optimization. This control is designed for business environments in which high-volume selling takes precedence over revenue considerations. Volume optimization is accomplished by:
* Removing limits to access and availability.
* Distributing the tee sheet among multiple sales channels, such as a central reservations center, group sales operations, agent/hotel reservation systems, websites, etc.
* Creating multiple packages. This has the effect of expanding inventory, which in turn creates increased demand.
* Facility optimization. This control is designed to maximize sales to those players or groups who tend to spend more overall at the golf facility. This increases income from fees and amenities such as cart rental, food and beverage, and retail merchandise. Facility optimization is accomplished by:
* Business intelligence modules that gather and report customer data generated by the OpenCourse suite of products, including OpenTee, Micros POS,
Internet Marketing, and others. This data is used as a means of targeting those groups and individuals who contribute most to overall property revenue.
* A group event planner. This module collects information that helps to optimize the return on group play. The collected information includes billing, contracts, payment guarantees, and other event-related information.
Financial Impact on Course Operations
Yield management can provide the leverage to increase two income sources that are typically underutilized in the golf industry. These income sources include:
* Volume. The ability to control availability has a positive impact on capacity.
Absent a concern for displacing higher-paying rounds, operators can partner with wholesalers and other external entities, thereby tapping into new volumes of demand that would otherwise be unavailable.
* Unit Price. Better control of packages, player types, and rate quotas allow operators to manipulate unit price to the best possible advantage based on demand. Combined with low marginal costs, the ability to quickly adjust unit price can have a dramatic effect on incremental revenue.
Studies have shown that the consistent application of yield management can increase turnover by 3 to 7 percent. Low marginal costs in the golf industry mean that most of this turnover translates to similar percentage gains in gross revenue.
People Express was a company that did not survive the airline price wars of the 1980s. Former CEO Donald Burr explained the company’s failure as follows:
“We were a vibrant, profitable company from 1981 to 1985, and then we tipped right over into losing $50 millions a month. We were still the same company. What changed was American’s ability to do widespread Yield Management in every one of our markets. We had been profitable from the day we started until American came at us with Ultimate Super Savers.
That was the end of our run because they were able to underprice us at will and surreptitiously. There was nothing left to defend us.” 2
Yield Management is a demonstrably critical factor in ensuring the profitability, and sometimes the viability, of any business operating in a highly competitive environment.
Although golf operations are not as complex as airline operations, the two industries share many similarities. Basic yield management rules, derived from the concept of discount allocation and built into an automated tee sheet, can increase profits for a typical golf course. The technology for implementing yield management in the golf industry is now available and affordable. As the trend toward yield management increases in the golf industry, companies that fail to participate could increasingly find themselves at a competitive disadvantage.
1 Talluri & van Ryzin, The Theory and Practice of Revenue Management (Kluwer, 2004). Taken from material found at the Harvard Business School Technology and Operations Management website at http://www.hbs.edu/units/tom/
2 Robert Cross, Revenue Management: Hard-core Tactics for Profit-making and Market Domination (Texere, 1997).