San Mateo Municipal Golf Course (Poplar Creek), a city owned public golf course is seeing red. According to CrossCurrents Radio two factors are contributing to its losses, the interest payments on the debt the part took for renovation and the overall drop in the number of golfs played due to recession. The city considers Golf course as a public service and is reluctant to raise prices, so it is primarily focused on the cost side of the profit equation. This is a classic example of the need for effective price management. Here is a pricing strategy proposal based on my earlier framework.
Incremental Analysis: The investment they had made in the past for renovation is sunk. Before making this investment they should have looked at the incremental profit (in the form of price premium, increase in volume) the renovation would have brought. Based on this incremental analysis they should have proceeded with the plan if only if the investment was net positive. It turns out that it is not. So the decision needed now is whether or not they can operate the golf course profitably, if they cannot then get over the sunk cost fallacy and shut down the course.
Price Elasticity: The city is afraid of raising prices as it might turn off golfers. A few interviewed for the Crosscurrents radio expressed that they may not play if the price were increased. These do not represent the opinion of the customer base – Poplar Creek should know the price elasticity for its service among its city residents.It cannot be making decisions without this data.
Value Based Pricing: I tend to believe that golf course is not a public service since it is not essential to the residents. So the city should price it at what the customers are willing to pay and not to just cover costs as it does now. The golf course is a premium service to a few residents and hence it should be priced as such. the city should do a competitive analysis to determine reference price and determine the price it can set to capture the value it adds to its customers.
Segmentation: Price increase need not be across the board. Currently their pricing schedule shows differential pricing based on residency, age, 9 or 18 holes, time of day and day of week. This is good, but by segmentation I mean more than a price list. Their customers are all not unique and the value proposition is different to different segments.Understand these segments and the value add to each segment, offer them versions at different prices. For example, why would some segments pick only a public golf course and specifically this golf course? Is there a segment that values a less-crowded golf course more, if yes then can you offer specific days with a much higher price to only those with higher willingness to pay for this benefit?
Cost to Serve and Customer Margin: Understand the cost to serve each golfer and track revenue per customer that includes rentals and Pro-shop sales. Change your customer mix to have a higher proportion of high margin customers. Unbundle services and offer fewer amenities and services to those price sensitive segments (for example no guaranteed reservation for lowest price).
The city has an opportunity here to make the golf course profitable despite the weak economy and without increase prices across the board.