"Smart" Golf Course Operators that do these three things well, will help transform the industry and capture incredible value for their shareholders.

Just got back from a golf industry show in Austin Texas. It was very interesting the perspectives gained through this experience, but it also helped to highlight, and reinforce our business model.  I firmly believe that the golf courses that segment, bundle and innovate on the product side (golf); and on the facility side, cater to their most profitable market segment, they can do extremely well.

I started working on Golfpay about 3 years ago because I was noticing a dip in the customer experience at many of my favorite golf courses.  I set out to try and solve this problem because quite honestly it was a little depressing to see my golf experience be effected in this way. What I found was shocking. Golf courses were having a hard time making money especially since the 2007, 08' real estate market debacle. Golf courses started cutting deals with the devil so to speak, opening up the door to commodification ever slow slightly, by allowing under performing and disruptive marketing channels to drive downward pressure on green fees. The second thing I found that was really just as shocking, was the fact that because consumer behavior started to change at the same time, it created a perfect storm, and one big monster in the process. I'll let you guess what company that is.

Golf courses might be better served to stop focusing on discounted golf and serve their core segment better. Competing on price is a recipe for disaster. If you raised prices across the board 10%, how much business would you lose? So lets say your average green fee for a particular year is $50 per round. If you have 25,000 golfers go through your facility that means $125,000 could be reinvested in your facility. Golfers will pay an extra $5.00 if you can give them something in return. Put upward pressure on pricing by adding something of value and consider getting rid of under performing marketing channels or renegotiating bad deals with 3rd parties.

Consumer behavior is changing.. PERIOD. Commodification of green fees is at the door of every golf course, and unless you do these three things well, you will have a very tough go of it. This is not a theory. Its been studied and followed throughout the industrial age, and even more so with the advent of online 3rd party marketers.

1.    Innovate. A new product that better meets consumer needs, even an upgrade of an existing product, can one-up competitors and force them to invest in matching or exceeding the new specifications.

2.    Bundle. Selling a commoditized product with differentiated ancillary services (such as after-sales service) can appeal to buyers willing to pay a premium for the convenience.

3.    Segment. Mature markets are large markets that can be divided profitably into multiple segments. Marketers can focus on providing applications expertise for less price-sensitive customer segments for whom the product is still important.

HOWEVER YOU APPROACH COMMODIFICATION, TRY TO INNOVATE AT ALL COSTS.

The most overlooked investment a marketer can make in advance of inevitable commodification is a customer relationship management system that permits computation of the profit margin associated with each customer, based on price-paid less cost-to-serve. Companies need to invest in these information systems early to have the information readily at hand once margins start being squeezed.

But how do you survive if you find yourself in a commoditizing industry characterized by me-too products, overcapacity, and frequent price cuts? How can you make money?

1. Decide which customers you do NOT want to serve, try renegotiating prices with them and, failing that, fire them. You will lose market share but improve profitability.

2. Compensate your salesforce on profit margin, not sales revenues. A volume-based salesforce will sign up any customer, regardless of profitability. That's OK early in the product life cycle but not in maturity.

3. Trim costs and acquire competitors (with profitable customers) to extract maximum scale economies and centralizing costs.

4. If you aren't the low cost producer, complicate your pricing structures so customers can't easily make side-by-side comparisons, and provide discounts as needed of artificially inflated published prices.

Facing commodification and non-existent product innovation, some companies retreat to serving a progressively smaller niche of price-insensitive, service-oriented customers. Others with favorable cost structures may aim to boost market share but then face the challenge of managing hybrid distribution, as some customers want to switch to buying through distributors (at lower prices) while other customers still seek direct sales support (but may not be willing to pay to cover the cost).

Credit for some of this article goes to: Harvard Business School professor John Quelch writes a blog on marketing issues, called Marketing Know: How, for Harvard Business Online. It is reprinted on HBS Working Knowledge.