In 1994, a multi-national diversified corporation charged one of its subsidiaries, a private country club in Southern California, with increasing memberships to cover the cost of opening a second 18-hole golf course. The club had been successful for years and the break-even point had been 400 golf members with one course. Break-even for two courses was 575 golf members because the club’s infrastructure was built to handle two 18-hole courses. Management hoped to go beyond achieving break-even when the new course opened and increase the customer base to 600. Meeting these goals at a time when tighter tax laws put corporate memberships in decline meant broadening the club’s market and, perhaps, significantly re-inventing its image.
The lead author has been a senior executive in the hospitality industry for 20 years and, as the club’s director of marketing, realized that this challenge would mean looking beyond conventional marketing and sales methods. He received corporate approval to implement techniques discussed in Pepperdine University’s Presidential/Key Executive Program. Taking on this responsibility allowed him to gain the confidence to be innovative in a regimented corporate environment and to run his business unit as though it were his own firm. The results of the club’s wide-ranging marketing initiative far-exceeded expectations. This article describes some of the ideas that contributed to this success.
One major operational change was development of quantitative performance measures for all marketing activities. This included judicious use of marketing research to create a database on customers and their behavior. Another element was that promotional activities at the club were assigned specific goals, and indices were developed to track prospective customer awareness, inquiries, and trials. Finally, pricing policies were revised to enable flexible programs based on value-added analyses and contribution-margin accounting.
Data gathering was one of the first areas of the existing marketing program to be reviewed. A survey of existing members was conducted which showed that 50 percent of members lived on the property, 50 percent snow-skied, 78 percent played golf, and 80 percent walked or jogged at least three times each week. Similarly, results showed that 81 percent of the members were married, 71 percent were dual-income families, 84 percent had two or more children, 50 percent of the children attended private school, and 66 percent of families had a live-in nanny.
The club carefully constructed a sales call sheet and turned sales agents into knowledge gatherers to improve the quality of prospective customer data. Marketers began asking open-ended questions to tap visitors’ underlying thoughts for a more accurate view of their intentions. Customers do not always respond truthfully to salespeople. People sometimes say what they think salespeople want to hear for the sake of a graceful exit. Agents are more efficient with questions such as whether prospects presently belong to a club, live in the area, are considering joining a private club within the next three months, or would like a tour of the club.
Data gathering from phone inquiries also became more systematic and revealed that many prospects were intimidated by the exclusive look of the club’s front gates which created a “stuffy elitist” image. Many wrongly believed they had to be a resident to join. It also became evident that many would prefer to pay initiation fees in monthly installments, even if it meant receiving a lower percentage of that fee upon resigning from the club. The data generated a more defined customer profile that suggested potential members:
- were interested in golf
- had been a member of a private country club
- lived within 20 miles of the club
- lived in a neighborhood with homes starting at $300,000
- subscribed to Golf Digest magazine
- drove a Mercedes Benz, BMW, or Jaguar
- were members of a sister or neighboring club
- were contributors to the performing arts
Ads were designed to promote its family-orientation, affordability, and larger capacity, and to counter the impression that the club was stuffy. Prospects were offered gifts like free putters and free rounds of golf. Ad response was measured by increases in awareness, traffic, and trial memberships. Ads were run in regional editions that cost less because of the club’s more defined customer profile.
The club composed a direct mail piece every three weeks inviting prospects to a free evening of food, beverages, prizes, and entertainment. The list was occasionally broadened to create a universe of approximately 2,000 recipients that might produce 100-125 attendees and, ultimately, five to eight memberships.
Used properly, direct mail out-pulled the newspaper at much lower cost. For example, $8,000 newspaper ads delivered 100 attendees of whom approximately 85 were not qualified while $4,000 direct mail campaigns delivered 250 pre-qualified attendees.
To generate publicity, the club hosted a media golf tournament featuring one of the golf industry’s most sought-after characters. Professional writers prepared background pieces on the club from every angle and guest chefs showcased the club’s cuisine. The media was treated to free golf, food, liquor, shirts, caps, and golf balls. They generated a flood of ink and tremendous market awareness in return.
Thirty days later, a prominent sports columnist proclaimed that the club should be considered for a major event such as the U.S. Open. The article brought recognition throughout the golf world that could not have been purchased for $100,000 in advertising.
Introducing Payment Options and Group Memberships
Traditionally, the club had one golf membership price but the possibility of pricing down the demand curve was now raised. One can capture multiple price-sensitive segments with different price levels using this concept – provided the segments are reasonably distinct. For example, the club’s rack rate was $30,000 cash. People who paid $30,000 cash for a membership would receive 75 percent of that amount back if they resigned. A second membership at $25,000 would be refundable at 50 percent and could be financed internally for four years. Similarly, a third membership could be offered at $20,000 – non-refundable and financed for five years. This particularly met the needs of those potential members who were not asking how much it cost but, rather, “How much are the payments?”
Another opportunity for creative pricing appeared when a major multi-national firm headquartered nearby asked for special pricing on memberships for ten of its top executives. The club’s senior management considered the financial impact of this proposal, how it would affect the ability of these members to mix with other members, and how to answer other members who ask for the same treatment. It was decided that the deal warranted a new experimental membership category with these points:
- The company would pay cash with one check for ten memberships
- The club would sell the first two memberships at full value ($30,000)
- The club would sell the next eight at one half full value ($15,000)
- he company would pay full dues for each membership
- The company could re-assign a membership for a $750 transfer fee
Bingo. The deal worked. The company paid $180,000 cash and remitted full monthly dues for each member. The club soon had 12 members from the company.
The club’s senior management formerly set price increases each year based on estimates of what the market would bear. This process was replaced with a comprehensive break-even analysis to position pricing at a competitive, yet profitable, level. This proved valuable when a competitor halved dues, dropped monthly spending minimums, and eliminated initiation fees. A number of members immediately dropped out and joined the other club. Armed with a break-even analysis, the club decided not to compete and faced the fact that losing some customers is not necessarily a bad thing. It became clear when exiting members were contacted that they were joining the competition because of price and could barely afford their previous membership anyway.
The spending patterns of members who were resigning averaged $60 per month above dues while average spending at the club was $175 per month above dues. The club lost many accounts whose average monthly spending was below the break-even level.
The other club did not do its homework well. They lowered dues and dropped minimum spending requirements without considering that these new members would not be spending freely. They filed for bankruptcy soon afterward.
The club also took a new approach to price increases. Historically, golf dues were increased $20 per month each January. Annual increases had been limited more recently to a very modest $5 per month because of tough competition. After researching the market extensively, however, the decision was made to again increase prices on golf members by approximately $20 to $30 per month. However, the club also added value for these members. For example, members received free guest certificates for golf. The increased capacity of the new golf course, and the scheduling of free golf at shoulder and slow periods, meant free rounds had little impact on revenue and created a win-win situation in which members felt compensated for the additional cost. The additional rounds also generated revenues from balls, shirts, caps, cart rentals, sandwiches, and beer.
A new pricing strategy was also developed for food and beverages. The food and beverage department had generally maintained a food cost percentage of 40 percent or less. It became evident that you take dollars to the bank – not percentages. It’s far more profitable to sell a minute steak for ten dollars at a food cost of 50 percent, and a contribution margin of five dollars than a four-dollar tuna sandwich with a food cost of 40 percent but a contribution margin of $2.40. The club could value-add the steak by pricing it lower (accepting a 50 percent food cost), and further encourage sales by moving steaks to the ‘cash cow’ position in the middle of the right-hand page of the menu.
The club achieved its membership goal three months ahead of schedule and the parent company was able to open its new golf course in a positive cash flow position. Fifty-one memberships were sold during the first summer and the club became number one in sales in the parent organization’s multi-club system. Market research also enabled the club to better satisfy current members by offering ski trips, nanny areas in the clubhouse, and summer camps for members’ children that consistently sold out.
Some of these marketing elements were in place from the beginning and the club had previously been profitable, however the systematic gathering of customer data and implementation of new marketing and pricing strategies brought the appearance of overnight success. Senior management’s initial position had been that membership growth would result from word-of-mouth about the greatness of the new course, but this clearly did not happen by itself. It required careful targeting of product and pricing for the market. This process can be both an art and a science.