Beat the Recession Blues. Take Up... Golf?

We speak often of normal, inferior, and luxury goods and the personal adjustments we make in our spending as our income fluctuates. When times are good, we spend. When times are bad, we still spend... just not as much and on inferior products. So, let's discuss what happens when luxury goods are all of a sudden within our price range, or at least close to it, and it is the supplier not the consumer who is making the adjustments.

In the October 2011 issue of Golf Digest, John Barton wrote an article titled, "The Price is Right: Affordable Golf is Not Only Plentiful, it's Preferable". Barton shares the following statistics concerning the game of golf in the United States:
  • The average golfer spends $1,620 a year on the game (including $406 on equipment, $338 on green fees and $64 on lessons)
  • Only 3.6% of individuals with incomes below $30,000 are golfers
  • 14.8% of individuals with incomes above $125,000 are golfers
  • As of 2010, there were15,890 golf courses in the U.S. with a median green fee of $37 (nearly a $3 drop from the previous year)
The point that the author is trying to make is that golf, now more than ever, is becoming more affordable for those who have only dreamed of leaving the driving range and stepping foot onto a course to actually play. Golf successfully originated in Scotland in the 1600's and was considered a game reserved only for rich males. Gentlemen Only, Ladies Forbidden - as the G.O.L.F. acronym denotes - has long been the motto maintained by players of the game even up until recent decades.

Times have now changed and golf courses are doing all they can to attract players to their courses. Greg Nathan, Senior Vice President of the National Golf Foundation, is quoted in Barton's article saying: "Because of the supply-and-demand imbalance, there has been a meaningful price compression. All the course owners and operators are competing very hard. Really nice courses are financially within reach, perhaps more than ever before. Playing golf has become more affordable." Barton continues to explain that there are all kinds of deals, discounts, two-for-ones and special rates. If you're playing as a family, 899 facilities across the U.S. offer free green fees to children with an accompanying paying adult, and 2,278 facilities have special rates for juniors. Many courses are coming up with innovative ideas to make the game even cheaper and attract more players to the game, he explains.

The new affordability of golf is undoubtedly a result of lower national incomes and, thus, less dispensable income to spend on recreation and not necessities. So, maybe now is the best time to take up the game? Whether it is or not, it is still interesting to consider the economic changes in the golf industry and the efforts being made by course owners and operators everywhere to make the game more affordable to the public and not just the wealthy.


Dr. Tufte said...

-1 on Aaron for grammar problems.

Aaron: you mean disposable income not dispensable income.

I think what you are observing is fairly standard and widespread. All sorts of luxury items are lowering their prices to try and maintain cash flows.

Xavier said...

This makes a lot of sense considering what we know about marginal costs, marginal revenue, and optimizing profits. I don't suspect that golf courses have very much marginal cost, since most of the expenses involved are fixed. It seems that the challenging part for the golf courses is determining how much to lower the price of golf to reach out to lower income individuals, while still taking advantage of the high price that the higher income golfers are willing to pay.

Papa Smurf said...

I think that one of the biggest challenges is what Xavier hit on. In every market there are consumers who are willing to pay higher prices for goods than others, what the golfing industry needs to do is find a way to effectively price discriminate its consumers. One possible idea would be for course owners to own multiple golf courses in an area and charge different prices at each one. Then the cheaper courses would require less maintenance and could be for the individuals who are willing to spend less money on golf, and the more expensive courses could be kept nicer because those who are willing to spend more money on golf would want to use the better courses.

Dr. Tufte said...

Ooh Xavier, golf courses have high marginal costs from watering and grass cutting. I think what you're thinking is that their marginal cost curve is relatively flat: more golfers puts some wear and tear on a course, but not too much.

What Xavier is driving at, about how to price golf to reach out to different groups is what the price discrimination section of Chapter 9 in the text is all about.

Papa Smurf is right, although I'm not familiar with any holding companies for golf courses. But nonetheless, courses to price discriminate with prices that change with the season, day, or time.

Also, you golfers might want to think about how the requirement at some courses that you rent a cart is similar to the discussion of FOB pricing in Chapter 9.

Windwalker said...

We need look no further than right here in St. George. The City of St. George could be seen a "holding company" of golf courses. Anyone who has played Sunbrook, then gone over to play Southgate or St. George Golf Club can't tell me with a straight face that the city doesn't place more effort and resources into Sunbrook's appearance and use as a marketing tool for the city than the other courses. Furthermore, I would be interested to know if the city manager and his cronies play anywhere BUT Sunbrook. That should be a sign right there.