A new direction and business plan for the golf business in Korea:
Strategies to attract customers to the domestic market
By
Ikhwan Kim
B.A. Art Studies, Hankuk University of Foreign Studies, 2012
M.B.A. Sungkyunkwan University, 2014
SUBMITTED TO THE MIT SLOAN SCHOOL OF MANAGEMENT
IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE
DEGREE OF
MASTER OF SCIENCE IN MANAGEMENT STUDIES
AT THE
MASSACHUSETTS INSTITUTE OF TECHNOLOGY
JUNE 2014
MASSACHUSETTS M"TUTE
OF TECHNOLOGY
JUN 18 20
UIBRARIES
C 2014 Ikhwan Kim. All Rights Reserved.
The author hereby grants to MIT permission to reproduce and distribute publicly paper and electronic
copies of this thesis document in whole or in part in any medium now known or hereafter created.
Signature redacted
Signature of Author:__________________
MIT Sloan School of Management
May 9, 2014
Certified By:
Signature redacted
U
Accepted By:
Michael A. Cusumano
SMR Distinguished Professor of Management
Thesis Supervisor
Signature redacted,
Michael A. Cusumano
SMR Distinguished Professor of Management
Program Director, M.S. in Management Studies Program
MIT Sloan School of Management
1
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2
A new direction and business plan for the golf business in Korea:
Strategies to attract customers to the domestic market
By
Ikhwan Kim
Submitted to the MIT Sloan School of Management on May 9, 2014, in
partial fulfillment of the requirements for the degree of Master of
Science in Management Studies
ABSTRACT
The golf industry in South Korea has been flourishing and has maintained high profitability.
However, the South Korean market is not adequately prepared for the increasingly globalized
world economy and resulting changes in the business environment. There is a need for research
to guide the Korean golf industry based on long-term projections of the Korean economy and
future market trends. An increasing number of golf customers are traveling abroad to enjoy high
quality golf services at more affordable prices. Golf courses in China and Southeast Asia are
actively attracting golf tourists by promoting their competitive pricing. The Korean golf industry
must identify and promote its competitive advantages to survive in this increasingly competitive
environment. The main purpose of this study is to identify various strategies to increase customer
demand for Korean golf courses. This paper also illustrates the correlation between economic
trends and the golf industry in South Korea. Moreover, a business plan based on the factors that
determine the choice of golf clubs, the competitive advantages of South Korean golf clubs, and
potential marketing strategies indicate future directions for the Korean golf industry.
Thesis Supervisor: Michael A. Cusumano
Title: SMR Distinguished Professor of Management
3
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4
ACKNOWLEDGEMENTS
First and foremost, I would like to take this opportunity to thank my thesis advisor Professor
Michael A. Cusumano for giving me a chance to work on this interesting topic. He has been a
great source of advice and guidance throughout this dissertation. His expertise on the industry
and strategies added considerably to my graduate experience. His constant feedback and
encouragement provided me with extra motivation to complete this work within the given time
period.
In addition, I want to acknowledge the people who are working in golf industry, especially at the
Haeundae country club. The materials that I have received were invaluable resources that
enriched the contents of this thesis and provided different perspectives into the golf business.
Also, through the experiences that I had at the golf country club, I have acquired the knowledge
to think about the golf industry and their potential problem that would face in the near future.
This motivated me a lot to work further on this thesis topic.
I would also like to thank Chanh
Q Phan
and Julia Sargeaunt for giving me great support and
encouragement while writing this thesis. Moreover, I would like to give my special thanks to all
my Masters in Management Studies (MSMS) classmates. The MSMS experiences that I had
surrounded by these people were precious and I have learned a lot from them.
Last but not least, I always appreciate my parents to give me an endless support. It would never
have been possible to finish MBA-MSMS program without their support and encouragement.
5
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6
TABLE OF CONTENTS
ABSTRACT.................................................................................................3
ACKNOWLEDGEMENTS..............................................................................5
1. INTRODUCTION......................................................................................8
-
BU SIN ESS A N A LY TIC S.................................................................................................
9
2. SITUATION ANALYSIS IN THE GOLF INDUSTRY: SOUTH KOREA...............12
-
HISTORICAL CHANGES IN THE GOLF INDUSTRY: SOUTH KOREA........................................12
-
RECENT TRENDS IN THE KOREAN ECONOMY: CORRELATION WITH THE GOLF
IND U ST R Y ............................................................................................................
-
. . .. 17
SUPPLY AND DEMAND IN THE GOLF BUSINESS OVER RECENT YEARS: SALES, PROFIT & LOSS
.............................................................................................................................
..21
3. BUSINESS PLAN: STRATEGIES FOR ATTRACTING CUSTOMERS TO THE
DOMESTIC MARKET...............................................................................28
-
PROPOSE NEW GOLF COUNTRY CLUB MANAGEMENT POLICY IN SOUTH KOREA.................28
-
MARKETING STRATEGIES FOR MEMBERSHIP GOLF CLUB ..............................................
33
-
ATTRACTING CUSTOMERS FROM NEIGHBORING COUNTRIES ...........................................
36
-
BENCHMARKING 'CAESARS' DATA-DRIVEN CRM SYSTEM.............................................41
4. CONCLUSION..........................................................................................45
-
IMPROVE GOLF CLUB OPERATIONAL COMPETITIVENESS...............................................46
-
ATTRACT CUSTOMERS IN RECESSION..........................................................................47
-
COST MANAGEMENT IN RECESSION..............................................................................48
5. REFERENCES.........................................................................................49
7
1. INTRODUCTION
1.1 The South Korean golf industry
The golf industry is among the highest value-added businesses in the service industry. As
national income and awareness of the service industry continue to grow in South Korea, the
demand for golf courses has been steadily increasing. Moreover, global trends indicate that golf
is becoming more prominent in Asia, alongside rapid urbanization, growth of wealth, and
technological development. South Korean female golfers have been dominant in global golf
tournaments such as those on the Ladies Professional Golf Association (LPGA) tour, which
indicates that golf is spreading very quickly across Asia (HSBC report, 2012). "Korea has only
0.7% of the world's population, and hardly any room for golf courses. Yet four of the top 10
female golfers in the world are Korean" (The Economist, 2012). However, since golf has been
recognized as a luxury sport that is relatively expensive to play, it is likely that many golf
business owners could face problems during economic downturns.
This study focuses on the South Korean golf industry by analyzing the country's recent
economic conditions and their effects on this industry. In addition to the golfing population, the
number of golf country clubs has increased rapidly in Korea. However, the number of domestic
golf customers is limited relative to the growing number of golf country clubs. Therefore, the
objective of this study is to research the distinct features of the Korean golf industry and golf
courses to propose a new business plan focused on attracting foreign customers to the domestic
market. Before addressing the main subject, I introduce the concept of business analytics, an
analytic technique that has been implemented and applied to data-based decision making by
8
Caesars, a casino, hotel, and entertainment company. Since customer relationship management
(CRM) is one of the most crucial factors in maintaining and attracting more golf customers,
business analytics could be applied to the golf country club business, and the case of Caesars
could serve as a benchmark for how this approach could be applied to the golf industry.
"Not only the economy, but some of the changes in society, resulting in people not having the
time it takes for golf Time is a bigger threat to our industry, I think, than the economy: it just
seems people have trouble finding the five hours to carve out and go play golf because you've
got husbands and wives who work and kids who are in four or five different activities during the
year. "(in 2014)
-
Bob Barrett, co-Jounder and CEO of 'HonoursGolf
1.2 Business analytics
Business management based on data rather than intuition
The concept of business analytics refers to a business management approach under which a
company makes decisions that are based on facts, which become information through the
collection and analysis of data. Only a decade ago, the term business analytics was associated
with global companies possessing capital and technology. However, given the increasing
sophistication of information technology (IT) and the progress in data arrangement and reading
data processing technology, business analytics has become a general term that can be associated
9
with any company. In fact, as of recently, there may not be any companies that do not arrange
and analyze their product and customer data such that they can be reflected in their strategies.
Consequently, academic interest in business analytics has recently increased. A paper titled "Big
Data, Analytics, and the Path From Insights to Value," published by the MIT Sloan Business
Review in 2010, arranged data surveyed by MIT and IBM from about 3,000 companies from
over 108 countries. As is clear from the title, the subject of this survey was each company's level
of business analytics. The analyzed companies generally appear to base their management
activities on data. Almost 92% of surveyed companies stated that they utilize internally gathered
data in making major strategic decisions and one out of four surveyed individuals replied that
they check data every day and incorporate them in day-to-day activities (MIT Sloan
Management Review, 2010).
Figure 1 - Utilization of gathered data
Q8. How often do you use information
and analytics to inform your actions
and support decision making in your
day-to-day role?
1%
Never
Source: http://sloanrevicw.mit.cdu/article/big-data-analytics-and-the-path-from-insights-to-value/
10
Secret weapon of high-performing companies
The survey mentioned above also showed that business analytics influence company
performance. When divided into two groups - high and low performing companies, based on
sales - high-performing surveyed companies were shown to use data rather than intuition five
times more often than average in making decisions. In particular, high-performing companies
were found to incorporate business analytics into all areas, from establishing future strategies,
including new product development and marketing, to routine activities, such as customer
complaint management and employee benefits
Figure 2 - Influence of business analytics
Tendency
- App4y
Tendency
toAppir
Intuition Amlytios
Financial management and budgeting
Operations and production
Stratgy and busineas development
Sasand mrktino
Customer "Meeic
Product research and development
General mans
emant
Top Performars r
Lower Performers
Risk management
Customer experience management
Brand or market management
Work force planning and allocation
Overall Average
o
1
2
2
4
s
a
7
a
Source: http://sloanreview.mit.edu/article/big-data-analytics-and-the-path-from-insights-to-value/
The remainder of this paper is organized as follows. Chapter 2 explains historical changes in the
golf industry using statistical data and determines whether these are correlated with economic
conditions. In addition, a profit and loss analysis is conducted to better understand recent market
conditions. Chapter 3 suggests strategies to maintain and sustainably develop the golf business in
11
Korea based on an analysis of the factors that influence the choice of golf course from the
perspective of the customer. In addition, Caesars data-driven CRM system, which could serve as
a benchmark for the golf industry, is introduced. The final chapter briefly addresses how to
improve golf club operational competitiveness and attract customers in recession. Also, cost
management of golf business will be touched for the future direction of the golf industry.
2. SITUATION ANALYSIS IN THE GOLF INDUSTRY: SOUTH KOREA
2.1 Historical changes in the golf industry
In Korea, people started to enjoy a range of sporting activities after the implementation of the
five-day workweek in July 2004. Golf has also gradually become popular and golf country clubs
are flourishing. There were only 60 golf country clubs in Korea at the end of 1991. However, this
number increased nine-fold by 2013; the population of golf players has also increased
dramatically, reaching about 30 million people (Korea Golf Course Business Association). In
addition, although the average growth rate of golf country clubs has dramatically increased, the
supply of golf clubs has far exceeded demand in the last few years. This could cause many
problems because most of the golf courses under construction could suffer from lack of funds.
Moreover, golf membership prices have decreased dramatically, which could represent a
significant burden to golf club owners because they are obligated to refund membership fees if
requested by customers.
12
Before the economic crisis in South Korea, many people jumped into the golf business, not only
because the government simplified the golf country club construction approval process, but also
because it was easy to borrow money from banks at low interest rates. When the crisis hit Korea,
many golf businesses suffered, setting off a bankruptcy crisis. Another difficulty for golf club
owners in Korea is the high sales tax (Korea Institute of Public Finance). Specifically, total sales
revenues from 18-hole golf clubs were about 13 billion won in 2009. However, taxes on sales
revenues, including real estate, property and indirect taxes, were about 6 billion won. In other
words, taxes represented about 51% of total sales revenues. This tax policy affects golf business
owners in addition to other burdens, including the refunding of membership fees. Japan has
experienced a very similar situation since 2002. Many Japanese golf clubs went bankrupt during
the recession because they did not have the ability to refund membership fees (Korea Golf &
Condo Membership Exchange). In order to avoid the same path as these Japanese golf clubs,
indiscriminate golf course development should be avoided, and countermeasures for the
imbalance of supply and demand should be incorporated into the South Korean golf industry.
In order to conduct a detailed analysis of the situation of the Korean golf industry, relevant golf
industry indexes on total golf course visitors and the status of golf clubs in South Korea are listed
below.
13
Figure 3 - Total golf club visitors in 2012
Total golf club visitors in Korea
2012
Provinces
holes
52
143
42
39
36
24
23
38
40
913
2,829
773
775
657
384
374
690
726
clubs
Gangwon
Gyeonggi
Chungbuk
Gyeongnam
Chunbuk
Chunnam
Chungbuk
Chonnam
Jeju
2011
No
golf
Nof
Rate of change
of
Golf course visitors
golf
Nof
holes
N of golf
clubs
holes
2012
2011
48
138
42
38
30
22
19
33
40
841
2,703
743
766
558
348
302
573
726
8.3%
3.6%
0.0%
2.6%
20.0%
9.1%
21.1%
15.2%
0.0%
8.6%
4.7%
4.0%
1.2%
17.7%
10.3%
23.8%
20.4%
0.0%
2,482,013
10,369,856
3,511,430
3,403,018
2,068,636
1,374,155
1,250,637
2,350,062
1,795,360
2,227,227
10,179,061
3,115,239
3,194,245
1,737,151
1,315,779
1,164,294
2,175,619
1,796338
clubschnehag
N
Visitors per hole
Rate of
2011e
change
11.4%
1.9%
12.7%
6.5%
19.1%
4.4%
7.4%
8.0%
-0.1%
2,719
3,666
4,543
4,391
3,149
3,579
3,344
3,406
2,473
2,648
3,766
4,543
4,391
3,149
3,579
3,344
3,406
2,473
Rate of
g2012
2.7%
-2.7%
8.3%
5.3%
1.1%
-5.4%
-13.3%
-10.3%
-0.1%
Membership golf club visitors
2012
Provinces
No
golf
2011
Nof
holes
Gangwon
Gyeonggi
Chungbuk
25
84
558
1,953
19
432
Gyeongnam
26
18
11
5
14
25
227
630
378
207
90
315
549
5,112
Chungbuk
Chonnam
Jeju
Total
golf
holes
clubs
_____________clubs
Chunbuk
Chunnam
Rate of change
Nof
24
84
20
26
16
11
4
12
26
223
540
1,935
441
630
342
207
72
261
576
5,004
N of golf
Golf course visitors
clubs
N of
holes
2012
2011
4.2%
0.0%
-5.0%
0.0%
12.5%
0.0%
25.0%
16.7%
-3.8%
1.8%
3.3%
0.9%
-2.0%
0.0%
10.5%
0.0%
25.0%
20.7%
-4.7%
2.2%
1,368,093
6,608,313
1,901,684
2,657,446
1,161,087
743,739
251,027
988,762
1,397,521
17,077,672
1,151,212
6,722,672
1,801,082
2,541,131
1,081,627
737,605
247,856
1,052,302
1,449,370
16,784,857
Visitors per hole
Rate of
change
2012
2011
Rate of
change
cag
18.8%
-1.7%
5.6%
4.6%
7.3%
0.8%
1.3%
-6.0%
-3.6%
1.7%
2,452
3,384
4,402
4,218
3,072
3,593
2,789
3,139
2,546
3,341
2,132
3,474
4,084
4,034
3,163
3,563
3,442
4,032
2,516
3,354
15.0%
-2.6%
7.8%
4.6%
-2.9%
0.8%
-19.0%
-22.1%
1.2%
-0.4%
Public golf club visitors
2012
Provinces
No
golf
2011
Nof
holes
clubs
Gangwon
Gyeonggi
Chungbuk
Gyeongnam
Chunbuk
Chunnam
Chungbuk
Chonnam
Jeju
Total
27
59
23
13
18
13
18
24
15
210
golf
Rate of change
N of
holes
N of golf
301
768
302
136
216
141
230
312
150
2,556
clubschnehag
355
876
341
145
279
177
284
375
177
3,009
24
54
22
12
14
11
15
21
14
187
Golf course visitors
Visitors per hole
clubs
N of
holes
2012
2011
Rate of
ch
12.5%
9.3%
4.5%
8.3%
28.6%
18.2%
20.0%
14.3%
7.1%
12.3%
17.9%
14.1%
12.9%
6.6%
29.2%
25.5%
23.5%
20.2%
18.0%
17.7%
1,113,920
3,761,543
1,609,746
745,572
907,549
630,416
999,610
1,361,300
397,839
11,527,495
1,076,015
3,456,389
1,314,157
653,114
655,524
578,174
916,438
1,123,317
346,968
10,120,096
3.5%
8.8%
22.5%
14.2%
38.4%
9.0%
9.1%
21.2%
14.7%
13.9%
14
3,138
4,294
4,721
5,142
3,253
3,562
3,520
3,630
2,248
3,831
Rate of
2011
Rae
3,575
4,501
4,352
4,802
3,035
4,101
3,985
3,600
2,313
3,959
-12.2%
-4.6%
8.5%
7.1%
7.2%
-13.1%
-11.7%
0.8%
-2.8%
-3.2%
e2012
Variations in golf club visitors over last 3 years
Proines
Provinces
Gangwon
Gyeonggi
Chungbuk
Gyeongnam
Chunbuk
Chunnam
Chungbuk
Chonnam
JejU
Total
2012
Nof
2011
clubs
N
of
ho
hls
golf
clubs
52
143
42
39
36
24
23
38
40
437
913
2,829
773
775
657
384
374
690
726
8,121
48
138
42
38
30
22
19
33
40
410
N of
2010
N of
Golf course visitors
Visitors per hole
ho
hls
golf
clubs
No
hoe
hoe
2012
2011
2010
2012
2011
2010
841
2,703
743
766
558
348
302
573
726
7,560
38
122
37
27
22
15
14
25
39
339
661
2,391
656
558
405
270
238
477
681
6,337
2,482,013
10,369,856
3,511,430
3,403,018
2,068,636
1,374,155
1,250,637
2,350,062
1,795,360
28,605,167
2,227,227
10,179,061
3,115,239
3,194,245
1,737,151
1,315,779
1,164,294
2,175,619
1,796,338
26,904,953
2,251,788
10,078,480
3,062,713
2,869,421
1,681,896
1,143,185
979,156
1,822,784
2,019,563
25,908,986
2,719
3,666
4,543
4,391
3,149
3,579
3,344
3,406
2,473
3,522
2,648
3,766
4,193
4,170
3,113
3,781
3,855
3,797
2,474
3,559
3,407
4,215
4,669
5,142
4,153
4,234
4,114
3,821
2,966
4,089
Source: www.kgba.co.kr
The total number of golf visitors has been gradually increasing since 2010. In 2012, about 28
million people visited golf courses, representing an increase of 6.3% from the previous year.
Although the number of visitors per hole decreased by about -1% in 2012 relative to 2011, the
rate of decline remained steady, implying a low risk that the South Korean golf club bubble
would collapse. The number of public golf course visitors also increased remarkably in 2012, by
about 13.9%. This indicates that there has been a shift from membership to public golf clubs as
people now tend to prefer inexpensive golf clubs due to the economic downturn.
The number of average visitors per hole normally represents a management index for individual
golf clubs. The data show that per-hole visitors to membership and public golf clubs decreased
by 0.4% and 3.2%, respectively. In 2012, the number of visitors to 18-hole membership golf
clubs was 60,377, which represents a continued decrease, but at a decreasing rate. In the three
years from 2010 to 2012, the number of 18-hole golf course visitors decreased by 9,718, and the
number of visitors to 18-hole public golf courses decreased by 12,908. Also, the difference in the
number of visitors to membership and public golf courses has diminished from 12,010 to 8,820.
In terms of the region, Kyondbuk had the highest average number of golf club visitors per hole,
15
whereas Jeju had the lowest. In addition, Chungbuk and Jeju had more visitors to public golf
courses, which are not normal for Korean golf clubs.
Figure 4 - Status of golf clubs in South Korea in 2013
o
Total
rA
egion
-
Section
Total
Member
Nonmember
o
545
269
276
0
8
6
2
0
0
2
9
3
6
1
1
e
-
.
-.
4
4
1
1
3
3
4
2
2
4
3
1
2
4
2
2
3
157
1
2
88
69
29
6
23
43
17
26
50
22
28
46
24
22
45
27
18
23
5
34
28
18
21
40
18
22
9
40
25
15
5
1
4
7
2
5
10
2
8
5
2
3
4
3
1
3
2
1
8
3
5
0
0
0
72
43
37 1 22
35
21
15
52
25
27
36
18
19
9
10
13
8
5
0
0
0
3
1
2
5
1
4
7
4
3
7
4
3
4
1
3
1
0
26
11
1
Operating
egion
rSection
-~~
otal
Member
Nonmember
o
437
227
210
7
5
2
0
0
0
2
1
1
6
2
4
1
3
2
137
1
1
82
55
0
14
5
9
18
13
19
Under Construction
Region
Section
Total
64
Member
22
Nonmember 142
o
~I~5
-
0
0
0
0
0
0
0
0
0
2
0
2
0
0
0
0
0
0
0
0
0
0
0
Planned
Region
ft
ft
Section
Total
Member
Nonmember
t
44
20
24
0
0
1
1
0
0
1
1
0
0
0
0
0
0
0
1
0
1
0
1
0
1
0
0
6
1
5
1
Source: www.kgba.co.kr
16
In 2013, 44 new golf clubs were approved, which is 32 more than in 2012. This shows that the
number of golf clubs has continuously increased. Although the golf club approval process should
take three to four years, the total approximate number of new approved golf clubs reached 300
during the last decade. Given the area and population of South Korea, it is highly likely that
supply will exceed demand sometime soon. In addition, including those under construction, there
are around 560 golf clubs, for the first time exceeding 10,000 holes in terms of 18-hole courses.
There is a certain amount of balance between public and membership golf clubs, meaning that
they are almost equal in number (Korea Golf Course Business Association).
2.2 Recent Trends in the Korean economy
Prior to analyzing the Korean economy, several global corporate trends that Korean companies
are considering for their future strategies should be mentioned (http://www.mosf.go.kr). With
regard to corporate strategy, renewal and exploration are significant trends that companies
should focus on. By transforming corporate structures and brands, companies will be able to
establish footholds in global markets to become leaders. Also, through realignment, global
companies can extend their businesses to emerging markets, which is likely to bring large
opportunities. In these cases, coalitions, convergence, and low price strategies could help global
companies to understand customer values.
In addition, economic conditions in South Korea have been steadily worsening .since the
beginning of this year. Korea experienced economic contagion, in which the economic problems
17
of one nation spread to another. The center of this economic contagion was Thailand, and it
spread to Malaysia, Indonesia, the Philippines, and South Korea. Many currency speculators
attacked undervalued currencies and the Korean stock market was affected. Due to the volatile
stock market situation, many export and import companies suffered massive losses
(http://www.hofstra.edu).
Figure 5 - Annual growth rate of South Korean GDP
SOUTH KOREA GOP ANNUAL GROWTH RATE
10-
-10
8.7
7.6
8-
-8
6.3
64-
5.59
4.4
7~ 3.3
4.5
2-
4.3
-3.5
-6
3.6 3.4
-..- -
3.339
2.8 2.4
2.3
1.
1
6 1.5
1.5
F
-2
0-
-0
.2-
--4~-
-4
-3.3
-- 2
-2.1
-- 4
-4.2
L-
2008
2010
2012
2014
The primary reason for the economic crisis was snowballing foreign debt in developing
countries. In most developing countries, the standard of living is far lower than in developed
18
countries. One way for poor countries to increase their standards of living is by borrowing
money from developed countries and purchasing manufacturing equipment, such as metal
stamping or sewing machines. With this equipment, poor countries can produce products that
developed countries want to import. However, foreign debt
accumulated rapidly in
underdeveloped nations due to global economic stagnation. South Korea was one of the greatest
victims of this economic contagion.
Figure 6 - Economic growth in South Korea
8
% change p.a.
% change p.a.
8
6
6
4
4
2
2
t
0
I-
0
-- r-
-2
-2
-4
-4
08
09
10
11
12
External demand
Government consumption
Private consumption
Inventory changes
13e
14f
Gross fixed investment
- - -Overall economic growth
https://economics.rabobank.com/publications/2014/february/country-report-south-korea/
19
Figure 7 - South Korean exchange rate
i.600 - U.S.$ / KRW
1500 400 -
1,2001.100
114W 1.000
--
____
900
800
7001
Source:Bloomberg
With regard to the correlation between the golf industry and the economic situation in South
Korea, it is obvious that the golf industry suffered greatly during the economic recession in 2007
and 2008. Golf customers who used to play at luxury membership golf courses stopped going to
expensive golf clubs and shifted toward public courses because of their lower prices. Therefore,
the sales revenues of membership golf clubs dropped significantly during this period. When the
actual economic sentiment of consumers started to improve in 2009, the golf market gradually
rebounded. The number of golf visitors increased and an increasing number of golf courses
received construction approval in Korea. However, a number of membership golf clubs were still
suffering from a lack of visitors. As a result, many membership golf clubs faced the dilemma of
transforming themselves into public golf courses.
20
2.3 Supply and demand in the golf business over recent years (Korea, Japan, and China)
In contrast to Korea's economic conditions, the country's golf industry is flourishing along with
a boom in the construction of golf clubs. The number of golf clubs has doubled since 2004 and
more than 50 clubs are currently under construction. However, this dramatic increase in the
number of Korean golf clubs could have many side effects for the golf industry because supply is
exceeding demand. Many golf clubs are having difficulties in selling their memberships, which
are their main source of revenue. In addition, golf customers are dispersed among many different
golf clubs, which also affects revenue. Specifically, there are two types of golf clubs: public and
membership clubs. In this year, the average revenues of membership golf clubs were 13 billion
won, which is 4.6% lower than in the previous year; operating profits were 7.4% lower as well.
In fact, the operating profits of membership golf clubs have been diminishing since 2002, when
profits reached a peak. Detailed information on the status of sales revenues for all golf clubs in
2011 and 2012 is presented below (GMI Consulting Group, 2012).
Figure 8 -Sales Revenues for all golf clubs
(Unit: million won)
18 Hole
27 Hole
Capital
area
Yeongnam,
area
Honam
area
Chungebeong
area
Gangwon
area
Average
2012
11,327
8,987
7,721
9,560
7,900
9,788
2011
11,705
8,753
7,983
9,617
7,868
10,193
Over last year
-378
234
-262
-58
32
-405
Rate of change
-3.2%
2.7%
-3.3%
-0.6%
0.4%
-4.0%
2012
14,867
11,610
11,153
9,632
9,667
11,800
6,227
2011
JeJu
15,727
12,012
12,362
9,653
9,659
12,359
6,484
Over last year
-860
-420
-1,209
-21
9
-558
-257
Rate of change
-5.5%
-3.3%
-9.8%
-0.2%
0.1%
-4.5%
-4.0%
21
36 Hole
18-hole
converted
average
2012
19,983
18,407
15,476
14,997
20,017
32,782
2011
Over last year
20,651
-668
19,904
16,472
16,269
20,480
28,634
-1,496
-996
-1,272
-463
4,148
Rate of change
-3.2%
-7.5%
-6.0%
-7.8%
-2.3%
14.5%
2012
10,490
8,442
6,999
7,743
7,094
9,037
9,911
2011
10,867
8,598
7,460
7,828
7,176
9,326
9,026
Over last year
-377
-155
-461
-85
-82
-290
885
Rate of change
-3.5%
-1.8%
-6.2%
-1.1%
-1.1%
-3.1%
9.8%
Source: www.kgba.co.kr
Golf country clubs utilize their budgets to promote sales through various types of marketing and
other activities. Reducing variable costs such as personnel or operating expenses is one of the
primary tasks of golf club owners. The average sales revenues in the chart above indicate recent
trends, based on golf club size. Average sales revenues for 18-, 27-, and 36-hole clubs were
declined by 4.0%, 4.5%, and 2.3%, respectively, from 2011 to 2012. Although the number of
golf club visitors has been increasing since the economic crisis in 2009 due to marketing efforts
and government tax policies, sales revenues and business profits have been continually
decreasing.
Figure 9 - Sales revenue trends for all golf clubs
14 000
12000
40o
It
-
20%
10.000
10
*.000
00-1
6000
-10
4,000
-20o
2 000
.
2011
2012
-m
Rate of cbms
http://www.gmigolf.co.kr/category/
22
Or
Still, there is good news. The number of golf customers has been steadily increasing since 2003.
According to the Korean golf management association, there were 13.7% more golf course
visitors in 2012 than in the previous year. In addition, theumber of visitors exceeded 20 million
for the first time. Above all, there is a clear increasing trend among golfers who prefer to play in
public golf clubs, which means that golf is becoming more popular and accessible to those who
were not regular customers in the past.
Figure 10 - Trends in golf club visitors
2&605167
29.000.000
28.000 000
76,000
74.000
794
26904953
27.000,000
72000
7000
66000
766
25.000,000
,24,0M000
6a0A0
72.,404
26,000.000
24Z"
,0"
62.000
2300.000
60,000
22.000 000
S&O00
56,000
21.000,000
08
09
Golf course
visitors
10
11
12
1IS Hole converted
basis visitors
http://www.gmigolf.co.kr/category/
However, although the amount of total golf club visitors has been increasing, the number of
individual golf club visitors has declined due to the supply of new golf country clubs. This led to
a drop in sales given the delayed economic recovery. However, operating profits appeared to
decline during 2012 because the rate of cost reduction was about 1.5% against sales. Only the
23
Yeongnam and Chungcheong areas showed increases in operating profits. Enforcement of the
regulation on tax reductions and exemptions for golf clubs in certain regions seemed to affect
operating profits in 2011, but had a small impact in 2012 (The Korea Economic Daily, 2012).
In addition, some golf club owners are looking overseas to seek new opportunities from foreign
golf customers. For example, China's golf industry has been undergoing impressive development
in recent years. Thanks to the country's rapid economic growth, China's newly rich are investing
large amounts of money in the golf industry. As a result, some Chinese golf courses hold
international golf tournaments and many foreign pro golfers and celebrities come to visit Chinese
golf clubs (Korea Weekly Chosun, 2014). In this sense, China's golf industry has a very bright
future not only because of their economic growth, but also due to their rising total population.
China's golf population is increasing by an average of 30% every year. All these facts show that
China's golf industry could be a potential market for the Korean golf industry.
Figure 11 - Trends in Chinese golf club visitors
410
350
40'
10
f/sprtssoh
http:/sot
24
oucom/20120318/n338084525.shtml
However, China's golf industry is facing some difficulties. Although the Chinese economy is
growing quickly, the gap between the rich and the poor is widening, which causes many social
problems in Chinese society. In other words, only rich people can afford to play golf. In addition,
the rising cost of raw materials is a problem faced by Chinese golf club owners because they
have to import all the prime sources, such as golf course grass lawn and lawn mowers. More
importantly, there is a shortage of professionals who understand the golf business because
China's golf industry is still in its early stages. In all likelihood, the Chinese golf industry could
represent an opportunity for Korean golf club owners since the Korean golf industry is mature
enough to deal with the problems that the Chinese industry is currently facing.
Figure 12 -Numbers of golf clubs and customers in China
*
)Wbtc
Of &W
=WWMW%
1700
8)
<990
19
........
19 b .
o.
.......
<Thie Aumibier .of golf.clubs. andrcustomers > .................
25
.s
In contrast to the Chinese economic situation, Japan has been experiencing a severe economic
crisis. Before the collapse of the economic bubble in Japan, there were more than 2,400 golf
clubs in the country. However, after the economic bubble collapsed, the market value of golf
clubs fell dramatically; as a result, 300 golf clubs were bought by foreign investors and 800 golf
clubs approached bankruptcy. In other words, the Japanese golf industry is even more mature
than the Korean golf industry with regard to the oversupply issue (Samsung Economic Research
Institute, 2009). In recent years, hoping to pull its economy out of recession, Japan's government
unveiled a new plan aimed at fighting deflation. However, Japanese golf clubs are still suffering
from diminishing numbers of golf tourists due to reductions in employee leisure time as well as a
declining population. Most golf clubs rely heavily on foreign Asian golf tourists. According to
the Japanese Golf Business Association, the total number of golf club visitors in 2012 was about
10% lower than in the previous year. In these circumstances, foreign investors such as Goldman
Sachs or Loan Star are poised to sell their shares of Japanese golf clubs (Japanese Golf Business
Association, 2012)
Figure 13 -Total sales in the Japanese golf industry
.p..u.......
1900
192
IS9
T 19W9
200>'20M 2004
<Golf industry total sales>
26
206* 20
Figure 14 - Number of bankrupt golf clubs and total liabilities in Japan
(Unit: Billion yen)
1991
1992
1993
1994
1995
1996
1997
1998
1999
Total
bankruptes
3
5
3
8
7
6
8
22
20
82
liabilties
87
-
348
66.7
213
-40.0
42
112
48
360
461
477
2,148
166.7
-12.5
-14.3
33.3
175.0
-9.1
Bankruptcy
variation_(%)______________________
-
300.0
-38.8
-80.3
166.7
-57.1
650.0
28.1
3.5
2000
2001
2002
2003
2004
2005
2006
2007
2008
Total
26
53
109
90
87
65
54
49
28
561
1,601
936
2,195
2,023
1,757
1,148
636
689
355
11,340
-23.1
103.8
105.7
-17.4
-25.3
-16.9
-9.3
-42.9
-44.6
8.3
variation %)
bnkrupte s
l
liabilities______
Bankruptcy
variation_(%)
Liability,
variation_(%)
,__________
-70.2
_____
_____
__________
-41.5
__________
134.5
-3.3
_____
-7.8
-13.1
__________
__________
-34.7
_____
____
_____
__________
-48.5
____
Source: Korea Leisure Research Center
Although the Japanese golf club and golf goods industries are far more developed than their
Chinese counterparts, golf business owners are helpless against a declining golf population. The
main causes of the collapse of the golf industry in Japan are the oversupply of golf clubs, the
bubble in golf membership prices, and the prolonged recession. More than 2,000 golf clubs had
already been built by 1992, and there were more than ten million golf visitors until 1992.
However, the number of golf visitors has been declining dramatically since 2000, leading many
golf clubs to go bankrupt. There are over 600 bankrupt golf clubs in Japan, and this number is
expected to rise unless there is a breakthrough in the industry.
27
3. BUSINESS PLAN
3.1 Proposal for new golf country club management policies in South Korea
Creating customer relationship management (CRM) systems for marketing
The following steps should be followed in order to enhance marketing efforts in the Korean golf
industry.
-
Implementation of customer-oriented management systems for customers with special
needs to continuously attract new golf customers.
-
Construction of a service system based on existing customer databases in order to create
new golf customers through the database.
-
Creation of service linkages between neighboring golf clubs so that golf customers have a
wider range of choices among golf courses.
Some Japanese golf clubs are providing benefits that allow golf customers to use the same
services in various golf clubs if they buy group golf memberships. In Korea, purchasing multiple
golf memberships would be difficult because membership prices have become very high.
Therefore, as an alternative, service linkages could help to attract more golfers by sharing
information from customer databases.
Environmentally friendly golf country club operations
28
As the standard of living has been steadily improving and the market has also been shifting
towards becoming more customer-oriented, sustainability has become one of the most important
issues for business owners. In order to achieve competitiveness, golf business owners should
consider the following sustainable golf course management practices.
-
Introduction of advanced pest control systems for golf courses. For the environmentally
friendly usage of agricultural chemicals, the implementation of an incentive system would
be helpful to motivate disinfection service companies to avoid overusing chemicals. Also,
the development of biotic pesticides should be encouraged.
-
Offering tax exemption benefits to golf clubs that take the initiative to implement
environmentally friendly management systems.
" Provision of on-the-job training for employees to establish eco-friendly marketing strategies.
Implementation of advanced golf-related laws and regulations
A revision of golf-related laws is required to promote membership golf clubs that are in financial
difficulties and avoid a series of bankruptcies. Specifically, taxes on golf club admissions, such
as a special consumption tax for entrance fees and promotional funds for sports, should be
abolished. This would help reduce the burden of playing golf and contribute to making the sport
more popular. Also, reforming regulations to crack down on illegally operated public clubs is
important to ensuring fair competition. Moreover, establishing an open market for the trading of
golf memberships or introducing an Escrow user account management system could stabilize and
revitalize the golf membership trade market.
29
Figure 15 - Escrow agent system
Seller provides
clear title to the
Buyer provides
money
property
Escrow
Agent
Escrow carries out
closing instructions
according to the
sales contract!
Source: http://www.spendsavelive.com/2009/6/24/costs-of-selling-your-house-escrow
Settle as a prestige golf club
It is unfortunate that the golf industry has been seized with the desire of only creating prestigious
golf clubs. Certainly, every club wants to build a good reputation but sometimes they seem to
have little understanding of the requirements for prestigious golf courses. Further, it is incorrect
for them to just blindly seek to enhance their reputations. There are almost 200,000 golf courses
in the United States (US) and 3,000 in Japan. However, only 100 US courses are well-regarded,
and a mere 1% are esteemed in Japan. After all, the concept of prestige is relative. Because not
all clubs can be prestigious, clubs can achieve competitiveness by developing their own settingand operation-related characteristics. Experts consistently say that a supplier-led golf course
industry will transform into a demand-centered market. In this case, golf course owners and
managers need to think deeply about business management focused on customers and work to
build prestigious golf clubs that are actually attractive to customers. In this new market, in which
30
customers choose golf clubs, it is also equally important to learn the factors that people do not
like in golf courses to understand how to achieve prestige.
Figure 16 - Prestigious golf club
Source: http://www.haeundaecc.co.kr
People will, of course, avoid golf courses with poor green quality and a high proportion of bare
ground on the fairway. However, very few courses have such characteristics. There are other
aspects that could potentially make customers want to avoid a golf course, if not considered
significantly in the future, in addition to green quality, fairway cleanliness, and good service
31
provision. One good example of an undesirable characteristic is when the out-of-bounds (OBs)
densely lines both sides of the fairway. It is not acceptable if these OBs are not designed for
proper shot estimation but rather for the convenience of staff and course operations. There are
some clubs that use the OBs to demarcate between holes in cases when there was originally no
obstacle. Sometimes, the so-called OB tee from nowhere, stands in the middle of the fairway. No
specialist would attribute any prestige whatsoever, no matter the strength of the claim, to a golf
course with such a characteristic. The so-called OB tee is set up at a point, from time to time,
where no long-drive hitter could ever reach so an OB-gaining player gets hole-out with a higher
score than the other who got within the fairway. Teeing ground limits are also another source of
user complaints. Golf is scientifically designed so that poor performers can play with stronger
golfers on equal footing. One factor that makes this possible is the provision of separate teeing
grounds but it is general among male players to block the use of teeing ground in the first place
for no handicap trade. They claim that this is done for faster and more efficient game play but if
any game efficiency is put even over the game rule, then it would be better to make holes larger
than the regulation. In addition, golf course administrators need to change their ways of thinking
and carefully review general practices, which are followed without having a clear idea about how
customers regard golf courses and clubs. Golf course visitors want to be comfortable and happy.
Escaping from crowded cities, they want to come to a golf course to relieve their stress in a
natural environment.
Fortunately, more golf club chief executive officers (CEOs) are trying to catch up with the
changing times by focusing on customer service. Some clubs provide their clients with cool wet
cloths in the summer or masks during the yellow dust season. Some also open as many as six
32
tees for clients to choose from. Others remove shades and operate mobile carts serving drinks
and snacks. Such administrative styles and services impress visitors and reflect the hard work of
golf course CEOs. However, prestigious golf clubs can be created through very basic golf course
elements.
3.2 Marketing strategies for membership golf clubs
Changes in the golf business market environment
In order to create appropriate marketing strategies or brand concepts for the golf business, it is
crucial to understand changes in perceptions toward the golf industry. In the past, golf was
regarded as a luxury sport that was relatively expensive to play in comparison with other sports.
In addition, many people have criticized the building of golf courses because they claimed that it
could destroy the environment. However, these perceptions started to gradually change as
national income increased. Although South Korea has been through a few economic recessions,
the country's national income has been increasing quickly and steadily enough to enlarge the
golf-playing population. In addition, due to the development of Internet technology, golf
customers can easily obtain information about various types of golf courses, which could be one
of the factors that is gradually increasing golf's popularity among the general population. With
regard to the average age for enjoying golf, it has expanded to all age groups. Since Korean
female golfers are performing well international golf tournaments, golf has also become popular
33
among women, which makes it important for golf business owners to consider marketing toward
female golf customers.
Figure 17 - Changes in golf business market environment
Past
* Noble sport
" Luxury sport
* Urban sport
* Negative sport
Present
[i
U [J
National income increment
Enlargement of golf population base
*
Internet acthfion
Remarkable activities of female golfers
a Become popular sport
@Sport for health
* Expansion of age group
-Over 40 under 10
Marketing strategy
Based on an appropriate understanding of changing trends, the following steps are proposed to
attract customers to golf clubs. Since the age range of customers has been extended and women
are increasingly starting to play golf, it is crucial to cultivate these potential golf customers. In
addition, creating a database of effective demand to determine the target marketing group is one
of the other objectives and it ought to be based on causing the interest of service in business
contents. Well-established objectives could lead to the setting of primary marketing strategy
goals. Core customers, such as opinion leaders, have great power to influence people who are
considering taking up golf. Therefore, establishing an opinion-leader oriented marketing strategy
should be the main goal related to maximizing effectiveness.
34
Specifically, the determination of target customers should change to a relation- rather than
customer-oriented approach and it should be based on an effective demand database of existing
and potential golf customers. Marketing methods should be closely related to increasing
commercial value through media or news advertisements. Also, getting feedback from golf
customers is really important to create sales effects. The detailed comments of customers
regarding all golf club experiences should be reflected in provided services and marketing
messages. Lastly, the development of materials oriented toward professionals, such as
membership sales guidelines, could also be an effective marketing approach.
Figure 18 - Marketing strategy
"
Objective
Discover and retain potential golf customers
" Provide continuity of service in business content to raise interest
" Create effective demand database to determine targetmarketing group
Goal
Target
Method
" Attract core customers (opinion leaders)
" Establish opinion-leader-oriented marketing strategy
" Shift toward relation orientation
" 'Irget market-oriented customers
" Effective demand based on existing data base
" Increase commercialvalue through media or news advertisements
* Create sales effects with database feedback via D.M. orT.M. methods
" Develop materials that are oriented towards professionals, such as membership
sales guidelines
" Hire experienced counselors to increase customer satisfaction
35
In order to entice existing and potential golf customers, it is important to develop a distinct
direction for a brand concept. The most effective way to attract not only domestic but also
foreign golf customers from neighboring countries could be to build a prestigious golf club brand
image. Specifically, golf club owners should emphasize differentiating factors such as
accessibility, services, and social status. Also, customer trust can be built by providing wellorganized booking and feedback systems. This could lead to the creation of a prestigious golf
country club that has a well-respected social status and coexists with authentic Korean culture.
Figure 19 - Directions for brand concept
Directions for brand concept
Emphssi
Emphasize Class
e
a Emphasize
differentiated status
C High class golf
a Dlsetrnettwnmembership
"Differentiated service
- Easily accessible
" Well-respected social
cls
a Build trust for booldng
" Build trust in the number of
golf club members
Leader in Korean
Emphasize Lifestyle
-
igh standard of
living
Coeist with
culture
society
3.3 Attracting customers from neighboring countries (China and Japan)
In addition to implementing the marketing strategies mentioned above, golf business owners
could carry out the following steps in the future. These tactics are mostly based on the cultural
characteristics of each country.
36
First, the two most important Chinese business cultural factors are "Guanxi" and "Mianzi."
Guanxi, which simply means "relationships" or "connections" and refers to a network of
elaborate relationships promoting trust and co-operation, has historically been the main approach
to doing business in China. This means that building mutual respect and trust is crucial in
initiating business in China. Mianzi is a mark of personal pride and forms the basis of an
individual's reputation and social status. Humiliating or inappropriate attitudes towards others,
especially in public, can seriously damage business relationships. In contrast, giving
compliments or showing respect could be the best way to earn loyalty during negotiations
(Chinese cultural code, Jinsung Kang 2004).
Moreover, Confucianism is considered to be the basic ethical belief system in China.
Confucianism emphasizes the elements of responsibility and obligation. Chinese society,
including the business world, is still strongly affected by Confucianism. In addition, punctuality
is an important requirement for success. In business meetings, being on time is essential for the
success of a business deal. Chinese society and business organizations are based on a
hierarchical system. It is important to understand the Chinese hierarchical system and respect its
customs. Last, humility and patience are critical to success during negotiations.
Japanese business culture is quite different from its Chinese counterpart. One of the most
fundamental concepts in Japanese is "Wa," which simply means harmony. Wa is often regarded
as an essential business concept in Japan and is employed to avoid self-assertion, individualism
and maintain good relationships. The Japanese language's indirect expression for "no" may have
stemmed from "Wa" culture. Also, "Kao," which means "face," is a fundamental factor in
Japanese social culture. Japanese people tend to highly value personal reputations and social
37
status. Avoiding direct criticism or confrontation is crucial in maintaining business relationships
with Japanese people.
In addition, efficiency is essential when it comes to making business decisions. This concept
might be a little different from the Japanese business culture that was prominent in the past,
which focused on unhurriedness. Punctuality is also important because lateness is regarded as
disrespectful to other parties. Like China, Japan has a strongly hierarchical structure in business,
which is usually reflected in the negotiation process. Specifically, business decisions are often
made using a top-down approach, that is, from the executive to the middle-management level.
Finally, showing respect to the eldest involved parties is crucial in Japanese business culture. In
other words, age and social status are closely connected in Japanese culture.
Understanding the varied business cultures of different countries is quite helpful in setting up
viable and practical future strategies for the golf business. The first proposed plan, which is
focused on advancement in the Chinese market, would be to target VIPs who are living in large
cities such as BeijingI and Shanghai. The number of newly rich Chinese individuals has recently
been growing quickly, and their purchasing power is significant. Providing high quality services
with authentic golf courses could attract high-class Chinese golf tourists to Korean golf clubs. In
addition, associating with Korean-style activities would be helpful to promote Korean golf clubs.
Since Chinese people have great interest in experiencing Korean culture and foods, an effective
strategy would be to establish contracts with other tourism companies in order to provide high
quality services. Moreover, forming partnerships with neighboring golf clubs and hosting events
such as golf festivals would be profitable not only for my golf club, but also for other Korean
http://www.chinabooking.net.cn/kr/shownews.asp?id= 172
38
golf clubs. By doing so, many Korean golf clubs would be able to create new jobs for local
communities in other to meet high demand.
Figure 20 - Golf clubs in China
Wo
;it4iaoning-
Shanxi
Shaanxi
(i'an
"handong-
Hutmi
Whn
,Ant-
Hunan
Jingxi
GuanFxjia
Source: Google map
Future strategies targeting Japan would be a little different from those focused on China since
Japan has a different economic situation and business culture. Most famous Japanese golf clubs
2
are located in the vicinity of Tokyo, particularly around Tokyo's international airport. Since ease
of access is crucial in attracting golf customers, targeting Japanese people who live near
metropolitan areas could be a viable way to promote Korean golf clubs. Furthermore, entering
into strategic alliances with major Japanese tourism companies should be helpful. Specifically,
2http://www.pacificgolf.co.jp/kr/
39
the number of Japanese tourists in Korea has been steadily increasing due to the Korean wave as
well as the strengthening Japanese yen. A connection with the tourism industry would therefore
be a good way to promoter Korean golf clubs. Lastly, sharing the company's value by donating a
small portion of revenues to Japanese charitable organizations could help to promote a Korean
golf club's brand image to Japanese golfers.
Figure 21 - Golf clubs in Japan
947r
Source: Google map
In conclusion, in order to successfully attract customers from neighboring countries like China
and Japan, strategies should be executed based on thorough research on those countries. Also,
Korean golf clubs will face several challenges in the future. Government corruption is one of the
biggest issues for foreign companies that want to enter Chinese market. In addition, competition
with local golf clubs and inflation are potential challenges. Further, some members of Japan's
older generations hold negative stereotypes about Korean companies. Convincing those older
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generations to have a good impression of Korean companies will be critical to attracting more
golf customers from Japan.
3.3 Benchmarking Caesars data-driven CRM system
Three stages examined through an example: Harrah's (Caesars)
Harrah's is a big company engaging in the hotel, restaurant, wedding, and other comprehensive
entertainment businesses, including concerts. It earned one billion dollars in net profits in 2009
and has more than 100,000 regular employees. This company had been in third place in the
industry until it acquired Caesars, the market leader, in June of 2005. Presently, the company is
the unrivaled industry leader and dominates 60% of the market. This success is partially
attributable to the use of scientific business analytics.
1)
Data collection and analysis
Almost 30 million people visit Harrah's casinos each year. In addition, the company is confident
that it can track data for all the customers visiting its 28 casinos in 12 US states because all
customers are automatically issued Total Rewards Cards. This type of point-based card, which is
also frequently used in Korea, works by depositing points whenever customers make a payment.
Harrah's card is classified into four levels - gold, platinum, diamond, and seven-star - depending
on the number of visits and the amount used by customers. Because the information derived from
this card is integrated throughout all of the company's entertainment businesses as well as its
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casinos, customers can access the company's ancillary facilities by using points accumulated on
the card. Although it appears to be a simple point card, there are three characteristics that make
this card unique. First, the customer information required to sign up for Total Rewards Cards is
collected "in all areas of its businesses at the same level," including Harrah's casinos,
restaurants, and hotels located throughout the US. This is not only the most fundamental and
important factor but also the area in which many companies make mistakes. Anyone that has
ever worked to integrate company-wide information, such as through internal CRM or enterprise
resource planning (ERP) systems, is well aware of how difficult it is to collect and analyze these
data using a "common language."
The biggest reason for this difficulty is that "the purpose of collecting data" is often not clearly
defined. There are cases in which many companies think, "let's collect data for no good reason,"
without considering the types of information that would be acquired through those data. This just
ends up wasting resources and energy. Upon implementing the Total Rewards Cards in 2004,
Harrah's set up five questions for customers to answer prior to receiving the card:
-
Which game was played?
-
How much money was used for the game?
-
What was the total amount spent?
-
How much did the customer lose or win?
-
How frequently does the customer visit casinos?
The company used these questions to distinguish among levels of customers and established
strategic guidelines to apply to its entertainment businesses. Similarly, companies willing to
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conduct business analytics must go through the stages of clarifying the purpose of data collection
and data utilization method.
2) Informatization of data
The second factor that makes Total Reward Cards special is that it influenced future strategy
because it went beyond comprehensive customer management and provided information.
Harrah's discovered that two of its initial hypotheses were wrong. First, Harrah's thought that the
customers spending the most money were tourists, but discovered that the highest spenders were
actually "persons who love and enjoy gambling itself." In that case, the company had to identify
the type of people who enjoy gambling itself. The hypothesis that these were gambling addicts
was also wrong. It was discovered that people who enjoy gambling were residents living close to
casinos who have ordinary occupations such as carpenters or teachers.
Based on these discoveries, Harrah's started to use totally different strategies from existing
casinos. Other casinos, including Caesars, targeted tourists as their main customers, decorating
their casinos with exotic interiors and carrying out marketing strategies connected with tourist
agencies. In addition, in order to make gambling addicts spend more time in casinos, they placed
many addictive gambling machines, such as slot machines, in their facilities. In contrast,
Harrah's targeted "dutiful citizens living nearby who continuously visit and enjoy gambling as a
hobby" as its main customers. In order to focus on this segment, Harrah's created a casino
atmosphere compatible with family entertainment and started holding various events for them
(See picture 1). Moreover, the company's marketing efforts frequently aimed to connect with
local communities. Through various types of cooperation with nearby restaurants and companies,
43
the company naturally induced customers to visit its casinos. Many companies put a lot of effort
into collecting data but fail to utilize this information in their follow-up strategies. Data are
useful only when they are transformed into information or knowledge. It is important to
remember that only the people that establish strategies can do this, not systems or programs.
3) Implementation, verification, and improvement
Since it started its Total Reward Card service in January of 2004, Harrah's has continuously
carried out customer management based on the Total Reward Cards. The only change it made
during this time is to make use of the Total Reward Cards more convenient through cooperation
with card companies. The fact that more than 80% of the company's revenues can be tracked
through Total Reward Cards shows that Harrah's has high company-wide integration and rates of
customer use.
Harrah's did not stop there. Discovering that local residents visit more frequently than tourists,
the company added an item on the "distance between the casino and customer's home" to its
standard customer classification. The closer a customer's home is to one of its casinos, the higher
the probability that this person will visit Harrah's again. Therefore, the company felt it was
necessary to manage these customers separately. In addition, considering various factors such as
frequently played games, amounts bet at one time, and hours spent in the casino, Harrah's
created 60 levels for internal customer management as well as four levels for giving instructions
to customers. In addition, it began providing elaborately customized incentives to increase
customer satisfaction and sales. For instance, in the case of a customer who typically enjoys
games for an average of one hour, the casino would offer that customer a coupon about 55
44
minutes after he or she arrived at the casino, thereby encouraging the customer to stay for a
longer period. The result of such customized incentives is that since the implementation of the
Total Reward Cards in 2004, Harrah's has never yielded the top position in the customer
satisfaction rating in the US.
It is no exaggeration to say that business analytics involve an endless process of data verification
and implementation. Even though companies collect data and transform them into knowledge,
this knowledge can never positively influence companies if it is not implemented and improved
upon. If any hypothesis goes through verification and is proved wrong, companies must be ready
to make corrections and collect and analyze data again.
Gary Loveman, appointed the CEO of Harrah's in 2003, has been a great driving force behind
the company's success. He joined the company to introduce CRM in 2003 and ended up taking
the position of CEO. The only question he asks employees coming to him to make a report is
"Do we think, or do we know?" In order to make business analytics take root in an organization,
it is necessary for leaders to be friendly toward it. This does not mean disregarding their intuition
but distinguishing between the situations requiring intuition and those requiring data. Leaders
who are good with numbers and who question numbers will lead their companies to brighter
futures.
4. CONCLUSION
Golf has grown beyond being a simple sport to exercising an enormous amount of economic
impact as a full-fledged industry. In this study, the golf industry is reviewed for its contribution
to national economic growth, job creation, relevant industry development, and national leisure
45
activity enhancement. At this juncture, we need to enhance industrial competitiveness by
promoting more systemized and efficient golf club operations. Further, I hope that the golf
industry will become widely popular among the general public as in countries with an advanced
golf playing culture, nurture many golf talents to further develop the industry, and establish golf
as a national sport that is broadly enjoyed in the country.
4.1 Improving the operational competitiveness of golf clubs
The characteristics of golf course services can be divided into pre- and post-service open phases.
The pre-open period requires (1) large-scale investment projects and (2) the sale of golf course
memberships, whereas the post-open period requires (1) attracting customers and (2) the sale of
limited resources. In this sense, the golf club business requires accurate financial demand
estimations and a thorough plan (including in relation to borrowing and membership sales) to
procure the required significant investment. It is very risky to start this business just with a
simple projection of membership sales. Careful pre-open plans need to be established to
minimize the required investment amount in order to ensure price competitiveness at the
membership sales stage. Otherwise, any golf club would be easily rejected by customers. After
service open, given the nature of the golf club business, which is characterized by low sales and
limited resource availability, strategies for economic downturns should be explored, including
(1)
diverse marketing activities to attract more customers and (2) management of costs to
improve profits.
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4.2 Attracting customers during recessions
First, it is important to maintain customer trust. In a period of recession, customers want to have
the same level of satisfaction as they did previously, at a set price, and wish to be reassured that
they have made the right choice. Therefore, golf clubs should choose to either increase their
price competitiveness to maintain the same level of customer satisfaction at a lower price than
their rivals, or improve their service quality more than others to increase the amount of customer
service satisfaction for the current price.
Second, it is crucial to carefully identify customer needs and provide one-to-one customized
service. To this end, golf businesses need to build a D/B of customer characteristics, debate
separate price structures according to customer needs, and diversify served foods and drinks or
pro-shop product configurations.
Third, golf companies should incorporate diverse sales promotions. Some promotion approaches
include:
-
Price discounts (non-peak season, early morning hours, etc.)
-
Premium sales (one free round for every 10 rounds, etc.)
-
Coupons
-
Refund schemes (for weather, service dissatisfaction, etc.)
-
Partnerships and other business-connected sales
-
Contests, game operations (golf contest draw, game, etc.)
-
Gifts (low-priced but useful pens, caps, etc.)
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With such promotional measures as those mentioned above, clubs can safeguard their
competitive edges over others to stimulate customer intentions to buy again.
4.3 Cost management during recessions
First, golf course operation cost structures must be thoroughly investigated and any transactions,
activities, and processes for which it is possible to reduce costs must be re-designed. The cost
structures of golf courses are relatively simple. Thus, golf course managers can identify raw
material losses in each process and work to visualize and quantify them. In this manner, raw
material costs can be reduced. Other cost-saving methods should also be identified, including
changes in process-specific purchasing methods and strategies, strategic product specifications,
and partner company management methods.
Second, management must be rationalized via operational system innovation. For example, work
outsourcing has been frequently utilized in Japan to innovate its operational systems and escape
from the 10-year recession. According to a 2004 investigation by Japan's research institute on
golf course administration, 31% of restaurants, 28% of course management, 30% of nighttime
security, 25% of cleaning, and 25% of linen-related services were outsourced, indicating that
outsourcing is a widespread practice. In South Korea, if golf clubs experience reductions in
visitors and sales due to lower membership fees in the future, they may have to cut costs through
the cost management methods discussed above, among others, to an extent that will offset sales
decreases.
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