Golflogix Case Study Essay

Analysis: Market numbers suggest a much larger market of golfers as opposed to that of the golf courses. Units sold to target market differs with the target market in the case of golf courses because 60 units per golf course are sold. However, with various segmentation techniques, it can be concluded that the golfers who would buy the Distance-only or Complete System, would be those who measured their performance by measuring their handicap, thus forming the first target market within the golfers. Discouragingly, this was only 20% of the golfers. Also, the golfer market would further be divided by 4. Since a game usually consists of 4 players, only one of them would need the device, regular players may share the cost. Although the distance-only system is easy to get up and running, when sold directly to the golfers, the golfers would themselves need to outfit their green on the golf course. This would take away from the key value proposition to the golf courses that is ‘pace of play†™. Golf courses may need to charge an initial amount to the new customers (golfers) to take into account time spent in setting up the distance-only system. Also with the technical setup requirements of the Complete-System, it would be almost impossible for a golfer to do it himself. Also, with the golf-course channel, it will be easier to lock-in the golfers. The real benefit of the â€Å"Complete System† would be realizable to the end-user (golfers) when they see improvements in their game with their regular use of the system. Thus, locking the golf courses in who will push to throw in the system to the golfers per round would make its value proposition realizable. Sales to golf courses involve a three year lease, thus a guaranteed three year revenue stream and also the equipment can be reused elsewhere. If Golflogix goes with both channels, one may end up cannibalizing the other.  If devices are sold directly to golfers, golf-courses may not see any value in buying them, since their revenue in turn on the rent of the devices would not be guaranteed. Similarly, golfers would not buy the system if they knew golf-courses already provided it with a nominal fee. It is also noted that 80% of golfers played on public courses, which required a daily green fee. This was promising for the public golf courses channel, since with a per round fees, golf courses would make up for the cost of the golf logix systems much faster. Within the golf-courses, it would be beneficial to begin with the public courses. Surveys performed by the GolfLogix team, had compelling results. 80% of the golfers reported that they would regularly use the system if it were available on the courses they played. Also, 70% reported that they would be willing to pay $1-$3 per round. Appendix A is an income statement (with certain assumptions) that at the end lists the operating income per revenue stream. We see that with the retail channel, we lose one revenue stream. Up-selling to a Complete-system becomes easier with golf-courses. And although even the sum of the revenues through golf-courses is lesser than the revenue for Distance-only for golfers, two key points need to be kept in mind: 1) The equipment with the golf-courses channel is reusable, and thus costs incurred in the next three years will be lesser, and 2) # of units sold to golfers may reduce by 4, since the game is played in groups of 4. (# of unit numbers is derived from the market numbers above. A 1% penetration is assumed in the first three years ) Appendix A Golfers Golf courses Income Statement Distance Only Complete System Distance Only Complete System Revenue per unit $ 300 $ – $ 54,000 $ 72,000 # of units 267,000 $ – 170 170 Total revenue $ 80,100,000 $ – $ 9,180,000 $ 12,240,000 Cost of Goods Sold per unit $ 200 $ – $ 12,000 $ 17,000 # of units 267,000 170 170 Total cost $ 53,400,000 $ – $ 2,040,000 $ 2,890,000 Gross Margin $ 26,700,000 $ – $ 7,140,000 $ 9,350,000 Operating Expenses $ 2,700,000 $ – $ 2,700,000 $ 3,000,000 Setup Expenses $ – $ – $ 85,000 $ 340,000 Operating Income $ 24,000,000 $ – $ 4,355,000 $ 6,010,000