Introduction
GolfLogix Inc. was founded in 1999 and until 2002 has just six employees. It has introduced a GPS based device in two versions for the Game of Golf to measure it during play. These devices are in shape of hand-held GPS receivers named “xCaddie,” that shows the distance to the center of the “Green”. The two versions are called distance only system and complete system. The distance only system gives only the yardage to the player to the middle of the green. Whereas, the complete system is capable of storing more detailed golf related and course-related information like the club selection and the results from the round for the player. The objective of the device is to enhance the golfer’s gameplay by showing the distance to the next hole. With this information, the golfer can select a suitable golf club.
It is imperative for any organization to select the right target market for its long-term success. The company needs to determine its customers and then develop the appropriate marketing and advertising plan in order to sell the benefits of the caddie to the customers.
For the time being, the company is confused regarding whether it should target the golf courses of the end consumers. It has got some success in leasing out xCaddie to some golf courses directly and now considering if it is better to target the consumers directly. However, it may result in golf courses dropping their product. However, if they do not target consumers directly, it may end up in losing a lot of revenue from the individual consumers. It would benefit the company in several ways as the adoption of xCaddie by the individual consumers may pressurize golf courses into buying the complete system in order to map their golf course. Moreover, it would also provide another source of revenue apart from lease revenue from the golf courses. It would provide a huge boost to the revenue as more consumer adopt the product.
However, it may also have some disadvantages like xCaddie will not be useful unless the golf course is mapped. Moreover, the newly mapped courses could not be added in the library of existing devices. Moreover, personal ownership of the xCaddie may result in golf courses not buying their own devices and thus a revenue source would be killed. Moreover, it would result in a huge mapping cost of all golf courses nearby if it decides to map out all the golf courses. Moreover, the existing device owners may also demand that their favorite golf course is also added which may not make economic sense. So it may not be feasible for the company to target individual consumers now.
Competition
There are many direct and indirect competitors for the xCaddie as well as several substitutes. Direct competitors comprise of PDA and Cart-mounted systems which are also GPS based as well as having the same target market. The PDA based system is the toughest competitor mainly due to a similar feature and similar price point. However, its major capability is that it allows uploading and downloading of user’s calibrated course mapping. However, the problem with this system is that the user calibrated mapping may not be accurate but xCaddie is differentiated because it provides high-quality mapping to upload.
Due to fast growth in the PDA adoption, the GPS based systems may rapidly get popular for other uses like driving navigations. But the requirement to have a PDA is also a barrier to adoption for the people who do not have any PDA.
The other major direct competitor is another cart-mounted system with similar functionalities but it is not only expensive but difficult to use because it is fixed at the cart. The other competitors are low tech substitutes but they are both inconvenient and inaccurate.
Customers
For making an informed decision regarding its entry to the retail segment or stay in the B2B business to business market, the Golflogix has to consider the value it creates for each of these market segments. For the B2B clients, the golf courses, xCaddie speeds up the play for the play and thus they can cater more customers with an improvement of up to 20 to 30 minutes per round.
For the individuals, xCaddie is useful because it is particularly helpful for high-end more challenging courses. However, more a user play at a particular course, more familiar it becomes with the course and thus xCaddie does not remain as much help for the user as it was in the start. However, core and avid golfers would be more interested in the xCaddie as they would ideally want to improve their game and also plays more games annually. The occasional and novice golfers would utilize xCaddie more often but they are not a market to target because of low numbers and also because they spend less on the golf. So if the company needs to enter into the retail market, it needs to target avid and core players as avid golfers buy 50% of the total golf item and are thus the biggest segment.
Strategy
Apparently, the appropriate target market for GolfLogix would be B2B and will lease xCaddie to the golf courses. The main target would be high end private and public sources as they generally have high revenues and thus can spend more money in the GolfLogix devices. However, after the market for courses is reviewed, the retail channel should also be analyzed.
Product
GolfLogix is offering two types of products. These are distance only and complete system. This would make devices attractive for experts as well as novices. The complete system along with printer and Kiosk is too costly for the individuals. The individual customers would benefit from owning a personal xCaddie that they would be able to play any course whether or not the course has xCaddie device. However, for this purpose, the company needs to ensure that it maps each course. So if a golfer plays at a course which is not mapped, xCaddie’s value decreases in the eyes of that customer. The company can charge as much price as much value it can provide to the customers. The company can upgrade the product to include features like automatic uploading and downloading mapping and course-specific tips online and make it a perfect golfing partner. However, if the individual with personal xCaddie plays golf at the courses that already have leased xCaddie, the value of personal xCaddi will decrease significantly for him or her. The courses normally charge from zero to three US dollars for use of xCaddie. So a user would not need to pay $300 for the device if course already has xCaddie. It may take him seven to eight years for the breakeven of the price paid. So the golfer is better to lease the xCaddie than buying it outright and therefore. So, it is better for the company to not go to the retail market.
Pricing
The company has decided to set a leasing price at $40, $60 or $80 xCaddies. The rate depends upon the number of units leased by a golf course and these rates are available irrespective of the size of the golf course.
If the company decides to enter in the retail segment, the suggested sales price is $300. The company estimated that it would need to map 18200 courses at an expense of $500 for each course. If the company choose this strategy, then the total expense for mapping all courses would be $9 million. The total variable cost per unit is $150. However, with the increasing sales volume, the variable cost is expected to go down. However, currently, the per unit contribution margin is 33%. There are around 26.7 million golfers in the USA in 2000. However, it is expected that only 1.5% of them would adopt xCaddie.
In accordance with these projections, the company would sale 217500 at a price of $225 per unit with a variable cost of $150 per unit. This would result in a contribution margin of $16.3 million. If the fixed operational costs remain stagnant at $0.7 million, with the $9.1 million of sunk cost, the breakeven point would reach at 130,666 units. As the suggested retail price is $300 and the distribution price is $225, the retailer would get a markup margin of 34%.
As an alternative, the company can get a great gross margin by increasing the price of its devices. From the case, we know that xCaddie falls under the miscellaneous golf item category and the avid golfers spend around $90 whereas the core players spend around 30 on such items. Therefore, buying a miscellaneous item that is priced $300 or above, it represents a significant expense for them. As a result, increasing sales price would negatively affect sales. This also seems to be a reason why the company should not enter into the retail segment.
Promotion
Promotion is a very important aspect of the marketing mix and also depends upon the type of distribution strategy a company wants to adopt. As GolfLogix came with a new product it needs to provide free trials to the courses so that they can try the system without any risk of loss. For this purpose, the company can sign a leasing contract for three years which can be canceled any time within the first 30 days.
Although it is apparently a risky strategy due to costs involved in mapping the course, however, it would provide important data for use if the company decides to enter into the retail segment later.
Moreover, the golf courses can also be promised that the company will not sell its device through the retail channel in the next two years. Then, the company would also provide free promotional material to be displayed on-site that would also include endorsements from renowned golfers for the xCaddies. To start with, the courses are needed to be encouraged that they offer device to use for free of cost to the golfers, at least in the initial phase. The professional golf coaches would also be marketed with the benefits of using the xCaddie. The company will also advertise its product in golf magazines not only to promote xCaddies but also to influence golfers to use the courses which are mapped by the GolfLogix. As a result, xCaddies can provide additional marketing benefits to the courses and they may prefer it over competitor products.
Placement and distribution
For the purpose of distribution, it is recommended that the company adopt a hybrid approach. It is suggested that the company sell its devices through the distributors in each state or zone who would market it through their own network and meet the course owners directly to market the product. These distributors would get a commission once a course keeps the system after the initial 30-day trial. Then, the company should also sell the product directly through the internet. The e-commerce site should be set in a way that course owners can find out the benefits they would get by adopting xCaddies and can place an order online. However, those orders and inquiries should be directed towards the local distributor of the course. The local distributor in each area would be responsible for upgrades and all types of customer support as a single contact point.
the company should not enter into the retail market and keep its leasing model only otherwise its business to business market would get destroyed as explained above as then the devices would no longer be attractive or useful for the courses. This would result in the loss of the leasing revenue for sake of retail business, which does not seems feasible as explained above.
However, once the B2B market gets mature, the company can enter into the retail market. Now the best way for the company to distribute its product is direct selling through specialty stores, discount stores, and Pro shops. The target customers for the company, in this case, should be pro and avid customers.
The stores mentioned above would cover around 60% of the core golf players and 75% of avid customers as evident from exhibit 9 in the GolfLogix case. However, the company should consider the fact that selling through discount stores will make the product image less credible and selling through pro-shops and specialty stores will enhance the image of both company and products.
Another distribution channel could be professionals teaching golf. They can be offered a commission for selling the devices. It would be a highly effective strategy because they have credibility in the eyes of the trainee golfers. However, this should be done once the company enters into retail segment.
Recommendations & Conclusions
The above analysis shows that xCaddie’s distance only version is feasible for individual and retail customers whereas its complete system is useful for leasing to the courses as it would save them around 30 minutes per round. However, selling it directly to the retail customers would destroy value for the courses and they would stop buying and adopting caddies. Therefore, the company should focus on its B2B segment for now and should defer any plan of going to the retail segment for two years at least. The company should adopt a hybrid distributions strategy to market its products.
Reference
Gourville, J.T. and Conover, J. N. (2002). GolfLogix: Measuring the Game of Golf. Harvard Business School
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