08

1416
Fall

8th December

Technology & Operations

Management
Abdul Samad Khan 08975
WAC SUBMISSION

GolfLogix: Measuring the Game of

Golf

Introduction
GolfLogixInc.,athreeyearoldcompanywithjustsixemployees,hasintroducedaninnovative
producttotheconservativeworldofgolf.GolfLogixhasdevelopedtwodifferenttypesofGPSgolf
technology.BothareintheformofahandheldGPSreceiver,calledanxCaddie,whichproduce
distancetothecenterofthegreen.First,theyhavetheDistanceOnlySystem.Thisonlyprovidesthe
yardagetothemiddleofthegreen.ThesecondistheCompleteSystem.Thisistheenhancedversion
thatstoresmoredetailedinformationsuchasclubselectionandresultsfromyourround.ThexCaddie
aimstoimprovethegolfer'sgamebydisplayingthedistancetothenexthole.Thisinformationcan
thenbeusedtoselecttheappropriategolfclub.
Thecorrecttargetmarketisthekeytolongtermsuccessofanyproduct.GolfLogixmustbeableto
determinewhotheircustomerisinordertodevelopanadvertisingplanthatwillsellthecustomeron
thebenefitsoftheirproduct.Currently,GolfLogixistornbetweentargetingconsumersorgolfcourses.
AftersomesuccesswithleasingthexCaddiestogolfcourses,GolfLogixisconsideringtargetingthe
individualconsumerdirectlywithitsproduct.Iftheytargetconsumers,thegolfcoursesthattheyhave
securedmaygetupsetanddroptheirproduct.IfGolfLogixdecidestojusttargetgolfcourses,thereisa
goodpossibilitythattheymaymissasignificantamountofrevenuethatstemsfromconsumers.
Thepotentialadvantagesoftargetingconsumerswouldbe:

Toincreaseadoptionbyindividualconsumersthusputtingpressureonthecoursestobuyintothe
completesystemandgettheirgolfcoursesmapped.
Toprovideacomplementarysourceofrevenueseparatefromtheleaserevenuetogolfcourses.
Nearinfiniteamountofrevenuestreamasmoreconsumersthangolfcourses

Somedisadvantageshoweverwouldbe

ThepersonalxCaddieswouldbeuselessoncourses,whichwerenotalreadymappedout.Newly
mappedcoursescouldnotautomaticallybeaddedtothelibraryofcoursesonexistingdevices.
ArisingpersonalownershipofxCaddiesmaydiscouragecoursesfrombuyingtheirowndevices
killingacontinuoussourceofrevenueforGolfLogix.
Iftheretailchannelispursued,customerswouldexpectallcoursestheyfrequenttobemapped
involvingalargeincrementalcostforeachgolfcourse.Evenifagolfcourseismapped,thereisno
guaranteethatxCaddieownerswillevergolfthere.
Ontheotherhand,individualxCaddieownersmaydemandthattheirownfavoritegolfcoursesbe
mappedevenifitdoesnotmakeeconomicsenseforGolfLogixtodoso.

Consequently,eventhoughthedirecttouserplansoundsattractive,wefeelthatGolfLogixshould
defertheplantillmoregolfcoursesaremapped.Itshouldfocusontheleaserevenuebyencouraging
coursestobemappedunderariskfreetrialoffer,whichwillshowcasetheadvantagesofthexCaddie
system.

Competitive Environment
ThexCaddiehasseveraldirectandindirectcompetitorsandsubstitutes.Directcompetitorsincludethe
CartmountedandPDAsystemalsobasedonGPStechnologyandtargetingthesamenichemarket.
ThestrongestcompetitoristhePDAbasedsystembecauseofitspricepoint,versatilityandfeatures.
Itsmainadvantageistheabilitytouploadanddownloadusercalibratedcoursemappings.However,
thecustomeruploadedmappingsmaybeinaccurate.TheGolfLogixstrategywillboastprofessionally
donehighqualitymappingstodifferentiateit.GiventherapidgrowthinPDAownership,theseGPS
systemsmayquicklybecomepopularforapplicationslikedrivingnavigation.Ontheotherhand,the
needtoownaPDAcanbeconsideredabarriertoenterfornonPDAowners.Theotherdirect
competitoristhecartmountedsystemwithitsmanyfunctionalities;however,itisbothexpensiveand
hardertousebecauseit'sfixedtothecart.ThelowtechsubstitutestothexCaddiearesimplebut

inaccurateandinconvenient(sayatnight).Thesesolutionsareofferedatnoorlowcostandarewidely
availableonmanycourses.Theseproductsareindirectcompetitorssinceourtargetmarketdesiresthe
accuracydeviceslikethexCaddiecanprovide.

Flexibility

Quality
Speed

Cost

Pricing
Golfcourseswillbeofferedachoiceofleasingsetsof40,60or80xCaddies.Themoreunitsagolf
courseleases,thelargerthediscountcouldbeprovided.Thisstructurewascreatedtocatertoboth
smallerandlargergolfcourses.
WhenandifGolfLogixenterstheretailmarket,thesuggestedretailpriceis$300perunit.Itis
estimatedthattherewillbe18,200totalcoursestomapwithacurrentexpenseof$500percourse.If
thisistheonlyrouteavailabletoGolfLogix,thentheexpensewillbeinexcessof9milliondollarsto
mapallthenationscourses.Eachunithasatotalvariablecostof$150thiscostmaydecreasewith
additionalvolumeconsideringthenumberofunitsneededtosellforabreakeven.Additional
manufacturerswillalsobesoughttoensuredecreasinghandsetcosts.Eachunithasacontribution
marginof33%.In2000theestimatednumberofgolfersintheUnitedStatesis26.7million,
unfortunately,theynotallpotentialGolfLogixcustomers.Allmarketsconsidered14.5milliongolfers
arepotentialcustomers.Theforecastistohave1.5%adopttheXCaddie.Theseprojectionscreatethe
purchaseof217,500unitssoldat$225with$150costperunit.Thisequalsabove16.3millionin
contributiondollars.Iffixedoperationalcostsremainat$700,000,asunkcostof9.1millionis
considered,andmarketingprogramsarenot,thenthebreakevenpointontheinitialinvestmentequals
130,666units.Thesuggestedretailpriceis$300.Atawholesalepriceof$225perunit,theretailercan
sellitwitha34%markup.
Analternativeistoincreasethepriceinordertogetalargergrossmargin.XCaddiewouldfallunder
themiscellaneouscategoryforgolfingitems.Weknowfromthecasethatavidgolfersspend
approximately$90andcoregolfers$30onmiscellaneousgolfitems.ThisshowsthatxCaddiewould
beabiginvestmentonthegolfer'spartandbasedontheircurrentspendinglevels,anincreasedprice
willhavenegativeeffectsonsales.Itmayevencauselittletonosalesasthecostisoutofthegolfer's
acceptablepricerange.Thisisstillmorejustificationfornotenteringtheretailmarketrightaway.

Promotion
ThebesttypeofpromotionfortheGolfLogixsystemisafreetrialsothegolfcoursecanexperience
thesystematnorisktothem.Whenagolfcoursesignsupforthesystem,thecourseismappedandit
signsathreeyearcontractwhichcanbeterminatedatanytimeinthe30daytrialperiod.Eventhough
thismayseemriskybecauseofthecostofmapping,itwouldprovidevaluabledataforlateruseif
GolfLogixdecidestoentertheretailmarket.Thecourseisadditionallypromisedthatfortwoyears,
GolfLogixwillnotsellviaretail.Alongwiththefreetrial,eachcoursewouldreceivepromotional
literatureandonsiteadvertisingusingendorsementsofprofessionalgolferspromotingtheGolfLogix
system.CourseswouldbeencouragedtoofferthexCaddiesfornocost,initiallyatleast.Golf
professionalswhocoachthegamewouldbemadeawareoftheadvantagesofthesystemtoencourage

learninggolferstousetheproduct.Advertisementscanbeplacedingolfingmagazinesbothtomake
golfcoursesawareofGolfLogixandtoinfluencegolferstopreferGolfLogixenabledcoursesover
vanillaones.'GolfLogixenabled'canbecomeanaspirationalqualityforcourses.

Placement
TwodistributionchannelsarerecommendedforsellingtheGolfLogixsystemtothegolfcoursesThe
firstisviadistributorsineverystate/zonewhousetheirnetworkofcontactstomeetwithgolfcourse
ownersandencouragethemtotrythesystematnorisk.Thesedistributorswouldhaveacommission
componentforeverygolfcoursesigningacontractandkeepingthesystembeyond30days.The
secondisviatheInternetwherethegolfcoursecanfindoutmoreaboutthebenefitsandadvantagesof
being"GolfLogixenabled".Enquirieswouldberedirectedtothedistributorinchargeofthatzone.The
distributorwouldbethesinglepointofcontactforupgrades,customerandtechnicalsupport.
ThesuccessoftheretailmarketwoulddestroytheB2Bmarketbecausegolfcourseswouldnolonger
seetheneedtoleasethexCaddiesfromGolfLogix.Thismeansthatthecontinualrevenuefromleasing
theunitswoulddisappearandonlyaonetimerevenueforsellingthexCaddiewouldremain.
IfagolfcourseleasesxCaddiesthereisnoobviouslynoincentivetoownonehoweverifretail
distributionwasfeasible,themosteffectivemeansofdistributionforthetargetmarketofavidandcore
golferswouldbegolfcourseProshops,golfspecialtyandgolfdiscountstores.Thesethree
merchandiserscoveralmost70%ofthetargetmarketa75%ofavidgolfersand60%ofcoregolfersas
showninExhibit9ofthecase.Golfspecialty,discountstores,massmerchantsandsportinggoods
storesmayhavelesscredibilitythangolfprofessionalsintheproshopsandwouldhurtthexCaddie's
imageofbeingahighvalue,specialtyproduct.
GolfprofessionalswhogivelessonscouldalsobeusedtosellthexCaddieonacommissionbasis.
Theyhavetremendouscredibilityandwouldpossiblysellquiteafewunits.Onceagaintherewouldbe
aconflictofinterestifthegolfcoursealreadyleasesthexCaddietoitscustomers.

Recommendations & Conclusions

BasedonmyanalysisofGolfLogix'scapabilitiesandcurrentmarketscenario,thereisnoincentiveto
buythexCaddieifthegolfercansimplyleaseitandhencetheretailmarketiscurrentlynotan
attractiveinvestment.Inthefuture,however,whenthemajorityofcoursesaremappedGolfLogixcan
goretailwiththeconfidencethatuserswouldbeabletouseitalmostanywhere.TheB2Bservice
wouldhavetobeadjustedsoitwouldnotbedamagedinthetransitionandcouldremainthesole
provideroftheCompleteSystem.