Golflogix Case Study

Analysis:

Market numbers recommend a much bigger market of golfers rather than that of the golf courses. Units offered to target market varies with the target audience in the case of golf courses since 60 units per golf course are offered. Nevertheless, with numerous division methods, it can be concluded that the golf enthusiasts who would purchase the Distance-only or Total System, would be those who measured their performance by measuring their handicap, hence forming the very first target audience within the golf players.

Discouragingly, this was just 20% of the golf enthusiasts. Also, the golfer market would even more be divided by 4. Because a video game typically includes 4 gamers, just one of them would need the device, routine gamers might share the expense. Although the distance-only system is easy to get up and running, when sold directly to the golfers, the golf players would themselves need to equip their green on the golf course. This would eliminate from the crucial value proposal to the golf courses that is 'speed of play'.

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Golf courses may require to charge a preliminary quantity to the brand-new clients (golfers) to consider time invested in setting up the distance-only system. Likewise with the technical setup requirements of the Complete-System, it would be almost impossible for a golf enthusiast to do it himself. Also, with the golf-course channel, it will be much easier to lock-in the golf enthusiasts. The real benefit of the "Total System" would be feasible to the end-user (golf players) when they see enhancements in their video game with their regular usage of the system.

Thus, locking the golf courses in who will push to include the system to the golf enthusiasts per round would make its value proposal possible.

Sales to golf courses involve a three year lease, hence a guaranteed 3 year earnings stream and likewise the equipment can be recycled elsewhere. If Golflogix opts for both channels, one may wind up cannibalizing the other. If devices are offered straight to golf enthusiasts, golf-courses may not see any value in purchasing them, considering that their earnings in turn on the lease of the devices would not be ensured. Similarly, golfers would not purchase the system if they knew golf-courses already provided it with a small 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