Technology & Operations Management

Introduction GolfLogix Inc., a three-year-old company with just six employees, has introduced an innovative product to the conservative world of golf. GolfLogix has developed two different types of GPS golf technology. Both are in the form of a handheld GPS receiver, called an xCaddie, which produce distance to the center of the green. First, they have the Distance Only System. This only provides the yardage to the middle of the green. The second is the Complete System. This is the enhanced version that stores more detailed information such as club selection and results from your round. The xCaddie aims to improve the golfer's game by displaying the distance to the next hole. This information can then be used to select the appropriate golf club.The correct target market is the key to long-term success of any product. GolfLogix must be able to determine who their customer is in order to develop an advertising plan that will sell the customer on the benefits of their product. Currently, GolfLogix is torn between targeting consumers or golf courses. After some success with leasing the xCaddies to golf courses, GolfLogix is considering targeting the individual consumer directly with its product. If they target consumers, the golf courses that they have secured may get upset and drop their product. If GolfLogix decides to just target golf courses, there is a good possibility that they may miss a significant amount of revenue that stems from consumers. The potential advantages of targeting consumers would be: To increase adoption by individual consumers thus putting pressure on the courses to buy into the complete system and get their golf courses mapped. To provide a complementary source of revenue separate from the lease revenue to golf courses. Near infinite amount of revenue stream as more consumers than golf coursesSome disadvantages however would be- The personal xCaddies would be useless on courses, which were not already mapped out. Newly mapped courses could not automatically be added to the library of courses on existing devices. A rising personal ownership of xCaddies may discourage courses from buying their own devices killing a continuous source of revenue for GolfLogix. If the retail channel is pursued, customers would expect all courses they frequent to be mapped involving a large incremental cost for each golf course. Even if a golf course is mapped, there is no guarantee that xCaddie owners will ever golf there. On the other hand, individual xCaddie owners may demand that their own favorite golf courses be mapped even if it does not make economic sense for GolfLogix to do so.Consequently, even though the direct-to-user plan sounds attractive, we feel that GolfLogix should defer the plan till more golf courses are mapped. It should focus on the lease revenue by encouraging courses to be mapped under a risk-free trial offer, which will showcase the advantages of the xCaddie system. Competitive EnvironmentThe xCaddie has several direct and indirect competitors and substitutes. Direct competitors include the Cart-mounted and PDA system also based on GPS technology and targeting the same niche market. The strongest competitor is the PDA-based system because of its price point, versatility and features. Its main advantage is the ability to upload and download user-calibrated course mappings. However, the customer-uploaded mappings may be inaccurate. The GolfLogix strategy will boast professionally done high quality mappings to differentiate it. Given the rapid growth in PDA ownership, these GPS systems may quickly become popular for applications like driving navigation. On the other hand, the need to own a PDA can be considered a barrier to enter for non-PDA owners. The other direct competitor is the cart-mounted system with its many functionalities; however, it is both expensive and harder to use because it's fixed to the cart. The low-tech substitutes to the xCaddie are simple but inaccurate and inconvenient (say at night). These solutions are offered at no or low cost and are widely available on many courses. These products are indirect competitors since our target market desires the accuracy devices like the xCaddie can provide.

QualitySpeedCostFlexibility

PricingGolf courses will be offered a choice of leasing sets of 40, 60 or 80 xCaddies. The more units a golf course leases, the larger the discount could be provided. This structure was created to cater to both smaller and larger golf courses.When and if GolfLogix enters the retail market, the suggested retail price is $300 per unit. It is estimated that there will be 18,200 total courses to map with a current expense of $500 per course. If this is the only route available to GolfLogix, then the expense will be in excess of 9 million dollars to map all the nations courses. Each unit has a total variable cost of $150 this cost may decrease with additional volume considering the number of units needed to sell for a break even. Additional manufacturers will also be sought to ensure decreasing handset costs. Each unit has a contribution margin of 33%. In 2000 the estimated number of golfers in the United States is 26.7 million, unfortunately, they not all potential GolfLogix customers. All markets considered 14.5 million golfers are potential customers. The forecast is to have 1.5% adopt the XCaddie. These projections create the purchase of 217,500 units sold at $225 with $150 cost per unit. This equals above 16.3 million in contribution dollars. If fixed operational costs remain at $700,000, a sunk cost of 9.1 million is considered, and marketing programs are not, then the breakeven point on the initial investment equals 130,666 units. The suggested retail price is $300. At a wholesale price of $225 per unit, the retailer can sell it with a 34% mark up.An alternative is to increase the price in order to get a larger gross margin. XCaddie would fall under the miscellaneous category for golfing items. We know from the case that avid golfers spend approximately $90 and core golfers $30 on miscellaneous golf items. This shows that xCaddie would be a big investment on the golfer's part and based on their current spending levels, an increased price will have negative effects on sales. It may even cause little to no sales as the cost is out of the golfer's acceptable price range. This is still more justification for not entering the retail market right away.PromotionThe best type of promotion for the GolfLogix system is a free trial so the golf course can experience the system at no risk to them. When a golf course signs up for the system, the course is mapped and it signs a three year contract which can be terminated at any time in the 30 day trial period. Even though this may seem risky because of the cost of mapping, it would provide valuable data for later use if GolfLogix decides to enter the retail market. The course is additionally promised that for two years, GolfLogix will not sell via retail. Along with the free trial, each course would receive promotional literature and on-site advertising using endorsements of professional golfers promoting the GolfLogix system. Courses would be encouraged to offer the xCaddies for no cost, initially at least. Golf professionals who coach the game would be made aware of the advantages of the system to encourage learning golfers to use the product. Advertisements can be placed in golfing magazines both to make golf courses aware of GolfLogix and to influence golfers to prefer GolfLogix-enabled courses over vanilla ones. 'GolfLogix-enabled' can become an aspirational quality for courses.

PlacementTwo distribution channels are recommended for selling the GolfLogix system to the golf courses The first is via distributors in every state/zone who use their network of contacts to meet with golf course owners and encourage them to try the system at no risk. These distributors would have a commission component for every golf course signing a contract and keeping the system beyond 30 days. The second is via the Internet where the golf course can find out more about the benefits and advantages of being "GolfLogix-enabled". Enquiries would be redirected to the distributor in charge of that zone. The distributor would be the single point of contact for upgrades, customer and technical support.The success of the retail market would destroy the B2B market because golf courses would no longer see the need to lease the xCaddies from GolfLogix. This means that the continual revenue from leasing the units would disappear and only a one-time revenue for selling the xCaddie would remain.If a golf course leases xCaddies there is no obviously no incentive to own one however if retail distribution was feasible, the most effective means of distribution for the target market of avid and core golfers would be golf course Pro shops, golf specialty and golf discount stores. These three merchandisers cover almost 70% of the target market a 75% of avid golfers and 60% of core golfers as shown in Exhibit 9 of the case. Golf specialty, discount stores, mass merchants and sporting goods stores may have less credibility than golf professionals in the pro shops and would hurt the xCaddie's image of being a high-value, specialty product.Golf professionals who give lessons could also be used to sell the xCaddie on a commission basis. They have tremendous credibility and would possibly sell quite a few units. Once again there would be a conflict of interest if the golf course already leases the xCaddie to its customers.Recommendations & ConclusionsBased on my analysis of GolfLogix's capabilities and current market scenario, there is no incentive to buy the xCaddie if the golfer can simply lease it and hence the retail market is currently not an attractive investment. In the future, however, when the majority of courses are mapped GolfLogix can go retail with the confidence that users would be able to use it almost anywhere. The B2B service would have to be adjusted so it would not be damaged in the transition and could remain the sole provider of the Complete System.