Castle Course, St Andrews Links
Capacity allocation and Pricing case-study
The R code for this project is available on Github
Executive Summary
St Andrews is known worldwide as ‘the home of golf’ as it is the location of one of the oldest golf courses in the world, The Old Course. There are seven different courses operated by the St Andrews Links Trust. The aim of this report is to recommend strategies that will allow the Trust to increase their revenue. The courses experience differences in demand, capacity and pricing due to factors such as popularity, and location (St Andrews Links Annual Account, 2018). Therefore, the scope of this report will specifically focus on the Castle Course, with an aim to maximise revenue through optimisation of capacity allocation and pricing.
Price Optimisation
Price elasticity of demand
lnd(p) = α lnp
where d is the demand variable, p is the price variable and a is elasticity of demand
Demand Calculations
Package(d): 23, 278 ÷ 153 ≈ 152
Walk − in(d): 3, 539 ÷ 153 ≈ 23
Subsequently, the respective price of each variables above is used to created the following input variables:
Package(d) : 152 − package
Walk − ins(d) : 23 − walkinPrice
These input variables are then integrated with the optimal price algorithm based on the following R packages: nplotr, mlogix and matrixStats .
Revenue Per Model
Capacity Allocation Optimisation
The next strategy was used to see how the Trust can increase their revenue, by applying capacity allocation with the new pricing strategy. A comparison was created of what their revenue would look like per day if they apply capacity allocation, or protection levels (in this case it would be tee-times protected) to their current demand and pricing levels, against the new demand and pricing levels calculated in the pricing optimisation algorithm.
The original demand and pricing levels are as follows:
Package (d): 152 Package (p): £79
Walk-ins (d): 23 Walk-ins (p): £120
The optimised demand and pricing levels are:
Package (d): 152 -8 = 143 Package (p): £88
Walk-ins (d): 23 -3 = 20 Walk-ins (p): £123
Price & Capacity Allocation Optimisation
Combining the optimised pricing model with the protection limit algorithm suggests that the Trust should increase their capacity allocation for walk-in tee-times from 8 to 17.
The chart on the right, visualises the estimated revenue each model discussed in this paper would produce.
Through the application of capacity allocation using the optimised demand and pricing levels calculated above increase revenue from £811,665 to £875,502 (increase of 7.86%) per year.
Furthermore, the addition of the new prices variable derived from the optimised price equations in section one, results in a further increase in revenue from £875,502 to £944,748 (increase of 7.91% ) per year.
Revenue per Model
Conclusion
This report has demonstrated that the St Andrews Links Trust would benefit from changing their current pricing to the combined price and capacity strategy listed above in order to maximise revenue. The Trust would have to allocate 17 tee-times to walk-in players per day (originally 8), in order to achieve a revenue growth of up to 15.77% (£63,837).