BEAR CREEK GOLF RANGE

On a clear but cool day in mid-January, Dan Shay, co-owner and manager of Bear Creek Golf Range, stood looking out over his golf range where two hearty golfers were taking their swings. Turning to his partner, George Patton, he observed,

Well, George, at this time last year, we were on top of the world with our plans for the new golf range. Here we are a year later and things aren't nearly so rosy. We're starting our second year in the business and, let's face it, we didn't come close to meeting our objectives last year. In fact, if we don't do a lot better this year, we'll probably go under, which will cost us both a lot of money. However, I'm not ready to throw in the towel. We had some significant start-up problems in our first year, and we didn't do the business that we expected, but we're still here and I think we have a chance to turn things around. But we sure have to figure out how to attract a lot more customers in '04.

Background of the Golf Range Bear Creek Golf Range, the newest range in the Dallas/Fort Worth area, opened for business the previous May. Dan Shay, the owner and manager, was a professional golfer who had recently retired from active tournament play. Dan graduated from Wake Forest University in 1983, where he was a member of the varsity golf team. Upon graduating, he decided to turn professional. He played on the tour for several years and his career earnings were quite respectable. When a wrist injury forced him to retire in 2000, he had saved enough money to invest in his own business venture. Many retired golf professionals chose to continue on as golf course pros at private courses, but Dan felt that he would have more independence and a higher income potential if he ran his own business. Reflecting on his career shortened by an injury, Dan observed, "If I can't make it as the best golf tour player, I will try to become the best golf teacher." Over the years, he had been quite successful as a golf instructor and had earned recognition as one of the most knowledgeable PGA Class A professionals in America. He had been actively involved with Junior Golf in the North Texas area and had received many awards for his efforts. Not surprisingly, Dan's business interests focused on utilizing his experience and abilities in the area of golf instruction. Dan was approached in early 2001 by his long-time friend and fellow PGA professional, George Patton, about the possibility of jointly starting their own golf driving range in the Dallas/Fort Worth area. Dan felt that this was an ideal opportunity to combine his interest in golf and golf instruction with a promising business undertaking. Although Dan and George were to be equal investors and partners in the business, George was to continue to compete on the tour while Dan assumed responsibilities for managing the day-to-day operations of the business. As they considered the requirements for success in this business, they felt that they had the necessary qualifications. They had excellent golfing backgrounds, genuine knowledge of the game, and good contacts in the golfing community to go along with their experience as golfing instructors. Also, they had between them adequate financial resources. They were confident that they could even raise additional funds if necessary. In discussing their ideas for the new driving range, the partners agreed that they should focus on serious golfers who were interested in improving their golfing skills through practice and instruction. The range would cater to these serious golfers by providing first-class facilities (driving range and hitting areas), high-quality equipment (clubs, balls, and merchandise), and professional services (lessons, club repair, advice, and assistance). This driving range would establish an image as "the professional golfing center" run by professionals. The partners agreed that they were not interested in attracting customers who enjoyed golf as a form of entertainment. They referred to these golfers as "Yahoos." Their observations of other driving ranges led them to feel that the Yahoos were more trouble than they were worth. They tended to be loud, disruptive, very hard on equipment, and often less concerned with developing skills than with showing off. As Dan observed, "We can really do without the aggravations." In weighing the driving range potential, the partners were aware of the growing interest in golf nationally and in the Dallas/Fort Worth area in particular. On the national level, the $40 billion golf market (golf and related products and services) enjoyed an estimated annual growth rate of 5 percent. The growth rate

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had been even higher in the Dallas/Fort Worth area because of the availability of golf courses, practice facilities, and the warm weather found there nine months of the year. The Dallas/Fort Worth Metroplex was one of the fastest growing metropolitan areas in America. There were 86 private and municipal golf courses in the area, and several of these were new. All courses had high memberships and many had long waiting lists. The increase in population of Dallas/Fort Worth, the increase in beginner golfers (up 15 percent since 1990), and the warm climate led the partners to conclude that this could be a very healthy opportunity area for a golf-related business. Dan and George decided to proceed with the driving range business. They were fortunate in identifying a 22-acre plot of land on an access road to Route 183, the connecting highway between Dallas and Fort Worth. They agreed that this would be a good location because it was midway between the two cities and very close to the Dallas/ Fort Worth International Airport. The people who used the highway were primarily people living in the surrounding suburban townships of Irving, Bedford, Grapevine, Euless, Arlington, Grand Prairie, Hurst, and Coppell. Many of these people worked in either Dallas or Fort Worth and traveled regularly on Route 183. In addition, the Route 183 access road connected with the International Parkway leading to the International Airport. The partners estimated that their golf range would draw people within a 10-mile radius (population 777,082). There were 15 golf courses in this market area, public and private. The Plan After considering several locations, the partners decided to purchase the 22-acre piece of property on Route 183 (with an option to purchase the adjacent 10-acre piece of land). They secured a mortgage on the property and set about developing their plan. First, they visited a number of driving ranges in the state to get ideas. Then they identified the facilities and services that they felt would be most appropriate for the kind of professional range that they had in mind. The plan included the following facilities and services. Facilities and Equipment

• A first-class driving area with quality grass for the range, several target greens, distance flags, and a system of trees and fencing around the outer rim of the range. The back tree-lined boundary would be 300 yards from the driving tees

• Thirty-five individual hitting areas (tees) with Astroturf mats. Six of these tees would be set aside as a teaching area. The teaching area was to include a sand trap

• Video equipment for instructional purposes • An awning to cover 12 of the hitting areas for golfers to use in inclement weather • A top-quality putting green for lessons and practice • Hitting areas and range to be lit for night use • A permanent clubhouse-style building including

o customer service counter o snack bar/restaurant with tables and chairs o business office o video game area o bulletin boards o sink and toilets (indoor plumbing) o merchandise sales area (Pro Shop) where they would sell items (gloves, balls, spikes,

golf shirts, sweatshirts, etc.) at lower prices than the typical golf course pro shop o picture windows that look out over the tees and the driving range o internet access

• A paved parking area (for approximately 30 cars) • A lighted sign visible from Route 183 (both lanes) • Landscaping and decorative shrubbery

Services

• PGA instruction (individual and group lessons) • Custom club-fitting and repair

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• Advice and ordering of merchandise (clubs, bags, etc.) Exhibit 1 provides a sketch of the facility as they planned it, and Exhibit 2 shows their financial development plan.

Competitive Situation. The partners reviewed the competitive situation in their market area. There were two full-service golf ranges and two limited-service ranges within the 10-mile radius. The two full-service ranges were very different from one another and each offered a significant competitive threat to the Bear Creek Range. The largest of the two, Greenbrier Golf Range, was a full-service range with 40 hitting areas, a putting green, two golf instructors, a full-service snack bar (with hot dogs, hamburgers, sandwiches, cold drinks, etc.), and a retail golf equipment and supplies shop. Although the proprietors of the Greenbrier were not recognized PGA golfing pros, they were both experienced and knowledgeable golf enthusiasts known to be good instructors. The driving range and buildings were well constructed, and everything about the operation was first class. It was not unusual to see long lines, especially on summer evenings and weekends when the waits could run as long as an hour. At these busy times, some golfers became impatient and went to one of the other golf ranges in the area where there were no waiting lines. Although there were no published figures on Greenbrier's profitability, it was generally believed that they were quite profitable. The second successful driving range, the Golfarama Golfing Center, was located closer to Dallas, where it appealed to the less serious golfers with its entertainment oriented facility. The facility included a driving range with 30 hitting areas, a pitch and putt area, and an 18-hole miniature golf course. Golfarama also attracted good crowds on summer evenings and weekends, but waiting was not as much of a problem because of the other activities to engage in while waiting for open tees. In fact, significant numbers of people came specifically to play miniature golf and the other games. Golfarama was located next to the

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Bowlarama Bowling Center (owned by the same company) which featured 10 bowling alleys, six pool tables, and a video game arcade. They had added an indoor/outdoor pitching machine and batting cage. The Golfarama/Bowlarama complex also featured a restaurant and a separate sports bar that was quite popular with the younger sports crowd. As the Golfarama Center was part of the overall entertainment complex, it was difficult to determine its profitability. However, the parent company for this national chain of franchise recreation centers was regularly reporting growth in units, sales, and profits. The other two driving ranges, the Hit 'Em Out Range and the Discount Driving Range, were both minimum operations. They were cleared fields with some crude hitting areas, inexpensive balls and clubs, and low prices.

Exhibit 2 Financial Development Plan

Bear Creek Golf Range for Year Ending December 31, 2003

Planned Actual Sources of Net Working Capital Net income $ 50,000 ($ 24,942) Depreciation 500 500 Long-term debt 240,000 240,000 Owner/manager input (Shay) 100,000 100,000 Partner input (Patton) 100,000 100,000 Total sources $ 490,500 $ 415,558 Applications of Net Working Capital Procurement of land $ 180,000 $ 180,000 Land clearing 10,000 12,000 Installation of electricity 5,000 5,790 Installation of water main, pipes 4,000 4,200 Auto parking area (paved) 18,750 5,400 Construction of building 165,000 75,000 Fairway construction (grading, etc.) 30,000 40,000 Toilet and septic tank 9,500 2,000 Lights for night range play 8,000 8,450 Practice putting green 10,000 0 Equipment 20,000 22,000 Signs 12,800 4,250 Awning 3,000 0 Landscaping (trees, shrubs, fencing) 13,500 2,000 Drainage system (additional) 0 40,000 Total applications $ 489,550 $ 401,090 Increase in net working capital $ 950 $ 14,468

At various times during the summer and fall months, Dan Shay and/or one of his employees would scout the competition to observe their levels of business activity. On the basis of these observations, Dan was able to develop some estimates of the hitting area usage and the market shares for the five golf ranges in

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his market area. Exhibit 3 presents a summary of these business activity estimates and a review of the facilities and services offered by each of the driving ranges. Exhibit 3: Area Golf Ranges

Greenbrier

Golfarama Bear Creek Hit 'Em Out

Discount

Total number of tees 40 30 35 24 20 Tees available for lessons 6 - 6 - - Price per bucket balls $7.50/100 $6.00/100 $6.50/90 $4/100 $4/100 Individual lessons* (3/4 hr.) $25 - $60 - - Group lessons** (3-6) $15 - $20 - - Paved parking yes yes gravel dirt gravel Putting green yes - - - - Covered hitting area yes yes - - - Pitch and putt yes - - - Miniature golf - yes - - - Golf equipment and supplies yes yes will order - - Restaurant - yes - - - Snack bar yes yes - - - Vending machines yes yes yes yes yes Video games - yes - - - Club cleaning and repair yes - yes - Usage rate*** 35% 33% 20% 25% 25%

*The cost of lessons includes balls and video analysis. **The cost of lessons includes balls. ***Usage rate was determined by noting the number of hitting areas in use at a given time as a percentage of the total number of hitting areas in the range. Hourly counts of golfers were recorded for days, evenings, and weekends to determine patterns of play and percentage of use.

Pricing. Dan noted that price elasticity in the golf range business varied depending on the kind of golfing customer. Serious golfers tended to be less price-sensitive and more willing to pay a higher price if the facilities and instruction were superior. The frequent golfers were more price-conscious, yet they too were influenced by the quality of the facilities. Occasional golfers were unpredictable. Some were interested primarily in hitting as many balls as possible for the lowest price. They were not particularly concerned with the quality of the range, the equipment, or the balls themselves. Other recreational golfers were willing to pay higher prices if the surroundings provided a variety of entertainment opportunities. Each of the driving ranges used different pricing approaches to differentiate one from another and to promote higher usage. They sold different sizes of buckets of balls at the following prices:

Bear Creek $2.75 for 30 $4.50 for 60 $6.50 for 90 $10.50 for 150 Greenbrier $4.50 for 50 $6.00 for 75 $7.50 for 100 Golfarama $4.00 for 50 $6.00 for 100 (2 for I specials) Hit 'Em Out $2.50 for 50 $4.00 for 100 Discount $2.50 for 50 $4.00 for 100

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All of the ranges provided golf clubs for their customers, and the quality of the clubs varied significantly. Bear Creek provided premium irons (3, 5, and 7 irons) for both men and women. They did not provide woods (drivers) because of the costly repairs when misused by inexperienced golfers. Most serious golfers brought their own clubs (irons and woods), so this was not much of a problem for Bear Creek. Greenbrier followed a similar policy, but they had a limited amount of woods available. The other ranges provided irons and woods that were of an inferior grade. These ranges reasoned that their customers were not as concerned with the quality of the clubs and balls as they were with the entertainment value of driving the balls as far as possible. Both Bear Creek and Greenbrier used high-quality, durable (premium) golf balls. These balls were of higher quality and cost than those normally used on golf courses. The other ranges tended to use seconds and used balls, which were considerably less expensive. The pricing of golfing instruction presented a different situation. Many serious golfers were inclined to shop around for an instructor whose style produced "winning golfers." The price for golfing lessons related directly to the reputation and success record of the instructor. Experienced teachers and golf course pros set their prices in line with the value of the service that they provided. A few highly respected pros charged as much as $100 to $200 per 3/4 hour instruction session. With Dan's background on the tour and his recognized teaching success, he felt comfortable in charging $60 per 3/4 hour. This was higher than the $30 to $40 charged by most of the golf course pros in the area and more than the $25 per 3/4 hour charged by the two instructors at the Greenbrier Range. The other three ranges did not have instructors on site but they could make arrangements to have an instructor available by appointment. The First Year (2003) By the end of October 2002, Dan and George completed the arrangements to purchase the property and were ready to proceed with their building plans. Their schedule called for them to complete the land preparations (clearing, grading, seeding, fencing, etc.) during November and December. The hitting areas, fairway, greens, clubhouse facilities, and parking area were to be completed during January and February. They hoped to have their work completed by the end of the off-season and the driving range ready to operate by March I, the beginning of the busy golfing season. This would give them 10 business months to operate. They did not believe that the abbreviated year was a negative factor as most of the golf courses and driving ranges were inactive during the off-season months of November through February. Dan and George projected reasonable profits for the first year. Full of optimism and naiveté, the two partners set out on November I to launch the new business. Almost immediately, they ran into difficulty getting the necessary clearances from the local planning board. Complications in the application led to delays in processing the papers. However, a potential delay of two months was reduced to three weeks with a timely $500 contribution to the political campaign fund of one of the planning board members. However, just when they thought that they were ready to proceed, the Environmental Protection Agency raised questions concerning whether putting a building on this protected flood plain area was appropriate. After several hearings and three more weeks delay, the agency agreed that the driving range was an appropriate use of flood plain land and the clubhouse building could be built on higher ground beyond the boundaries of the flood plain area. In the middle of December, all of the necessary clearances were received and work was begun. Unfortunately, the delays put them into the worst part of the winter and weather conditions were unusually severe. As a result, land clearing was delayed and the costs of clearing and preparing the site ran almost 27 percent higher than they had originally projected. The whole project was threatened again in mid-February when it became apparent that the land preparations had disturbed an underground spring at the front of the property and water was seeping onto the access road leading to Route 183. Once again, local authorities objected and required that the owners install a culvert and drainage system to carry the water away. This unanticipated development cost them an additional $40,000. By the targeted March 1 opening date, the golf range was only partially completed. The range itself was in good shape but the building, the parking lot, and the landscaping were not yet started. At this point, it was

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painfully obvious to the owners that they were running out of money to complete their dream. They did not have adequate financial resources to complete the facility as planned. If they delayed much longer, they would be so late in opening that they would suffer significant revenue losses. Faced with the cash squeeze and the impact of further delays on their revenues, the owners decided to take some emergency steps to get the facility opened by May 1.They determined that they could not afford to build the permanent clubhouse that they had originally envisioned. However, they were fortunate in locating a portable classroom building which they were able to transport to the site and refurbish to meet their immediate needs (see Exhibit 4). This resulted in considerable savings. They also decided to go with a gravel parking area instead of the paved one, minimal exterior landscaping, and a more modest sign. The snack bar, the practice putting green, and the awning were put on hold, and they decided to have outdoor portable toilets for the immediate future. Although disappointed at not being able to start out with their dream facility, Dan believed that most of the necessary changes had been in areas that he considered "cosmetic." The range, the hitting areas, the equipment, and the services were all in place to meet the primary requirements of their prospective golfing customers.

On May 1, Bear Creek Driving Range finally opened for business. Dan assumed responsibilities as manager and instructor. He hired an assistant inside manager and three employees to work outside on maintenance tasks (ball collecting, lawn cutting, clean-up, etc.). In June, he hired a college student on a part-time basis to assist him with customer service, administrative details, and paperwork. Dan half-seriously introduced his new employee as "Martha Rawls, my new vice president of marketing." By the first of September, Bear Creek was not doing the business that the partners had envisioned when they laid out their business plan for the year. Although a fair number of customers were finding the range, there were not enough of them to generate a positive cash flow. It was not unusual to see most of the 35 hitting areas unoccupied. According to Dan's calculations, the range needed a 33 percent usage rate during the summer months if they were to break even for the year. This 33 percent usage rate called for an average daily rate of 105 customers. (This assumes that the typical customer hits 90 balls and takes a little less than an hour to do so). Bear Creek's actual usage rate during the year was closer to 20 percent.

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What was most disturbing to Dan was the apparent disparity between his usage rate and that of his two major competitors. While there was no formal data available on the usage rates of the driving ranges, Dan had developed a way of monitoring his competition to observe their business activity. Using a system devised by his college student, Martha, the activity rates (percentage of hitting areas being used) were recorded for each of the competitors at various times during the week. On the basis of these observations, Dan could conclude that his range was capturing a significantly smaller share of the business than his competitors. According to these calculations, Dan's in-season usage rate was 20 percent compared to 35 percent for Greenbrier, 33 percent for Golfarama, and a surprising 25 percent for each of the other two discount ranges. Although the methodology was crude, the result was quite clear. Bear Creek Driving Range was not capturing its fair share of the business in spite of its new facilities and its professional orientation. Dan began to think more about his customers. As he had anticipated, many of them were serious golfers who came because they knew about Dan and his golfing know-how. In discussions with these customers, several of them observed that they liked the easy, informal atmosphere of the place but they missed some of the amenities such as internet access, indoor plumbing, snacks, and a lounge area. Although most of these serious golfers were members of local golf courses, they chose to come to Bear Creek because of its convenient location, first-class hitting areas and fairway, excellent instruction, and privacy. Not surprisingly, a high proportion of these customers used their own clubs. In her scouting trips, Martha noted that the golfers at the other ranges were more apt to use clubs provided by the driving range. As the summer progressed, Dan began to question one of his earlier decisions in relation to advertising and promotion expenditures. Caught up in the financial squeeze, the partners decided that they could not afford to allocate scarce dollars for advertisements in local papers or in the Par Fore or North Texas Golfer magazines. However, they did purchase a listing in the local Yellow Pages. Both of their competitors advertised in local papers and in the trade journals, offering coupons and specials (two-for- one offers). Dan was not convinced that aggressive advertising and couponing was the way to attract the kind of customers that they were seeking. Up until this time, he had felt that word-of-mouth advertising would be sufficient for attracting the serious golfers to Bear Creek. Now he wasn't so sure. He wondered if their emphasis and preoccupation with the serious golfer segment was too limiting. The rest of the year showed no great improvement. Bear Creek plugged along with a modest business base, but the partners were forced to seek short-term financing to get them over the hump. The usage rate averaged out to be 20 percent for the first year instead of the desired 33 percent. No additional facilities improvements were accomplished, and this left the range without a permanent clubhouse, snack bar, pro shop, putting green, awning, or paved parking area. One bright spot had been the demand for golf lessons. Dan's excellent reputation did, in fact, attract customers for individual lessons and for his group clinics. Revenues from this source exceeded the forecasts by almost 16 percent. However, in spite of this hopeful sign, the end of the year results were discouraging with an operating loss as of December 31 of $25,000. The loss not only placed them in a difficult financial position, but it also deprived them of this important source of funds which they had included in their financial development plan. As they reviewed the financial returns for the first year (Exhibits 5 and 6), the partners were indeed anxious for ideas to improve their operations and their customer usage rate. The Market Study Dan referred to his part-time employee, Martha Rawls, as his "marketing vice president," and he was quite serious about calling on Martha to assist him in strengthening the marketing aspects of his business. As a marketing major and, a member of the women's golf team at the University of Texas, Arlington, Martha was willing to help Dan gain a better understanding of the golf range market in the Dallas/Fort Worth area. Martha was even able to conduct a market study as part of a project in one of her marketing courses in the fall semester. Upon reviewing Martha's study, Dan noted the following relevant facts and figures concerning the golfing industry and the local market situation: The Industry

• The golfing industry as a whole (including golf, golf equipment, instruction, club repair, soft goods merchandising, playing facilities, practice facilities, etc.) was a $42 billion business.

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• There were 24.8 million golfers in this country, and the market was growing at a rate of approximately 3 percent per year.

• Women constituted the fastest-growing segment of the market and accounted for 5.4 million out of the 24.8 million total. Women made up 37 percent of beginner golfers, up from 23 percent in 1993. The female golfer spent about $1,789 per year on the sport, about $100 more than her male counterpart.

The Dallas/Fort Worth Area

• The total population of the Dallas/Fort Worth area was 3,855,415. The population in the 10-mile radius comprising the Bear Creek market area was 777,082. Seventy percent were adults (16 years old or over).

• There were eight private golf courses in the market area and an additional seven public courses. • The average membership at a private club was approximately 1,500 with 80 percent of these

being family memberships with an average of four golfers per family unit. • The number of individual golfers using each of the public golf courses (at one time or another

during the year) was estimated to be 13,500. • Because of the excellent climate and the long season, golf was a very popular form of recreation

in the Dallas/Fort Worth area. It was estimated that 25 percent of the adult population played golf with varying frequencies during the year. In addition, a sizable and growing number of non-golfers enjoyed the sport of hitting golf balls for recreation at local driving ranges.

Market Segments. In her study of the golf market, Martha identified and described the major segments as follows:

1. Serious Golfers: Serious golfers were those who played frequently (25 or more rounds per year), generally belonged to private clubs, had low handicaps, used premium equipment, and played to win. They enjoyed the game for its competitive aspects and enjoyed it more if there was money on the line ("$10 Nassau," "Skins," "Birdies," "Sandies," "Greenies," etc.). Serious golfers wanted to be the best. They practiced and took lessons if they thought it would help them improve their games. Money was not an obstacle. Serious golfers comprised approximately 9 percent of the total golfing population.

2. Frequent Golfers: Frequent golfers enjoyed the game, played when possible (between 7 and 24 times per year), had respectable handicaps, might have belonged to private clubs or played at public courses, and played to win. They would play more often if business and/or personal circumstances allowed it, and often combined business with golf. They enjoyed the camaraderie and worked to improve their games. They also took lessons. Frequent golfers accounted for 29 percent of the golfing population.

3. Occasional Golfers: Occasional golfers played when invited to do so (between I and 6 times per year). They enjoyed the game but were not usually skilled players. They would play more often if time and economic circumstances permitted it. Typically, occasional golfers played on public courses or as guests at private courses. They would have liked to be able to play more often and more skillfully, but were not likely to take lessons. They described themselves as recreational golfers rather than serious golfers. Occasional golfers made up 62 percent of the total golfing population.

Martha considered other ways to segment the market focusing on other characteristics than "frequency of play." She considered the "Women's Golf Segment," which was the fastest growing segment, at 5.4 million players. She learned that the profile of a woman golfer was age 43, four years of college, $60,000 annual earnings, and married with no children living at home. One-third were members of a golf facility. Private clubs were changing their rules to allow equal playing opportunities for women members.

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Exhibit 5

Income Statement Bear Creek Golf Range

*December 31, 2003 Pro Forma Actual Income Range ball revenue $ 190,000 $ 124,900 Lessons 47,280 54,660 Merchandise 24000 17,609 Club repair 5,000 5,400 Food and beverage 35,000 3,705 Total income $ 301,280 $ 206,274 Expense Cost of Sales Merchandise 10,000 16,750 Repair supplies 3,250 3,530 Food and beverage 16,000 1,950 Total cost of sales $ 29,250 $ 22,230 Payroll Salaries 60,000 60,000 Hourly wages 52,000 49,144 Total payroll $ 112,000 $ 109,144 Range Expenses Range balls 6,000 6,200 Equipment 2,500 2,350 Fertilizer, seed, chemicals 15,000 11,490 Total range expenses $ 23,500 $ 20,040 Operating Expenses Office expenses and supplies 3,000 2,520 Utilities 3,000 2,412 Telephone 4,000 3,328 Auto and truck expense 7,000 7,275 Depreciation and amortization 5,050 5,050 Insurance and liability 7,500 6,012 Irrigation 0 1,350 Legal and accounting 3,500 3,875 Postage and freight 500 630 Sales taxes, other taxes 3,000 1,360 Advertising and promotion 5,000 800 Miscellaneous 1,400 1,430 Total operating expense $ 42,950 $ 36,042 Professional Expenses Dues, education, and fees 3,000 3,212 Travel, entertainment, lunches 4,000 4,237 Total professional expense $ 7,000 $ 7,449 Interest 36,000 36,311 Total expense $ 250,700 $ 231,216 Profit/Loss (before income tax) $ 50,580 $ (24,942)

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Exhibit 6

Balance Sheet Bear Creek Golf Range

*December 31, 2003 Pro Forma Actual Assets Current Assets Cash $ 4,000 $ 3,217 Accounts 3,220 6,451 Prepaid interest - 472 Total Current Assets $ 7,220 $ 10,140 Fixed Assets Land $ 180,000 $ 180,000 Improvements 57,000 70,440 Building 174,500 77,000 Parking area 18,750 5,400 Practice green 10,000 - Equipment 20,000 22,000 Other fixed assets 29,300 46,250 Total Fixed Assets $ 489,550 $ 401,090 Total Assets $ 496,770 $ 411,230 Liabilities and Net Worth Liabilities Current liabilities Accounts payable $ 4,000 $ 4,472 Accrued taxes 2,000 250 Expenses payable - 1,000 Total Current Liabilities 6,000 5,722 Long-term liabilities Bank loans $ 240,000 $ 230,450 Total long-term liabilities $ 240,000 $ 230,450 Total Liabilities $ 246,000 $ 236,172 Net Worth Shay, capital $ 100,000 $ 100,000 Patton, capital 100,000 100,000 Retained earnings 50,770 (24,942) Total Net Worth $ 250,770 $ 175,058 Total Liabilities and Equity $ 496,770 $ 411,230

Martha identified another significant segment that she identified as the "Learners Segment." Each year, a significant number of newcomers joined the golfing community. New golfers included young players, females, retired people, and mid-lifers who enjoyed exercising. Learners were often confronted with confidence problems as they struggled to master the game. They were good candidates for lessons in either group or individual instruction sessions. Many of them were interested in learning the rules of the game (golfing etiquette) as well as the skills. Finally, Martha considered a less obvious segment comprised of "Wanabee Golfers" or "Entertainment Golfers." This growing segment included persons who did not have the skills or the economic circumstances to be golfing regulars. Nevertheless, they saw and heard about golf often, and they enjoyed an occasional opportunity to play the game. They played for fun. For this aspirational group, driving ranges, miniature golf games, pitch-and-putt facilities, and video games offered opportunities that

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were both economical and enjoyable. Martha's research indicated that competitors were active in marketing their ranges to the various markets. Greenbrier advertised periodically in the Par Fore and the North Texas Golfer publications, featuring their up-to-date facilities and excellent instructional services and equipment. Golfarama appeared regularly in the daily and weekly newspapers with their special promotions (two-for-one offerings). They aimed specifically at the recreational market, emphasizing in their ads the variety of entertainment opportunities at the Center, "The place to come for Sports Entertainment." The discount ranges mainly featured their low prices in their ads. Martha learned that the costs for advertising in the local media were not unreasonable. A quarter-page ad in the Yellow Pages cost $110 per month. The local golf magazines charged $150 per weekly issue, and the daily newspapers ran between $50 to $100 per insertion, depending on ad size and frequency. Business Operations. In her review of the local golf range market, Martha noted that local weather conditions permitted outside activities for most of the year but, for all practical purposes, the driving range "season" ran from March 1 through October 31. Most area ranges closed during the four-month off-season. In this first year, however, Dan decided to remain open during the off-season to try to make up some of the business lost due to the delayed opening in the spring. Success in this business depended on making the numbers in the eight-month period. During the season, Bear Creek, like the other ranges in the area, was open 11 hours a day (10:00 AM to 9:00 PM).During the week, business was slow during the daytime hours and picked up after 5:00 PM. Saturdays and Sundays were the busiest for both range business and for lessons: It was not unusual during June and July to have all 35 hitting areas in use on evenings and on weekends. On weekends, Dan also saw customers waiting for the range to open at 10:00 AM. On good days, the range had 100 to 150 customers. However, according to Dan's daily records, the range averaged closer to 75 (ball range) customers per day over the six-month period and 10 per day in the off-season. Martha was concerned about the low customer traffic during the weekday daytime hours. Although this was understandable, she pointed out the importance of building more off-hour business. She suggested various ways that they might attract customers to the range during these daytime hours, including off-hour pricing, introductory offers, special group rates for high school and college golf teams, discount prices for learner clinics, coupons for visitors staying at local hotels and motels in the airport area, and other promotional devices designed to introduce customers to the range. Overall, Martha's report to the partners showed that the market was healthy and growing but that Bear Creek was not exploiting the opportunities that were there. Reconsideration of Strategy After reviewing Martha's data and the disappointing results from their first year's business, the Bear Creek partners met to discuss possible ways that they might increase the number of golfing customers to accomplish their targeted 33 percent usage rate. Dan was experiencing some misgivings concerning the practice and instructional focus of the range. Although the majority of serious golfers were members of private golf courses that had their own practice ranges and professional instructors, Dan was convinced that many of these golfers would be attracted to a practice range that offered high-quality facilities, a convenient location, and a congenial golfing milieu. He believed that his own reputation as a top-flight teacher would attract people to the range for lessons and advice. He thought that would encourage these customers to use the range for their regular practice sessions. This idea was working to some extent, but it was not generating enough customers to accomplish Dan's objectives. Dan and George realized that the shortened six-month year accounted for some of their customer short fall. They were confident that things would improve with a full year of operation and with further improvement in the general economic environment. They also felt that business would improve as their existing customers spread the word about their practice range. In terms of their financial constraints, they were inclined to postpone further range improvements pending the results of the second year. However, they were concerned that customers were turned off by the unfinished facilities. They were further concerned that they might be overlooking the recreational golfers, a significant, high spending segment of the market. Keeping in mind that this segment was attracted by

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such additional activities as miniature golf, pitch-and-putt, video games, and sports bars, the partners gave some thought to expanding their operation to include some of these attractions. The opportunity was available to them because the 10-acre adjoining piece of property was offered to them on a 10-year lease/buy arrangement. The partners believed that these additional facilities would bring in more customers, but they still wondered if this was the kind of customers that they wished to attract. Time for Action. It was now January 2004, and Martha Rawls knew that Dan and his partner were looking forward to her recommendations concerning the marketing strategy for the coming year and for the years ahead. As she reviewed her experience working at Bear Creek Golf Range and the information that she had collected, she felt that the future survival and success of the business depended largely on the implementation of a sound marketing program. This program would identify the appropriate market segments to explore, determine the needs and behavior of the golfing customers in these markets, and weigh various alternatives (product/service offerings, pricing tactics, and promotional programs) for responding to the needs of the target markets. As she learned in her marketing courses, Martha needed to provide a sound analysis of the situation as a basis for evaluating the options and supporting her recommendations. Her resulting recommended marketing strategy should include a full description of the marketing strategy, its objectives, necessary changes, and specific action steps for carrying it out.         Notes:  1.  A driving range is different from a golf course in the sense that a range is used primarily for practice purposes. This case is about a range, and not a golf course. 2.  Practice putting greens are used to practice “short game,” including practicing putting, where the ball rolls along the ground. One must master the short game to improve his/her overall performance.  This case has been modified from a case prepared by Ray Keyes, Associate professor of marketing, and Donna Moore, student, Boston College. The situation is based on an actual business experience. Numbers, dates, and names have been modified. Not meant for reference purposes. For class discussion purposes only.