Today, I am introducing my new blog: Drive Revenues and Reduce Expenses through Better Golf Operations.

Since I last posted a message, I have been hard at work on multiple new initiatives that fit within the title of my new blog. As a result, in the future, I’ll be sharing insights and strategies that can help you be a better operator through NGF research. I will continue to share with you research and strategies to improve golfer satisfaction, but I will expand the scope of my blog to discuss other ways you can drive revenues and reduce expenses.

One way that you can drive revenues and reduce expenses is through knowledge of how peer properties are performing on key financial and operational benchmarks.

I look forward to sharing with you in the near future some best practices on how to define peer properties, what are the important metrics to benchmark on and how to put the data to use to improve your operations.

Thank you for your support of the NGF.

Bottom Line: There are many touchpoints at golf resorts that impact guest satisfaction. Although you may perform well at some of these touchpoints, if you fall short on others, guest satisfaction may suffer.

To learn more about how NGF’s VOG, VOE & VOM systems can help your company succeed, click here.

At NGF, we have developed this method. Introducing the…

NGF Customer Satisfaction Index (NGFCSI)

The NGFCSI is a proprietary formula that links satisfaction with the economic value of a customer. Customer value is determined through a unique customer score for every golfer ranging from 0 to 100 (0 the worst, 100 the best). The customer value is determined through the amount of course rounds that the customer plays, the word of mouth referral value of a customer (both good and bad) and the likelihood that the customer will be retained a year from now.

Simply put, the NGFCSI tells golf operators not only how the course has treated the customer in the past, but how the customer will treat the course in the future. As the NGFCSI increases, the customer asset value of the course will grow. Through preliminary benchmarks, we have determined that for every 5 point increase in NGFCSI, a course will grow their customer value by an average of an additional $60 (assuming a $50 spend per round) per customer, through increased play and better word of mouth referrals. For a facility with 3,000 customers this translates to a growth of the customer asset of $180,000!

Through the NGFCSI, we have grouped golfers into one of five categories.

• Super Advocates
• Satisfieds
• Apathetics
• Hostiles
• Assassins

The NGFCSI precisely predicts profitability through science. An operator that increases their NGFCSI score will financially benefit through increased rounds, improved word of mouth and reduced churn of existing customers.

Customer loyalty is the purchase behavior of a customer. It’s the frequency with which they repurchase, it’s the new business that they deliver through word of mouth referrals and it’s the total that they spend over their lifetime as a consumer.

When it comes to the behavior of loyal customers, there are no short cuts. Having a “loyalty program” or a discount card won’t in itself cause customers to behave loyally. The only way of impacting purchase behavior is by improving total customer satisfaction.

There is a strong link between purchase behavior and customer satisfaction. Satisfied customers deliver a higher wallet share, make more positive referrals, and are more likely to be retained.

To truly influence the behavior of consumers, businesses must first understand how satisfied their customers are. Satisfaction depends on the customer’s perspective and the context of the business. As a result it will vary from customer to customer and cannot be directly measured. There are a set of factors that influence customer satisfaction such as:

• Overall satisfaction
• Satisfaction relative to expectations – expectations will be very different at Pebble Beach versus a 9 hole executive 
• Satisfaction relative to your ideal golf course – golfers may have a different perception of what an ideal course is to them, maybe it’s Pebble Beach, or maybe it’s a course that they can play 18 holes in 3 hours

After understanding how customers perceive your course on these subjective satisfaction factors, the next step is understanding which of these factors have a greater influence on causing customers to behave loyally.

Within the last month, Barron’s wrote an article noting the incredible performance of the fund. Barron’s – Happy Stocks: March 22nd, 2010 

Growth of $100 in the CSat Fund vs. S&P 500

The CSat Fund delivered an astounding cumulative return of 235% over the past 10 years. This is compared to the Standard & Poor’s Index return of negative 23% over the same timeframe. 

My Take: This fund clearly puts its money where its mouth is, and the results are compelling. It’s clear that companies with the most satisfied customers are the most profitable in the stock market. Also this fund has demonstrated that satisfied customers are an asset to companies in that they deliver high returns in up-markets but also reduce the risk in down-markets. The reason that risk is reduced is that satisfied customers are the most reluctant to defect and the most likely to buy more. These favorable traits were borne out in the performance of the CSat fund in both up and down markets. The CSat fund tracked proportionally less than the S&P 500 in down-markets, but tracked upwards proportionally more than the S&P 500 in up-markets. In down-markets the correlation of the CSat fund to the market was 74%; in up-markets it was 115%.¹ 

Source Notes
¹Fornell, C. (2007). The Satisfied Customer: Winners and Losers in the Battle For Buyer Preference. New York: Palgrave Macmillan. 

The customer asset that Apple has developed is in stark contrast to that of the American motor manufacturers. Detroit’s inferior product quality for years burned many consumers. Today, Detroit’s product quality is on par with that of its Japanese counterparts, yet the American manufacturers still must offer higher incentives and lower pricing to get sales. Why? The reason again is the customer asset and although Detroit is now producing high quality products, their customer asset value is very low. As you can see through these two examples, the customer asset is a leading indicator of profitability and can be a powerful influencer on buying decisions, to the point that it can be a more compelling influencer than the product itself.

Today, consumer service consumption is twice the size of manufacturing. Sixty years ago, it was the opposite. This transformation has caused the accounting system that we currently use to be obsolete. There’s an example in a book¹ that easily illustrates how accounting systems don’t properly account for the customer asset.  The simplified example talks about a company that acquires 5,000 new customers at a marketing/selling cost of $1,000 per customer. The average customer is retained for three years and the company nets $300 in income per customer, per year. Clearly this is not a profitable situation. The acquisition cost per customer exceeds that of the income delivered per customer.

Yet, accounting systems don’t accurately show this. In the first year the results show 5,000 customers acquired at a cost of $1,000 per customer equating to $5 million in acquisition costs. These customers deliver $300 in income per customer equating to total income of $1.5 million which would result in a loss of $3.5 million. The next year another 1,000 customers are acquired at an acquisition cost of another million resulting in a total of 6,000 customers generating net income of $300 each for a total of $1.8 million. Therefore in year two, the profit is $800,000 as the acquisition costs were only 1 million. It would appear that if the company adds another 1,000 customers, it would make even more profit.

But that’s not correct. We know that the average customers lifespan is only three years with an average net income of $300 per customer per year totaling an average lifetime income of $900 per customer. Yet the acquisition cost per customer is $1,000. Therefore, with each new customer added the more unprofitable the company becomes and the more economic value is destroyed. Since customer assets are considered a cost and not an investment, they are not amortized over time. This is what causes the confusion and can deceive companies.

If this company could extend the lifespan of these customers to four years, the company would be more and more profitable with each customer added, not less and less as shown in the example above. A missing piece of the puzzle in the example above was missing information related to customer retention. If the company had this intelligence, they would understand that they only are going to get $900 in net income over the lifespan of each customer, yet spend $1,000 in acquisition/marketing costs. The problem would become very clear.

“Retention Economics” can help golf courses and businesses understand what their customers will do to them in the future. By better understanding the customer asset, companies will not only have a better picture of their current financial health, but they will also more accurately be able to predict the future. Linking customer satisfaction to the customer asset empowers companies with the intelligence necessary to optimize customer satisfaction to yield maximum profitability.

 Source Notes
¹Fornell, C. (2007). The Satisfied Customer: Winners and Losers in the Battle For Buyer Preference. New York: Palgrave Macmillan.

Sony executives made what they believed to be a correct assumption that picture quality was the crucial need that a customer would consider when purchasing a personal video recorder. Yet, the Beta Max became extinct. Why?  Sony didn’t fully understand the needs of the customer and which needs would be greater drivers in the final decision-making process of the recorder that the customer would buy.

Many operators may make the assumption that good greens is all they need at their course. While good greens are important, I have identified 38 separate touch points that can affect the experience of a customer at a public course. Not all customer touch points are equal. Based on research published by Professor Noriaki Kano, I have classified touch points into the following groups; penalty, reward or a combo of penalty & reward factors. For example, one of the touch points that I mapped out is the sand bottle on a golf car. The customer expects it to be full, and when a course meets this expectation by providing a golf car with full sand bottles the course won’t realize any additional reward in terms of customer loyalty, it’s expected! But if the customer reaches for the sand bottle and they are empty, customer loyalty likely will take a hit. Put another way, in my book an empty sand bottle on a golf car equals strike one. That’s not to say that this mistake can’t be overcome. If my experience is great at every other touch point, I’ll probably forget about the sand bottle. But if I am left unfulfilled at the other touch points, that empty sand bottle will be just one piece of ammunition in my rifle when I take aim and fire at the course through my negative referrals to friends. Failed touch points like these, make up the fertile breeding ground of irate assassins. When the course provides the customer with the ammunition of unfulfilled expectations on key touch points, assassins will be determined to complete their hit by launching an all out assault on the business that failed them.

A key tool that can help companies understand the needs of the customer is a “Customer Corridor Map.” I hope to help public golf course operators rethink the needs of their customers by mapping out the customer corridor for a round of golf. The goal of this map is to help courses shift their focus on customer needs from an inside-out approach to an outside-in approach.

The lifecycle of the customer experience from beginning to end at a public course

I was recently reading a great book¹ that discussed the stories of Sony and McCulloch (chainsaw manufacturer). Both companies paid dearly by using an inside-out approach instead of an outside-in approach.

When Sony invented the Beta Max video recorder in 1975, they had a monopoly on personal video recording, and the recorders sold briskly even at a price point of around $2,000. A few years later, JVC introduced the VHS player. At the time of the introduction of the VHS format, Sony executives were unconcerned. The picture quality of the Beta Max format was far superior and they already had a head start on the VHS format as Beta Max was introduced a year earlier. Also the format of the VHS tape was larger and bulkier.

Yet, to the shock of Sony executives, the VHS format started to gain market share. By 1980, the market was split 50/50 and a few years later the Beta Max format was extinct. So why would consumers choose a format that was introduced later, had poorer picture quality and used heavier/bulkier tapes? The reason was that Beta Max tapes only recorded for one hour. The Beta Max was great for videotaping a sitcom episode, but not for videotaping a sporting event. The fact that Sony didn’t understand that consumers wanted a tape recorder that could record three hours, more than they cared about picture quality, cost Sony billions of dollars in profit.

If Sony used an outside-in approach to what their customers wanted, we may have never seen the invention of the VHS video format. The best ways a company can develop an outside-in approach is by developing a ‘customer touch-point map.’ This type of needs assessment is necessary for every type of business, from retailers to manufacturers to facility operators. A customer touch-point map will match up your offering to the needs of your customers.

In the 1960s, McCulloch dominated the marketplace of chainsaw manufacturers. Lumberjacks were the predominant buyer of chainsaws, and the McCulloch chainsaw was THE brand to own. The McCulloch chainsaw was extremely loud and spewed smoke everywhere. But these factors were not of concern to lumberjacks. The problem wasn’t that McCulloch didn’t understand their customers; they didn’t understand who their customers were! McCulloch completely overlooked the growing residential market of homeowners looking to trim a couple of branches and cutting some firewood. In 1963, Homelite entered the chainsaw marketplace with their XL12 saw, the first lightweight chainsaw, weighing just 12 pounds. In just two years, Homelite overtook McCulloch as the dominant chainsaw manufacturer.

My Take: America has changed tremendously over the past 30 years. I consider the three greatest obstacles to growing the game are time, difficulty and money, in that order. Fifty years ago, golf was a game for America’s elite, but not today. Today the game is more accessible to people of all income brackets than ever before. Yet the game is declining!

I think the reason for this decline is that many golf businesses don’t truly understand the needs of their customer. The private club sector is facing enormous pressures today, but most clubs are still operating with the same offerings and policies that they used 20 years ago. The needs of the customer have changed, yet the private club model has not.

The Sony story illustrates that businesses need to use an outside-in approach to understand the needs of their customer. The McCulloch story shows that businesses also need to understand not just the needs of the customers, but who their customers are. It is crucial that these concepts, although extremely basic, are not taken for granted. Both Sony and McCulloch thought they understood their customer and didn’t feel the need to actually ask their customers what they needed. So the question is: “Do you actually know who your customers are and what they need, or do you just think that you know?”
Source Notes
¹Denove, C. & Powers, J. (2006). Satisfaction. New York: Penguin Group.

I would like to start by congratulating the management team that set the record in 2009 for having the highest customer loyalty score of all time for any one facility…

Honours Golf manages Farmlinks Golf Club. In 2009, Farmlinks broke its own record, of having the highest customer loyalty for any facility measured by the NGF! This is the third consecutive year that Farmlinks has achieved the best customer loyalty for a golf facility within its pricing category.

The NGF multi-course operator award has two categories, management companies and municipal golf system.

For the management company award, the NGF recognizes both:

Both Honours Golf & OB Sports won the award for having the highest customer loyalty across all of their managed properties.

For the municipal golf system award, the NGF recognizes the:

The Decatur Park District earned the award attaining the highest customer loyalty for a municipal golf system across all of their facilities.

For facilities within the $40-$70 price range, Sand Creek Station Golf Club in Newton, Kansas, earned the honors of having the best customer loyalty in 2009. Sand Creek Station Golf Club is managed by:

KemperSports also earned the most improved customer loyalty award at Highland Park Country Club (>$70 Peak Green Fee) and at Goose Creek Golf Club ($40-$70).

For facilities under the $40 price-point, Lake Spanaway Golf Course in Tacoma, Washington, attained the best customer loyalty in 2009. Lake Spanaway Golf Course is managed by:

The full list of award-winning courses, municipalities and management companies are:

First Category – Facilities with Highest Customer Loyalty Scores

Second Category – Facilities with Most Improved Loyalty Scores (2008 to 2009)

 Third Category – Multi-Course Operators

(1) Green fees are based on peak season weekend with cart.

The official press release announcing award winners can be found here.

My Take: Congratulations to all facilities that earned recognition from the NGF for customer loyalty in 2009. 2009 was a very challenging year for golf operators, yet the recognized facilities are overcoming market pressures by gaining wallet share, through customer loyalty.

Through NGF’s Voice of Golfer system, we have been collecting information over the past several years from golfers about the courses that they play. Based on our analysis of over 200,000 surveys, we have found that golfers fall into one of four groups: Diehard, Regular, Infrequent and Transient. Understanding these groups is key to your opportunity to capture more rounds from these customers.

Diehard

• The lifeblood of a golf course, they play 31 rounds a year at the subject course and 39 rounds in the market, resulting in the subject course capturing 79% wallet share from these customers.
• Account for a whopping 62% of all rounds at the subject course.
• Represents the greatest risk to a golf course – lose some of these customers and rounds will plummet.
• Since golfers like variety, the opportunity to get more rounds out of these customers is low.

Regular

• These customers know your course well and it’s likely one of their top three courses in the market.
• These customers give you between 25% and 50% of their rounds.
• The opportunity level with these customers is still good: they play on average 17 rounds at other local competing courses.
• 23% of all customers fall into the Regular category.

Infrequent

• The group representing the most opportunity. These customers play 36 market rounds but only 3 at the subject course, resulting in a 10% wallet share and 33 rounds going to competitors.
• The largest group, almost half of the population of customers at a golf course are infrequent.
• Converting just 37 infrequent customers to Diehards would result in an extra 1,000 rounds as Diehards play 27 more rounds than infrequent customers do. This is very attainable: 37 infrequent customers represent only 2.7% of all infrequent customers for a typical course.

Transients

• Customers who played less than four rounds in the local market in the past 12 months.
• Either out-of-towners or very seldom players.
• Very limited opportunity due to the fact they play three or less market rounds.

Below is a table that profiles these different player types for a typical golf course.

My take: You need to be able to identify and communicate with all groups of your customers. My hunch is that most golf courses have databases that are comprised mostly of their diehards. If you want to grow rounds, it’s critical for you to market to your regular and infrequent customers. The opportunity to communicate with them is there. THEY ARE ALREADY COMING TO YOUR PROPERTY.

The infrequents have the opportunity to deliver many additional rounds to a course. Marketing your course to your regular and infrequent customers is vital as these customers have the capability to become diehards. THEY ARE FREQUENT GOLFERS – JUST NOT WITH YOU.