Customer Loyalty Is a Safe Bet
At the recent World Gaming Congress I talked with Bill Dorn, former publisher of Casino Executive and now the owner of Vegas People magazine. Bill has just completed a review of the latest in loyalty programs in the casino/hospitality world.
Gaming revenue at U.S. casinos during 1997 totaled $24.2 billion. Nevada alone accounted for $7.8 billion, not including hotel, food and beverage, entertainment and retail revenue. The annual growth rate of gaming revenue is declining (4% growth through June compared with the 6.2% growth rate generated annually throughout the ’90s in Nevada), and there is now a huge emphasis on building Las Vegas as a family destination.
The Las Vegas Visitors Bureau has earmarked $27 million for a five-year leisure marketing plan that features the tag line “It’s Anything and Everything.” The plan is designed to increase Las Vegas tourism volume to 36 million visitors by the year 2000, up from 30.5 million in 1997. By the year 2000 there will be more than 125,000 hotel rooms in Las Vegas-up 25% over 1997. One of Vegas’ worries is that there won’t be enough people to fill the 200,000 jobs generated by this gaming mecca.
Where do casino loyalty programs fit into this picture? How much is high tech and how much high touch? What are the latest developments? Do frequent guest programs in the new mega-resorts simply become merged into frequent player programs? What’s changing in the way Las Vegas markets its product?
Hershel: First, Bill, tell us about the Las Vegas math. Doesn’t gaming have its own vocabulary for counting the dollars?
Bill: Yes, it does. Total gaming revenue is called “the win” and that represents the net dollars casinos have after they pay out all winnings to customers. The total wager (called the “handle” in gaming circles) will be about 30 times that $7.8 billion you see as a revenue figure in Nevada. And this has nothing to do with non-gaming revenue.
Hershel: Tell us about the revenue mix and how it is changing.
Bill: With gaming growth curtailed, Vegas sees hospitality, food, family fun and retailing as a huge opportunity. Non-gaming activity throughout Las Vegas is reaching and exceeding 50% of all revenue. Circus Circus and Mirage are reporting 53% to 55% non-gaming revenue right now, and literally, the margins are better in non-gaming revenue. On slot machine play, which represents 80% of the gambling revenue in Vegas, 97% is paid out to customers. Fifteen percent to 20% profit margins on some non-gaming activities clearly represent a much better return. Meetings and conventions are the most profitable-delegates spend $963 per person on non-gaming items, whereas the average tourist spends $551 on non-gaming/casino items. Vegas is doing a lot to expand its convention business and connect such trips to a family experience.
Hershel: With this shift in focus, what’s happening to those famous loyalty programs?
Bill: Growing faster and bigger than ever. Harrah’s Total Gold program has more than 7 million “active” members and nearly 3 million “very active.” Most casino club/card programs are based on slot machine play, but it is, of course, 80% of gaming revenue. 95% of all casinos have such programs. Harrah’s is unique because its new database management system allows it to track the play of some 70,000 daily customers in 15 different casinos around the United States.
Not only is Harrah’s now able to track about 85% of total play (it was 40% just a few years ago), but it has reduced its customer communication costs by about $1 million a year. Instead of a member receiving a newsletter from each property at which they played, they now get one [quarterly] newsletter, Harrah’s World, which cross-sells other Harrah’s properties and still focuses on the member’s “home” casino-in other words, the one he/she visitsmost often. That’s a big advance, and there’s more to come.
Hershel: Like what?
Bill: First, it’s important to note that the gaming loyalty programs aren’t that old. I think they started with the Players Club-remember Telly Savalas promoting that on television? Now the technology is creating new opportunities to learn customer preferences and target messages. Very soon, your casino club card may in fact be your room key, and also used in the dining room, at shows and at retail, so that [the casinos and resorts] will be able to track more of your expenditures and preferences-they begin to learn what your spending propensity is, and not just at the games. As a result, they can target you better when they communicate with you. When they find you’re the kind of person who would rather go to the steak house and spend your money on a big steak every night and go to shows, and you don’t do much gaming, they’re not going to bother sending you messages about “Come and play in the slot tournament.”
Hershel: How do the smaller casinos compete with programs like Harrah’s or Mirage, or MGM Grand and other mega-resorts?
Bill: Scale certainly has something to do with the ability to afford the kind of technology Harrah’s employs in its loyalty programs. No question, the multi-destination casino resorts, the mega-resorts, have a big advantage. But in Vegas, “People play where they stay” still means something, and the smaller properties can be very innovative and personal in their interaction with the customer. They know who you are when you put that card in the machine, and if you’re a good bettor, they pay personal attention.
Hershel: Most of these clubs send quarterly promotions which they call newsletters, but the newsletters are very much focused on specific promotions. Do they test? Do they think lifetime value?
Bill: The larger resorts are becoming increasingly more sophisticated in measuring the value of every customer and their spending. Dan Shumny, vice president of sales and marketing for Mirage, told me they are better able to track people who make the highest expenditures and are also able to segment their players so they can tailor pitches to their interests. They do, in fact, create a profit-and-loss analysis for every promotion program. Their conversations are more along the line of, “It costs us $3 to $4 to bring somebody to the casino, and if the reward was a $20 win” for the casino, this was a good program. They are making a lot of progress in data mining, but you still have the problem of computers in the casinos not talking to computers in the hotel. They have tons of data, but it is all in separate databases.
Hershel: How do they know where the next generation of gamblers will come from and how they’ll respond to the traditional loyalty program?
Bill: They’re working at it. They know that by the year 2000, Americans in their 20s and early 30s will account for 21% of the population. A study for Harrah’s had shown that 32% of total U.S. households visited a casino to gamble in the past year. A JB Research study showed participation by Generation Xers at 20 points higher. The conclusions? Gen-Xers gamble more than the population at large, and in 10 years, when they’re out of college and affluent, they will be the gaming industry’s big new market. You can expect that Vegas entertainment will also be shaped to appeal to this Gen-X group.
Hershel: Let’s go back to the loyalty clubs. Isn’t privacy an issue?
Bill: First of all, I understand [the casinos and resorts] do not rent the player lists. When you join a slot club you furnish certain information, including your birthday and your spouse’s birthday, but you’re always connecting that with the idea that this is going to bring you handsome rewards, complimentary meals, shows and other perks, so people are actually very happy to give information that lets the casino and the resort shape their reward programs. I do understand that most of the clubs are geared to track the “dollar and above” slot players-people who play quarter slots don’t get as much mail or as many offers. So I guess the lesson is that if you want to maintain strict privacy, play the quarter slots!
Hershel: Based on my experience, there are a lot of people who lose in spite of the payout percentages. How do casinos maintain that “feel good” feeling among the losers?
Bill: Couple of things. First, you will hear people who play slots saying over and over, “If I don’t win, I want to have a long go at it.” In other words, they hate the idea of losing money fast, but when you play longer and lose, you’re not as disappointed. The other thing is that when you belong to the slot club, what it is doing is charting every time you play the machine-it doesn’t know how much you won or lost-so you’re still amassing points, and can at least get a comp room or a meal, so you get a little bit of “feel good” from that too.
Hershel: I’m blown away by the personal attention paid to the loyalty card players at the slots. Casino employees behave as though they know you and want to please you with some amenity. It is very personalized. How important is that?
Bill: Very. It’s critical for the smaller properties and it’s an art. They are lavishing attention on the best customers now, but the technology is moving them to the idea of identifying customers for the future.
Hershel Sarbin is senior director, Marketing 1to1/Peppers and Rogers Group, Stamford, CT.
