World’s Largest Gaming Company Hits Jackpot with New Strategy

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This Case Study below, featuring Harrah’s casino, is instructive about how marketing is ‘not magic’, but rather ‘just math‘.  In summary:

“Harrah’s determined that while people who spent $100 and $499 a trip accounted for only about 30 percent of gamblers, they accounted for 80 percent of revenue and surprisingly nearly 100 percent of profits.”  This is highly relevant to many businesses who seeking for guidance in understanding their customer data and developing predictive sales and marketing models.

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Harrah’s became the world’s top gaming company when it acquired Caesars Entertainment for $9.4 billion in 2005. Operations now include casino hotels, dockside and floating casinos, and Native American gaming facilities spread over some three million square feet throughout the U.S. and the U.K. Much of their success is attributed to a strategy that involved identifying their best customers and treating them as well as they did high rollers.

At the center of this strategy was Gary W. Loveman, a former Harvard professor who began as a consultant to Harrah’s and then became its CEO. Loveman applied a vast mathematical model similar to the ones economists use to predict the gross national product.

The mathematical method Loveman advocated scored gamblers on their profitability to the casino. It was referred to as “Pavolovian Marketing,” followed by sizing up gamblers “psycho-graphically,” or rating them according to characteristics such as their careers and lifestyles. Thus, a small group of Harrah’s customers were identified who produced most of the company’s profits. Specifically, it was determined that while people who spent between $100 and $499 a trip accounted for only about 30 percent of gamblers, they accounted for 80 percent of revenue and surprisingly nearly 100 percent of profits.

Professor Loveman found that a lack of customer loyalty was Harrah’s biggest weakness. Noting that clients spent only 36 cents of every wagering dollar at Harrah’s, he realized that if the company could raise that amount by one penny, annual earnings would jump by more than $1 a share.

As a result of his findings, Loveman designed targeted marketing strategies to appeal to this segment. The bottom line was that Harrah’s market share increased around the country. Revenues rose at nearly double the rate of nearby casinos after the new targeted marketing was introduced. In addition, customers’ discretionary spending with Harrah’s rose: up from 30 to nearly 50 percent more compared to Harrah’s competitors.

Harrah’s now clearly identifies their ‘best’ customers, and treats them as VIPs. Their innovative marketing techniques and sophisticated data bases are currently considered one of the most advanced customer relationship management systems in the industry. This allows them to customize predictions for their regional markets as well.

“Without this system,” concluded Chief Marketing Officer David Morton, “Harrah’s would have to send blanket marketing materials to everyone on its mailing list, lowering profitability of marketing campaigns (Source: http://gaming.univ.edu).

Source:  Excerpt from the Contrarian Marketing Book  Chapter 1:

By Nick Mavrick

You can find Nick Mavrick on Google+

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