Research Library

How to Catch and Keep the Big Fish

Executives in the casino industry have long used euphemisms to describe various types of customers. One term often coined to describe a premium player is a whale. The term originated in Las Vegas and was used to describe gamblers who wagered very large amounts on each hand. As casinos proliferated throughout the United States the term began to be used more broadly to describe each casino’s best customers. All casinos have a few players that make an outsized contribution to the property’s gaming revenue. They may not be whales in the traditional sense, but they are still pretty big fish and every casino operator wishes they could find a few more. To this end, they build luxurious hotel suites, offer fine dining along with other amenities and employ hosts to service their most valued customers.

To better understand how some of the largest casino operators identify and capture big fish, a rather expensive research project was conducted. Two markets comprised of ten casinos were selected. These markets contained some of the nation’s most recognized casino brands. At each property a researcher joined the casino’s rewards program, requested two players’ club cards
and asked the rewards program representative for directions to the high limit slot area. The researcher then was required to find two $5 slot machines (reels) with medium to low volatility, and play them simultaneously at $10 a spin for two hours or until the researcher generated $10,000 in coin handle.

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Rethinking the Three-Tiered Rewards Program

The tiered rewards program has emerged as a valuable tool to acknowledge loyalty among the casino’s most valuable players and allows the casino operator to bestow certain privileges on them. Tiered rewards programs are based on the Pareto Principle, also known as the law of the vital few, which states that 80% of the effects come from 20% of the causes. Applied to business, it means that 80% of business volume comes from20%of customers. In reality, an examination of most casino databases shows that upwards of 85% of business comes from 15% of customers and it is for this reason that tiered rewards programs are created: to provide higher levels of service and amenities for the casino’s most important customers and to publicly acknowledge their loyalty.

When embarking upon a tiered rewards program, most casino operators initially employ a three-tier model consisting of a base tier, a middle tier and a top tier. There is no qualification
required for the base tier while the latter two premium tiers require substantial amounts of gaming activity in order to achieve premium tier status. The base tier normally contains
the bottom 90% of the total database. The middle tier contains the 90%-98% segment and the top tier contains the top 2% of the database.

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The Golden Age of Free Play

A considerable amount of debate has occurred over the costs of free slot play, how to account for it, measuring its impact on profitability, calculating its effect on slot hold and other metrics. What has not been explored are the hidden benefits of free slot play.

Indeed, free slot play can have a profound and positive impact on customer satisfaction, the casino’s profit an loss statement and even the privilege taxes the casino pays on gaming revenue. The industry may in fact be in the midst of a golden age of free play—an age that may soon vanish. Until that time, customers, casino leadership and even the gaming organization’s chief financial officer can enjoy free play’s hidden benefits.

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How to Increase Gaming Revenue in an Economic Downturn

The economic downturn continues to impact gaming revenues in markets throughout the United States. In the face of declining or stagnant revenues, casino operators continue to look for new ways to grow gaming revenue. Some have allocated resources to new media such as social networks, yet none have been able to monetize these new channels of communication. Others have simply turned up the volume of promotions, offering more drawings for cash, vehicles or simply giving away stuff to get people into the door. While those efforts often increase foot traffic, they don’t necessarily have a positive impact on profitability. So what new methods are there for a casino operator to grow revenue? The answer often lies within its own database.

Casinos have long recognized the value of their databases. With the advent of newer slot system technologies casinos have over the last decade introduced tiered reward programs to better acknowledge the value of higher value customers. Caesars Entertainment has long been at the forefront in utilizing a tiered reward program to acknowledge those customers and develop them into very loyal customers. Customers in those premium tiers, referred to as Platinum, Diamond and Seven Star levels, receive a suite of benefits so great that they often gamble exclusively within the Caesars brand family of casinos. They would rather aspire to the next higher tier than spend their gaming dollars at another casino.

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Emerging Issues in the Use of Free Play

Non-negotiable slot credits or what is commonly called free play has become the primary form of customer incentives in many casinos. Free play is now used instead of cash for point and coupon redemptions as well as for a variety of promotions. Combined, free play has become the single greatest component of player reinvestment. The increased use of free play has also created unintended consequences. Free play has affected multiple departments within the casino including Slots, Marketing and Accounting. This article attempts to identify the emerging issues of free play and how they are impacting both the casino and the customer.

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Putting Problem Gambling in Perspective

The success of gaming development on Indian lands has allowed many tribes to explore the feasibility of replacing their aging, temporary buildings with new, amenity rich facilities. Despite the recession, tribes are moving forward with plans for future development. These developments, often in more accessible locations closer to population centers, often spark debate among various constituencies in the local community.

Any public debate on the pros and cons of casino development inevitably brings up the topic of problem gambling and its economic and social costs on the host community. Often these debates take place without a reasonable understanding of what problem gambling is, how prevalent it is and how significant the problem is when compared to other pathologies. These debates are frequently led by those who are morally opposed to casino gambling and it is that moral opposition that often clouds reasonable discussion. It is essential to clarify what problem gambling is, explore its prevalence in society, and compare its social and economic costs to other forms of aberrant behavior caused by what many see as more benign industries.

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Loyalty Costs

The terms “player reinvestment” and “player reinvestment rate” are often used to describe the costs associated with the suite of benefits that casinos bestow on their players. However, despite the frequency with which these terms are used, there is no industry-wide definition that describes the specific components that make up player reinvestment. To better understand how the industry defines player reinvestment, a survey was conducted among United States casino operators operating in a number of jurisdictions including Indian casinos, riverboat/barge casinos and Nevada casinos.

A key finding of the research was that in the evolution of most casinos, understanding what a property’s player reinvestment rate is does not become an important issue until two seminal events occur: 1) the casino institutes a host program and 2) it begins to mail out cash and free play offers to various segments of its database. Then, as discretionary comp costs and mail redemption costs rise, casino leadership begins to ask, “So what is our player reinvestment rate?”

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Rapid Customer Feedback

Few in the gaming industry would discount the importance of customer service. Indian casinos have long been at the forefront in designing and implementing customer service initiatives. Greeters and ambassadors, whose sole job is to make customers feel welcome, can be found at many properties. Many Indian casinos have instituted customer training programs and others have made a commitment to total quality management in an effort to create and maintain a great service culture.

Notwithstanding these efforts, casinos, like all businesses, are susceptible to the occasional service breakdown. A jammed printer coupled with a slow response time, a poor dining experience, a long wait at the valet can easily impact a customer’s perception of the gaming experience into one that is decidedly negative and negative service experiences can quickly become a reason for a customer to go elsewhere.

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Now is the Time to Prepare the Annual Marketing Plan

The period between the end of the Thanksgiving weekend and the start of the New Year’s holiday is traditionally one of the slowest periods in the casino industry. As such it is the ideal time for leadership to focus on the preparation of the property’s annual marketing plan. What better time to focus on the plan’s preparation than during a naturally slow period that precedes the New Year?

The importance of preparing the annual marketing plan must be underscored. First, the total sum of marketing and advertising activities can easily consume in excess of 20% of the property’s revenue. As such, there must be a plan in place that details how the casino will be marketed, which markets it will target and a forecast of the expected returns from those activities. The plan details realistic objectives and strategies that the casino will employ to achieve them and how much it will spend to reach those objectives..

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Improving the RFP Process

The Request for Proposal or RFP process, the method in which governments issue requests for proposals to a number of vendors, evaluate competing bids and select the vendor that can provide the best product/service at the best price, is an important process that can ensure governments and its citizens are not overpaying for goods and services. The process is used by municipal, state, federal and tribal governments. While the RFP process has proven effective in a wide range of purchasing decisions, the adaptation of the RFP process to the selection of vendors for casino companies has proven itself to be somewhat problematic.

RFPs can be used in a wide variety of purchasing decisions, from meat vendors and accounting firms to the selection of a new advertising agency.

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