Research Library

What Can We Learn from Macau

As gaming markets mature and individual casinos’ databases become established, casino operators are able to better understand the demographic makeup of their core customers. With few exceptions many Indian casino operators have come to recognize that Asian Americans, in particular immigrants from China, make up a sizable minority of their customers and display an almost passionate love of casino gambling. To better serve this important segment, many casinos have introduced noodle bars, expanded Asian food offerings in their buffets, added Chinese speaking hosts and printed collateral material in various Asian languages. Some have also brought in Asian entertainers. While these programs make sense, they are essentially tactical plans that
are put in place on a hunch rather than understanding that player segment’s wants and needs. They fail to recognize that not all Asian American gamers are alike and each nationality has its own particular appeals.

For most domestic markets, Chinese Americans are the most dominant Asian gaming segment. Notwithstanding some markets may be comprised of other nationalities. Therefore, it is critical to first understand which Asian nationalities comprise the largest part of the casino’s demographic mix. If Chinese Americans are indeed the largest, then it is important to understand their unique wants and needs. And to really understand what motivates Chinese gamblers, you have got to go to Macau.

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“New and Better” works

The rapid growth of Indian gaming has created an unusual dilemma for the leaders of many tribes. In the years following the passage of the Indian Gaming Regulatory Act, many tribes attempted to develop casinos. Unfortunately, it was unclear how successful these gaming properties would ultimately be, particularly for those tribes whose reservations were far removed from major population centers. Access to traditional capital markets was difficult. Amidst this uncertainty many casinos were developed using low-cost construction techniques or existing commercial structures were converted to gaming space.

As the industry matured and as properties were able to demonstrate their viability to the investment community, the cost of capital dropped and many tribes were able to replace their temporary structures with more attractive, full-service gaming/entertainment properties. Conversely, other tribes chose to keep their original properties and gradually expand them, all the while continuing to employ low cost construction techniques. Many of these casinos generated outsized revenues relative to their invested capital. The logic for many in tribal leadership was, why
incur additional debt by replacing low-cost structures when revenue streams were growing? The emerging dilemma was, why spend the money if one did not have to?

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The True Cost of Marketing

When trying to understand how much a casino spends on marketing, most casino managers look at specific departmental expenses on the profit and loss statement including marketing expense, advertising expense, player rewards program expense and total comps (which often appear as line items on the P&L). The sum of these is considered the total amount a property spends on marketing. And while this methodology is valid, it leaves out several hidden expenses that must be considered when trying to understand the true amount that a casino spends to attract new customers to the property and foster loyalty among existing customers.

Two areas of a casino’s business operations that are not normally considered as part of the marketing equation are food and beverage and entertainment. They are normally considered stand-alone revenue-generating departments that, for the vast majority of casinos, produce negative results every month. They are allowed to operate at a loss because they serve a supporting role to casino operations. Yet, the operating losses that they produce each month are never considered a form of marketing expense. To better explain why they should in fact be considered as part of the marketing equation, two hypothetical scenarios are offered.

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Designing a Tiered Player Rewards Program

As a casino matures and its database of active players grows, it is the natural tendency of casino leadership to consider the implementation of a tiered player rewards program (TPRP). This marketing initiative is driven by a number of factors, not the least of which is the realization that a small portion of the casino’s database is contributing an inordinately large share of gaming revenue. Thus a TPRP is implemented to offer the casino’s best customers higher levels of service and recognition. However, creating a tiered rewards program involves far more than the design, manufacture and distribution of various colored membership cards, distributing the appropriately colored cards to the right segments of the database and the planning of a few premium player parties. A TPRP, like any marketing initiative, requires clearly defining attainable objectives, a strategy that will allow the casino to achieve those objectives and tactical plans that carry out that strategy.

The first question that must be answered is “what are the objectives of a TPRP program?” While fostering loyalty, providing higher levels of recognition and taking care of the casino’s best customers are all reasonable objectives, they are immeasurable and cannot be quantified. Rather, a casino must delineate measurable goals. These goals may include: increasing the number of “A” level club members, grow the “A” and “B” segments by 10% and 5% respectively or increase the median number

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White Paper: An Analysis of Harrah’s Total Rewards Player Rewards Program

Harrah’s Entertainment’s Total Rewards Customer Loyalty Program’s (“Total Rewards”) basic structure is a tiered program. Unlike the vast majority of casino reward programs, players do not earn bonus points. Rather, they earn a combination of Tier Credits and Reward Credits. Tier Credits are used to determine one’s ranking while Reward Credits are used for comps and other purchases.

When a player inserts their card into an electronic gaming device, the LED display shows the customer’s name, the number of Tier Credits accrued over the course of the calendar year and then the number of Reward Credits that are available for redemption.

Total Rewards offers four tiers, the highest level being 7-Star. The following table details the number of Tier Credits, earned on coin handle that must be earned within a calendar year in
order to advance to each tier.

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The Challenges of Developing a Casino Resort

Over the past fifteen years the Indian casino industry has evolved and so too have the individual properties that make up this industry. Many of these casinos have evolved from simple gaming operations housed in temporary structures to regional gaming entertainment centers, and some have succeeded in evolving into lavish full-scale resorts. While the evolution of a casino into a regional gaming entertainment center is often a natural and progressive form of casino development, the creation of a true casino resort is often a difficult, expensive and risky process. There is, in fact, a wealth of problems facing any casino operator that attempts to make the transition from a local oriented casino to a full-scale casino resort.

When conducting a market assessment for an expansion of a casino into a resort, consultants examine a number of variables including 1) the location of the proposed resort and
its ability to support this kind of development, 2) the expected demand for a resort from primary feeder markets, 3) the proposed quality level of the resort, 4) the kinds of amenities
that will support the resort experience, 5) the size of the proposed resort and the size of its related amenities, 6) the relative strength of the competition and 7) the ability of casino
management to effectively manage a full-scale resort operation. Misreading any of these variables can doom the project.

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The Changing Role of the Casino Hotel

A hotel addition to a casino has long been recognized as an important amenity for any local casino that seeks to evolve into a regional gaming and entertainment destination. A hotel allows a casino to be more than just a daytrip destination. A well designed and well maintained hotel that is effectively marketed can generate a substantial amount of profit as a stand-alone revenue center. Also, the hotel allows the casino to generate incremental revenue through casino marketing programs.

Traditionally, hotels were developed at casinos as standalone profit centers where a portion of room sales (normally 20%-30%) were allocated towards casino marketing and the remainder sold to transient, group and commercial segments. However, this business model is changing. Casino operators have begun to realize that hotel rooms can be used to overcome locational disadvantages and drive greater revenues into the casino. The trend is to allocate a far greater percentage of hotel rooms to casino marketing, which are then offered to various segments of the database through demand stimulation programs.

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The Changing Face of Casino Marketing Programs

Casino marketing plans have long been built around several basic programs. However, technological advances are subtly changing the traditional casino marketing mix. The ultimate winners will be those casinos that not only embrace these new technologies but learn to harness it to build a sustainable competitive advantage.

Since the mid 1980s casino marketing was comprised of several player benefits built around the casino management system (CMS). Casino management systems have evolved from slot accounting systems with rudimentary player tracking modules to more complex systems that are capable of rewarding a wide array of player benefits.

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Striving for the Highest Standards in Casino Design

Indian casinos now dot the American landscape. They can be found in such diverse places as Wyoming, New York and California. Architecturally, these casinos range from stunning resorts that rival the most beautiful casinos in the world to modest facilities that were built as temporary gaming venues. Unfortunately, it can be the latter that defines the expectations of customers when they think of Indian casinos. The question that must be asked is, “why does an industry with some of the highest operating margins of any segment of the hospitality industry offer its customers gaming environments that are not always the most attractive or comfortable?”

It is important to understand Indian casinos in a historical context in order to appreciate how many of these gaming properties were developed. Wid1 the passage of the Indian Gaming Regulatory Act in 1988, tribes were able to open casinos. However, many states’ governors were unwilling to negotiate compacts with tribes or chose to severely restrict the types of games that could be offered.

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Ten Ways to Make Headline Entertainment Profitable

As the price of headline casino entertainment grows, a loud but vocal minority of casino executives have begun to question the expense associated with entertainment. These people tend to be the financial professionals within the casino organization who believe that such programs should be measured. They may also be of the belief that casino headline entertainment programs seem to exist solely to fund the retirement programs of aging rock stars who, like most baby boomers, neglected to properly plan for their golden years and are now forced to work extra hard while they still retain some marketable skills. This article is not for those naysayers but is written for those that must justify their entertainment programs in the wake of what may be sound logic and reason. Skeptics are asked to ignore this article. Those that must justify their entertainment programs are invited to read on.

There are ten simple steps that entertainment and marketing executives can take to better justify the expense of headline entertainment. By following these suggestions entertainment programs will always make money despite what may be revealed in property profit and loss statements.

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