Leveraging the loyalty margins of a customer is one of the most difficult marketing tasks. However it can also be a significant source of competitive advantage over a competitor if executed properly. The following is a discussion of Harrah’s Casino’s (now Caesar’s Entertainment Corporation) use of data-driven marketing enabled them to leverage loyalty from their customers, recover from a weak position in the entertainment industry and become the world’s largest gaming company. They were the front runner for the success of modern mobile gambling, such as PaddyPower or BetFred.
Harrah’s formula to leverage loyalty is most applicable to businesses that are data-driven businesses where consumers are willing to trade information for goodies (which they have a history of doing), have high-margins and have relatively frequent purchasing patterns.
In the late 90’s Harrah’s Casinos had a weak position within the gaming marketing with one casino in Las Vegas, worth $315 million. In 1999, Steve Wynn opened the Bellagio, worth $1.6 billion, and ten years later in 2009 the City Center was opened, worth $9.2 billion.
Harrah’s marketing team believed that their role was to profitably influence consumer behavior and to get a consumer to do something that they wouldn’t have otherwise. However, casino games between competitors are the same games, under the same terms but in different locations.
In the near term it was very difficult for Harrah’s to change their product, especially when it is mediocre or easily substitutable within the market. Harrah’s aim was to leverage loyalty in the form of visits or purchasing in the near term in order to compete in the market. They changed the way their consumer consider what product they would purchase by enveloping them with self-reinforcing motivations to choose in their favour by connecting to their brands, asking them to exchange information with them (which allowed them to make inferences about their preferences) and offering them things that were increasingly relevant to their decision at an affordable cost
If you got a rewards card with Harrah’s you’d get back 20% of money spent back, and you could choose how you wanted to get it back. Harrah’s wanted to give it back to you, and gave it back straight away as through their analytics they knew the margins. This gave Harrah’s the key information they needed to ensure that their marketing was relevant and specific to each consumer as well as a platform to leverage loyalty.
Harrah’s Marketing Steps:
- Solicit information
- Make an offer
- Wait for a responses
- Learn from the response
- Make a new hypothesis about the consumer
- Make a new offer
- And repeat routinely
- Learning Lessons, and Learning Quickly
By using analytics based marketing Harrah’s was able to ensure that their 45 million customers, some of whom visit 15 times a month, would be moved to have a more loyal experience than they would have otherwise. Harrah’s believed that if someone taught them something on Tuesday, they would have to have learned from it by Friday. So that the visit on Friday reflected what had happened on Tuesday.
Harrah’s analytics driven marketing experimentation began in 1999 and allowed them to effectively leverage loyalty from the full range of customers they served. This improved their yield per gaming component at a premium of $288, compared to their competitors, $231 (25% increases per component). This allowed them to buy their competitors, consolidate the industry and their business, going from 14,000 employees to 90,000 employees. This took the share price from $14/share to $90/share in 2008 when the company was privatised by TPG & Apollo.
By Adam Hetherington