Harrahs Casinos

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Harrahs Casinos

• MI021 Computers in Management

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DISCLAIMER My goal is not to pass judgment on
the gaming business. I recognize the business is
based on odds that ensure most folks entering
their doors are losers.
Las Vegas was not built on winners.
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Harrahs Performance

• Stock has tripled
• Sales about 7.5 billion
• Market cap 14.5 billion
• Institutional Investor named Loveman the best CEO
  in the industry
• What did he do before becoming CEO of Harrahs?
• Professor at Harvard Business School

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Loyalty System

• It can thank its loyalty system for the bulk of
  its success. What does Harrah's call their
  loyalty system?
• Total Rewards
• How does Harrah's get information from consumers?
• Collects information via the Total Rewards Cards
  when the customer slips a card into a slot
  machine, use it at a restaurant, or present it to
  a parking valet.
• How many members does Total Rewards have?
• 29 million individuals are members.
• That's about 1 in 10 people in the United States
  and kids can't gamble! (although they likely
  have int'l members some redundancies or
  deceased).
• More than 70 of gaming that takes place at
  Harrah's chain is now tied to these loyalty cards.

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Total Rewards

• Do you have to be a TotalRewards customer to play
  at Harrah's?
• No. Cards are Opt-in.
• Why do you use it?
• Chance to earn free trips, meals, hotel rooms,
  and other freebees.
• You get better service.
• There's an incentive you get value
• Not unlike CVS card or StarMarket card.
• Let's talk about these incentives. Does Harrah's
  treat all customers equally?
• No
• How do they classify customers?
• Gold, Platinum, Diamond
• What's the advantage of being in the Diamond
  group?
• Better service

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Customer Motivation

• Don't customers get mad if they see they're not
  getting the same service? Isn't this an
  incentive to go elsewhere?
• No in fact the contrary is true they get
  motivated!
• Customers actively work to improve their Harrah's
  membership
• KEY Harrah's rewards activities that add value
  to the organization!
• Gamble more your service improves, your lines
  shorten, you get more attention lavished on you,
  you may get a free steak.
• 1 pt. for every 10 spent. Watch your total
  rise. You win even as you lose.

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The ultimate compliment

• One womans obituary was published in the
  Asheville paper and indicated that at the time of
  her death,
• she had several grandchildren,
• she sang in the Baptist choir and
• she was a holder of the Harrah's Diamond Total
  Rewards club
• Loveman says When your loyalty card is listed in
  someone's obituary, I would maintain you have
  traction.''

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If you don't have data

• You're guessing! (remember Gap's ideas about what
  would sell how that failed?)
• Once they tracked customers they found out that
• 26 of their customers were responsible
• for 82 of revenues and the majority of profits
• Who are the most lucrative customers at Harrahs?
  Is it Brad Pitt, George Clooney the Ocean's
  Eleven crowd?
• No
• It's grandma!

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Gaming Granny

• What games does Granny play?
• Slots Electronic game machines account for the
  majority of Harrah's revenue and more than 80 of
  the company's operating profit.
• The 30 of customers who spend between 100 and
  500 per visit account for 80 of company
  revenues and almost 100 of profits.

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Harrahs Target Market

• We have no interest in families. If you have a
  family I'm sure they're perfectly wonderful but
  don't bring them to me. They have no time and
  many have no money. Bring along these
  destructive little people who wreck my hotel
  rooms. Now on the other hand if the grandparents
  are free"
• Loveman says "I have no interest in the young
  the beautiful. They lack the two things my
  business needs available leisure time and money."

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Changing Incentives

• Is she flying in?
• They're local
• Most aren't even staying at the hotel
• So how does this change how you market to her?
  Do you give her a hotel room?
• No she's taking a bus in with the blue-hair
  crowd
• Your average customer is just dropping by to
  spend a few bucks
• What do you give them?
• Casino chips

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90 of advertising wasted"

• They found out their marketing was ineffective
• Money spent on free rooms was being wasted!
• Total Rewards data helped the bottom line by
• Lowering costs (stop wasting money)
• System is not only attributed with increasing
  income, but raising profit margins through cost
  reduction.
• The Total Rewards system saves 20 million in
  annual cost reductions.
• Foxwoods ads. All this money is wasted in me
  I'll never go there. I'm not a gambler.
• Improving the effectiveness
• market to customers more likely to respond
• arrange facilities in ways that generate the
  highest revenues

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Database or Data Warehouse?
Data Warehouse
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Informating for Advantage

• Look at how information is being used at Harrah's
• Used info to build a detailed profile of gaming
  habits of each customer
• Models determine lifetime customer value.
  Harrah's actually has data to predict this
  elusive number!
• a plan for luring customers back to the casinos
• even an individual profit and loss projection by
  which the firm gauges its future marketing
  investment.
• Creates custom mailings to send out to lure
  individuals back.
• used to rearrange machines on the casino floor
  for maximum impact

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Employee Incentives

• Harrah's says its advantage is based on service.
  But how do you institutionalize service
  throughout the company?
• Reward it!
• How are employees measured? What criteria?
• speed and friendliness metrics (via customer
  feedback that is relentlessly surveyed)
• What incentive do employees have in gaining
  better metrics?
• More money
• These are hourly employees, notoriously hard to
  motivate oftentimes with high turnover. What's
  the incentive that one employee doesn't try to
  score higher at the other's expense?
• Bonus plan is related to everyone's performance
  in the property, so folks work as a team, not as
  competitors
• How does that change behavior?
• Everyone works as a team
• If the valet's scores were low but the steak
  house receptionist's were high, the receptionist
  would check in on the valet.

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Complementarity

• KEY POINT Before Total Rewards Harrah's operated
  as a collection of loosely organized properties.
  After Total Rewards they are an integrated whole.
• Total Rewards allows them to collect Data turn
  that into information. Can others do that?
• Complementarity Using IT to better leverage
  existing organizational advantage

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Switching costs

• Article mentions others are prevented from being
  able to do this across locations. How come?
• Harrah's has patented the technology allowing the
  sharing of data across properties.
• Firm holds at least 7 patents has sued to
  enforce them.
• What happens to those rewards if you go to
  another casino?
• You can't use them. You don't advance in
  TotalRewards if you're a loser at Bellagio.
• So Harrah's has created another key asset through
  its loyalty program.

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Creating Real Options

• Important point was mentioned the firm regularly
  runs experiments.
• After a model suggests a result, don't "whole
  hog" the effort, it first runs a small experiment
  to see if it works.
• Harrah's runs hundreds of small experiments in a
  year, further segmenting customers fine tuning
  marketing programs.
• What happens if customer behavior changes? If a
  customer who spends 500 a month hasn't shown up
  in three months?
• Database triggers suggest contact methods
• A letter or a phone call inviting them back

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Harrahs v. Foxwoods

• Scope run casinos in many locations
• they can sell a diversified product mix to
  customers.
• Insulates Harrah's from regional economic
  variances.
• ½ of Vegas visitors have played in a Casino
  outside of Vegas.
• Scale but Harrah's runs as an integrated whole.
  Although Foxwoods is bigger, Harrah's is
  collectively larger
• Data on consumers for better modeling
• Switching costs - Since TotalRewaards applies
  across Harrah's properties, customers are given
  an incentive to consolidate gaming at Harrah's.
  Reward strategy allows customers to see benefits
  across all Harrah's properties.
• Proprietary technology patented sharing of data
  among various properties.

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Harrahs v. Vegas

• Another key IS fed strategy. What are most
  Vegas casinos starting to look like?
• Amusement parks
• Harrah's?
• No. They've noted the return on showcase
  buildings wanes as the novelty fades.
• Focuses on geographic diversification to
  introduce Harrah's to more customers insulate
  the firm from regional economic swings.