Harrah Case Analysis

HARRAH’s ENTERTAINMENT INC. Rajiv Lal, Patricia Martone Carrolo Class of WMP2011 Term V Roll numbers: WMP6086, WMP6087, WMP6089 (Group B3A) Date of Submission: 05/08/2011

Case Synopsis By year 2000, Harrah’s Entertainment Inc. was well-known name in the gaming industry that operated casinos in more markets than any other casino company. Harrah’s had 21 casinos in 17 different cities, including operations in all five major traditional casino markets (Las Vegas, Lake Tahoe, Laughlin, Renu, and Atlantic City). At the time when the geographic expansion of legalized and state supervised gambling broadened the industry’s customer base in U.S., Harrah’s operated land-based, dockside, riverboat, and Indian casino facilities in all of the traditional and most of the new U.S. casino entertainment jurisdictions. Harrah’s tapped on customer loyalty which was their key competency and worked around this skill to retain it using IT to carry out decision making for strategies. The dynamism which Harrah’s CEO Satre demonstrated by his strategies at various points in time define a well thought investment in its operations. The marketing initiatives which were designed to build long-term relationship with the three types of customers (new customers, loyal customers and those who had exhibited signs of attrition) paid well to Harrah’s as the customer was inclined to visit Harrah’s again and again and consolidate reward points. With the help of IT and decision science tools, Harrah’s developed a variety of direct marketing programs to build customer intimacy. As the CEO realized that their marketing efforts were not so effective, he focussed in the right direction by working with Loveman. The three major initiatives were taken with a focus on target customers: changing the organization structure, building the Harrah’s brand, delivering extraordinary service, and exploiting relationship marketing opportunities. With the efforts such as above, Harrah’s motive which was mentioned in their customized messages to all target customers ‘WE WANT YOU TO BRING ALL YOUR PLAY TO HARRAH’S’ was accomplished to great extent. However, with the competitors taking initiatives to build grand facilities and exploiting technology to their benefit, Harrah’s had to explore new ways to retain customer loyalty. They knew that in order to sustain their competitive advantage which was customer intimacy to huge extent; they needed to understand their customers well so that the switching costs for target customers were substantial. How much was the contribution of marketing efforts towards Harrah’s overall performance? Was this marketing success a one-shot event or could be achieved year after year? These are some of the questions which we have tried to analyze through this case. Apart from this, the case also provides some insight on the following: 1) The competitors invested heavily in facilities leaving the Harrah’s

behind in this regard. Should Harrah’s continue to grow profits by investing in information technology or should it also focus on building facilities? The investment in Total Gold program to 1

encourage cross-marketing visitation had realized profits but will it continue and for how long? 2) There always remained the threat of copycat marketing possibly limiting the return on future investments in business intelligence.

Conceptual Analysis The PEST analysis reveals that the gaming industry was profitable in the late 1990’s and early 2000’s as with gambling legalized, more and more customers visited casinos in U.S. People were lured to riverboats in states like Iowa and Louisiana, land-based casinos in Detroit and New Orleans, and casinos on Native American land in various states. Technology provided a means to track customer gaming preferences, frequency and denomination of play and gaming revenues generated. With the customer profiles in place, the casino management were able to reward customers to profit from their gaming. The scenario at the Harrah’s was no different. Satre was enjoying the 100% increase in stock price in the year 2000 over previous year. The main driver for this was the success of their marketing efforts which were targeted at low-roller segment (middle-market patrons who gambled away a few hundred dollars per visit on a repeat basis). The investment into info technology to predict “customer worth” in future accurately – the theoretical amount the house expects to win, over the long term, from a customer based on his level of play, helped them to design direct marketing programs to establish customer relationship. They developed customized mail offers for the target customers considering their specific needs. This led customers to believe that the Harrah’s knew them well and rewarded them like they knew them. Harrah’s strategy to focus on target customers to build customer loyalty by rewarding them rightly and providing quality service was a key distinction from the competitors. Park Place Entertainment Corporation, the industry leader in 1998, sought to maintain geographic diversity. Mirage’s strategy had been to develop “must see” attractions. They invested largely in building their facilities. Circus Enterprises, Inc. wanted to accomplish the most ambitious, fully integrated gaming resort complex in the world. Trump Hotels and Casino Resorts, Inc. which was also among the leaders in the gambling industry targeted high-end drive-in slot customers including middle and upper-middle market segments. The Taj Mahal is a “must-see” property in the Trump portfolio. The SWOT analysis indicated that the following were the strength areas for the Harrah’s: 1) 100% growth in profits over previous year

2) Customer loyalty initiatives – Total Gold was a revolutionary technological innovation. The card was a core competency 3) Organizational structure emphasizing company ownership of players rather than individual properties 4) Advertising campaign based on research

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5) Superior customer service – Recognized by Casino Player

6) 7) 8) 9)

magazine Quantitative models to predict future worth of players Direct mail campaign Experimental / measurement-based approach to marketing Successful cross-marketing processes

Weakness areas: 1) Far behind competitors in facilities 2) It is 50 year old company making across-the-board facility upgrades difficult and expensive

Opportunities: 1) Continue investment in business intelligence to distance the company from competitors 2) Use a portion of profits to refurbish properties in key markets Threats: 1) Competitors investing in superior / newer facilities 2) Copycat marketing by competitors 3) Internet gaming was being indulged into by many people in U.S. Alternatives: Alternative 1: Divert funds to remodel properties in key markets. But this has risk as competitors are already investing in this. Alternative 2: Continue aggressive investment in information technology as it provides core competency. Also, it is difficult to rebuild a 50 year old company with respect to physical structures. The problem here is that the target is low-roller segment and the cash flow would not provide sufficient ROI on extravagant properties if the first alternative is considered. However, this is the best alternative as the key strengths support IT investment so as to provide sustainable competitive advantage.

Case Learning The Harrah’s case establishes the fact that the right investment in IT to build right efforts like marketing programs in this case can provide competitive advantage. Research backed initiatives with the help of technology can do wonders to provide rewards to customers based on their needs so as to maintain customer relations. This helped Harrah’s to have direct marketing for individual customers. One needs to focus on the target and use IT to provide competency. Harrah’s ability to exploit business intelligence to make critical decisions when implementing strategy is also a key learning. When the Harrah’s decided to ramp back “same day cash” on the basis of

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test and control methodology, the competitors criticized them but their research and experiment had backed their decision. Following are the lessons learnt from this case: 1) Satre wisely avoided the strengths of his competitors and focused his limited resources on an overlooked yet lucrative market segment. 2) Harrah’s maximized the effectiveness of the resources it committed to its target segment by using information to match product offerings to customer wants and needs with greater accuracy. 3) The focus is unique because Harrah’s made a disproportionately

large commitment of resources not to a specific market opportunity but to an intangible end gaining superior insight into customer wants and needs and building customer loyalty. This commitment in turn enabled the company to deploy its scarce resources at the most critical times.

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