Harrah's Case questions

Case Study Harrah’s Entertainment Inc.

1.

What are the objectives of the various Data Base Marketing (DBM) programs? Evaluate their effectiveness. Why is it important to use the "customer worth" in the DBM efforts rather than the observed level of play? [25 marks]

Database marketing programs are used for creating individual customer database. This data then helps the business to create different marketing programs which can best cater to customer needs at individual level. It is also a good tool for tracking potential/high value customers, to build relationships and finally increase customer loyalty towards the brand.

Harrah’s objective of using the DBM program was to track results from it by dividing the data base in three programs to build customer relationship and increase loyalty: 

New Business Program

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Loyalty Program – Frequency upside & Budget upside

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Retention Program

The New Business Program was designed to create an offering which was more competitive with what the customers were already receiving. These offerings were based on customer worth/theoretical wins (discussed later) and were designed to improve the effectiveness in converting Total gold members into loyal customers. Exhibit 2b shows that in April 1999 1022 new customers came and each was given different offer out of which 125 visited again in May, 103 the next month and 85 the month after. And the results show that the revenue generated from these customers was almost constant with 34%, 33% and 32% respectively in each month. Loyalty program – Frequency Upside on the other hand was designed to incentivize customers who were spending more on other casinos and giving a small share of their spending to Harrah’s to make them switch. Exhibit 2c tracks the behavior of 935 customers before and after. It shows that on the number of visits from customers increased from 30 to 150 on average and it showed a profit which

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was calculated by doing a comparison of the incremental theoretical wins to the incremental cost of the program. Loyalty Program – Budget upside was designed to encourage customers to visit Harrah’s first in order to capture majority of their gaming budget as in most cases Harrah’s had found that a customer’s allocation of budget was related to order they visited. The first stop received the largest share. Lastly, Retention program was designed for customers who had discontinued their visits (broke historical visitation patterns). Hence market experiments were modified for these customers in order to find out how much should be invested in order to retain the right customers. They sent direct mail offer to 8000 customers each different according to customer worth. Even though the cost for the program had gone up from $30 to $40 but it seemed to be working and the returned customers were put in to loyalty-marketing program and managed accordingly. Moreover, they used DBM to “predict” their customers’ behavior and their total worth (Customer worth). This allowed them to build relationships with customers based on their future worth rather than on their past play or experience. And how they predicted their worth was by collecting important data and creating individual customer profiles. This data included customers playing patterns, their visits to the casino, playing time, play preferences etc. Once this data had been collected Harrah’s could find customers who they predicted can bring them high value and eventually tailored offers were sent to them. The DBM program not only allowed Harrah’s to forecast but also to track customers eventually. Their quantitative approach allowed them to conduct some marketing experiments to find out which promotion would best suite different customers and how would these transform their behaviors in the best interest of Harrah’s. For example, their experiment on the two similar groups of frequent slot players suggested them that a “less attractive” promotion was more profitable one. Hence their decision was to eliminate the practice of “same day cash” at most of its properties. The customer database was centralized for all Harrah’s properties.

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From this we can clearly conclude that Harrah’s built its relationship with customers who not only were regular visitors but focused on those who were potential customers who would bring high value and profits to the business. Earlier we talked about “customer worth” (theoretical win). This is the amount in dollars that the casino expects or predicts to win from customers who play. The reason it is important for Harrah’s to focus on customer worth rather that observed is because the high observed customers are the ones who get targeting by competition. The competition in this market naturally becomes tougher. What most casinos don’t look out for are the customers who have the potential to give high value. And therefore it becomes easier to capture those customers and the worth is also there it is just that it is not actual but is close to real as it comes from proper analysis of important database. As a result the efforts to capture this market are less and more fruitful because most businesses take them for granted. Also, if we look at it in the long run, observed level can only specify a customer’s past activity, which might not mean anything for the current or future business. Whereas, predicted customer worth can offer the business potential gains in the long run. Also, customized offers can be made for them to see how they change their patterns.

2.

How does Harrah's integrate the various elements of its marketing strategy to deliver more than the results of Data Base marketing?[20 marks]

Harrah’s had developed a customer centric approach which as discussed earlier had three phases which were: new business, loyalty and retention. Their CRM system consisted of two elements, DBM and total gold program. The DBM system helped them collect relevant data about customer worth (theoretical wins) to make comprehensive programs for the three different phases. If we look at what experiments Harrah’s did we can see how they managed to integrate the various elements of their marketing strategy.

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For instance their experiment to give customers specific offers to bring them to Harrah’s from other casinos showed that after each signup almost 15% of these customers visited Harrah’s again within three months. The other experiment was the loyalty program in which customers were incentivized to visit Harrah’s properties more frequently and switch from other casinos. Also to get maximum share of customers spending by encouraging them to visit Harrah’s first. Last but not least, in the retention program, Harrah’s saw the declining visitation patterns of its customers and sent them coupon incentives in order to increase its relationship and loyalty with customers so they start visiting at their properties again. As we saw their move of incentivizing customers in January 1999 when they saw a decline in customers visits in 1998. This brought an increase in both customer visits and spending. Those who came back were put under their loyalty program. Hence the three programs ran simultaneously and were integrated with each other so maximum gains can be achieved by maximizing customer satisfaction. Looking at other things like winning the best service award and branding itself with the “feeling of exuberance” attracted more people to visit. These steps played an important role in building the brand name. Efforts consisted in the Total gold program helped Harrah’s collect valuable customer data such as encouraging customer signups and play by giving away different packages. Collecting this data and knowing their customers well also reflected on their customers when they started to feel close connections with the brand because they now believed that Harrah’s knew their needs and also rewarded them on different occasions.

3.

What is the sustainability of Harrah’s actions and strategy? Can Harrah’s strategy be replicated? Given the position of Harrah’s in accordance to their competitors they were lacking behind. They had to come up with something different to gain competitive advantage and sustain it. Instead of making expensively lavish and huge properties like its competitor they went with introducing a CRM system.

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Harrah’s strategy was focusing on customers and only them. They kept on collecting data, making customer profiles and coming up with offers for them. With time Harrah’s started learning more and more about their customers and had better ideas on how to make offerings for them. Harrah’s actions and strategies allowed Harrah’s to know which offer will customers respond to according to their profile. For instance, they knew if a customer would not respond to offers like free stays at the Harrah’s properties if he/she lived nearby. A regular customer would love some sort of discounts on food and drinks he buys when he visits. All this information of buying and visitation is saved for future use. Then they focused on customer service as well. To keep customers happy at all times. Sometimes customers were dissatisfied with their loss and so the service made sure that they could enjoy their time at the casino.

4.

What are the privacy and ethical issues that Harrah’s should be concerned about?

Understanding Harrah’s nature of business, there are a number of business practices which may not be entirely ethical and also a breach of customer privacy. Some believe Harrah’s tempts people to gamble and exploits gamblers with gambling addiction, if such a claim is true then encouraging people with a gambling addiction to spend more is wrong and unethical. The strategy used by Harrah’s to lure customers is by building loyal relationships so they keep coming back. Apart from ethical issues Harrah’s could be charged for invasion of privacy. They do it by gaining personal information of its customers without their consent and use it as a tool to benefit their business. It is argued that other websites also keep personal information of its users like social media sites. But it is with the consent of the user whereas in Harrah’s case customers are not aware that all their activities are being monitored and recorded. Another privacy issue that is of concern is that by monitoring all the activities of their customers Harrah’s is aware of the customers playing patterns which helps them identify the best personalized offers for different gamblers and in return benefits their business.

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Their offering may not always match specific customer liking or mood and might backfire and go against Harrah’s benefit, hence there is no evidence or method which indicates that by monitoring and providing personalized offers Harrah’s is able to gain and benefit from it.

5.

What recommendations do you have regarding their future CRM strategy?

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