Harrah's Entertainment Inc. - Group 4A - Section E

Section E - Group No 4 (A) Harrah’s Entertainment Inc. – Case Analysis 1. Discuss the factors that drove Harrah’s customer relationship strategy. With the advent of new luxury casino hotels like Mirage and Bellagio and the rapid expansion of casinos due to relaxation of gambling laws, Harrah’s witnessed intense competition in the late 1990s. Customers were not making repeat visits and Harrah’s was losing its customers to other flashier properties. Since it was difficult for Harrah’s to make huge capital investments to spruce up its properties, it realized that a shift was required from its existing people management strategy to a new customer relationship strategy. Company COO Gary Loveman reinvigorated the existing marketing function and rebuilt it with experts who preferred quantitative methods to qualitative inputs. Customer Relationship Management was based on the following major elements: Database Marketing and the Total Gold program. Database marketing – Harrah’s used tools based on decisions sciences to predict customer worth rather than relying on observed customer worth from his first visit to the casino. Data about customer preferences was collected each time a customer used his loyalty card at any of Harrah’s properties. This helped Harrah’s to predict potential customer playing behavior, a customer’s worth over a period of time, customer preferences and helped Harrah’s in customizing its services. It helped Harrah’s in developing a more customer centric approach to marketing. Total Gold Program – The total Gold program was based on the premise that a happy customer will increase spending by 24% per year while an unhappy customer decreases spending by 10%. The total gold program was a loyalty program designed to facilitate and encourage cross market visitation patterns of Harrah’s customers. Total Gold Program customers were given electronic cards that could be used at any of Harrah’s properties. This was executed by designing an integrated IT system that linked all of its properties together. The use of the card enabled customers to earn and redeem rewards at any of the Harrah’s properties and also enabled customer level information to be shared in real time across various casinos. As a result of this program Harrah’s was able to increase its cross-market revenues from 13% in 1997 to 23% in 2000. Another aspect of the new CRM strategy was Personal Contact Management. 25% of Harrah’s revenues came from 5% of its customer base. This customer base was referred to as the VIP customer base by Harrah and such customers were assigned persona hosts. A player contact system was implemented to provide information to the host about the customers. 2. What are the Key Performance Indicators of the gaming industry? What are the objectives of the various database marketing programs and how are they working? a.) The gaming industry predominantly uses the following three KPIs to gauge the performance

1. New Customer Acquisition: It shows the number of new customers acquired by the company over a period of time. This is useful to gauge the effectiveness of the brand strengthening initiatives taken up by Harrah’s. 2. Customer Loyalty: This metric shows the number of customers who have been with the casino for at least six months or for three or more trips. This is useful to gauge the customer service aspect of the business. It can be used to focus efforts on continuously extending the relationship. 3. Customer Retention: This was focused on customers who had broken their historical visitation pattern. The goal was to reinvigorate customers who had demonstrated signs of attrition. Database Marketing Programs The objective of the database marketing programs was to improve Harrah’s performance by improving customer loyalty and retention. It developed quantitative models to accurately predict a customer’s total worth and also used an analytical CRM model to differentiate highly profitable customers. The various programs and the respective objectives are shown below: Proactive marketing - Opportunity based segmentation of customers to predict customer behaviour. Marketing Experiments- Test marketing packages tried on few control groups based on tracking. New Business Program - The New Business Program was designed to improve the effectiveness at converting new Total Gold members into loyal customers. Loyalty Program with Frequency Upside - Identify customers that were only giving Harrah's a small share of their total spending in a particular market and further incentivize frequent visitors. Loyalty Program with Budget Upside - Harrah's also identified customers who were only giving a small share of their gaming budget to Harrah's on each trip. The objective of this program was to encourage the customer to visit Harrah's first and thereby capture the majority of the single casino trips assuming direct linkage between order of visit and profitability. Retention Program - The objective of Harrah's Retention Program was to reinvigorate customers who had broken their historical visitation pattern. They made significant efforts in educating the local property managers and their marketing teams about the potential and effective use of these Data Base Marketing capabilities. Total Rewards Program - This encouraged cross-market visitation patterns of customers and thus earn and redeem rewards at any of Harrah’s properties across the country

3. Explain how the concept of customer worth/ customer lifetime value has been applied at Harrah’s casino in the Database marketing efforts to gain a competitive edge in the industry w.r.t key performance indicators Harrah’s developed an innovative programme to achieve improvement on each of the KPIs: new customer acquisition, customer loyalty and customer retention by calculating customer profitability using the concept of customer lifetime value i.e. their predicted worth to the casino rather than on observed data. Application to database marketing efforts:  Harrah’s followed an opportunity-based customer segmentation process in order to track customers’ play preferences, betting patterns, where they liked to eat in the casino and whether they stayed the night, how often they visited, how much and how long they played. This aided Harrah’s in developing a comprehensive profile of each customer thereby helping in better tailoring of marketing initiatives.  For example, Harrah's estimated that 26% of players provided 82% of revenues, with avid players spending approximately $2,000 annually. Using this detailed information for every customer, Harrah's predicted potential customer playing behavior at its properties. Harrah's then used customized marketing to achieve specific objectives such as driving incremental frequency, budget, or both.  Marketing experiments have been conducted by Harrah's using quantitative techniques. For example, Harrah’s was able to identify that certain low incentive packages (only coins) were actually more profitable than the high value packages (room+food+coins). This helped them in cutting costs.  Further, the same day cash scheme was eliminated by Harrah’s without adversely affecting the business through sophisticated forecasting techniques.  By employing the concept of customer lifecycle management, it was able to come up with the New Business Program, Loyalty Program and Rentention Program. 4. Does Harrah’s have a sustainable competitive advantage? Can other companies duplicate what Harrah’s has done?

5. Discuss the privacy, ethical and security issues associated with what Harrah’s is doing. Are there concerns and how can Harrah’s address them? 

Harrah’s offers are targeted at people who they think would be potentially spending in casinos. This borders on ethical grounds of encouraging reckless gambling habits of some customers thereby threatening their financial stability. In case a customer exceeds his/her usual spending pattern by more than a specific %, the casino can remind him of the same so that he/she can choose to stop playing.

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The IT system put in place by Harrah’s extensively records customer’s playing behavior, strategies and personal information. This presents a security issue of the databases being subject to external attacks due to the high value of this information. It also raises concerns of privacy protection. The purposes for which the information collected from the customers would be used must be informed to them. Further, Harrah’s must invest in a robust IT security system. Due to the mapping of playing behavior and continuous prediction of a customer, a psychographic profile of the customers can be drawn from the data which can be used to target a variety of promotional activities. However, in case Harrah’s attempts to share this data with other companies, it will represent a serious breach of privacy. As Harrah’s scale of operations expand in the future, it might consider outsourcing the data mining activity in the future to a third party service provider which would raise issues of data security.