Chandni Shah 25722173 (S2) What are the objectives of the various Database marketing (DBM) programs and are they working? (Try using the numbers provided in the case and exhibits to examine whether these programs are working). Harrah’s aim from various Database Marketing (DBM) programs was to increase customer acquisition, customer loyalty, and customer retention. When other companies in the industry were just trying to build bigger and better casinos, Harrah’s was working towards understanding what would set them apart from others in the competition. The COO, Gary Loveman, put the Database Marketing Programs into place and the initiatives were successful – New Business Program – This program was designed to retain the Total Gold Members. The program used ‘predictive customers’ worth’ model to identify customers with high predictive worth and then send them attractive promotions tailored according to their preferences. Exhibit 2b illustrates the impact of the program. For example, if the company signed 1022 members in the month of April then they were able to retain 12% in the first month, 10% in the second, 8% in the third and 31% in the forth. A couple of months into the program, however, these percentages increased for each of the consecutive month. This shows that program was working. Loyalty Program (Frequency Upside) – Harrah’s identified a list of potentially loyal customers who could increase the number of trips that they made to Harrah’s. From Exhibit 2c, An offer was sent to a total of 953 customers in June, redeemable in July, August, and September. While, on average, only 30 of these 953 customers were visiting Harrah’s between January and May, the number jumped to an average of 150 per month during the subsequent months. Loyalty Program (Budget Upside) – Harrah's also identified customers with budget upside—customers who were only giving a small share of their gaming budget to Harrah's on each trip. In most cases, a customer's allocation of budget was directly related to the order in which they visited casinos on a particular trip—the first stop received the largest share, the second received the second largest and so on. For example, from Exhibit 2d, a customer would receive $5 for visiting and $ 20 for playing to a $200 level
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Chandni Shah 25722173 (S2) of theoretical winds, $30 for playing to a $200 level of theoretical winds, $30 for playing to a $300 level, and so forth. Retention Program – The program was devised to increase the number of customers who had broken their historical pattern. Exhibit 2e shows the visitation patterns for a group of customers whose patronage was declining in the second half of 1998. To reinvigorate relationships with these customers, Harrah’s sent a direct mail offer to approximately 8,000 customers in January of 1999 that was redeemable in February, March and April. The program seemed to be working even though the cost of the offer had gone up from $30 to $40.
Why is it important to use the “customer worth” in the DBM efforts rather than the observed level of play? The house expects to win a specific amount when a customer plays at the casino. This theoretical amount is called the Customer worth. Observed level of play on the other hand, only indicates the past customer activity. This data is not of much worth for making decisions in real-time or for future changes. It is important to focus efforts on Customer worth rather than observed level of play to zero down on the high worth players. Considering a non-competitive market, it is OK to concentrate on investing on highobserved frequency market because there are customers with high worth to work on. In a highly competitive gambling market, however, striving for a limited number of customers is difficult. With Harrah’s developing its own quantitative model to predict customer worth, the company can exploit more value from a broader customer base, and also provide a better service for customers. Harrah’s model of differentiating customers based on their worth and subsequently offering tailored promotions was a good step. These offers strive for customers’ future worth by converting competitors’ customers to Harrah’s customers, retaining current customers, increasing visit frequency and value, or reinvigorating customers.
How does Harrah’s integrate the various elements of its marketing strategy to deliver more than the results of Database Marketing? (Think of all changes that
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Chandni Shah 25722173 (S2) have been made that bring about an integrative effect). The challenges that Harrah’s faced after an initial solid growth was that the company could not forecast any further growth without following the industry trend, which was ‘build and they will come.’ Harrah’s decided to take a different route and decided to invest on better marketing strategies based on decision science. Harrah’s customer centric marketing focused on three key phases: new business, loyalty, and retention. Correspondingly, the company made use of the Data Base Marketing results to carry out three programs: new business program, loyalty program, and retention program. The three programs integrate with each other to satisfy customers and achieve sustainable marketing goal. Harrah’s advertising and emphasizing service quality strategy played important roles in building the brand image. The move to Total Rewards program helped Harrah’s to establish an emotional connection with its customers by tailoring their services to their specific needs. Thus, I believe, generating the data would not have been enough if there were not good filters to get to the right ideas. Further, the right ideas would not have generated results if there were not a strong marketing strategy in place. Thus, Harrah’s success not only constitutes of its move to decisions based on data but right strategy to capture the market share.
What is the sustainability of Harrah’s actions and strategy? Harrah’s realized early on that to drive the business towards sustainable growth, the company needs to set themselves apart from the competition. Therefore, instead of investing in making bigger and better properties, the company invested in achieving excellent customer service and satisfaction. To drive the focus on customers, the company did not just made radical decisions but used data for guidance. Instead of deciding and then having the data support their decision, they looked at the data and made the decisions accordingly. Further, the company did not just depend on the numbers to drive the company but also their intuition. Most customers, as mentioned in the case, lose money during gambling and often feel “shitty” and disgruntled. Harrah’s designed the customer service not only to take care of the happy customers to make them feel better but also took care of such
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Chandni Shah 25722173 (S2) disgruntled customers. Making such decisions shows the company’s focus towards growth through customer loyalty. This growth is sustainable because the company will attract more and more customers through word of mouth. Also, the company is making progress on retaining higher percentage of first time customers. Also, Harrah’s has patented its innovative processes and knowledge through proprietary means. This will give its business the necessary edge without having to worry about competition trying to reproduce its innovative processes. Moreover, Harrah’s may move into licensing its intellectual property to third parties and earn revenue from the knowledge that it has accumulated.
What is the take-away from this case? The key take-away from the case is that just gathering highly detailed data about what your customers does not help. The company needs to have means to utilize that data for hypothesis testing and predicting trends and preferences. Further, just predicting trends and preferences does not help the company to gain competitive edge. The utilization of that idea to create effective strategy that will capture value is what creates a powerful competitive advantage. For example, loyalty reward programs pay off only if the value created by customers exceeds the value delivered to them. Now, if the company gets the data on its customers but does not convert the data into effective strategies to provide excellent services to the customers, then the value of the effort is lost. Therefore, managers need to make sure that they utilize data to make decisions and not make decisions and utilize data to support them. Furthermore, when it comes to dealing with human capital of the company, data does not always predict the right thing and a manager’s intuition is what should take precedence. For example, if a worker is not a good fit for the organization but is delivering on the goals, the data will support the employee. It is now manager’s intuition to understand the misfit and take appropriate actions.
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