More Related Content Similar to Predictive analytics in the gaming industry (13) More from Intelligencia Limited (6) 1. Confidential+ Page+1+ 5/30/13+
+
PREDICTIVE)ANALYTICS)IN)THE)GAMING)INDUSTRY)
By))
Andrew)Pearson)
“In$business,$as$in$baseball,$the$question$isn't$whether$or$not$you'll$jump$into$
analytics.$ The$ question$ is$ when.$ Do$ you$ want$ to$ ride$ the$ analytics$ horse$ to$
profitability...or$follow$it$with$a$shovel?”+
+++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ +~+Rob+Neyer,+ESPN+
+
+
Overview'
+
Predictive+analytics+refers+to+a+variety+of+statistical+techniques+that+analyze+current+and+historical+facts+to+make+
predictions+about+future+events.+Using+such+techniques+as+predictive+modeling,+machine+learning,+data+mining+and+
game+theory,+predictive+analytics+can+build+models+that+exploit+patterns+found+in+historical+and+transactional+data,+
patterns+that+can+identify+business+risks+and+potential+opportunities.++
+ Predictive+analytics+is+not+a+new+technology,+it+is+a+decades+old,+proven+technology+that+encompasses+such+
disciplines+ as+ statistics+ and+ data+ mining.+ A+ forwardKlooking+ technology+ that+ uses+ past+ events+ to+ predict+ future+
activity,+predictive+analytics+arose+out+of+the+management+information+systems+and+standard+reporting+world+of+
the+1970s.+The+drill+down+technology+of+the+1980s+led+to+the+data+warehousing+and+OLAP+cubes+systems+of+the+
1990s,+which+allowed+for+more+complex+ad+hoc+data+querying.+The+analytics+and+Business+Intelligence+solutions+of+
the+2000s+evolved+into+the+more+complex+world+of+predictive+modeling+and+optimization+of+today.+These+systems+
can+do+more+than+report,+they+can+actually+help+predict+future+business+activity.+The+Predictive+Analytics+Pocket+
Guide
1
+(2009)+defines+predictive+analytics+as+such:'
'
Unlike$ Business$ Intelligence$ applications,$ which$ merely$ present$ summaries$ of$ historical$ data,$
predictive$analytics$focuses$instead$on$the$prediction$of$future$outcome$of$events$not$yet$observed$
in$ the$ data.$ These$ predictions$ are$ made$ by$ creating$ a$ model$ from$ the$ observed$ data$ using$
statistical$ techniques.$ These$ models$ can$ range$ in$ complexity$ from$ simple$ linear$ equations$ to$
powerful$techniques$such$as$neural$networks
2
.$+
1
Available at www.predictivesource.com.
2
A predictive analytics technology that can learn the relationship between inputs and output through training.
2. Confidential+ Page+2+ 5/30/13+
+
+
+ Predictive+analytics+can+be+broken+down+into+three+different+types+of+models:+
+
+
1. Predictive:+these+analyze+past+performance+to+predict+the+likelihood+that+an+individual+customer+will+
exhibit+a+specific+behavior+in+the+future.++
2. Descriptive:+ these+ identify+ different+ relationships+ between+ customers+ to+ group+ or+ segment+ them+ for+
marketing+or+other+purposes.++
+
3. Decision:+these+predict+outcomes+of+complex+decisions,+relationships,+products+and/or+processes.+
+
+ Predictive+ analytics+ extracts+ information+ from+ data+ sets+ and+ uses+ it+ to+ anticipate+ future+ trends+ and+
behavior+ patterns+ based+ on+ statistics+ and+ data+ mining+ (Ramakrishnan+ and+ Madure,+ 2008).+ The+ most+ important+
element+of+predictive+analytics+is+the+predictor,+“a+variable+that+can+be+measured+for+an+individual+or+other+entity+
to+foresee+future+behavior”+(Ramakrishnan+and+Madure,+2008).+The+real+trick+is+to+find+the+predictive+model+best+
suited+for+the+outcome+one+is+trying+to+study+(Ramakrishnan+and+Madure,+2008)+and+this+is+no+easy+feat.++
+ “Predictive+analytics+also+encompasses+models+that+seek+out+subtle+data+patterns+to+answer+questions+
about+customer+performance,+such+as+churn+prediction,+fraud+detection+and+propensity+to+buy+additional+products+
and+ services”+ (Ramakrishnan+ and+ Madure,+ 2008).+ Predictive+ analytics+ solutions+ include+ SAS's+ suite+ of+ analytics+
products,+ IBM's+ SPSS,+ EMC's+ Greenplum+ and+ Revolution's+ R+ open+ source+ product.+ Whichever+ solution+ is+ used,+
predictive+analytics+can+enhance+customer+acquisition+and+retention,+identify+crossKsell+and+upKsell+opportunities,+
identify+customer+lifetime+value,+spot+fraud+detection,+determine+the+life+cycle+of+a+slot+machine+and+help+direct+
and+improve+marketing+campaigns.+Predictive+analytics+can+even+“perform+calculations+during+live+transactions+to+
guide+ a+ decision”+ (Ramakrishnan+ and+ Madure,+ 2008),+ but+ without+ data+ mining+ predictive+ analytics+ would+ be+
useless.++
+
Data'Mining:'An'In1House'Goldmine'
Data+mining+–+the+process+whereby+hidden+patterns+within+data+sets+are+discovered+–+is+a+component+of+predictive+
analytics+ that+ entails+ an+ analysis+ of+ data+ to+ identify+ trends+ and+ patterns+ of+ relationships+ among+ data+ sets+
(Ramakrishnan+and+Madure,+2008).+To+put+is+simply,+data+mining+helps+transform+raw+data+into+usable+information.+
In+their+article+Neural$Networks$in$Data$Mining,+Singh+and+Chauhan+(2009)+state+that+data+mining+is+the:++
+
Business$ of$ answering$ questions$ that$ you've$ not$ asked$ yet.$ Data$ mining$ reaches$ deep$ into$
databases.$ Data$ mining$ tasks$ can$ be$ classified$ into$ two$ categories:$ Descriptive$ and$ predictive$
3. Confidential+ Page+3+ 5/30/13+
+
data$ mining.$ Descriptive$ data$ mining$ provides$ information$ to$ understand$ what$ is$ happening$
inside$the$data$without$a$predetermined$idea.$Predictive$data$mining$allows$the$user$to$submit$
records$ with$ unknown$ field$ values,$ and$ the$ system$ will$ guess$ the$ unknown$ values$ based$ on$
previous$patterns$discovered$in$the$database.$+
+
+ By+employing+automated+predictive+analytics+to+sift+through+a+casino+operator’s+customer+database,+data+
mining+can+discover+hidden+opportunities+and+connections+that+might+otherwise+be+missed.'Many+casino+operators+
have+terabytes+and+terabytes+of+data+–+everything+from+customer+player+card+information+to+information+about+a+
customer’s+room+preference+–+and+sifting+through+this+information+to+discover+meaningful+connections+would+be+
an+impossible+task+without+data+mining.''
' Data+ mining+ and+ predictive+ analytics+ aim+ to+ identify+ valid,+ novel,+ potentially+ useful+ and+ understandable+
correlations+and+patterns+in+datasets+(Chung+&+Gray,+1999)+by+combing+through+copious+amounts+of+data+to+sniff+out+
patterns+and+relationships+that+are+too+subtle+or+complex+for+humans+to+detect+(Kreuze,+2001).+Data+must+be+gathered+
from+disparate+sources+and+then+seamlessly+integrated+into+a+data+warehouse+that+can+then+cleanse+it+and+make+it+
ready+for+consumption.+Trends+that+surface+from+the+data+mining+process+can+help+in+monetization,+as+well+as+in+
future+advertising+and+marketing+campaigns.+
'For+ casinos,+ data+ mining+ can+ cull+ through+ data+ from+ such+ disparate+ sources+ and+ departments+ as+ sales+ and+
marketing,+thereby+allowing+users+to+measure+patron+behavior+on+more+than+a+hundred+different+attributes,+which+
is+a+far+cry+from+the+three+or+four+different+attributes+that+statistical+modeling+used+to+offer.++
+ Unlike+ traditional+ statistical+ analysis,+ which+ relies+ heavily+ on+ hypothesis+ testing,' data+ mining+ tries+ to+
identify+relationships+and+interdependencies+that+affect+a+marketingKrelated+opportunity+or+problem+(Thelen,+et+al.,+
2004).+While+traditional+multiple+regression+methods+can+only+use+a+limited+number+of+complexity+levels,+neural+
networks+and+decision+trees+can+easily+handle+up+to+200+predictor+variables+(Thelen,+et+al.,+2004),+allowing+them+to+
do+much+more+complicated+computations.'
' Normally,+ with+ statistical+ modeling,+ an+ analyst+ poses+ a+ simple+ question+ such+ as:+ “Are+ higherKincome+
people+prone+to+be+more+loyal+to+a+casino+player+card+than+those+with+lower+income+levels?”'The+hypothesis+would+
elicit+ two+ responses,+ either+ “yes”+ or+ “no.”+ Data+ mining,+ however,+ can+ reveal+ factors+ that+ contribute+ to+ casino+
loyalty;+factors+that+the+analyst+might+never+have+thought+to+test+for.+According+to+Thelen,+et+al.+(2004),+the+data+
mining+process+is+as+follows:+
+
1. Identify+the+business+opportunity+
2. Cleanse+the+data+
3. Transform+the+data+into+meaningful+information+
4. Confirm+the+model++
5. Tweak+and+perfect+the+model'
4. Confidential+ Page+4+ 5/30/13+
+
'
' Since' data+ mining+ systems+ are+ inherently+ reliant+ on+ so+ many+ departments,+ they+ can+ be+ difficult+ and+
complicated+ to+ implement.+ Marketing+ managers,+ corporate+ strategists,+ statisticians+ and+ IT+ directors+ are+ all+
required+ to+ add+ their+ input.+ Casino+ operators+ should+ keep+ in+ mind,+ however,+ that+ data+ mining+ will+ only+ be+
successful+if+their+casino+patrons+are+willing+to+provide+information+on+themselves+(Thelen,+et+al.,+2004).+Although+
player+cards+provide+a+wealth+of+information,+if+the+patron+doesn’t+trust+the+casino+with+information+beyond+what+
is+gleaned+from+the+player+cards,+the+casino+will+only+have+a+incomplete+view+of+that+individual+patron+(Thelen,+et+
al.,+2004),+which+severely+limits+the+predictive+analytics+capabilities.++
+
Data'Mining'Techniques''
+
Regression' models:+ Regression+ analysis+ is+ the+ process+ of+ predicting+ the+ continuous+ dependent+ variable+ from+ a+
number+ of+ independent+ variables.+ It+ attempts+ to+ find+ a+ function+ that+ models+ the+ data+ with+ the+ least+ error.+
Regression+ analysis+ can+ be+ used+ on+ data+ that+ is+ either+ continuous+ or+ dichotomous,+ but+ cannot+ be+ used+ to+
determine+a+causal+relationship.+Regression+analysis+focuses+on+establishing+a+mathematical+equation+as+a+model+
to+ represent+ the+ interactions+ between+ the+ different+ variables+ under+ consideration.+ Regression+ models+ are+
particularly+ effective+ to+ find+ patron+ worth+ because+ the+ model+ can+ be+ used+ to+ score+ historical+ data+ to+ predict+ an+
unknown+outcome+(Sutton,+2011).++Multiple+regression+models+“utilize+a+variety+of+predictors+and+the+relationships+
between+those+predictors+to+predict+future+worth”+Sutton+(2011)+states.'As+an+example,+Sutton+(2011)+explains+that+“a+
model+built+to+predict+future+gaming+trip+worth+might+be+generated+based+on+historical+information+about+theoretical+
win,+actual+win,+credit+line,+time+on+device,+nights+stayed,+and+average+bet.”'+
+
Linear'regression'models:+These+analyze+the+relationship+between+the+response+or+dependent+variable+and+a+set+of+
independent+ or+ predictor+ variables.+ This+ relationship+ is+ expressed+ as+ an+ equation+ that+ predicts+ the+ response+
variable+ as+ a+ linear+ function+ of+ the+ parameters.+ These+ parameters+ are+ adjusted+ so+ that+ a+ measure+ of+ fit+ is+
optimized.+Much+of+the+effort+in+model+fitting+is+focused+on+minimizing+the+size+of+the+residual,+as+well+as+ensuring+
that+ it+ is+ randomly+ distributed+ with+ respect+ to+ the+ model+ predictions.+ An+ important+ assumption+ of+ regression+
analysis+ is+ linearity,+ which+ defines+ a+ straight+ line+ relationship+ between+ Independent+ variables+ and+ dependent+
variables.+For+example,+in+Figure+1,+we+could+make+the+assessment+that+an+increase+in+average+bet+also+increases+
actual+win+and,+using+the+straight+line,+we+could+predict+how+much+the+actual+win+would+be+affected.+
5. Confidential+ Page+5+ 5/30/13+
+
+
Figure$1:$Linear$Regression$Model$
+ For+the+casino+and+hospitality+industry,+regression+models+can+be+used+to+predict+a+patron's+future+worth+
(Sutton,+ 2011).' Multiple+ regression+ models+ “utilize+ a+ variety+ of+ predictors+ and+ the+ relationships+ between+ those+
predictors+to+predict+future+worth”+Sutton+(2011)+states.'As+an+example,+Sutton+(2011)+explains+that+“a+model+built+
to+predict+future+gaming+trip+worth+might+be+generated+based+on+historical+information+about+theoretical+win,+
actual+win,+credit+line,+time+on+device,+nights+stayed,+and+average+bet.”+
+
+
Neural' networks:+ Artificial+ Neural+ Networks+ (ANN)+ or+ just+ “Neural+ Networks”+ are+ nonKlinear+ statistical+ data+
modeling+tools+that+are+used+when+the+exact+nature+of+a+relationship+between+input+and+output+is+unknown.++In+
their+article+Neural$Networks$in$Data$Mining,+Singh+and+Chauhan+(2009)+claim+that+a+neural+network+is:++
+
A$ mathematical$ model$ or$ computational$ model$ based$ on$ biological$ neural$ networks,$ in$ other$
words,$ is$ an$ emulation$ of$ biological$ neural$ system.$ It$ consists$ of$ an$ interconnected$ group$ of$
artificial$neurons$and$processes$information$using$a$connectionist$approach$to$computation.$In$
most$cases$an$ANN$is$an$adaptive$system$that$changes$its$structure$based$on$external$or$internal$
information$that$flows$through$the$network$during$the$learning$phase.$+
+
Neural+networks+can+be+used+to+find+patterns+in+data.+A+key+feature+of+neural+networks+is+that+they+learn+
the+relationship+between+inputs+and+output+through+training.++
+ There+are+three+types+of+training+in+neural+networks;+reinforcement+learning,+supervised+and+unsupervised+
training,+with+supervised+being+the+most+common+one.+Neural+Networks+(see+Figure+2)+are+data+processing+systems+
6. Confidential+ Page+6+ 5/30/13+
+
whose+ structure+ and+ functioning+ are+ inspired+ by+ biological+ neural+ networks.+ Their+ fundamental+ characteristics+
include+parallel+processing,+distributed+memory+and+adaptability+to+their+surroundings.+
+
Figure$2:$A$Neural$Network$Chart$
+ For+ casino+ and+ hospitality+ marketing+ purposes,+ neural+ networks+ can+ be+ used+ to+ classify+ a+ consumer's+
spending+pattern,+analyze+a+new+product,+identify+a+patron's+characteristics+as+well+as+forecast+sales+(Singh+and+
Chauhan,+2009).+The+advantages+of+neural+networks+include+high+accuracy,+high+noise+tolerance+and+ease+of+use+as+
they+can+be+updated+with+fresh+data,+which+makes+them+useful+for+dynamic+environments+(Singh+and+Chauhan,+
2009).+
+
Logistic'regression:+This+method+transforms+information+about+a+binary+dependent+variable+into+an+unbounded+
continuous+variable+and+estimates+a+regular+multivariate+model.+Logistic+regression+(see+Figure+3)+is+a+generalized+
linear+ model.+ It+ is+ used+ mainly+ to+ predict+ binary+ variables+ (with+ values+ such+ as+ yes/no+ or+ 0/1).+ Thus,+ logistic+
8. Confidential+ Page+8+ 5/30/13+
+
costs,+ and+ utility.+ Decision+ trees+ are+ sequential+ partitions+ of+ a+ set+ of+ data+ that+ maximize+ the+ differences+ of+ a+
dependent+variable+(response+or+output+variable).+They+offer+a+concise+way+of+defining+groups+that+are+consistent+
in+their+attributes,+but+which+vary+in+terms+of+the+dependent+variable.++
+ The+ construction+ of+ a+ decision+ tree+ is+ based+ on+ the+ principle+ of+ “divide+ and+ conquer”:+ through+ a+
supervised+learning+algorithm,+successive+divisions+of+the+multivariable+space+are+carried+out+in+order+to+maximize+
the+distance+between+groups+in+each+division+(that+is,+carry+out+partitions+that+discriminate).+The+division+process+
finalizes+when+all+of+the+entries+of+a+branch+have+the+same+value+in+the+output+variable,+giving+rise+to+the+complete+
model.+The+further+down+the+input+variables+are+in+the+tree,+the+less+important+they+are+in+the+output+classification+
(and+the+less+generalization+they+allow,+due+to+the+decrease+in+the+number+of+inputs+in+the+descending+branches).++
For+the+casino+and+hospitality+industry,+decision+trees+can+be+used+“to+identify+patron+characteristics+that+
can+predict+the+likelihood+of+a+patron+(or+segment+of+patrons)+to+abuse+an+offer”+(Sutton,+2011).+Figure+5+shows+a+
decision+tree+for+responses+to+a+marketing+campaign+using+age+and+zip+code+as+the+variables.+++
Time' series' model:+ A+ time+ series+ is+ an+
ordered+ sequence+ of+ values+ of+ a+ variable+ at+ uniformly+ spaced+ time+ intervals.+ According+ to+ the+ Engineering$
Statistics$Handbook,+time+series+models+can+be+used+to:++
+
• Obtain+an+understanding+of+the+underlying+forces+and+structure+that+produces+an+observed+data;+
• Fit+a+model+and+proceed+to+forecasting,+monitoring+or+even+feedback+and+feedforward+control.
3
++
+
3
http://www.itl.nist.gov/div898/handbook/pmc/section4/pmc41.htm.
Figure 5: Decision Trees Chart
9. Confidential+ Page+9+ 5/30/13+
+
+ A+Time+Series+model+(see+Figure+6)+can+be+used+to+predict+or+forecast+the+future+behavior+of+a+variable.+
These+ models+ account+ for+ the+ fact+ that+ data+ points+ taken+ over+ time+ may+ have+ an+ internal+ structure+ (such+ as+
autocorrelation,+trend+or+seasonal+variation)+that+should+be+accounted+for.+For+the+casino+and+hospitality+industry,+
a+Time+Series+Analysis+can+be+used+to+forecast+sales,+project+yields+and+workloads+as+well+as+analyze+budgets.++
+
Figure$6:$Time$Series$Model.$
+
+
Nearest'Neighbor'Method:+Initially+introduced+by+J.+G.+Skellam,+the+Nearest+Neighbor+Method+is+a+technique+that+
is+ based+ on+ the+ concept+ of+ similarity+ where+ “the+ expected+ and+ observed+ mean+ value+ of+ the+ nearest+ neighbor+
distances+is+used+to+determine+if+a+data+set+is+clustered”+(Skellam,+1952).+The+Nearest+Neighbor+Method+(See+Figure+
7)+constructs+a+classification+system+without+making+assumptions+concerning+the+shape+of+the+function+that+relates+
the+dependent+variable+with+the+independent+variables.+The+aim+is+to+identify+in+a+dynamic+way+observations+in+the+
training+data+that+are+similar+to+a+new+observations+that+we+want+to+classify.+This+method+does+not+impose+a+priori+
any+assumptions+about+the+distribution+from+which+the+modeling+sample+is+drawn.+It+involves+a+training+set+with+
both+positive+and+negative+values.++
10. Confidential+ Page+10+ 5/30/13+
+
+
Figure$7:$Nearest$Neighbor$Method$
+
Discriminant' Analysis:+ Discriminant+ or+ discriminant+ function+ analysis+ is+ a+ method+ used+ to+ determine+ which+
weightings+of+quantitative+variables+or+predictors+best+discriminate+between+two+or+more+than+two+groups+of+cases+
and+do+so+better+than+chance+(Cramer,+2003).+It+is+a+method+used+in+statistics,+pattern+recognition+and+machine+
learning+to+find+a+linear+combination+of+features+that+characterizes+or+separates+two+or+more+classes+of+objects+or+
events.++
+ Because+ of+ its+ ability+ to+ classify+ individuals+ or+ experimental+ units+ into+ two+ or+ more+ uniquely+ defined+
populations,+discriminate+analysis+can+be+used+for+market+segmentation+and+the+prediction+of+group+membership.+
The+discriminant+score+can+be+the+basis+on+which+a+prediction+about+group+membership+is+made.+For+example,+the+
discriminant+weights+of+each+predictive+variable+(age,+sex,+income,+etc.)+indicate+the+relative+importance+of+each+
variable.+For+example,+if+age+has+a+low+discriminant+weight+then+it+is+less+important+than+the+other+variables.+For+a+
casino+and+hospitality+marketing+department,+use+of+discriminant+analysis+can+help+predict+why+a+patron+frequents+
one+ casino+ over+ another.+ Discriminant+ analysis+ (See+ Figure+ 8)+ is+ specifically+ useful+ in+ product+ research,+
perception/image+research,+advertising+research+and+direct+marketing.+
12. Confidential+ Page+12+ 5/30/13+
+
+
Figure$9:$Survival$Analysis$Model$
+
+ There+are+several+other+data+mining+techniques+that+can+be+used+but+the+ones+listed+above+are+the+most+
commonly+used+ones+in+the+industry+and+much+of+what+you+will+need+to+glean+from+your+data+can+be+discovered+by+
using+them.+Once+the+data+has+been+mined,+a+business+intelligence+solution+can+tell+you+what's+going+on+in+your+
data+while+a+predictive+analytics+program+can+actually+analyze+current+and+historical+trends+to+make+predictions+
about+future+events.++
+
Predictive'Analytics:'Actionable'Intelligence'
+
Customer+ analytics+ have+ evolved+ from+ simply+ reporting+ patron+ behavior+ to+ segmenting+ customers+ based+ on+
profitability,+to+predicting+that+profitability,+to+improving+those+predictions+(because+of+the+inclusion+of+new+data),+
to+actually+manipulating+customer+behavior+with+targetKspecific+promotional+offers+and+marketing+campaigns.++
+ Predictive+analytics+can+graph+a+customer’s+value+over+time+as+well+as+anticipate+that+customer’s+behavior.+
From+ this+ analysis,+ a+ casino+ operator+ can+ tailor+ highly+ specific,+ laserKfocused+ marketing+ campaigns+ to+ each+
customer+in+the+casino’s+patron+database.+By+consolidating+the+various+patron+touchpoint+systems+throughout+the+
casino+property,+the+casino+operator+can+create+a+full+view+of+each+patron.++
+ Drawing+ on+ data+ from+ casino+ player+ cards,+ predictive+ models+ can+ set+ budgets+ and+ calendars+ for+ the+
casino's+gamblers,+calculating+their+predicted+lifetime+value+in+the+process.+If+a+gambler+wagers+less+than+usual+
because+they+may+have+skipped+a+monthly+visit,+the+casino+can+intervene+with+a+letter+or+phone+call+offering+a+free+
meal,+a+show+ticket+or+gaming+comps.+Without+these+customer+analytics,+casino+operators+might+not+notice+what+
13. Confidential+ Page+13+ 5/30/13+
+
could+be+a+slight,+almost+imperceptible+change+in+customer+behavior+that+portends+problems.+For+example,+if+a+
longKtime+customer+decides+to+cash+in+all+their+player+card+points+perhaps+it’s+because+they+are+dissatisfied+with+
their+last+experience+at+the+casino.+Predictive+analytics+can+quickly+spot+these+trends+and+alert+casino+management+
to+the+issue+so+that+they+can+approach+the+individual+to+find+out+if+there+is+a+problem.+This+kind+of+personalized+
attention+can+go+a+long+way+in+appeasing+disgruntled+customers,+which+might+be+the+difference+between+retaining+
or+losing+them+as+a+customer.++
+ Predictive+analytics+can+glean+data+from+a+variety+of+disparate+sources,+including:+
+
• Data+integrated+throughout+the+casino's+gaming+systems.+
• Feedback+information+derived+from+postKvisit+surveys.+
• Web+data+mining+from+customer’s+individual+online+behavior.+
• Social+media+websites.++
+ +
+ With+ predictive+ analytics,+ gaming+ organizations+ can+ easily+ segment+ their+ customers+ and+ coordinate+
marketing+campaigns+to+effectively+target+each+segment+across+each+outbound+channel.+For+example,+if+a+casino+
customer+is+scheduled+to+receive+all+of+his+or+her+event+promotions+via+eKmail,+the+predictive+analytics+solution+will+
automatically+remove+him+from+concurrent+campaigns+being+run+through+other+channels.+This+ensures+consistency+
and+also+improves+customer+satisfaction,+since+the+organization+respects+the+customer’s+contact+preference+and+
doesn’t+ inundate+ him+ or+ her+ with+ multiple+ offers.+ Moreover,+ a+ predictive+ analytics+ solution+ monitors+ channel+
capacity+and+usage+to+eliminate+overload,+while+distributing+campaigns+equally+across+the+various+channels.+If+one+
channel+is+at+risk+of+overload,+the+solution+automatically+shifts+the+remainder+of+a+campaign+to+a+different+channel+
to+ ensure+ completion.+ This+ enables+ organizations+ to+ maximize+ the+ capacity+ and+ value+ of+ each+ channel+ without+
resorting+to+timeKconsuming+manual+monitoring.++
+
Manipulating'Customer'Behavior'
Successful+marketing+is+about+reaching+a+consumer+with+an+interesting+offer+when+he+or+she+is+primed+to+accept+
that+offer.+Knowing+what+might+interest+a+patron+is+half+the+battle+of+making+a+sale+and+this+is+where+customer+
intelligence+ and+ predictive+ analytics+ come+ in.+ Customer+ analytics+ has+ evolved+ from+ simply+ reporting+ customer+
behavior+to+segmenting+customers+based+on+their+profitability,+to+predicting+that+profitability,+to+improving+those+
predictions+because+of+the+inclusion+of+new+data,+to+actually$manipulating$customer$behavior+with+targetKspecific+
promotional+offers+and+marketing+campaigns.++
+ Predictive+ analytics+ can+ deconstruct+ a+ casino’s+ massive+ data+ warehouse,+ making+ the+ information+ held+
within+these+databases+more+meaningful.+It+can+extrapolate+trends,+invent+and+validate+a+hypothesis,+as+well+as+
predict+future+activity.+Predictive+analytics+can+be+used+in+a+myriad+of+ways,+but+mostly+for+crossKselling/upKselling,+
14. Confidential+ Page+14+ 5/30/13+
+
campaign+ management,+ customer+ acquisition,+ budgeting,+ forecasting+ and+ attrition/churn/retention,+ amongst+
other+things+(see+Figure+10).+
+
+ Casino+operators+can+enhance+their+customer+relationships+by+crossKselling+and+upKselling+items+that+the+
customer+might+actually+be+interested+in,+rather+than+offering+them+products+they+are+likely+to+reject.++
+ Predictive+analytics+can+also+enable+call+center+personnel+to+act+on+inbound+calls+by+providing+offers+that+are+
likely+ to+ be+ attractive+ to+ certain+ caller+ profiles.+ Inversely,+ telemarketers+ can+ listen+ for+ such+ trigger+ phrases+ as+
“Baccarat+ tournament”+ or+ “seafood+ buffet”+ or+ “hotel+ room”+ to+ help+ casino+ marketers+ come+ up+ with+ the+ most+
enticing+offer+for+an+individual+patron.+In+addition,+automated+systems+like+kiosks+and+customer+service+agents+on+
the+ casino+ floor+ can+ use+ predictive+ analytics+ to+ provide+ customers+ with+ appropriate+ offers+ during+ other+
interactions.++
+ In+ their+ article+ “Knowing$ What$ to$ Sell,$ When,$ and$ to$ Whom,”+ authors+ V.+ Kumar,+ R.+ Venkatesan,+ and+ W.+
Reinartz+(2006)+showed+how,+by+simply+understanding+and+tweaking+behavioral+patterns,+they+could+increase+the+
hit+rate+for+offers+and+promotions+to+consumers,+which+then+had+an+immediate+impact+on+revenue.++
+ By+ applying+ statistical+ models+ based+ on+ the+ work+ of+ Nobel+ prizeKwinning+ economist+ Daniel+ McFadden,+
researchers+accurately+predicted+not+only+a+specific+person’s+purchasing+habits,+but+also+the+specific+time+of+the+
purchase+to+an+accuracy+of+80%+(Venkatesan+and+Reinartz,+2006).+The+potential+to+market+to+an+individual+when+he+
or+she+is+primed+to+accept+the+advertising+is+advantageous+for+both+parties+involved;+marketers+don’t+waste+time+
Figure 10: Applications for Predictive Analytics
15. Confidential+ Page+15+ 5/30/13+
+
advertising+to+consumers+when+they+aren’t+primed+to+accept+the+advertisements,+but+do+market+ to+consumers+
when+and+where+they+might+want+to+use+the+advertisements.++
+ Predictive+modeling+is+only+useful+if+it+is+deployed+and+it+creates+an+action.+Taking+advantage+of+the+more+
powerful,+statistically+based+segmentation+methods,+customers+can+be+segmented+not+only+by+dollar+values+but+
also+on+all+known+information,+which+can+include+behavioral+information+gleaned+from+resort+activities,+as+well+as+
the+ patron’s+ simple+ demographic+ information.+ This+ more+ detailed+ segmentation+ allows+ for+ more+ targeted+ and+
customerKfocused+marketing+campaigns.+
+ Models+can+be+evaluated+and+reports+generated+on+multiple+statistical+measures,+such+as+neural+networks,+
decision+trees,+genetic+algorithms,+the+nearest+neighbor+method,+rule+induction,+and+lift+and+gains+charts.
1
+Once+
built,+ scores+ can+ be+ generated+ in+ a+ variety+ of+ ways+ to+ facilitate+ quick+ and+ easy+ implementation.+ The+ projects+
themselves+can+be+reKused+and+shared+to+facilitate+faster+model+development+and+knowledge+transfer.++
+ In+his+paper+Predictive$Analytics,+Wayne+Eckerson+(2007)+advises+creating+predictive+models+by+using+the+
following+six+steps:+
+
1. Define+ the+ business+ objectives+ and+ desired+ outcomes+ for+ the+ project+ and+ then+ translate+ them+ into+
predictive+analytic+objectives+and+tasks.+
2. Explore+ and+ analyze+ the+ source+ data+ to+ determine+ the+ most+ appropriate+ data+ and+ model+ building+
approach+and+then+scope+the+effort.++
3. Prepare+the+data+by+selecting,+extracting,+and+transforming+the+data,+which+will+be+the+basis+for+the+
models.++
4. Build+the+models,+as+well+as+test+and+validate+them.+
5. Deploy+the+models+by+applying+them+to+the+business+decisions+and+processes.+
6. Manage+and+update+the+models+accordingly.++
+
+ By+utilizing+data+from+past+campaigns+and+measures+generated+by+the+predictive+modeling+process,+casino+
operators+can+track+actual+campaign+responses+versus+expected+campaign+responses,+which+can+often+prove+wildly+
divergent.+ Additionally,+ casino+ operators+ can+ generate+ upper+ and+ lower+ “control”+ limits+ that+ can+ be+ used+ to+
automatically+ alert+ campaign+ managers+ when+ a+ campaign+ is+ over+ or+ underperforming,+ letting+ them+ focus+ on+
campaigns+that+specifically+require+attention.++
+ One+of+the+benefits+of+automating+campaigns+is+that+offers+based+on+either+stated+or+inferred+preferences+
of+patrons+can+be+developed.+Analysis+can+identify+which+customers+may+be+more+responsive+to+a+food/beverage+
offer,+a+room+offer,+and/or+a+free+chip+offer.+The+result:+more+individualized+offers+are+sent+out+to+the+casino's+
patrons+and,+because+these+offers+tap+into+a+customer’s+wants,+desires,+needs+and+expectations,+they+are+more+
likely+to+be+used;+more+offers+used+mean+more+successful+campaigns.+++
1
Cumulative gains and lift charts are visual aids for measuring model performance.
16. Confidential+ Page+16+ 5/30/13+
+
+ By+understanding+what+type+of+patron+is+on+its+property,+why+they+are+there,+and+what+they+like+to+do+
while+they+are+there,+a+casino+operator+can+individualize+its+marketing+campaigns+so+that+they+are+more+effective,+
thereby+increasing+the+casino+property's+ROI.++
+ With+predictive+analytics,+casino+operators+can+even+predict+which+lowKtier+and+midKtier+customers+are+
likely+to+become+the+next+high+rollers.+In+so+doing,+casinos+can+afford+to+be+more+generous+in+their+offers+as+they+
know+that+there+is+a+high+likelihood+that+these+customers+will+appreciate+the+personalized+attention+and+therefore+
become+long+term+–+and,+hopefully,+highly+profitable+–+patrons.++
+
ROI:'Predictive'Modeling'in'the'Real'World''
It+ is+ hard+ to+ get+ an+ exact+ Return+ on+ Investment+ (ROI)+ figure+ with+ predictive+ analytic+ solutions+ because+ many+
companies+who+have+implemented+these+solutions+haven’t+conducted+formal+ROI+studies.+The+very+nature+of+an+
ROI+study+can+be+rather+nebulous+as+the+revenue+generation+isn't+always+easily+quantifiable.+However,+according+to+
Wayne+Erickson+(2007),+“companies+with+highKvalue+analytic+programs+that+have+calculated+ROI+invest+on+average+
$1.36+million+and+receive+a+payback+within+11.2+months.+It+should+be+noted,+however,+that+this+study+was+based+on+
responses+from+only+37+survey+respondents.”+
+ Although+they+are+not+in+the+casino+industry,+according+to+a+July+7,+2009+press+release+about+their+use+of+
the+ SAS+ Analytics+ suite+ of+ tools,+ the+ National+ Geographic+ Society+ saw+ “a+ return+ on+ investment+ of+ 200+ to+ 300+
percent,+ with+ the+ bestKperforming+ customer+ segments+ realizing+ 50+ percent+ overall+ campaign+ performance+
improvements”+(SAS,+2009).++
+ Some+other+real+world+examples+of+how+predictive+analytics+have+helped+companies+increase+customer+
service+as+well+as+drive+profits+straight+to+the+bottom+line+include:+
+
• To+test+a+marketing+campaign+hypothesis,+Harrah's+chose+two+similar+groups+of+frequent+slot+players+
from+ Jackson,+ Miss.+ Members+ of+ the+ control+ group+ were+ offered+ a+ typical+ casinoKmarketing+ package+
worth+$125+that+included+a+free+room,+two+steak+meals+and+$30+of+free+chips+at+the+Tunica+casino.+
Members+ of+ the+ test+ group+ were+ offered+ $60+ in+ chips.+ The+ more+ modest+ offer+ generated+ far+ more+
gambling,+suggesting+that+Harrah's+had+been+wasting+money+giving+customers+free+rooms.+Thereafter,+
profits+from+the+revamped+promotion+nearly+doubled+to+$60+per+person+per+trip+(Binkley,+2000).+
• When+Pearl+River+Resort+initiated+a+marketing+campaign+using+SAS+PVO,+they+were+surprised+by+the+
results,+which+showed+that+not+all+highKvalue+guests+were+the+same,+some+actually+weren’t+very+big+
gamblers+but+their+spend+in+other+parts+of+the+resort+more+than+made+up+for+their+lack+of+gambling.+This+
information+ was+ put+ to+ good+ use+ during+ times+ when+ the+ casino+ was+ hosting+ poker+ or+ blackjack+
tournaments,+a+time+when+the+casino+property+knew+that+the+tables+would+be+crowded.+ Pearl+River+
17. Confidential+ Page+17+ 5/30/13+
+
Resort+was+able+to+fill+the+resort+with+people+the+company+knew+had+little+intention+of+venturing+onto+
the+gaming+floor
4
.+
• By+using+predictive+analytics+Harrah’s,+was+able+to+identify+a+small+group+of+customers+who+accounted+
for+about+30%+of+their+overall+gamblers+(Binkley,+2000).+These+customers+spent+between+$100+and+$499+
per+trip+but+actually+accounted+for+about+80%+of+the+casino’s+revenue+and+nearly+100%+of+the+casino’s+
profits+(Binkley,+2000).+
+
Predicting'a'Patron's'Future'Worth'
Modern+casino+analytics+and+patron+management+systems+have+provided+the+gaming+industry+with+an+enormous+
amount+ of+ highly+ detailed+ data+ about+ when,+ where,+ how+ often+ and+ how+ much+ patrons+ are+ playing+ at+ a+ casino+
(Sutton,+2011).+This+is+information+that+can+be+used+by+a+casino+to+better+segment+its+customers+as+well+as+to+
predict+ future+ behavior,+ and+ improve+ marketing+ outcomes+ (Sutton,+ 2011).+ “Patron+ analytics+ are+ essential+ for+
maximizing+ revenue+ driven+ by+ mass+ market+ marketing+ campaigns,”+ Sutton+ (2011)+ argues+ in+ his+ paper+ Patron$
Analytics$ in$ the$ Casino$ and$ Gaming$ Industry:$ How$ the$ House$ Always$ Wins.+ Sutton+ (2011)+ claims+ that,+ when+ it+
comes+to+casino+patron+analytics,+casino+operators+must+seek+answers+to+the+following+questions:+
+
• How+much+is+a+patron+worth,+how+much+can+we+expect+a+patron+to+lose+in+the+future,+and+who+are+the+
most+valuable+patrons?+
• What+patrons+come+together?+
• What+patrons+are+most+likely+to+abuse+an+offer?+
• What+patrons+are+the+most+and+least+likely+to+respond+to+an+offer?+
• Which+offers+perform+the+best?+
+
+ The+ single+ most+ important+ thing+ patron+ analytics+ must+ determine+ is+ the+ patron's+ worth+ to+ the+ casino+
property+(Sutton,+2011).+Predicting+a+patron's+future+behavior+is+not+an+easy+thing+to+do+as+it+can+be+affected+by+a+
number+ of+ variables,+ including+ total+ income,+ expendable+ income,+ ethnicity,+ reasons+ for+ a+ trip+ (convention+ vs.+
vacation),+ among+ many+ other+ things+ (Sutton,+ 2011).+ However,+ “although+ that+ information+ is+ often+ available+ to+
append+through+third+parties,+there+is+still+a+plentiful+amount+of+information+found+with+inKhouse+data+and+this+data+
can+be+used+to+build+models+and+metrics+to+predict+a+patron's+future+worth”+(Sutton,+2011).+Once+worth+has+been+
determined,+patrons+can+be+“segmented+into+groups+based+on+other+behaviors+and+effective+marketing+campaigns+
can+be+developed+around+those+behaviors”+(Sutton,+2011).++
+ Determining+a+patron's+worth+is+imperative+because+it+helps+reveal+how+valuable+that+patron+is+to+the+
casino,+and+this+is+information+that+can+be+used+to+dictate+how+much+should+be+reinvested+in+the+patron+in+the+
4
http://www.sas.com/news/feature/02jun05/pr.html (Accessed April 2, 2012)
18. Confidential+ Page+18+ 5/30/13+
+
future+(Sutton,+2011).+Sutton+(2011)+argues+that,+“There+are+two+main+components+of+worth+–+the+financial+sources+
of+worth+(i.e.,+gaming+or+hotel)+and+the+unit+of+time+to+which+it+refers+(daily,+weekly,+monthly,+etc.).+Additionally,+
worth+can+refer+to+historical+worth,+which+is+already+known,+or+future+worth,+which+is+unknown”+(Sutton,+2011).+'
' Most+revenue+sources+are+fairly+straightforward+–+room+revenue+refers+to+how+much+the+patron+paid+for+
the+ room,+ restaurant+ revenue,+ obviously,+ is+ how+ much+ he+ or+ she+ paid+ for+ food+ and/or+ drinks,+ (Sutton,+ 2011).'
Gaming+ revenue,+ however,+ isn't+ quite+ as+ simple+ because+ probability+ is+ involved+ and' there+ are+ “two+ important+
measures+used+to+assess+a+patron's+gaming+worth+–+actual+and+theoretical+loss”+(Sutton,+2011).'Actual+loss+refers+to+
how+ much+ money+ the+ patron+ actually+ lost+ (or+ won),+ “whereas+ theoretical+ loss+ usually+ refers+ to+ the+ amount+ of+
money+a+patron+is+expected+to+lose+based+on+the+amount+of+money+wagered,+the+time+spent+playing,+and+the+
probability+associated+with+the+type+of+games+played”+(Sutton,+2011).'Whereas+actual+loss+is+generally+used+to+
measure+campaign+performance+and+profitability,+theoretical+loss+relies+more+heavily+upon+predictive+analytics+and+
is+a+much+stronger+predictor+of+future+behavior+(Sutton,+2011).'For+Sutton+(2011),+the+formulas+used+to+calculate+
the+theoretical+loss+for+table+games+and+slots+are+as+follows:+
+
• Table$Theoretical$Loss+=+Average+Bet+x+Time+Played+x+Speed+of+Game+x+House+Advantage.$
• Slot$Theoretical$Loss+=+Coin+in+x+Hold+Percentage.+
+ ''
' Once+ patron+ worth+ has+ been+ defined,+ data+ mining+ and+ modeling+ techniques+ can+ be+ used+ to+ estimate+
predicted+worth+in+the+future+(Sutton,+2011).+“Simple+metrics+based+on+historical+behavior,+such+as+Average+Daily+
Theoretical+Loss+or+Average+Trip+Theoretical+Loss,+will+produce+fairly+accurate+predictions+of+future+worth,”+Sutton+
(2011)+notes.+“However,+advanced+predictive+models+are+able+to+predict+worth+with+more+accuracy+and+power+by+
accounting+for+both+patterns+in+behavior+over+time+and+relationships+between+predictive+inputs+that+exist+within+
casino+data,”+Sutton+(2011)+argues.++
+ There+are+many+different+techniques+that+can+be+used+to+develop+models+to+predict+future+worth,+the+
most+ common+ of+ which+ are+ regression+ models+ (Sutton,+ 2011).' Multiple+ regression+ models+ “utilize+ a+ variety+ of+
predictors+and+the+relationships+between+those+predictors+to+predict+future+worth”+Sutton+(2011)+states.'As+an+
example,+Sutton+(2011)+explains+that,+“a+model+built+to+predict+future+gaming+trip+worth+might+be+generated+based+
on+historical+information+about+theoretical+win,+actual+win,+credit+line,+time+on+device,+nights+stayed,+and+average+
bet.”'+
+ Regression+models+could+also+be+“built+using+such+categorical+variables+predictors+as+gender,+ethnicity,+age+
range,+ or+ demographic+ variables”+ (Sutton,+ 2011).' “Regression+ models+ are+ particularly+ effective,”+ Sutton+ (2011)+
concludes+“because+the+model+can+be+used+to+score+historical+data+to+predict+an+unknown+outcome,+which+is+worth+
in+this+case,+with+a+certain+degree+of+confidence.”'
'
19. Confidential+ Page+19+ 5/30/13+
+
Identifying'the'Casino's'Most'Valuable'Patrons+
One+ way+ to+ determine+ who+ the+ casino's+ best+ patrons+ are+ is+ to+ try+ to+ separate+ the+ skilled+ gamblers+ from+ the+
unskilled+gamblers+(Sutton,+2011).+Most+casino+databases+don't+have+a+very+good+measure+of+skill;+however,+it+is+
possible+ to+ look+ at+ whether+ a+ patron+ is+ usually+ a+ loser+ or+ a+ winner+ (Sutton,+ 2011).+ “A+ quick+ and+ easy+ way+ to+
evaluate+ a+ player's+ skill+ is+ by+ calculating+ the+ percentage+ of+ trips+ where+ the+ player+ actually+ lost+ money,”+ Sutton+
(2011)+explains.+For+example,+as+Sutton+(2011)+states:++
+
Did$a$player$with$five$trips$lose$money$on$all$five$of$those$trips?)Although$this$might$just$be$an$
indicator$that$the$patron$will$play$until$he$is$out$of$money$or$time,$it$is$also$a$fairly$simple$way$to$
identify$the$patrons$that$do$not$come$away$as$winners$very$often.$This$is$an$instance$where$actual$
loss$might$be$a$good$predictor$of$worth,$as$we$would$rather$have$these$patrons$in$the$casino.$+
+
' Although+ slot+ machines+ are+ not+ really+ skill+ based+ and+ loses+ could+ be+ more+ attributed+ to+ luck,+ a+
differentiation+can+be+made+between+patrons+by+looking+at+behaviors+and+strategies+of+slot+players+(Sutton,+2011).'
“Since+casinos+have+to+pay+a+certain+percentage+of+win+or+handle+to+the+slot+manufacturer+for+participation+games,+
patrons+that+primarily+play+nonKparticipation+games+are+slightly+more+valuable+to+the+casino”+Sutton+(2011).+Casino+
operators+should+keep+in+mind+how+much+play+a+slot+patron+has+on+participation+machines+compared+to+machines+
it+owns+outright.''
' Another+thing+to+look+at+for+slot+players+is+their+average+bet+relative+to+the+maximum+bet+on+the+games+
they+play+(Sutton,+2011).+In+most+cases,+a+patron+has+to+play+the+maximum+bet+in+order+to+be+eligible+for+jackpots+
and+progressives+(Sutton,+2011).'Given+two+patrons+of+comparable+theoretical+worth,+the+one+who+plays+closer+to+
the+maximum+bet+allowed+is+more+likely+to+hit+a+jackpot+than+the+other+(Sutton,+2011).'Sutton+(2011)+argues,+rather+
counter+intuitively,+that+“the+patron+with+the+higher+average+bet+would+seem+to+be+more+valuable,+but+since+the+
lower+bet+patron+is+less+likely+to+hit+a+jackpot,+the+lower+bet+patron+might+be+a+lower+risk.”'Although+this+metric+has+
usefulness+on+its+own,+casino+management+could+also+“use+it+as+either+a+predictor+in+a+model+for+future+worth+or+a+
decision+tree+predicting+whether+a+patron+will+respond”+to+an+offer+(Sutton,+2011).++
+
Identifying'Patrons'Who'Come'Together+
Beyond+a+patron's+worth+is+the+combined+worth+of+a+household,+which+“refers+to+the+combined+worth+of+multiple+
patrons+that+tend+to+make+their+trips+together”+(Sutton,+2011).'This+can+be+difficult+to+identify+because+patrons+of+
the+same+household+might+stay+in+separate+rooms,+take+trips+separately,+or+one+patron+might+only+come+when+
accompanied+ by+ another+ patron' (Sutton,+ 2011).' Although+ tricky,+ identifying+ household+ worth+ can+ pay+ huge+
20. Confidential+ Page+20+ 5/30/13+
+
dividends+by+helping+to+“account+for+revenue+that+looks+like+two+separate+individuals+but+can+be+combined+into+one+
'household'”'(Sutton,+2011).'+
+ Although+ many+ patron+ management+ systems+ allow+ the+ linking+ of+ accounts+ so+ that+ patrons+ who+ come+
together+can+be+easily+identified,'data+mining+can+help+to+identify+groups+of+patrons+who+come+together+without+
linked+accounts+(Sutton,+2011).'To+do+this,+the+casino+must+first+identify+patrons+who+make+their+trips+at+the+same+
time+as+each+another.+Then+a+combination+of+various+data+points+is+studied+to+identify+the+“households”+(Sutton,+
2011).+For+Sutton+(2011),+these+include:+
+
• Last+name:+this+can+identify+relatives+who+come+together.+
• Address:+this+reveals+roommates+or+patrons+living+together+with+separate+last+names.+
• Room+or+floor:+patrons+in+a+group+tend+to+request+rooms+that+are+near+each+other.+
• City+and+State:+this+could+reveal+friends+and/or+relatives+who+are+from+the+same+area.+
• Time+of+day+that+games+are+played:+this+will+reveal+players+who+are+together+on+the+casino+floor,+which+
is+obviously+the+behavior+of+friends+or+family+members.+++
• Game+type:+this+reveals+patrons+who+are+playing+in+the+same+area+on+the+casino+floor,+or+at+least+close+
to+one+another.+
• Restaurant+and+retail+charges:+this+reveals+patrons+who+have+charges+from+the+same+outlet+on+the+same+
day.'
'
' By+grouping+patrons+into+a+“household+worth”,+a+group+of+four+patrons+who+might+be+of+modest+worth+
individually,+ can+ “come+ together+ and+ stay+ in+ the+ same+ room+ every+ time+ and+ thus+ are+ worth+ more+ as+ a+ group”+
(Sutton,+2011).'Armed+with+this+grouping+information,+a+casino+can+adjust+its+marketing+effort+and+send+an+offer+
that+ is+ based+ on+ the+ patron's+ combined+ worth+ rather+ than+ on+ their+ individual+ worth+ (Sutton,+ 2011).+ It+ is+ a+
distinction+that+could+be+the+difference+between+the+offer's+acceptance+or+its+rejection.'
'
Minimizing'Patron'Abuse+
Predictive+models+of+worth+should+take+into+account+the+likelihood+of+a+guest+playing+on+a+future+trip+(Sutton,+
2011).+It+is+also+advisable+to+build+a+separate+model+that+identifies+patrons+who+are+likely+to+use+a+future+offer+but+
not+play+in+the+casino,+thereby+taking+advantage+of+the+property+(Sutton,+2011).+“Since+many+offers+in+the+casino+
industry+tend+to+be+for+complimentary+rooms+that+are+given+to+patrons+upfront,+patrons+that+redeem+offers+and+do+
not+ play+ have+ a+ considerable+ impact+ on+ campaign+ success+ and+ profitability,”+ Sutton+ (2011)+ points+ out.+ For+
marketing+campaigns+to+be+successful+over+the+long+term,+it+is+important+to+not+only'identify+the+patrons+who+are+
abusing+the+system,+but+also+to+adjust+the+offers+they+receive+(Sutton,+2011).'According+to+Sutton+(2011)+“Decision+
21. Confidential+ Page+21+ 5/30/13+
+
trees+and+logistic+regression+are+common+statistical+methods+used+to+identify+patron+characteristics+that+predict+
the+likelihood+of+a+patron+(or+segment+of+patrons)+to+abuse+an+offer”+(Sutton,+2011).+'
' Factors+such+as+age,+gender+and+history+of+abuse+are+likely+predictors+of+abuse+(Sutton,+2011).+Data+from+
postKvisit+ followKup+ surveys+ can+ be+ used+ to+ identify+ these+ predictors+ (Sutton,+ 2011).' “If+ a+ patron+ had+ a+ bad+
experience+in+the+past,+they+might+take+an+offer+for+a+free+room+as+revenge+for+that+bad+experience,”+Sutton+(2011)+
warns.' But+ by+ identifying+ those+ patrons+ at+ risk+ of+ abusing+ offers,+ the+ casino+ property+ can+ decide+ how+ best+ to+
market+to+these+individuals+(Sutton,+2011).+Instead+of+receiving+the+general+offer+of+a+free+room,+the+patron+would+
be+sent+an+offer+that+requires+them+to+play+up+to+a+certain+level+or+they+would+be+required+to+pay+for+their+room”+
(Sutton,+2011).''
'
Campaign'Optimization+
In+addition+to+predicting+the+future+worth+of+a+patron,+casino+marketers+must+know+which+marketing+campaigns+
are+the+most+effective+at+driving+up+response+rates,+as+well+as+which+campaigns+will+increase+gambling+revenues+
and+property+profits+(Sutton,+2011).'Understanding+a+patron's+probable+future+worth+is+critical+in+determining+the+
eligible+reinvestment+levels+that+make+financial+sense+for+the+casino+property+(Sutton,+2011).++
+ “A'patrons'+behavior+and+interests+can+be+used+to+identify+the+offer(s)+that+will+be+most+appealing+to+each+
patron+and+generate+the+most+profitable+response,”+argues+Sutton+(2011).+Although+offers+of+free+rooms+and+free+
gaming+play+are+historically+the+strongest+drivers+of+response,+the+cost+associated+with+them+can+be+detrimental+to+
the+property+(Sutton,+2011).+Sometimes+it+doesn't+make+good+business+sense+because+“not+every+patron+who+is+
eligible+for+a+free+room+has+to+be+offered+a+free+room+to+respond+–+some+might+be+willing+to+pay+for+a+discounted+
room+or+even+a+full+price+room”+(Sutton,+2011).'“By+analyzing+the+likelihood+that+a+patron+will+respond+to+a+certain+
offer+or+offers,+casino+executives+can+optimize+the+offer+that+each+patron+is+given+in+order+to+maximize+the+amount+
of+revenue+and+profit+driven+by+marketing+campaigns+as+a+whole,”+concludes+Sutton+(2011).''
+ A/B+ testing+ is+ the+ most+ effective+ way+ to+ identify+ the+ best+ available+ offer+ (Sutton,+ 2011).+ As+ previously+
mentioned,+A/B+testing+“involves+testing+two+different+offers+against+one+another+in+order+to+identify+the+offer+that+
drives+the+highest+response+and+the+most+revenue/profit”+(Sutton,+2011).+Logistic+regression,+decision+trees,+and+
discriminant+analysis+can+also+be+used+to+cull+through+a+casino's+historical+data+and+uncover+factors+that+are+related+
to+whether+a+patron+responds+to+an+offer+or+not+(Sutton,+2011).+“These+factors+can+then+be+used+to+assess+the+
likelihood+of+response+based+on+the+similarity+of+a+patron+profile+to+that+of+responders,”+explains+Sutton+(2011).+
Obviously,+“to+build+accurate+and+predictive+response+models,+historical+data+about+response+is+required”+(Sutton,+
2011).+ “The+ likelihood+ of+ response+ might+ be+ a+ broad+ measure+ of+ response+ that+ refers+ to+ the+ likelihood+ that+ a+
patron+will+respond+to+any+offer,+or+it+might+be+specific+to+the+likelihood+of+response+to+a+specific+type+of+offer,”+
notes+Sutton+(2011).+Effective+response+models+have+a+dual+purpose;+they+can+help+identify+which+patrons+are+most+
likely+to+respond+to+an+offer,+as+well+as+reveal+which+offer+patrons+are+most+likely+to+respond+to+(Sutton,+2011).+
22. Confidential+ Page+22+ 5/30/13+
+
According+to+Sutton+(2011),+“There+are+at+least+three+main+uses+of+response+modeling+that+can+improve+marketing+
results:+
+
• Identify+the+likelihood+of+patrons+to+respond+to+the+offer.+
• Identify+the+offer(s)+to+which+patrons+are+most+likely+to+respond.+
• Predict+when+a+patron+is+likely+to+return.”++
+
+ Determining+which+offers+a+patron+is+most+likely+to+respond+to+is+only+half+the+battle.+It+is+also+important+to+
know+exactly+when+that+patron+is+planning+to+make+his+or+her+trip+as+well+(Sutton,+2011).'Although+it's+almost+
impossible+to+know+exactly+when+a+patron+is+likely+to+return+(without+them+making+a+reservation,+of+course),+there+
are+ a+ variety+ of+ predictive+ analytics+ methods+ that+ can+ help+ take+ out+ the+ guesswork+ (Sutton,+ 2011).+ Frequency+
analysis,+ regression,+ and+ survival+ analysis+ can+ all+ be+ used+ to+ assess+ when+ a+ patron+ is+ likely+ return+ to+ a+ casino+
(Sutton,+2011).++
+ Knowing+when+a+patron+is+likely+to+return+can+help+identify+patrons+who+haven't+been+to+the+property+in+
while+and+might+be+at+risk+of+leaving+for+good+(Sutton,+2011).'To+identify+these+patrons,+the+casino+should+discover+
the+ average+ or+ median+ time+ between+ a+ patron's+ trips+ (Sutton,+ 2011).+ This+ could+ be+ segmented+ by+ geography,+
worth,+or+even+historical+frequency,+such+as+trips+made+weekly,+monthly,+quarterly,+annually,+biKannually,+and+so+
forth+(Sutton,+2011).+Patrons+who+“have+not+made+a+trip+within+the+decided+amount+of+time+for+their+segment+are+
subsequently+flagged+and+dealt+with+appropriately”+(Sutton,+2011).+Sutton+(2011)+believes+a+casino's+marketing+
department+should+have+two+primary+goals;+generate+trips+sooner+than+expected+and+convert+patrons+into+more+
frequent+visitors.++
+ A+lesser+goal+would+be+identifying+patrons+who+are+at+risk+of+leaving+the+property+for+good+(Sutton,+2011).+
In+cases+such+as+these,+sending+the+patron+an+offer+using+“last+chance”+or+“we+miss+you”+language+could+help+retain+
them+(Sutton,+2011).+The+offer+contained+within+should+probably+be+better+than+the+patron+has+received+in+the+past+
to+really+catch+their+attention+(Sutton,+2011).'By+knowing+when+a+patron+is+likely+to+return,+a+casino+“can+adjust+
marketing+strategies+appropriately+in+order+to+save+money+on+mailing+costs,+retain+guests+and+increase+loyalty”+
(Sutton,+2011).+These+are+all+important+strategies+that+should+help+drive+profits+straight+to+the+casino's+bottom+line.++
+
Conclusion'
I+ started+ this+ chapter+ with+ a+ quote+ that+ asked+ the+ question,+ “Do+ you+ want+ to+ ride+ the+ analytics+ horse+ to+
profitability...or+ follow+ it+ with+ a+ shovel?”+ and+ I+ believe+ the+ return+ on+ investment+ of+ implementing+ a+ predictive+
analytics+solution+in+the+casino+business+would+be+substantial.+Casino+patrons+the+world+over+like+the+same+thing+–+
free+rooms,+free+gaming+comps+or+free+meals+–+all+delivered+within+a+marketing+campaign+that+taps+into+their+own+
personal+wants,+desires,+needs+and+expectations.+This+can+only+be+done+with+predictive+analytics.++
23. Confidential+ Page+23+ 5/30/13+
+
+ Modern+casino+analytics+and+patron+management+systems+contain+enormous+amounts+of+highly+detailed+data+
about+when,+where,+how+often+and+how+much+a+casino+patron+is+spending+at+a+casino+property+(Sutton,+2011).+This+
information+can+be+used+to+better+segment+customers,+to+predict+future+behavior,+and+to+improve+marketing+outcomes+
(Sutton,+ 2011).+ Sutton+ (2011)+ claims+ that,+ when+ it+ comes+ to+ casino+ patron+ analytics,+ casino+ operators+ must+ seek+
answers+to+the+following+questions:+
+
• How+much+is+a+patron+worth,+how+much+can+we+expect+a+patron+to+lose+in+the+future,+and+who+are+the+
casino's+most+valuable+patrons?+
• What+patrons+come+together?+
• Which+patrons+are+most+likely+to+abuse+an+offer?+
• What+patrons+are+the+most+and+least+likely+to+respond+to+an+offer?+
• Which+offers+perform+the+best?+
+
+ Answers+ to+ all+ of+ these+ questions+ can+ be+ found+ by+ utilizing+ predictive+ analytics,+ a+ variety+ of+ statistical+
techniques+ that+ analyzes+ current+ and+ historical+ facts+ to+ make+ predictions+ about+ future+ events.+ Using+ such+
techniques+as+predictive+modeling,+machine+learning,+data+mining+and+game+theory
5
,+predictive+analytics+can+build+
models+that+exploit+patterns+found+in+historical+and+transactional+data+to+identify+business+risks+and+opportunities.++
Predictive+analytics+can+be+broken+down+into+three+different+types+of+models,+predictive,+descriptive+and+
decision.+By+combing+through+copious+amounts+of+data+to+discover+patterns,+trends+and+relationships+that+are+too+
subtle+ or+ too+ complex+ for+ humans+ to+ detect,' data+ mining,+ along+ with+ predictive+ analytics,+ can+ identify+ potentially+
useful+and+understandable+correlations+and+patterns+in+a+property's+datasets.++
+ For+the+casino+industry,+data+mining+can+cull+through+copious+amount+of+data,+data+that+is+coming+from+such+
disparate+sources+and+departments+as+sales,+credit,+and+marketing+and+then+measure+patron+behavior+against+more+
than+a+hundred+different+attributes.+This+is+a+far+cry+from+the+three+or+four+different+attributes+that+statistical+modeling+
used+to+offer.+The+most+common+data+mining+techniques+are+linear+regressions,+neural+networks,+logistics+regressions,+
decision+trees+and+A/B+testing.+
+ Predictive+analytics+can+graph+a+customer’s+value+over+time+as+well+as+anticipate+that+customer’s+behavior.+
From+this+analysis,+a+casino+operator+can+tailor+highly+specific,+laserKfocused+marketing+campaigns+to+each+customer+in+
the+ casino’s+ patron+ database.+ Drawing+ on+ data+ from+ casino+ player+ cards,+ predictive+ models+ can+ set+ budgets+ and+
calendars+for+the+casino's+gamblers,+calculating+their+predicted+lifetime+value+in+the+process.+Armed+with+this+kind+of+
information,+casino+properties+can+use+predictive+analytics+to:++
+
• Create+direct+mailing+campaigns.+
• Create+seasonal+promotions.+
5
The study of mathematical models of conflict and cooperation between intelligent rational decision-makers (Myerson, 1991).
24. Confidential+ Page+24+ 5/30/13+
+
• Plan+the+timing+and+placement+of+advertising+campaigns.+
• Create+personalized+advertisements.+
• Define+which+market+segments+are+growing+most+rapidly.+
• Determine+the+number+of+rooms+to+reserve+for+wholesale+customers+and+business+travelers.+
+
+ Patron+worth+is+the+single+most+important+thing+patron+analytics+must+determin+(Sutton,+2011).+Once+it+has+
been+discovered,+patrons+can+be+“segmented+into+groups+based+on+other+behaviors+and+effective+marketing+campaigns+
can+be+developed+around+those+behaviors”+(Sutton,+2011).+Determining+a+patron's+worth+is+imperative+because+it+helps+
reveal+ how+ valuable+ that+ patron+ is+ to+ the+ casino,+ and+ this+ is+ information+ that+ can+ dictate+ how+ much+ should+ be+
reinvested+in+the+patron+in+the+future+(Sutton,+2011).+Once+patron+worth+has+been+defined,+data+mining+and+modeling+
techniques+can+be+used+to+estimate+predicted+worth+into+the+future+(Sutton,+2011).++
+ Regression+models+are+particularly+effective+to+find+patron+worth+because+the+model+can+be+used+to+score+
historical+ data+ to+ predict+ an+ unknown+ outcome+ (Sutton,+ 2011).+ Multiple+ regression+ models+ “utilize+ a+ variety+ of+
predictors+and+the+relationships+between+those+predictors+to+predict+future+worth”+(Sutton,+2011).+
+ In+ addition+ to+ predicting+ the+ future+ worth+ of+ a+ patron,+ casino+ marketers+ must+ know+ which+ marketing+
campaigns+ they+ are+ running+ are+ the+ most+ effective+ at+ driving+ up+ response+ rates+ (Sutton,+ 2011).+ Understanding+ a+
patron's+ probable+ future+ worth+ helps+ determine+ the+ eligible+ reinvestment+ levels+ that+ make+ financial+ sense+ for+ the+
casino+property+(Sutton,+2011).++
+ A/B+testing++is+one+of+the+most+effective+way+to+identify+the+best+available+offer+to+be+made+to+a+patron,+but+
logistic+ regression,+ decision+ trees,+ and+ discriminant+ analysis+ can+ also+ be+ used+ successfully+ (Sutton,+ 2011).+ Effective+
response+models+have+a+dual+purpose;+they+can+help+identify+which+patrons+are+most+likely+to+respond+to+an+offer,+as+
well+as+reveal+which+offers+patrons+are+most+likely+to+respond+(Sutton,+2011).++
+ Casino+operators+should+keep+in+mind+that+data+mining+ will+only+be+successful+if+their+casino+patrons+are+
willing+to+provide+information+on+themselves.+Privacy+is+a+big+issue+and+will+always+remain+so+in+the+mobile+age.+Casino+
properties+that+can+honor+a+patron's+privacy+demands+will+find+patron+loyalty+comes+with+voluminous+amounts+of+
priceless+patron+data.+This+is+data+that+can+be+used+to+create+marketing+campaigns+that+should+prove+highly+effective.+
By+understanding+what+type+of+patron+is+on+its+property,+why+they+are+there,+and+what+they+like+to+do+while+they+are+
there,+ casino+ operators+ can+ individualize+ their+ marketing+ campaigns+ so+ that+ these+ campaigns+ are+ more+ effective,+
thereby+increasing+the+casino+property's+ROI.++
+
+
