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  1. 1. BEST PRACTICE Diamonds in the Data Mine by Gary Loveman Harrahs Entertainment has outplayed its competition and won impressive gains, despite being dealt a weak hand by the economy The secret? Mining the companys rich database to develop compelling customer incentives. I TS A FRIDAY NIGHT on the Las Vegas shes happy with the service shes re- Strip, and all of the neighbors are ceiving. Although the customer doesnt making spectacles of themselves. The fit the stereotypical profile of a Las Vegas $750 million Mirage boasts a Vesuvian high roller, Harrahs makes sure she volcano that erupts loudly every 15 min- feels special. Because the casino delivers utes. Next door, at Treasure Island, a the recognition and service she has faux British frigate battles a pirate ship come to expect, shell return to Harrahs at regular intervals. Further down the again and again. Strip, the Bellagio sports a lake fes- Harrahs Entertainment has the most tooned with sparkling, dancing foun- devoted clientele in the casino indus- tains that beckon to passing tourists. try-a business notorious for fickle cus- Meanwhile, the customer pulling Into tomers. That loyalty to Harrahs, which Harrahs Las Vegas is dazzled more by now operates 26 casinos in 13 states, has the service than the building. A smiling enabled the gaming company to record valet greets her by name. Instead of T6 straight quarters of same-store rev- having to wade through a crowded enue growth. In 2002, Harrahs posted lobby to reach the casino, she steps more than $4 billion in revenue and quickly into the gaming room and sits $235 million in net income. down at a slot machine. The card reader Weve increased customer loyalty, on the machine pages her host, who ap- even in the current challenging econ- proaches every so often to ensure that omy, in two ways. First, we use databaseMAY 2003 109
  2. 2. BEST P R A C T I C E • Diamonds in the Data Minemarketing and decision-science-basedanalytical tools to widen the gap be-tween us and casino operators who basetheir customer incentives more on intu-ition than evidence. Second, we deliverthe great service that consumers de-mand. In short, weve come out on topin the casino wars by mining our cus-tomer data deeply, running marketingexperiments, and using the results to de-velop and implementfinelytuned mar-keting and service-delivery strategiesthat keep our customers coming back.A Dicey BusinessBy the time I had left Harvard BusinessSchool to Join the corporation as chiefoperating officer in 1998, Harrahs hadbecome thefirstnationwide casino busi-ness, thanks to a geographic diversifi-cation plan promulgated by Phil Satre,the companys chairman and then-chiefexecutive officer. Satre led the wave ofgaming growth in the 1990s, expandingHarrahs from four casinos in two statesto 26 casinos across 13 states currently. Satres vision differed markedly fromthe strategy pursued by other big casinooperators, whose "If you build it, theywill come" philosophy focused on at-tracting customers to a fantasyland LasVegas. Companies such as MandalayResort Group and MGM-Mirage in-vested heavily in constructing costlymust-see casinos offering a wide range ness outside Nevada and Atlantic City, depend heavily on its stores, restau-of amenities-fabulous spas, high-end seeing geographic diversification as an rants, bars, or shows; it drew the lionsshopping malls, dazzling shows-de- opportunity to introduce the Harrahs share of its revenues-87.2% in 2001-signed to appeal to a broader audience brand to new customers and to insulate from its casinos. He also suspected thatthan simply gamblers. Their hope was the company from regional economic cultivating lasting relationships withthat such facilities would attract an ever- vagaries. Once Harrahs posted high re- the companys core customers-slotgrowing number of new customers. This turns in these emerging markets, its players - would lead to greater and morestrategy ultimately transformed both competitors also began to expand into sustainable profit growth. So he optedthe Las Vegas skyline and tourist spend- them. But Satre believed that compet- to invest in development of the intel-ing patterns: The Las Vegas Convention ing largely on the basis of hillion-doUar lectual and technological capabilitiesand Visitors Authority reported that, in facilities in the face of new competition needed to assemble and analyze data2001, revenues from dining, entertain- was not the most prudent use of capital about those customers. The goal was toment, shopping, and other activities because the returns on such buildings provide good service to them and thusoutpaced the citys casino revenues by often weaken when the novelty wanes. encourage their loyalty to the companysa three-to-one margin. Fortunately, Satre had two important brand. When Satre hired me as COO, he arrows in his quiver. First, he knew that, said he wanted to change Harrahs from Satre, by contrast, focused on ex- unlike its competitors, Harrahs didnt an operations-driven company thatpanding the corporations gaming busi- viewed each casino as a stand-alone business into a marketing-driven com-Former Harvard Business School professor Gary Loveman is the CEO of Harrahs pany that built customer loyalty to allEntertainment. He is the author or coauthor of five HBR articles, Including "Putting Harrahs properties.the Service-Profit Chain to Work"(March-April 1994)-lip HARVARD BUSINESS REVIEW
  3. 3. Diamonds in the Data Mine • BEST PRACTICE One tactic the company had already tion into our enterprise data warehouse, develop just this kind of close relation- decided to use to enhance customer which contained not only millions of ship with the people who visit Harrahs loyalty was called Total Gold, a player- transactional data points about custom- casinos. card program that was modeled after ers (such as names, addresses, ages, gen- Before we could persuade customers the airline industrys frequent-fiier pro- ders) but also details about their gam- to come back time after time, however, grams. Launched in 1997, Total Gold was bling spending and preferences. The we needed to take a hard look at them designed to provide regular customers database was a very rich repository of and understand how much value each with incentives to visit Harrahs prop- customer information. of them brought to us. We discovered erties throughout the country. Custom- that 26% of the gamblers who visited ers inserted their Total Gold cards into Slicing the Dicing Harrahs generated 82% of our revenues. slot machines and earned credits as When we started digging into the data- We were surprised to find out who ourthey played. They were rewarded with base, one statistic stood out: Our Total best customers really were. They em-the standard fare that all casinos offer- Gold cardholders told us in surveys and phatically were not the gold cuff-linked,free hotel rooms, dinners, show tickets, focus groups that they were spending limousine-riding high rollers we and oiu-gift certificates. But there were three only 36% of their annual gaming bud- competitors had fawned over for manyproblems with the program. First, noth- gets at Harrahs. This presented an years. Instead, they turned out to be for-ing differentiated this program from opportunity. There was a promise of mer teachers, doctors, bankers, and ma-our competitors efforts. Our customers tremendous upside if we could induce chinists - middle-aged and senior adultssimply took their free rooms and din- customers to spend more of their gam- with discretionary time and incomeners and drifted across the street to do ing money at Harrahs and if we could who enjoyed playing slot machines.their gambling. Second, our customers communicate effectively with them. I We also learned that thest? customersearned different rewards at different suggested to Satre that we might be able typically did not stay in a hotel but vis-properties; there was no uniformity in to divert more of our customers annual ited a casino on the way home fromthe program. Third, and most impor- gaming budgets to Harrahs if we bor- work or on a weekend night out. At thetant, our customers were not given any rowed a page from the playbooks of same time, we found that our targetincentives to consolidate their gaming other businesses whose case studies Id customers often responded better to anwith Harrahs. long taught. Basically, we needed to do offer of $60 of casino chips thian to a free what the Starbucks and Nordstroms of While Total Gold wasnt much good the world had done - change the way room, two steak meals, and $30 worthfor keeping customers loyal to Harrahs, consumers made decisions about our of chips because they enjoyed the an-it was quietly digging our future dia- ticipation and excitement of gambling merchandise.mond mine. By tracking millions of in- itself. And we were able to developdividual transactions, the information- To do that, we clearly needed to slice quantitative models that allowed us totechnology systems that underlie the and dice the data finely enough that predict, based on an individuals play,program had assembled a vast amount we could develop effective marketing his or her "customer worth"-the theo-of data on customer preferences. At the programs. Common practice calls for retical amount we could expect the cus-core of the Total Gold rewards program defining marketing strategies apart tomer to spend not just during one eve-(and its successor. Total Rewards, which from database strategies-that is, the ning but over the long term, company comes up with a grand mar- Suddenly, we saw how we could dif- keting scheme and then tries to adjust ferentiate our brand. Understanding theInstead of focusing on how the database to its strategies. Unlike lifetime value of our customers wouldmuch people spent in our many companies, we decided to let the be critical to our marketing strategy. In- data suggest the specific marketing stead of focusing on how much peoplecasinos during a single visit, ideas to us. spent in our casinos during a single visit,it became clear that we The information we found in our it became clear that we needed to focus database indicated that a loyalty strat- on their potential worth over time. Forneeded to focus on their egy based on same-store sales growth instance, we could see that customers would work. Same-store sales is a classic who said they were very happy with thepotential worth over time. measurement of a simple retail-loyalty Harrahs experience increased their strategy: The goal is to get a customer spending on gambling at Harrahs byIll describe below) was a 300-gigabyte to visit your store regularly, just as she 24% per year; customers who said theytransactional database that recorded might routinely visit her hairdresser and were disappointed with Harrahs de-customer activity at various points of mechanic. The hairdresser and the me- creased their spending by 10% per machines, restaurants, and chanic envelop the client in reasons to The best way to engage in this kind ofother retail areas in our properties. be loyal, primarily by developing a data-driven marketing is to gather moreDatabase managers fed that informa- friendly relationship. We decided to and more specific information aboutMAY 2003 111
  4. 4. BEST P R A C T I C E • Diamonds in the Data Minecustomer preferences, run experiments in line to park their cars, or eat in restau- we had signs on top of them proclaim-and analyses on the new data, and de- rants, or check in at the front desk. So ing the odds? Our transactional data-termine ways of appealing to players we decided to make a point of routing base told us exactly what the patterns ofinterests. We realized that the infor- our customers into three different lines. play were in our casinos. We discoveredmation in our database, coupled with People who werent card-carrying Har- that at any given time, it was possible todecision-science tools that enabled us rahs members and Gold customers know which specific customers wereto predict individual customers theo- stood in lines at the reception desk or playing at particular slots in Harrahsretical value to us, would allow us to the restaurant. Platinum customers Las Vegas and what it was about thatcreate marketing interventions that would stand in still shorter lines, and specific machine that appealed to them.profitably addressed players unique Diamond cardholders would rarely ever This knowledge allowed us to configurepreferences. The more we appealed to have to stand in line. This created a vis- the casino floor with a mix of slot ma-these preferences, the more money the ible differentiation in customer service. chines that benefited both our custom-customers would spend with us. It was essential for our customers to ers and our company. So we decided to act on a radical idea: see the perks that others were getting.We would reward customers for spend- Once we divided the lines this way, Hitting the Customer Serviceing in ways that added to their value. we watched as our customers did what JackpotMost consumer businesses insist that they could to earn the higher-tiered Deep data mining and decision-sciencethey cant treat one customer differently cards. Every experience in our casino marketing would be worth little in driv-than they treat another, even though was redesigned to drive customers to ing same-store sales growth were it notsome customers are obviously worth want to earn a higher-level card. As it for another simultaneously applied and tums out, marketing that appeals to cus- extremely critical ingredient-an ab- tomer aspiration works wonderfully. solute focus on customer satisfaction.All employees are told daily: We also set up a series of triggers in the When I came to the casino business,If your service can persuade database and analyzed the customers there was an insufficient focus on cus- responses to those triggers. If, for exam- tomer service. We decided that great ser-one customer to make one ple, we discovered that a customer who vice would allow us to build-just as spends $1,000 per month with us hadnt Home Depot, Four Seasons, and othermore visit a year with us, visited us in three months, a letter or great brands do in their fields-the ca- telephone call would invite him back. If pacity to brand ourselves as the only na-youve had a good shift. we learned that he lost money during tionwide consumer gaming business.If you can persuade three, his last visit, we invited him back for a Customer service is something most special event. Our telemarketers were organizations say they focus on. But, inyouve had a great shift. trained to listen for responses to specific fact, they often fail to institute systems offers-a certain percentage of our cus- to use customer service to reinforce loy- tomers responded positively to offers of alty with carrots and sticks. Our datamuch more than others. To us, that ap- a steak dinner; others would respond to told us that our customers want friendlyproach was fundamentally wrong, but it and helpful attention in addition to fast offers of two free nights in the hotel.didnt mean that we had to focus on the service. We decided to linl^ employee re-relatively small number of high rollers. Once entered into our database, these wards to customer satisfaction. Accord-Rather, we made a point of treating our responses provided fodder for more slic- ingly, we chose to measure all employeemillions of regular customers differently ing, dicing, and experimentation. Its im- performance on the matrices of speeddepending on their value to us. portant to note that our database strat- and friendliness. The better the experi- It turned out that our customers-I egy hinged on our ability to combine ence the guest had, the more money em-would venture to say all customers- data from all of our properties, so cus- ployees stood to make. To this end, allactually enjoy aspiring to higher levels tomers could use their reward cards in Harrahs employees take part in a certi-of achievement and reward. Its simply multiple locations. Combining transac- fication program that trains them tohuman nature. Understanding this, we tional data from all our sites was so im- deliver excellent service. From house-split our customers into three tiers: portant that we developed and ulti- keepers to slot attendants, from valetsGold, Platinum, and Diamond card- mately patented the technology to do it. to stewards, from receptionists to chefs,holders, based on their annual theoret- We also decided to use our transac- all employees are told daily as they ar-ical value. Platinum and Diamond card- tional data to"seH"our slot machines. In rive at work: If your service can per-holders receive greater levels of service, the past, we had no way of knowing why suade one customer to make one morewhich adds an aspirational element to customers chose to play at certain ma- visit a year with us, youve had a goodthe program. For example, our database chines. Was it because of the way the shift. If you can persuade three, youvetold us that our best customers wanted machines looked? Or because other ma- had a great shift.service quickly - they didnt want to wait chines were occupied? Or was it because112 HARVARD BUSINESS REVIEW
  5. 5. We implemented a bonus plan to re- Harrahs Laughlin earned the highestward hourly workers with extra cash for customer service scores in the company.achieving improved customer satisfac- Our experience with customer servicetion scores, which we culled from very has shown us that meeting budget atdetailed customer surveys. If a prop- the expense of service is a very bad idea.ertys overall rating rose 3% or more, If youre not mal<ing your numbers, youeach employee could earn $75 to $200. dont cut back on staff. In fact, just theWhat has made the bonus program reverse: The better the experience awork is that the reward depends on guest has and the more attentive you are to him, the more money youll make. Meeting budget at the For Harrahs, good customer service is not a matter of an isolated incident orexpense of service is a two but of daily routine. When he goes off duty, the Laughlin general managervery bad idea. If youre tells employees to call him at home-not making your numbers, anytime, day or night-whenever they seefivepeople waiting in any line. To us,you dont cut back on staff. this is living proof that our same-store sales growth in tough markets has been everyones performance. If the valets driven by sustained attention to great scores were low but the steak house customer service. receptionists were high, the reception- Wednesday, May 7, 2003ist would check in on the valet. Likewise, The Winning Hand 12:00 - 1:30 p.m. Eastern Timeif one property received low scores and Everything we do to market Harrahs is another high ones, the general manager framed in terms of players decisions toof the lower-scoring property might visit visit, or not visit, one of our casinos. One THE SUCCESS ATTRIBUTEDhis colleague to find out what he could measure of the effectiveness of our strat- to Six Sigma at companies such asdo to improve his propertys scores. egy is that many of our competitors have GE Is widely known. But not every organization has similar results. Its important to note that we chose adopted similar programs after viewing How can your company unlock theto measure customer satisfaction scores our companys performance over the transformative power of Six Sigma?independent of a propertys financial past few years. But our competitors con- How can you embed Six Sigma inperformance. In 2002, one property had tinue to focus largely on facilities, while your corporate DNA? What is therecord-breaking financial results, but we keep combining improved facilities relationship between leadershipemployees did not receive bonuses be- with breakthroughs in marketing and and Six Sigma performance?cause their customer service scores were customer service. We maintain our com-mediocre. Our employees are obsessed Join Six Sigma expert petitive advantage by using our human Subir Chowdhury, CEO of thewith their propertys customer satisfac- capital and technology systems to get to American Supplier Institutetion scores for a good reason: In 2002, know our customers better. Consulting Group and author ofwe paid $14.2 million in bonuses to non- Harrahs will keep adding excitement the bestselling The Power ofmanagement employees based on their Six Sigma, and leadership and benefits to the Total Rewards pro-propertiescustomer satisfaction scores. authority Noel Tichy of the gram, widening its scope across gaming-Since the programs inception, Harrahs University of Michigan Business related activities. And well keep en-has paid out more than $43 million in School for a 90-minute interactive hancing the benefits that players getbonuses. virtual seminar in your office or from consolidating their gaming within conference room. This score-driven customer satisfac- our brands.tion measure has allowed properties - Let the neighbors lure tourists with For details, visiteven those in troubled markets - to con- knights on horseback, fiery volcanoes, vvww.asiusa.comtinue to grow. Take, for example, our pirate ships, and mini-Manhattans. Well orcaii 1-800-462-4500casino in Laughlin, Nevada. Despite just keep refining what were alreadystrong competition and a mere i% in- pretty good at: drilling into our data andcrease in the local markets gaming making sure our regular customers arerevenues in 2002, Harrahs Laughlin more than satisfied. ^recorded a 14% gain in revenues. Why?Because its customers were loyal, thanks Reprint R0305H; HBR OnPoint 3647to great service. In fact, the employees at To order, see page 131.MAY 2003