Make Every Customer More Profitable: Harrah's Entertainment Inc.
When Harrah's first started its Total Gold loyalty program in 1997, it was during a time of rapid expansion of casinos in hot spots like Las Vegas and Atlantic City, N.J. The relaxation of state gaming laws only intensified the rivalry among casinos. While recognition cards aimed at boosting customer loyalty had been in the industry for some time, Harrah's wanted to go one step further. It sought not only to identify its best and most loyal customers; it also wanted to use that data to reward them in ways they hadn't been rewarded before.
It's working. According to executives, the cornerstone of Harrah's growth strategy is the now-renamed Total Rewards program, its IT-powered customer loyalty program. It tracks customers' casino play and offers them powerful incentives to consolidate their gambling with Harrah's, boosting same-store revenues and earnings. Overall, Las Vegas-based Harrah's estimates its customers spent about 43 percent of their annual gambling budgets at Harrah's properties in 2002, up from 36 percent when the program began. In addition, Harrah's has been able to leverage the Total Rewards program to increase cross-market play—the amount of gambling revenue generated by customers outside their home markets—by 20 percent since 2001.
The trick? Gamblers don't just win money when they play at one of Harrah's 26 casinos. When they swipe their loyalty cards, they're also eligible to win a variety of perks, from appetizers to Swedish massages, depending on their level of spending and the information Harrah's has collected about them. So popular is Harrah's loyalty program that it now includes 6 million active members who have used their memberships within the past year and 26 million members overall. "When we started five years ago, about 50 percent of our gaming revenue was tracked on the card," says David Norton, senior vice president of relationship marketing for Harrah's. Now it's up to 75 percent, what loyalty expert Brian Woolf says is the level of customer data-tracking required to give companies a "world-class" view of their customers that, if applied wisely, can ensure continuous revenue growth.
What further distinguishes Harrah's approach is the complexity of its loyalty program. It's designed to appeal to both big-time spenders and small but steady gamblers. According to Woolf, the problem with most companies running loyalty programs is they have only enough resources to focus their customer strategies on the top 30 percent of their customers. But Harrah's has moved its strategy to build loyalty and growth at all levels.
Here's how it works: Each Total Rewards program enrollee has a card and a rewards account. Each time a customer plays a game or slot machine, he or she inserts the card. A readout then shows how many regular and bonus points he or she has accrued. After a certain number of regular point totals are reached, the cardholder qualifies for a Gold, Platinum or Diamond membership, which offers privileges such as club memberships and speedy check-ins. Meanwhile, bonus points can be turned in for free food and various other perks at the casinos. Away from the floor, cardholders can check their balances and find out about their latest perks from e-mails and Harrah's Web site. The company also gives customers the ability to download a win/loss statement for tax purposes.
In return, Harrah's can track who plays what games, where, when and how often. This, in turn, means the company can offer special deals aimed at generating repeat business, such as free hotel rooms, to its biggest spenders and a graduated level of perks, such as free movie passes, to its low-rollers. The result? The chain's hotel occupancy rate exceeds 90 percent versus an industry average of 60 percent—even in the ultracompetitive Las Vegas market, where occupancy hovers around 80 percent. "We turn away twice as many people as we let in," Norton says. He attributes the high-occupancy rate directly to the loyalty program.
The program certainly helps boost business from high-rollers—in 2002, the number of customers who held Platinum or Diamond status jumped 16 percent from the previous year, which contributed to $372 million in additional revenues. But it has also helped Harrah's identify a profitable segment of customers that it had been under-valuing: the low-rollers, the so-called "retail" or small gamblers who spend no more than $50 per visit, but who represent about 40 percent of Harrah's business. Instead of bonus points expiring at the end of a visit, the new Total Rewards setup lets these customers take up to six months to accrue bonus and regular points. "The problem was that in high-frequency markets, smaller, less frequent gamblers weren't able to accumulate enough high-reward credits fast enough to have it make much of a difference to them," Norton says.
Data from low-rollers also convinced Harrah's to redesign its casino floors to include, for example, a higher percentage of lower denomination slot machines and video poker games—for a 12 percent hike in slot revenues. In addition, Norton says, per-floor sales are growing at a 3 percent faster rate since the loyalty program was tweaked to better accommodate low-rollers. "By helping the com- pany learn more about the types of players using each slot and the profitability of each machine and its location, this technology allows the company to determine the best combination of marketing, merchandising and positioning," he says.
The impact on overall earnings? In 2002, Harrah's 26 casinos in 13 states brought in revenues of $4.14 billion, up 12 percent over the previous year, while adjusted earnings per share increased 34 percent during the same period. For the first nine months ended Sept. 30, Harrah's revenues rose 6 percent, to $3.28 billion, despite challenges posed by the post-Sept. 11 economy, higher gaming taxes and increased competition in certain markets.
Why does Harrah's program work when others don't? "Most loyalty programs are bribes that simply reward people for their business but don't take into account their differences and their desires," says Bain's Reichheld. "But Harrah's is one company that has done a very nice job of watching customer behavior, learning what they care about and then delivering."
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