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Making a Mark

A "one-stop shopping center" for evaluating the efficacy of marketing programs

Making a Mark

While it would be overly simplistic and wrong to use only one metric to monitor and measure marketing performance, marginal return—the performance of the last unit of marketing effort—is one of the best.

Marginal return may be used to measure the performance of a given marketing program/initiative, target market segment, and competitive dynamics and impact. Marginal return is also a valid tool to rank-order the allocation of finite marketing resources among various marketing programs and target market segments.

Applying marginal return analyses to marketing, however, requires certain infrastructure and mindset. This article will review the theory and the support environment needed to employ the theory as well as provide examples along the way to illustrate how marginal return works in practice.

An Introduction

This is the first part of a two-part article that sequentially takes the act of marketing from a focus on theory in Part 1, morphing in Part 2 into a description of practical market tools and approaches that culminates in the rather sophisticated use of marginal return as perhaps one of the best tools to measure and manage marketing performance. To get there and understand what is taking place when we do, however, we must begin with marketing theory.

Key Marketing Principles And Approach

At its best, marketing is a process. Lest this statement scare off marketers who fear encumbrance of an effort that at its heart they believe needs to be loose, unconstrained, managed more by trial-and-error than rules, these two approaches need not be mutually exclusive. In fact, provisions must be made for both, but I would just as strongly advocate that the soft side of marketing as we might call it should take place upon a foundation of a proactive, systematized marketing process in order to harness the benefits of both approaches.

Both approaches begin with the first and core driving principle of marketing:

Develop goods and services (collectively “products”) that meet or exceed the needs, wants and expectations of the consumer at a price that creates a real or perceived value.

From this departure point is where the systemization aspect takes off, the second principle of marketing:

Market to market segments.

Intentionally or unintentionally, all businesses market (sell) their products to market segments. Market segments may be loosely defined as groups of consumers with similarities. The needs, wants and expectations of potential market segments (target market segments or “TMSs”) are then synthesized into goods and services that respond to those needs, wants and expectations. Some companies build products around TMSs while others find TMSs for the products they build. Either approach works, as long as the two are ultimately connected and perfectly aligned.

There are many ways to identify and define a TMS, but that is the subject of another article. Suffice to say at this point that any TMS is a good one wherein the consumers in that TMS have similar actionable attributes. Thus, a TMS formulated on where the consumer lives is actionable because it tells us where to contact them, and research tells us that those living close to a casino have different needs, wants and expectations (e.g., day-trip visitors) than those living farther away (e.g., overnight visitors).

The use of the TMS provides a basis around which to build, monitor and measure marketing initiatives, and to measure performance.

With these two principles in mind, the first step in the development of a systematized process is to identify all available TMSs in the marketplace. From this exhaustive list, the second step is to identify and develop the optimal TMS mix for your property that collectively best aligns with the positioning, attributes and mindset of a given property to the collective needs, wants and expectations of the optimal TMS mix.

Note that the optimal TMS mix is assembled not just by figuratively stacking each TMS independently on top of one another and marketing to each separately, but also by grouping multiple TMSs and evaluating them in aggregate until the synergistic potential is optimized.

Upon first hearing, this and many other aspects of a systematized process sound very precise and detailed. In reality, the process generally starts out very general and ambiguous, and then, as information and results are gathered and the marketing team becomes more experienced, the TMSs and the data contained within become more detailed and precise, thus diminishing the ambiguity over time.

Once the optimal TMS mix is identified, the next step is to continuously, relentlessly and zealously pursue each TMS individually, in groups, and in aggregate through a steady stream of motivators, i.e., actions that motivate patronage.

These motivators may be disaggregated into two main types of marketing effort:

Product Marketing: Product marketing refers to the development of the concept, production, delivery and receiving of the goods and services offered by the business that meet or exceed the needs, wants and expectations of TMSs (target guest experiences or “TGEs”). The motivator is the raw attractiveness of the product.

Overly simplistically, in gaming the product may be thought of as a leisure, entertainment-related experience. In execution, gaming properties offer a number of carefully constructed and produced gaming and non-gaming leisure, entertainment-related experiences. It is the array of these products or TGEs that casinos sell and consumers come to buy. Properly aligned, product marketing extracts the greatest natural demand from the marketplace.

Demand Stimulation Marketing: Demand stimulation marketing extracts the remaining, latent demand in the marketplace that product marketing cannot do alone. Demand stimulation marketing relies upon dozens of marketing tools to extract this demand, including but not limited to such things as public relations, press relations, signage (external and internal), sales teams, perquisites, hosts and hosting, promotions, discounts (e.g., price discounts, complimentaries, credit), special events, satellite offices, and third-party marketing representatives.

Demand stimulation marketing in practice ideally should sequentially follow the demand cycle: create awareness, motivate trial, spur repeat visitation, and engender loyalty. Demand stimulation marketing programs are designed to extract the remaining potential demand in the marketplace.

Where the product(s) is/are exactly aligned with the optimal TMS mix or if there is little to no capital available to align the product(s) to the optimal TMS mix, then the marketing effort shifts to demand stimulation marketing. This works, too. In fact, demand stimulation marketing tools can extract demand that would otherwise not manifest by product marketing alone and/or make up for product marketing deficiencies or disadvantages vis a vis your competition.

For example, demand stimulation marketing can catalyze a visit from a potential fence-sitting ambivalent but curious gamer. It can also provide an aspirational-based loyalty club that engenders loyalty and allows a given property to capture a greater share of wallet.

To maximize the potential of the marketing effort, a holistic, sum-of-the-parts approach must be built around the concepts of product and demand stimulation marketing.

Business Growth Phases

Returning to the step where TMSs are being identified and the optimal TMS mix is developed, marketers must identify all potential TMSs, ascribe some potential maximum potential to each TMS, guess-estimate their ability to capture a share of this maximum potential, and guess-estimate the cost (capital and operating) of effectively serving that TMS to yield a guess-estimated maximum potential profit and return.

The drivers behind achieving the maximum potential must be thoroughly identified and understood by the marketing team. Additionally, the marketing team needs to identify, comprehend and quantify the risks associated with catering to each TMS—thus in a sense adding a third dimension to the evaluation. Ideally, the end result of this initial exercise is an exhaustive list of potential TMSs with the maximum potential and risks associated with each quantified.

The bulk of the time is spent getting to this point. Once this work has been completed, it is a relatively easy task of selecting the optimal TMS mix, i.e., picking those TMSs with the highest maximum potential and least risk as adjusted for any non-quantitative considerations.

Once the optimal TMS mix is first established, the formation of marketing initiatives and programs can begin.

In practice, the marketing effort should follow the classical business growth phases: launch phase (or opening for a casino), growth phase, maturity/harvest phase, and for some, a wind-down/termination phase.

For properties opening, these phases all begin at the same time. However, for properties already open, individual activities at a casino may be at different stages of their own business cycle: e.g., the opening of a new restaurant, bar, club, entertainment venue, MICE center, retail mall, or any number of other activities, even though the property may have been open for some years.

There are many performance metrics to use when monitoring, measuring and reacting to actual performance, but the introduction of the business cycle is where the mathematical tool of tracking trends comes in very handy. This means not just tracking where we are but where we have been and where we are going. Performance-wise, this means tracking rate of growth: i.e., is our business volume growing, steady or decreasing? Is our profitability growing, steady or decreasing? The answers to these questions are hugely telling.

At launch, growth should be steep and look like a power curve, i.e., growth is increasing at an increasing rate. Growth rates are typically at their highest at this point in the business cycle, at times showing early period-over-period growth rates of 100 percent or multiples thereof. But, this period is typically also the shortest. Once past launch or the introduction phase, the business typically enters a longer growth phase. In the growth phase, growth is still positive and high, but below the rocket-like growth associated with launch, say more in the 20 percent to 99 percent range.

Then, as the marketplace has seen every motivator at least once and/or competitors fight back and/or new casinos open relegating the subject property to “not new” status, and as those with a proclivity to gamble and gamble at the subject casino have been offered motivators at expense levels that begin to reach tolerable maximum limits (i.e., minimum profit margins), the property enters the mature phase. At this point, marketers are trying to squeeze out the remaining untapped demand and seeking new TMSs to add to an optimal TMS mix that is getting stale.

In mature markets with no new entrants/competitors, competitors tend to morph into the harvest side of the mature phase. Competitors stop trying to “buy the business” from each other, put “fences” around their marketing niches, cut other costs, and milk the marketplace. This can still be a financially fruitful time because of a depreciated balance sheet and acquired efficiency, but is not going to lead to any “buy” recommendations from stock analysts—but possible good, stable free cash flow for public or private owners.

A wind-down or termination phase may end the ownership period wherein the owner feels it is time to end ownership.

The growth curve of a new casino may not exactly follow the exact form of slanted S-curve typically associated with the business growth curve, but if smoothed out using various tracking techniques (e.g., moving average), the performance of most properties will follow this template. A growth curve graph and the data contained within is a tool to cross-determine and/or cross-validate conditions sensed, touched and experienced in day-to-day activities.

Marketing theory, business growth phases and the business growth curve can help advise companies to better conceptualize, develop and market their properties.

In next month’s issue, Part 2 will build upon marketing theory to discuss practical tools to measure and manage marketing performance.

Dean Macomber is president of Macomber International, Inc. With 35 years of diversified experience in the gaming industry ranging from dealer to president, development to operations involving mega-destination resorts to locals-oriented casinos in numerous domestic and international venues, Macomber provides executive-level consulting in the areas of strategic and business planning, feasibility and all other project development phases, and pre- and post-opening management and profit improvement engagements. He can be reached at [email protected].

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