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The Price is Not Right

The pricing of the casino product is more of an art than a science

The Price is Not Right

The value a company places on its products or services often isn’t the same value a customer is willing to spend. This is an issue in all industries, but in the casino industry, it holds particular interest.

When you’re making a widget, you know what the price is. You know how much the materials cost. You know how much it costs to transport the materials to your factory. You know how much your factory costs. You know how much your equipment costs to assemble the product. And you know the labor costs and how long it takes to assemble the product.

Our “product” in the casino industry is a bit different.

Yes, we know how much our buildings cost, our labor costs and how other expenses factor into our “hard” costs, but there’s quite a bit of wiggle room between the hard costs and what we actually charge.

In a recent conference call with investors, Steve Wynn defended the lower-than-average occupancy rate at one of his hotels by saying that his company kept the average daily rate higher than average because he wasn’t going for the “McDonald’s” crowd.

Now that’s understandable for the Wynn hotels—high-end, high quality, low riff-raff. But when it comes to the larger casino companies with properties at every price point in the spectrum, or the stand-alone casino hotels that must attract every customer possible, that strategy is a no-win situation.

The pricing of the casino product is more of an art than a science. And that’s because you have to take things like competition, business cycles, special events, staffing and many others into consideration. There are some great tools out there to determine the right price point and the right approach to your customers, but it really is up

to property management to determine which way to go.

A new casino recently opened in a major jurisdiction that emphasized non-gaming attractions—the casino was almost an afterthought. But when the reviews started rolling in, the high price point of the amenities turned people off. Granted, the hotel is aiming at the Wynn-style high rollers, but it also needs to build a solid base of customers, and I wonder how much of a disservice casino executives are doing by insisting on such a high price point that they’ll only get one shot at the core customer.

I was in a mid-level casino the other day and ordered my regular top-shelf vodka as I had my favorite kind of meeting—one that convenes in a bar. The bill was $13 for one drink. And it wasn’t even that big. Now, when I can get the exact same drink in my neighborhood bar for $5 or $6, there’s something wrong here. And anyone who keeps half an eye on the tab is going to recognize that as gouging. Certainly the overhead in a casino is much higher than my neighborhood bar, but my neighborhood bar doesn’t sell 5,000 drinks a night, either.

And how about my pet peeve in a nice four- to five-star hotel: A $15-$20 internet fee tacked onto an already high room rate? If La Quinta Inns can give you free internet along with a nice, clean room, why does a high-end resort have to impose such a charge?

Or the biggest gouge, in my opinion, the “resort fee.” This was added on when, during the depths of the recession, hotels had to lower the room rates so low to compete, that they came up with this extra fee to bring back the revenue lost on the actual room rate. I don’t have to tell anyone who works at the front desk how incensed a guest becomes when they realize they’ve gotten the old “bait and switch:” a low room rate, but an unexpected charge on top of it that they can’t escape.

I don’t pretend to have the answer here, but I believe customer service suffers when rates and prices are so high that it annoys your regular customer. Maybe now that the industry is finally figuring out how to reward customers for their non-gaming spend, they will at least see something coming back to them. But if I was a casino resort executive, I would be very careful that I don’t price my products and services so high that you’ll drive away non-gaming business rather than attract more.

Roger Gros is publisher of Global Gaming Business, the industry's leading gaming trade publication, and all its related publications. Prior to joining Global Gaming Business, Gros was president of Inlet Communications, an independent consulting firm. He was vice president of Casino Journal Publishing Group from 1984-2000, and held virtually every editorial title during his tenure. Gros was editor of Casino Journal, the National Gaming Summary and the Atlantic City Insider, and was the founding editor of Casino Player magazine. He was a co-founder of the American Gaming Summit and the Southern Gaming Summit conferences and trade shows. He is the author of the best-selling book, How to Win at Casino Gambling (Carlton Books, 1995), now in its fourth edition. Gros was named "Businessman of the Year" for 1998 by the Greater Atlantic City Chamber of Commerce, and received the Lifetime Achievement Award from the American Gaming Association in 2012.

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