How might a casino marketing system automatically learn and respond to patrons’ preferences? Such a system would have many advantages. It could adapt to player tastes that change over a player’s life cycle, offering bonuses and comps that are automatically personalized to generate maximimum player value.
Harrah’s, now Caesars Entertainment, pioneered an innovative technology termed “closed-loop marketing” beginning in the mid-1990s and picking up steam in the 2000s. The chief benefit of closed-loop marketing is that it gives casinos the power to drive increased revenue by constantly learning and adapting to changes that occur over a patron life cycle.
Exhibit A, “Adaptive Closed-Loop Marketing Model,” illustrates how closed-loop marketing applies to a casino. This model shows how a casino continuously improves targeting accuracy of offers by monitoring patron responses. Over a patron’s lifetime, the closed-loop marketing system tracks player preferences and adjusts offers accordingly.
The adaptive learning cycle has two significant economic benefits. First, campaign ROI is increased because offers are targeted to unique patterns of patron activity. Second, patron lifetime is prolonged because the system anticipates changes in patron preference that unfold over the course of a patron’s life cycle. The patron enjoys greater satisfaction with the casino’s offers because the offers are in alignment with the patron’s life-cycle stage.
The Closed-Loop Marketing System Learns Player Patterns over Time
The term “closed-loop” refers to how a system automatically adapts and learns. A closed-loop system begins with an initial guess, and then measures to see if the guess is correct, while modifying future guesses with the new information. Over time, the quality of the guesses improves as the closed-loop system “learns” the behavior of the players at a specific casino.
In the ideal case, once a closed-loop system has honed in on the characteristics of a player, it can track changes over time as the player’s preferences evolve. From a practical standpoint, the system will not always perfectly predict player behavior; however, the economic benefits of a system that learns and adapts will show increased player response over the long run, which is referred to as “lift.”
Gaming Leads the Way: Success Attracts Followers
Harrah’s invested heavily to link its casinos together into a nationwide loyalty offering called “Total Gold,” subsequently renamed “Total Rewards.” Stories of Harrah’s success traveled quickly and inspired others to follow in the operator’s footsteps.
Today, casino conglomerates such as Station Casinos with MyStation, MGM Resorts International with MLife, and Boyd Gaming with B-Connected all have invested in technology and resources to offer their players a similar loyalty club and a closed-loop marketing program. These marketing tools are helping casinos manage marketing campaigns that equate to 10 percent-20 percent of gaming revenues.
Two forces are driving casinos to pursue closed-loop marketing: economic pressure to attain operational efficiencies; and the desire to personalize customer contact with a large number of customers.
These forces are not always aligned, as it can be very expensive to provide personalized customer contact to all customers; therefore, one of the operational benefits of closed-loop marketing is providing services that are proportional to the value of the customer. Casinos pursue this operational benefit because patrons have learned to demand personalized interactions in order to remain loyal.
Inside Closed-Looped Marketing
There are three key ingredients to implementing a closed-loop marketing system: 1) track patron activity; 2) an analytics engine to identify and classify patron spending patterns; and 3) a delivery system to efficiently dispatch offers and services. Getting these to work together requires alignment between marketing, operations and information technology. It is therefore necessary to have organizational mandate and high-level support for the closed-loop marketing machine to operate properly.
The strength of closed-loop marketing is the ability to act precisely according to accurate predictions of customer behavior. As Exhibit A (Adaptive Closed-Loop Marketing Model) shows, the intent beyond these marketing and technology deployments is to manage the player during their life cycle with the company. The philosophy is based on the belief that the relationship with the customer is an asset of the company and not of the individual hotel casino. Over the length of the relationship, most professionals speak of managing the player through the various stages: 1) establishment of the relationship; 2) maintaining and growing the relations; and 3) attempting to reinvigorate the relationship when it appears to be deteriorating.
Identifying the stage a player is in based on characteristics of his or her behavior is not a simple task. Exhibit B, “Frequency and Intensity of Trips Segmentation,” describes one way of looking at players against the various stages described above. It describes segmenting your players into one of four quadrants based on the intensity of the trips and the frequency with which the trips are occurring.
At the extremes, “hot players” can be described as having increasing frequency and trip intensity, while cold players have decreasing frequency and intensity. The directional components embedded in the trip frequency and intensity allow the operator to examine the trajectory of the relationship with the player.
Sophisticated analytics can compare players based on changes in their activity. These analytics enable the operator to predict the value of the player and estimate the impact that a marketing campaign might have on the trajectory of the player’s behavior. These types of analysis and marketing strategy are by-products of closing the loop discussed previously. With the knowledge of the player status in the life cycle, creative marketers can generate appealing ways to maintain and grow the relationship over time.
Frequency and Intensity
Using Exhibit B, marketers can create innovative programs to address each quadrant. Analytics can be used to score the database to support management of the player through the various operational stages: targeting, communicating, promoting, redemption and evaluation.
Segmentation Marketing Actions
A marketer would design a promotion for each quadrant, such as the items identified in Exhibit C, “Segmentation Marketing Actions.” In order to automate this system, marketing actions are embedded as “rules engines” in casino patron management software.
Knowing where players are in their life cycle, their expected value, and having the technology and the resources to score the player and translate that into a marketing campaign are valuable assets to any casino operation. Deploying and managing these assets will help you increase revenue and expand margins even in the most difficult times. It requires a tremendous amount of operations discipline and institutional knowledge to execute, but it is well worth it.