There’s another picture of customer loyalty based on research that spans industries and countries and explores beyond what your casino can know about its customers by using your internal data
Every casino wants loyal customers, but few casino customers are loyal. So each month casinos send mail offers to their players club data base, conduct some promotions and keep their fingers crossed. Oh, there’s a lot of math involved so it seems pretty scientific and research-oriented. Especially when you have a tiered club with different offers based on theoretical win and reinvestment ratios and return on investment and data base analysis. Yep, it sounds scientific and smart as hell when your marketing department starts throwing those kinds of figures around.
That’s the small picture of customer loyalty—what’s happening in your casino based on win per unit, head counts, repeat visitation, direct-mail redemption patterns and maybe even exit surveys or focus groups.
But there’s another and bigger picture of customer loyalty based on research that spans industries and countries and explores beyond what your casino can know about its customers by using your internal data. The umbrella topic is “consumer buying behavior,” and under that we find loyalty programs such as casino players clubs. While general consumer research on loyalty programs is plentiful, not a lot of academic research has focused on casinos, but some of the principles are the same whether you’re American Airlines or Harrah’s.
First, it’s defining just what you mean by “loyalty”. The standard definition is repeat-buying behavior because repeat business means more money to the bottom line and more efficient use of marketing dollars. Research, however, has shown that loyalty actually consists of two distinct constructs—behavioral, which is the repeat-buying behavior, and attitudinal, which is the “commitment” factor. Behavioral loyalty means you have their business today, but if a casino opened closer to them they’d defect in a New York second. Attitudinal loyalty means you’ve really hooked the customers’ emotions. Research that measures loyalty typically looks at both sides. Ideally, we want customers who are not only repeat visitors but who tell others what a fun place we are, how friendly they’re treated, and how we’re their favorite place to go. That’s a loyal customer.
Research also shows that some loyalty programs are successful while others fail, so it’s important to understand what motivates your customers. Several studies of airline frequent-flier programs reveal some interesting aspects that also apply to casino players clubs. A 2000 study conducted by Mary M. Long and Leon G. Schiffman and published in Journal of Consumer Marketing used six behavioral variables to segment consumers, such as how many round trips were flown in the past 12 months. They also used six commitment variables to test loyalty. The study determined that the three most relevant variables were number of round trips flown in a year, number of program rewards used and commitment. Based on how they rated these variables, members were assigned individually to six different groups for further analysis: “superficial consumers, dreamers, disinterested consumers, opportunistic consumers, hoarders” and “bonded consumers”.
Each of the six relationship groups had distinct characteristics based on their purchase behavior with the airline, their use of the frequency-program benefits and their commitment to the airline. The first group—”superficial consumers” with low usage and no commitment—is of the lowest value to a business. The sixth group of “bonded consumers” has high purchase behavior, frequently uses rewards and is committed to the airline.
The bonded group was the only group that attached importance to the status of their membership in the program. This group believes that it is an important social benefit to impress others by their use of frequent-flier miles, and they respond to prestige awards and preferred-status benefits.
The study concludes that a frequency program only achieves the expected reaction from a minority of customers, but these “bonded” customers are the most profitable for any company since they are the heaviest purchasers and the most loyal. This is good news for casinos, which exemplify the Pareto Principle that 20 percent of customers account for 80 percent of business.
Applying this principle to your own players club means that you use the data you already have to identify your most profitable player segment, which is the high-frequency, high-spending customer. Rather than spreading your finite resources and personnel assets across the entire data base, focus on your bonded customers to keep them loyal. If you don’t have prestige awards in place, such as VIP lines at the buffet, consider what you can do to add preferred-status benefits to your most profitable segment.
And what about the little guy? That $20-per-visit player who comes once a week to use his coupon, enter the drawing and get the half-price seniors lunch offer? Research shows you shouldn’t be too concerned about him. He’s not loyal and you’re buying his business for a hefty fee. Each casino has different formulas for their offers. But make sure you’re including every cost associated with this player.
A 2003 study using data over a four-year period from a large Midwest casino showed that a high percentage of members in the players club data base were potentially unprofitable and should not be targeted for any marketing initiatives. Using data from the casino, the study showed that costs of membership actually increased over time, an element that many casinos may not be building into their annual financial models.
The study looked at “Customer Lifetime Value” models to develop a segmented model of a casino players club based on how club membership affected behavior and loyalty over time. It segmented members by annual spending as being either “low, moderate” or “high” and found that the high spenders were the group that valued club membership most. Many low spenders reported that they would visit the casino even if it didn’t have a players club.
Since casinos usually require membership to participate in promotions, they’re forcing a segment of their data base to be members even though this group has very little potential to be developed into loyal players. The end result is that the casino’s marketing resources are diluted since marketing dollars are being allocated to players who will never be loyal, leaving less to spend on the players who can be developed into loyal and profitable customers.
Consider the big picture when you’re fine-tuning your players club in the hope that it will turn members into loyal customers. Are you focusing on the segment that is most profitable and has the potential to develop commitment to your casino? And are the club benefits you’re offering to this group the ones they will value most because they afford them prestige and preferred status? Loyalty program research shows that many programs, including those of casinos, aren’t strategically generating loyalty and are wasting precious marketing dollars.
By Debra Hilgeman. Reprinted with permission from International Gaming and Wagering Business (IGWB) magazine.
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