Harrah's Knows What You Did Last Night
- 06 June, 2001 13:15
While its competitors build volcanoes, sinking ships and replicas of the Eiffel Tower to lure customers, Harrah's is betting on a service-oriented strategy enabled by IT to win customers' loyalty. So far, the gamble is paying off.
When Joann Idleman arrives at the airport in Las Vegas, a sleek white limousine is waiting to whisk her off to Harrah's hotel and casino. She doesn't bat an eyelash as she passes Caesar's Palace and the Mirage, two showy resorts where the 67-year-old entrepreneur from California was once a regular. Now she wouldn't dream of staying anywhere but Harrah's.
Upon arriving at the hotel, she is greeted with a big smile by her personal host, Gary Ernst, who makes her hotel reservations and books her seats at concerts and boxing matches. In her suite, she finds fresh cut flowers, cookies, chocolate-covered strawberries, cold drinks in the fridge and a welcoming voice mail from the concierge. If she goes to Harrah's on her birthday, there's cake in the room. "I think they know my whole life history," says Idleman. "Whether it's a birthday or an anniversary, there's always something in the room to acknowledge that, and that to me is special."
Idleman has been gambling at Harrah's since 1995; in 1998 she started staying at the hotel exclusively.
The year before, the company had rolled out a loyalty card program called Total Rewards, which tracks customers' gaming activity and gives them rewards to encourage them to spend more money at the slots and tables. Although Idleman says it was the service - not the player card - that made her a Harrah's devotee, the company would not have been able to provide its high-calibre service without the card. And thanks to that service, Idleman's spending increased by 72 per cent from 1997 to the present. Now, she spends between $US5000 and $US10,000 on gaming per visit. Ernst and company better treat her like a VIP.
Knowing the Customer.
While not all of Harrah's guests have their own host, the Las Vegas-based casino operation does its best to give everyone the appropriate amount of personal attention, whether it's leaving sweets in their room or offering to buy them dinner. The loyalty card, which works at any of Harrah's Entertainment's 21 US properties, helps employees determine what level of service each customer should receive. As customers use the card, Harrah's collects information about their gaming habits, which it then uses to lure them back to the casino via customised offers and to provide personalised service when they do return. The card also gives customers good reason to be loyal to the Harrah's brand because it lets them earn points that they can redeem for cash or comps (free tickets to shows, hotel rooms and dinners).
"The prevailing wisdom in this business is that the attractiveness of a property drives customers," says Gary Loveman, Harrah's COO. "Our approach is different. We stimulate demand by knowing our customers."
For instance, someone who always vacations at Harrah's in April will receive a promotion in February or March, redeemable for a free weekend in April. "Our competitors are competing on hardware," says Richard Mirman, Harrah's senior vice president of marketing. "We're competing on software. They spend money to attract customers, but we build the technology infrastructure to invite customers."
So instead of building glitzy casinos with eye-popping attractions out front, Harrah's is betting on a service-oriented strategy enabled by IT. In the mid-1990s, the company paved the way for its national loyalty program when it began building an information system called WINet (winner's information network). Today WINet links all the properties and allows the company to collect and share customer information company-wide. (For details on the technology, see "How It Works", below.) It was a gutsy move, dependent on overcoming mind-boggling technological challenges and the equally formidable task of changing Harrah's corporate culture from an every-casino-for-itself outfit to a collaborative, customer-focused enterprise.
But the gamble appears to be paying off: The number of customers visiting casinos in different markets jumped from 13 per cent in 1997, when Harrah's launched its loyalty card program, to 23 per cent in 1999; between 1998 and 1999, growth in cross-market revenue increased 33 per cent. Most important, customers are spending more when they visit. As a result, Harrah's profits have more than doubled since it introduced the loyalty card, reaching $US208.5 million in 1999.
Harrah's winning streak is likely to continue because information tracked through the loyalty card allows analysts to predict the potential value of each customer. Using that knowledge, Harrah's can create customised marketing programs for each of them.
That focus on customers' potential rather than their history differentiates the company from the rest of the industry, according to William Schmitt, executive director of CIBC World Markets in New York City. "Everyone tracks their customers' play on a real-time basis," he says, "but Harrah's matches what its customers are worth with what they might be worth and has a 90 per cent hit ratio in turning customers who are presently worth $500 into customers who are worth $5000." As a result, he says, Harrah's has been able to gain market share and lead its competitors in profit growth from 1997 to 1999. Initially, Mandalay Bay Resort & Casino, MGM Mirage and Park Place Entertainment didn't think there was much to Harrah's big technology push or to its player card program, but now they're all scrambling to roll out their own national player cards, Schmitt says.
If the challenges that Harrah's undertook to establish this program are any indication of what its competitors will face, it won't be easy. They, too, will have to suffer through a tedious IT standardisation effort and a painful cultural transformation.
Harrah's history of customer service dates back to 1937, when Bill Harrah opened his first bingo parlour in Reno, Nevada. Harrah was committed to getting to know his customers and asked them all about themselves. In fact, his conversations with customers led him to be the first to install carpet on a casino floor.
Phil Satre, who became president and CEO in 1984, continues the late Bill Harrah's legacy. In 1988, he began sending feedback forms and congratulatory certificates to people who had won slot machine jackpots.
"I looked at these cards and noticed that some customers visited four or five Harrah's properties," says Satre. That insight ran contrary to a long-held corporate assumption: that customers were partial to a particular Harrah's casino and visited only that property.
He shared these findings with John Boushy, the company's senior vice president of brand operations and CIO. The two began to muse on the possibility of tracking customers across different properties with a single, national player card and rewarding them for patronising more than one Harrah's site. At the time, Harrah's had a player card program, but the cards were valid at only one property since the card-reading systems in each location were different. The company's highly decentralised operating structure and various IT systems would have to change in order to make a national player card program work.
Just as Boushy set out to standardise systems across all properties in the early 1990s, gambling on Indian reservations and riverboats was legalised and an expansion boom followed. The plans for the player card program were sidelined, though Satre remained convinced that it was a worthwhile goal.
When the boom and Harrah's growth began to slow in the mid-1990s, Satre's interest in the project was rekindled by Loveman, then a young Harvard Business School professor who was working with some of Harrah's vice presidents in his executive development program.
"What was striking to me about the casino industry was that it was marked by extraordinary disloyalty," says Loveman. He saw an opportunity to create the same kind of loyalty in the gaming industry that people feel toward brands such as Nike, Procter & Gamble and Tommy Hilfiger. Loveman wrote an unsolicited letter to Satre that suggested the company focus on driving what he called "same-store sales growth" - increasing sales at existing facilities instead of opening new properties. He proposed two ways to increase sales at existing casinos: through service, which Loveman characterises as traditionally "lousy" in the casino industry, and marketing. Satre not only agreed wholeheartedly, he hired Loveman as his COO. Sure, the strategy was risky, but it was a risk Satre believed Harrah's had to take.
For its service-oriented strategy and the loyalty card program to work, Harrah's had to link all of its properties to enable company-wide information sharing. The IT department was up against incredible odds. It had to get two different computer platforms - an IBM system that ran the lodging, events and casino management systems, and a Unix system that ran a customer database - to communicate. IBM and AT&T told Boushy that he'd never be able to make it happen. And indeed, it often seemed that the vendors were right.
Boushy and his team started building WINet in mid-1994. It was supposed to go live in February 1996, but by July of that year, it still wasn't complete. To boost his troops' morale, Boushy vowed not to cut his closely cropped hair until the system was up and running. A month later, a vendor's bug decimated the entire database, and Harrah's IT team had to rebuild it from scratch.
By the time the system went live in February 1997, Boushy's hair had reached shoulder length.
While Boushy was growing a ponytail, Satre was trying to convince sceptical regional property managers that the new strategy would benefit their businesses.
Historically, the properties operated independently and competed with each other. General managers were possessive of their casinos, their markets, their customers and their employees. Their casinos were their fiefdoms. Consequently, some regional property managers felt threatened by Satre's push to encourage customers to visit properties in different markets. They thought they would lose customers.
"We challenged the premise that a trip to Las Vegas would take away a trip to Tunica, Missouri," says Mirman. "We did tests, and we showed them that that wasn't the case. Once we built the systems, we were able to prove [to them] that there is a lot of cross-market play."
Satre argued that encouraging customers to visit different casinos would result in them being loyal to the Harrah's brand - and bring in more revenues for the company overall. He also maintained that the value of guests being able to earn points with their player cards all over the US outweighed the potential cost of internal competition.
Finally, Satre convinced the general managers that the corporate marketing department could help individual casinos effectively leverage the information in the national customer database. The company developed promotions that encourage people to visit both the regional and destination properties. Satre says that programs such as Millionaire Maker, a slot machine contest that sends winners from each casino to a destination property (Las Vegas, Lake Tahoe or Atlantic City) for the final round, are profitable for each property involved. He adds that the company could not put on these events as efficiently and as effectively without information technology and without having changed property managers' possessive attitudes about their property, customers and employees.
A Shift In Thinking.
In addition to convincing dubious regional managers, Harrah's had to shift its culture in two other fundamental ways to succeed with its new strategy, says Loveman. First, the company had to switch its focus from operations to marketing. Harrah's did this by hiring top marketing talent from outside of the casino industry, including Mirman, who had been a financial consultant at Booz, Allen & Hamilton. Second, the company had to become very efficient at both marketing and providing top-quality service, which Loveman calls the two drivers of repeat visitation. He says that having the IT that allows the company to project the value of each customer and to market to them accordingly helps Harrah's deliver these services more efficiently. "Almost everything we do in marketing and decision making is influenced by technology," he says.
Harrah's strategic transformation tells the story of a company caught in the throes of a cut-throat competitive environment, using modern information technology to return to its founder's original conviction: serve your customers well and they will be loyal. Getting back to basics (that is, focusing on its customers) has led the company to operate much more efficiently and realise substantial improvements on its balance sheet. Although it may be third in the industry in terms of total revenues, Harrah's ranks first in profit growth. And that's the number that Satre cares about. "We're trying to be the most successful at marketing to our customers, and that's what we've achieved over the last two years," he says. Because the company has focused on branding, not building, he notes that Harrah's has the best same-store sales growth in the industry.
And as far as Wall Street is concerned, employing IT to better serve customers makes sense. "Because of Harrah's size and the efficiency of its systems, it can drill down into its database and customise its marketing promotions to lower-end players," says CIBC's Schmitt. And that has allowed Harrah's to hold on to those lower-end players - and even turn some of them into high rollers. And building stronger relationships with existing customers is a smart way to grow the business because the cost of retaining a customer is one-tenth that of attracting a new one. "Harrah's has been increasing market share through technology," he says, which explains why he expects competitors to roll out their own national player cards within the year.
But perhaps the strongest evidence that Harrah's has successfully used IT to transform itself into a customer-focused enterprise is that customers themselves notice - and appreciate - that everyone from property managers to waitresses treat them with respect and consideration.
"All the people are very down to earth," says VIP customer Idleman, who claims that the employees are decidedly less friendly at Treasure Island, the Mirage and Caesar's, where she says guests are treated like "a piece of furniture". And it's the personal attention at Harrah's that persuades Idleman to step into the Harrah's limo each time she visits Vegas. "Tom Jenkin, the general manager of the casino, stops to talk to people. Even the bell men and the maids get to know you too. They make you feel important," she says. "Harrah's seems more like a family than any place I've been."
How It Works.
The technology behind Harrah's customer-focused strategy.
Nineteen million customers pour through the revolving doors of Harrah's Entertainment's 21 US properties each year. But keeping track of a customer base larger than the population of Australia requires some pretty sophisticated technology - and an integration strategy that would baffle even the sharpest card counter.
Harrah's winner's information network (WINet) connects and consolidates customer information from all of the company's transactional, slot machine, hotel management and reservation systems. WINet consists of a national database of operational customer data and a data warehouse, which has both customer data and data on hourly slot machine usage. The marketing department uses the data warehouse to analyse the customer information for patterns and insights. It then creates individualised marketing programs for customers based on their projected worth.
When a customer calls Harrah's to make a reservation, the computer screen of the agent taking the call is instantly populated with the customer's name and tier, where she usually plays, how much she's won and lost, and what she might be worth. The agent then accesses the reservation system to check room availability. He also asks the guest if she's responding to an offer, which she does not have to have on hand, since the offers sent to each customer are recorded in the customer database.
WINet is also the backbone for Total Rewards, the company's tiered loyalty card program. When a player inserts her card into the slot machines or the video poker machines, the amount of time she plays and her wins and losses are recorded in the customer database. Based on how much time a customer spends gambling, she earns points, which she can exchange for comps (free dinners, hotel rooms, tickets to shows and cash).
The player cards work at all 21 Harrah's properties, making Harrah's the only national casino chain with a multiproperty player card.
Technology's Potential Dark Side.
Harrah's sophisticated IT lets it collect and capitalise on customer information. But does it also encourage compulsive gambling? When you pop your player card into a slot machine or a video poker game at Harrah's Entertainment, the company tracks your gaming activity and rewards your loyalty with complimentary dinners, tickets to shows, free hotel rooms and even cash. Harrah's loyalty card has improved the company's performance by leaps and bounds. But is this a case of using technology to prey on customers' weaknesses?
Yes, says the Reverend Thomas Grey, executive director of the Virginia-based National Coalition Against Legalised Gambling, an organisation opposed to the expansion of the casino industry. "Their profitability is based on the diseased gambler. Half of what they make comes from the 1 per cent to 5 per cent who are addicted," he says. "Their goal is to separate people from their money. They've been successful in separating people from their money through the rewards program."
But Harrah's CEO Philip Satre rejects Grey's allegation that the company targets the compulsive gambler. According to Satre, the company goes after people who budget, for instance, $1000 to $2000 for gambling during a trip. He adds that the purpose of Total Rewards is to encourage people to be loyal to Harrah's by spending more (or better still, all) of the money they budget for a trip at Harrah's as opposed to other casinos.
"When I go to Vegas, I take the money I know I can afford to spend, and that's my limit," says Joann Idleman, a Harrah's customer. "I do feel that people probably gamble a little more with their cards because they know they are going to get comps and because they know they are going to get money back." Ed Looney, executive director of The Council on Compulsive Gambling of New Jersey, an advocacy organisation for addicted gamblers, says that bleeding one's customers dry is not in the industry's best interests. "We can't take them to task for marketing their product," he says. "They have programs in place to help their customers. They support councils [on compulsive gambling] all over America."
One such program is Operation Bet Smart, a responsible gambling campaign launched by the company in 1987. The program trains employees to recognise compulsive gamblers and deny them credit, direct marketing promotions and, upon the customer's request, access to play.
In 1995, the company started a national help-line that people with gambling addictions can call to get help and advice. The number for the help-line is printed on all of Harrah's ads and marketing materials.
"Harrah's coined the term responsible gaming," says Looney. "They have policy statements on it. A lot of casinos have followed suit, but where those casinos provide lip service, Harrah's doesn't."