Harrah’s Entertainment INC.

Customer Relationship Management

ContentsWhat are the objectives of Harrah’s data base marketing (DBM) programs and are they working?.....................................................................................................................................2

Why is it important to use the “customer worth” in the DBM efforts rather than the observed level of play?..............................................................................................................................4

How does Harrah’s integrate the various elements of its marketing strategy to deliver more than the results of DBM?...........................................................................................................5

How sustainable is Harrah’s competitive advantage?................................................................7

Discuss the privacy, ethical and security issues associated with what Harrah’s is doing. Are there concerns and how can Harrah’s address them?................................................................9

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Harrah's Entertainment Inc.

What are the objectives of Harrah’s data base marketing (DBM) programs and are they working?

After Harrah’s Inc started to experience negative consequences of poor transaction data

management, which led to the reduced revenues the company realized the need for a change.

After analyzing the internal and external situation the decision was made to be concentrated

more on the marketing rather than operational side of the business. The challenges of the

organizational restructure, modified customer service, constant search for new opportunities

contributed to the marketing data base implementation. The new strategy proved to be

effective and applicable during several years. The objectives and outcomes of the DBM are

discussed below.

The objective of the marketing campaign was to increase company’s revenues gradually by

amassing frequency, budget components. The objective was achieved by focusing on the

target market, predicting its value and converting potentially profitable customers into real

ones. In order to get to the desired results Harrah’s developed sophisticated customers’

profiles, which would track the clients’ preferences, behavior not just once but over time.

The data managed properly helped to determine the potential value of every client.

Marketing approach concentrated on each person individually and helped fulfill the

customers’ needs not only on material but also on emotional level. Knowing what people

wanted and providing them with what they needed predicted how much profit they would

bring to the company. Several models were created to distinguish between the phases of

relationship. Three programs were developed according to each phase – new business during

which Harrah’s encouraged to increase frequency, loyalty in terms of frequency and budget,

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which extended relationship, and retention with intent to retrieve the customers in case their

interest was lost. The company also started to improve connection by eliminating “the same

day cash” approach and setting a portion of the profit to reward potentially profitable

customers. Many marketing programs and experiments were held to establish, strengthen or

recreate the relationships.

Harrah’s succeeded in a customer centric marketing strategy by implementing a new data

base approach. Exhibit 1 shows the evidence of achieving the objective in terms of the

revenue growth, as well as growth in stock and profits. According to the results of each

program summarized in the Exhibits 2b through 2e the new business became more effective

and profitable, the trips to the casino increased with less incremental cost involved, as well as

the number of the customers who stayed with Harrah’s for some time but lost their

enthusiasm showed up after contacting them by mail. The only program, which did not

demonstrate the desired results according to the figures from the Exhibit 2d was the loyalty

program, budget upside. Probably it was due to difficulty of influencing the customers’

behavior in terms of consequence of the visited casino locations. In general, the pro-active

marketing forecast of potential revenue made allocation of the company’s operations,

policies, finances and other resources easier to manage.

Without the knowledge on the local property level the marketing ideas would not be

effective. Therefore local implementation of the MDB was essential. The managers of each

region were entrusted to make marketing decisions, which influenced further integration of

the data base.

The program was not executed blindly to please the customers to the largest extent.

Observations were made to determine which strategy works better and what marketing tools

are appropriate to use. For example, as it appears in terms of rewarding the customers with

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food and accommodation the less attractive, modest package led to more intensive gambling

behavior. As a result, the management was able to save on the hotel rooms.

Figure 1:Customer View of the Total Gold™ Program

(Terry college of

business, n.d.)

Why is it

important to use the “customer

worth” in the DBM efforts rather than the observed level of play?

Harrah’s Entertainment is one of the world’s biggest providers of branded Casino

Entertainment. It has got about 50 casinos under several brand names. It has got lots of major

companies competing against them. Thus they need to know their customers really well.

Harrah used Customer Relationship Management (CRM) in order to face the increasing

challenges. They collected information regarding the customer’s gaming preferences by

implementing a program called Total Rewards. The information is collected through the

customer ID cards which are inserted into the slot machines when they are playing. This

process made it possible to do several marketing tests and track clients over a period of time.

They have developed their own quantitative models in order to predict the customer worth

accurately.

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Figure 2: Total Rewards (Total Rewards, n.d.)

Theoretical win or customer worth is the theoretical amount of money that the casino expects

to earn from a customer’s play. Harrah’s can get potential high worth players if they give

more emphasis on the customer worth rather than the observed level of play. The investment

should not be concentrated on the frequent/active visitors. This would lead to narrowing

down of the market, as the observed level of play does not include the amount of money that

Harrah’s Inc. are losing to its competitors when their customers play at other casinos. The

business of Harrah’s can achieve a whole new level if they can find and target the high worth

customers in the low observed frequency market as there is very low competition in that

section. Harrah’s uses IBM COGNOS1 data manager to access the data warehouse and to

obtain queries and report. The quantitative model developed by the firm helps in exploiting

more customers from the broader customer base and to improve the customer services. It was

observed that the observed level of play indicated the customer’s past activities and it was

less relevant to the future or current business of the firm. DBM changed the way by which

Harrah’s invested in their customers. The incentives can be customized and provided to the

customers based on their future value. The firm gets sustainable profits when its customers

1 Harrah’s Entertainment, Inc. Source : http://www.ibm.com/us/en/

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are satisfied. Thus we can say that customer worth is more important as it is more profitable

for the company in the long run and it helps in satisfying the high worth customer’s needs.

How does Harrah’s integrate the various elements of its marketing strategy to deliver more than the results of DBM?

The important factor which led to the above results is the changes made in the organization

structure of Harrah’s. One of the important measures taken to improve Harrah’s position in

the market was to bring in a COO who is a marketer, i.e. Gary Loveman who was on the

faculty of Harvard Business School and had been working with Harrah’s for five. He was

brought into the company in 1998. After the arrival of Loveman, he helped the company to

migrate from an operations- driven company that viewed as property separately (stand-alone

businesses) to a company which is driven through marketing with major focus on the

customers and building its brand image. Here Harrah's division presidents and their

subordinates in brand operations, information technology, and marketing services, started

reporting to Loveman (COO) instead of to the CEO as shown in the . This was done to

create a broader perspective in terms of the customers, earlier each property functioned as

a separate entity whereas now they are changing that to create a bigger and wider

experience for the customer. One of Loveman’s initiative was to implement marketing

tools and programs across all Harrah's properties. Loveman disbanded the existing

marketing function and rebuilt it with people who preferred slide rules to mock-ups.

Richard Mirman, a former University of Chicago math whiz, left Booz Allen & Hamilton

to join the new team as Senior Vice President of Relationship Marketing. These led to the

development of the Database management system and Total Gold program which later

was updated to Total rewards program.

Harrah’s customer- focused marketing strategy emphasized on three main aspects: building

new business, customer retention and loyalty. In fact, the company had to use the results of

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Database marketing to implement three key packages: new business program, loyalty

program and customer retention program. The new business program was aimed at improving

the effectiveness in converting new Total Gold members into loyal customers, i.e. predicting

customer worth and making more effective investment at the ground level(customer level).

For example, as seen from exhibit 2b, Harrah’s provided customers with marvelous offers

which resulted in regaining a lot of customers from other casinos. As seen from the figures

mentioned in the source, each month resulted in bringing a new vintage of customers signing

up.

In the loyalty program, the main goal was to extend the firms relationship with its customers

on a long term basis. Customers who were known for atleast 6 months or three trips were

more targeted. Incentives were offered to the customers to frequently visit its properties

which in a way inspired them to switch on to Harrah’s from their competitors. Moreover as a

visitor’s first stop, Harrah’s was able to seize the major chunk of customers spending (as seen

from exhibit 2c).

The objective of retention program was to regain the market from their lost customers. For

that purpose, it had to test out the reducing support of some customers and then had to send

direct mail offers to approximately 8000 customers (mainly coupon incentives) in-order to

revitalize their relationship with their customers. For instance, when Harrah’s saw a decline

in their frequency of visits in the latter half of 1998, they mailed incentive coupons in January

1999, which resulted in a big improvement in customer visits and sales. Another worthwhile

factor was that customers who returned to Harrah’s were put into loyalty marketing program

and were managed depending upon their upside potential.

These three programs jointly played a major role in satisfying the customers and hence

achieving their marketing goal. In addition to this program, the Total Rewards program also

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managed to build a strong rapport between Harrah’s and their customers as the customers

believed that their specific needs were taken care of by the firm. The program also did have a

major impact on consolidation play based on the theoretical approach. Harrah’s also made the

customers make feel that it patented itself with the “feeling of exuberance”. This had

attracted a great deal of customers to come to the casino for the sole purpose of monetary

escape. In addition to this, Harrah’s strong role in advertising and ensuring high customer and

service quality also paved its way in building its strong brand image.

How sustainable is Harrah’s competitive advantage?

Harrah's Entertainment, Inc. is a well renowned in the gaming industry operated casinos in major

casino markets like Las Vegas, Lake Tahoe, Laughlin, Reno, Atlantic City. Company's major

competitors were Park Place Entertainment Corporation, Mirage Resorts, Circus Enterprises Inc,

Trump Hotels & Casino Resorts, Inc.

Philip G. Satre, Chairman and CEO of Harrah's Entertainment, Inc. has created a competitive

advantage for the company with its customer minded operations, where customer focus was seen as

utmost important. But in the mid 1990's Harrah's competitors had in the market came up with better

and flashier properties, where the properties were made in to an “experience” with different

attractions. Harrah’s was losing market share to these flashy and extravagant establishment. To

overcome this and to re-establish the market Satre with the board member’s approval appointed Gary

Loveman, who joined Harrah's as Chief Operating Officer (COO). Loveman guided the company to

new direction to change from operations-driven company that viewed each property as "standalone

business," to a marketing-driven company that focused on the target customers and build their loyalty

under Harrah's brand. Loveman launched three major initiatives: changing the organization

structure, building the Harrah's brand, delivering extraordinary service and exploiting relationship

marketing opportunities. As a result of these by December 1999, Harrah's had 50% growth in revenue

and 100% growth in stock price and profits, which were significant.

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The other important initiative was to implement marketing tools and programs across all Harrah's

properties. The Customer Relationship Management at Harrah's consisted of two components:

Database Marketing (DBM) and the Total Gold Program. Which included new business, loyalty and

retention programs.

Harrah’s had an option of investing 100 million dollars into property, but it chose to invest

more than $100 million in technological improvements such as computers and software

development, which are regarded as the industry's most sophisticated "frequent bettor"

program. With the Total Rewards program, which contains the world's largest database of

casino customers, they have been able to create sustainable loyalty, a dominant competitive

advantage, and insulate the business from local market volatility.

Their innovative idea was to grow by getting more business from Harrah's existing customer

base. This approach was in contrast to the prevalent strategy of building ever more elaborate

and splashy new casinos. Gary W. Loveman refers to their success as "the triumph of

software over hardware in gaming."

The Total Rewards program has increased traffic in Harrah's casinos, and marketing

programs driven by data from the warehouse are increasing retention. Keeping customers

goes right to the bottom line. An increase in retention of just 1 percent is worth $ 2 million in

net profit annually. So far, Harrah's is enjoying an increase in retention of a couple of

percentage points, thanks in large part to its data warehouse.

The database technology and customer relationship management software help Harrah's

achieve a sustainable competitive advantage in the gambling industry. The database

technology and customer relationship management software enable Harrah's to maintain

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sharp customer profiles, analyze its data to identify the most profitable customers, improve its

customer service, and offer consistent customer service.

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What are the privacy and ethical issues that Harrah’s should be concerned about?

First and foremost, there is potential of selling customer data, such as behavioral and

financial information but Harrah’s has stated that it will not sell of the data it has collected to

any third party. Which may lead to ethical and privacy concerns depending on the

information sold, if the individual is not aware of such transactions he/she can be in grave

danger when it comes their personal information. There is always debates around data mining

that there is the problem of sharing Harrah’s internal data with credit card companies. This

sort of data cartel can have far-reaching consequences for a customer’s credit profile and

ability to secure credit.

Given the nature of their business, they promote gambling. Harrah’s works at enticing

customers to feel the adrenaline rush of gambling. Most of their offers are targeted towards

this. People go to the casino because they want to feel “exuberantly alive”. This has definite

ethical issues since gambling can become an addictive practice and Harrah’s offers encourage

such behavior. Some may debate that Harrah’s is exploiting customers who are known to

exhibit gambling addiction. If this argument is true then they may be targeting such

individuals to spend more money in their properties, which can be deemed an unethical

practice.

Harrah’s system relies on tracking customer behavior, right from their playing strategies to

their personal information including address and birth date. This raises issues of privacy,

particularly when Harrah’s can track customers’ spending patterns on gambling. Harrah’s

also runs the risk of over profiling through its data. Forcing behavioral/psychographic

patterns on users can backfire, when all customers are looking for is a good time. Customers’

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behavior in Harrah’s may only be a reflection of their less guarded selves, and an incorrect

pointer to their behavior metrics and/or psychographic positioning.

There is always a possibility of accusation by customers who are not satisfied or who have

had a bad time at the property, so in order to overcome these Harrah’s should have a clear

description of the terms and conditions, The customer should have an clear opt-in and opt-out

conditions, there should be transparency i.e. the customer should be aware of what the

information will be used for. Even the reward program should have be clearly defined to

avoid any conflict with the customers. All of these should be maintained in order to reinforce

the trust shown by the customer.

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