Edition 28

Gambling on Loyalty and Winning

1st February 2011 By Eric McNulty no comments

Author Eric McNulty takes a look into the gambling industry to see how they leveraged the use of loyalty to turn a second tier company into a world class brand within the industry.

As part of our exploration of loyalty programs we must revisit the story of Harrah’s Entertainment as Gary Loveman, originally as COO and then as CEO, provided a master class in leveraging loyalty as he took this second-tier gaming company to the top of the industry. Its lessons are still relevant today.

Loveman left his position on the faculty of Harvard Business School to become COO of Harrah’s in 1998.  He told McKinsey Quarterly, “Most people thought I’d leave in two years and go back to Harvard. They thought this would be like a kidney stone: It would hurt for a while, and then it would pass.” He didn’t leave — in five years he doubled revenue and earnings and transformed Harrah’s into a gaming powerhouse. He did this using a strategy based on building customer loyalty and using data to outsmart rather than taking the more common approach in an industry in love with the newest, biggest, fanciest casino — investing in opulence. Harrah’s didn’t have the money or time to out-build competitors so they had to out-think them.

How did he do it? He employed three tried-and-true approaches that are applicable to any firm in any industry where transformational change is the goal:

Question assumptions: Digging into the data, Harrah’s discovered that its most desirable customers were not the usual suspects — high rollers with diamond-studded watches and private jets. Rather, it was Mildred, the retired school teacher who went to the casino for diversion a few times a month. Mildred didn’t care about dancing fountains or mind-bogglingly spacious hotel suites. She wanted to spend a few hours, have some fun, and perhaps enjoy a meal. And she could be an attractively profitable customer as well. This understanding drove Harrah’s to refocus its offers, incentives, marketing and even the layout of its casinos.

Challenge orthodoxies: Loveman didn’t look to the gaming industry for ideas; he turned to retail where customer relationship management was more highly developed.  He down-played the importance of gaming industry experience among the management team and instead looked people who could turn customer data into competitive advantage.

Instill discipline in executionProfessor Tom Davenport tells the story that Loveman shared with him that there are three ways to get fired at Harrah’s: steal (always a reliable way to get fired at a casino), harass women (Harassing men is apparently OK, Davenport quips), and fail to use a control group. Data drives every decision at Harrah’s, the testing in continuous, and as many aspects of the customer experience as possible are driven through the loyalty program.

Davenport relates that Loveman is noted for probing during presentations with the question, “Do we think, or do weknow?” The reliance on data and emphasis on customer service is consistent throughout the organization from the front lines to the back office, from direct marketing to staff incentives, and from the CEO’s office down to the manager of the smallest casino.

Harrah’s has become the largest gaming company (by revenue) on the planet, operating primarily under the Harrah’s, Caesars, and Horseshoe brands. It has (as of 2009) 85,000 employees and facilities on five continents. It was purchased by private equity interests in 2008 and the debt from that transaction has caused some concern about its financial performance but this should not dim the story of transformation of a relatively sleepy brand into an industry leader through a strategy built on customer loyalty and analytics.

To read more about Gary Loveman and Harrah’s, see Tom Davenport’s book Competing on Analytics or the Harvard Business Review article, “Diamonds in the Data Mine.”

What do you think about the Harrah’s story? What lessons might other loyalty aspirants learn?

About the author: Eric McNulty

Eric J. McNulty serves as consulting editorial director for the International Institute for Analytics. Previously, he served as Managing Director of Conferences and Editor at Large for Harvard Business Publishing. Eric is a writer whose work has appeared in the Harvard Business Review, Harvard Management Update, Manager magazine (Germany), Marketwatch, Strategy & Innovation, the Boston Business Journal, and Worthwhile magazine. He blogs regularly at www.richerearth.com and www.executivenomad.com.

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