HARRAHS

ENTERTAINMENT
INC.
Customer Relationship Management

Contents
What are the objectives of Harrahs 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 Harrahs integrate the various elements of its marketing strategy to deliver more than the results of DBM? ........................................................................................................... 6 How sustainable is Harrahs competitive advantage? ............................................................... 8 Discuss the privacy, ethical and security issues associated with what Harrahs is doing. Are there concerns and how can Harrahs address them? .............................................................. 10

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Harrah's Entertainment Inc.

What are the objectives of Harrahs data base marketing (DBM) programs and are they working?
After Harrahs 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 companys 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 Harrahs 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 Harrahs encouraged to increase frequency, loyalty in terms of frequency and budget, 2|Page

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. Harrahs 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 Harrahs 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 companys 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 3|Page

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?
Harrahs Entertainment is one of the worlds 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 customers 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. 4|Page

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

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 customers play. Harrahs 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 Harrahs Inc. are losing to its competitors when their customers play at other casinos. The business of Harrahs 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. Harrahs 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 customers past activities and it was less relevant to the future or current business of the firm. DBM changed the way by which Harrahs invested in their customers. The incentives can be customized and provided to the
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Harrahs Entertainment, Inc. Source : http://www.ibm.com/us/en/

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

How does Harrahs 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 Harrahs. One of the important measures taken to improve Harrahs 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 Harrahs 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 Lovemans 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.

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Harrahs 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 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, Harrahs 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 Harrahs from their competitors. Moreover as a visitors first stop, Harrahs 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 Harrahs 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 Harrahs were put into loyalty marketing program and were managed depending upon their upside potential.

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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 managed to build a strong rapport between Harrahs 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. Harrahs 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, Harrahs strong role in advertising and ensuring high customer and service quality also paved its way in building its strong brand image.

How sustainable is Harrahs 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. Harrahs was losing market share to these flashy and extravagant establishment. To overcome this and to re-establish the market Satre with the board members 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

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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. 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.

Harrahs 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.

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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 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 Harrahs should be concerned about?
First and foremost, there is potential of selling customer data, such as behavioral and financial information but Harrahs 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 Harrahs internal data with credit card companies. This sort of data cartel can have far-reaching consequences for a customers credit profile and ability to secure credit. Given the nature of their business, they promote gambling. Harrahs 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 Harrahs offers encourage such behavior. Some may debate that Harrahs 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. Harrahs 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 Harrahs can track customers spending patterns on gambling. Harrahs 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 Harrahs 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 Harrahs 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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