CRM: A Gamble No More

By Eric Krell

Early corporate investments in customer relationship management (CRM) capabilities delivered questionable returns. Bruised by the recession and smarting from an IT-spending frenzy, executives commonly viewed CRM investments as a gamble in the early 2000s. But the odds of CRM investments paying off have greatly improved in the past five years, and customer-experience innovations in the gaming have lead the way.

“CRM has had an incredibly valuable impact in the gaming industry,” notes Atique Shah, who has conducted successful CRM initiatives at the National Basketball Association (NBA), Churchill Downs and GSI Commerce (a company that earned Gartner’s “CRM Excellence” award as a result of the project). “In many ways, gaming has shown other industries where they need to move when it comes to leveraging CRM.”

While some corporate leaders strive to emulate CRM practices at play in casinos, others harbor reservations about gambling’s societal impact. Las Vegas’s booming entertainment economy, the rise of online gambling and the growing popularity of Texas Hold ‘Em have stimulated debates on the ethics at play in the gaming industry. Gaming executives assert that they have strong controls in place to address the negative affects of the activity on many gamblers. Others are not so sure. Baylor University Professor Earl Grinols’ research offers a compelling economic examination of the social costs and benefits of gambling (see “High-Level Cost-Benefit Analysis”).

Despite those opposing views on the business of gambling, there is no question that casinos and other gambling-related businesses have made great strides in collecting, analyzing and acting upon customer information. Some businesses can now predict with stunning accuracy the amount a customer will spend in a visit, during a year or even over the course of a lifetime based on a handful of initial transactions.

Rewarding Loyalty

Las Vegas-based Harrah’s Entertainment, which owns or manages more than 40 casinos, has lead the way with its groundbreaking (and trademarked) “Total Rewards” customer loyalty program. The program consists of a card customer use to gamble. Each transaction earns points; when a customer earns enough points, he or she can move from “gold” member status to “platinum” or from “platinum” to “diamond.”

Each tier has specific, and increasingly generous, benefits (discounts, free hotel rooms, limousine service and so on) associated with it. More important, each gambling transaction card holders make flow into Harrah’s database where it can be analyzed to determine ways to make that individual cardholder happier.

After a glance at a computer screen, a casino host can greet a very important customer checking into a Harrah’s property by handing him his favorite drink and informing him that reservations for two have been made at his favorite restaurant and two tickets for tonight’s sold-out Elton John show are waiting for him in his (favorite) room – and, adding a warm “Happy Anniversary.”

Churchill Downs has separated its customer base into nine tiers, each of which receives offers, amenities and service tailored to the unique characteristics, and value, of each segment. The company last year received CRM magazine’s annual “Elite Award” because the new CRM capabilities helped increase sales by more than 50 percent and profit margins by more than 10 percent.

“These sorts of capabilities are not easy to develop, but then again, the data is there,” notes Charles Fink, a VIP marketing specialist with Harrah’s and one of the first Hankamer graduates to earn an MBA in CRM in 2002. “Do you have the time and the resources to look at all of the data? And how deeply into your customer base can you analyze? Those are the key questions.”

Happy Customers Roll the Dice

Fink, a 2001 Baylor University graduate, recalls watching the Travel channel’s coverage of Las Vegas as an MBA student. The show’s narrator noted that the casinos “knew everything there was to know about the players …and they act on that information.”

After earning his MBA, Fink landed a job at the MGM Grand as a customer relationship marketing analyst. He spent two year there before joining Harrah’s to focus on new ways to market to the company’s highest-rolling VIPs. Fink says he was drawn to Vegas and his current “dream job” because the gaming sector is fertile for CRM innovation.

The sector’s margins are relatively high, which provides more money for CRM strategies, technology and experts. “It’s also an industry that’s willing to take risks because that’s what [gambling] is all about,” says Fink. “It rubs off on us.”

Since the actual gambling product is a essentially a commodity – the same table games, slot machines and wagering opportunities exist at most casinos – gaming companies are forced to compete on service.

Customers may think that they have a lucky table, a lucky dealer or even a lucky casino, but when that luck turns, and it always does, their loyalty to that table, dealer or casino can also switch off. Harrah’s sophisticated data mining and statistical analysis found that happier customers spend more money. “If a customer has a very happy experience at Harrah’s they increased their spending on gambling at Harrah’s by 24 percent a year,” report Phil Bligh and Doug Turk in their book “CRM Unplugged: Releasing CRM’s Strategic Value” (John Wiley & Sons, 2004). “In contrast, unhappy experiences led to 10 percent declines.”

Learning from Gaming

The specific modeling and analysis methods employed to make customers happy are incredibly complex and as closely guarded as the Coke formula, but the ingredients of a sophisticated CRM strategy are relatively straightforward.

“You need a very good database, excellent analytics, and then a method to deliver the information you gather from the data to the front line where it can be accessed and acted upon,” notes Fink. He and other CRM experts who have operated in the gaming sector also tend to offer additional similar insights, including those that follow, which companies in other sectors can learn from to fortify their CRM capabilities:

Experience matters. Gaming businesses have learned that loyalty (the amount a customer spends and the duration of the customer’s relationship with the company) and satisfaction (a customer’s reaction to a specific event or interaction with the organization) depend on numerous experiential factors. Those factors can be managed. “The smart approach to CRM is not about pushing for sales all the time,” says Shah. “Smart CRM recognizes that the customer has already made decision to do business with you. Rather than selling the obvious, build the human part of the relationship by recognizing customers as individually as possible through interactive channels.” As Harrah’s has demonstrated, that one-to-one service can be delivered to all customers, no matter how much they currently spend.

Trust the data. The majority of CRM strategies to date rely too heavily on the instincts of sales and marketing professionals. “Some of these ideas are right and some are dead wrong,” notes Bligh and Turk. “How do you know which are which? The answer is to let facts be your guide. Gaining and using customer insight is a science not an art.”

Integration is important. An “enterprise view of the customer” represents one of Harrah’s CRM mantras. To gain that view, all customer information must flow into the same database, whether the data comes from different properties or business lines, the front desk, Web sites, telephone calls, visits to a service kiosk, interactions on the floor or room service. Doing so demands a smooth technical integration among all of those customer-facing information points.

Measure everything. One of the most startling facets of CRM initiatives in the gaming industry are the numbers that they churn out: 69 percent revenue growth, 150 percent return on CRM investment in the first year, 50 percent boost in online sales, etc. Those are actual number culled from articles published on Harrah’s and Churchill Downs in the past three years. Those numbers are available because these companies closely measure and monitor the success of each sales and marketing initiative. If a program is not bearing fruit, it can be halted and the money flows to more profitable programs or other new initiatives.

Gambling raises many questions, but the sector as a whole has provided a definitive answer to at least one big question: What is the value of CRM? “If I’m a customer and you know its my anniversary and greet me that way … that’s a ‘wow’ moment from a customer experience perspective,” adds Fink. And those wow moments translate to eye-opening returns.

Baylor Business Review, Spring 2006

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