Problem/Issue Statement
Although Harrah’s has found great
success in its efforts to invest in data warehousing/mining and overall
business intelligence to better understand how to market to and capitalize on
its customer base, it now is faced with the challenge of improving on flaws in
its IT strategy as its competitors have adopted similar techniques and margins
in the industry are becoming tighter.
Harrah’s has to update its innovative IT strategy to prepare for future
projects that will continue to create a cohesive brand image and provide the
greatest ROI for its marketing and IT investments.
The main problem is that the techniques
that Harrah’s first began implementation in 1994 have become less innovative as
they have been replicated by competing entertainment and casino firms.
The symptoms, although not explicitly
discussed, are the volatility of the market share and additional internal
customer retention and profitability they have gained from their current
marketing strategy.
The scope of this problem is the
entirety of Harrah’s Entertainment, Inc., its 21 casinos with a site in every
legal U.S. gambling market, hotels which combined with the casinos employ over
40,000 people and serve over 19 million customers, and the restaurants that
accompany these locations.
(Figures current as of Harrah’s “entry into the new millennium,” latest
statistics available from disclosed information). Any adjustments to the marketing strategy and IT
infrastructure that supports this system will have a profound impact on
Harrah’s in its entirety.
Situation Assessment
In response the opportunity presented in
1993 by new legislation permitting gambling on Indian reservations and
riverboats, Harrah’s rapidly entered new markets and constructed its array of
casinos, hotels, and restaurants at various locales across the country. With the idea of creating the greatest
value for its shareholders in mind, Harrah’s sought to forge a national brand
approach that would integrate all of Harrah’s venues into the same
strategy. This was a significant
paradigm shift from the general sentiment in the industry, where each property
generally operated “as its own fiefdom.”
Harrah’s immediately began work on the
foundation of its strategy with the creation of WINet, a database of collected
customer data from various source systems that would integrate data around the
customer, identity key market segments, generate promotional offers to attract
visitors to Harrah’s facilities, and make any and all information available to
Harrah’s staff for analytical purposes.
Utilizing a patron database
(PDB) as its storage for operational data, Harrah’s created a patented
customer loyalty program based on collected data to target key demographics and
inspire business through an points system that rewarded gambling
activities. The company used its
marketing workbench (MWB) to serve as a data warehouse for its analytical
applications, with the capacity to analyze hundreds of customer attributes to
determine preferences and project appropriate services and rewards. One of the greatest drivers of growth
was its scientific approach to promoting business through closed-loop
marketing. Through closed-loop
marketing, campaigns were employed and then tested and new campaigns were
created with the lessons learned from the previous experiments incorporated into new
designs.
This new way of thinking and operating
led to a marked improvement in “same-store sales,” cross-market play, casino
foot traffic, and client retention.
With competitors observing these achievements, other players in the
entertainment and casino industry are replicating the competitive advantage that
Harrah’s has created. If Harrah’s
is to attempt to make its competitive advantage sustainable, it must find a way
to expand its current efforts to better market to existing and potential
customers and deliver maximum value to shareholders.
List of Plausible Alternatives and Evaluation of Alternatives
The first approach would be to continue
on their current strategic course of utilizing WINet and their closed-loop
marketing approach, whose innovation has resulted in the development of a
national brand and a valued Total Rewards program with significant increases in
gambling activities. Their
strategy has led to a 72% internal rate of return on information technology
investments and a growth rate that has outpaced competition in almost every
market, in some instances doubling or tripling the market average of
“same-store” sales. Any further
investment or alteration to a successful strategy, albeit one that is seen as
an appropriate response to competitor activity, could create operational
inefficiency and other adverse effects.
If Harrah’s were to undergo any serious IT project, there is always a
risk of failure that could negate and impede current gains from its existing
strategy. Harrah’s could play it
safe and continue to create new promotions that are built on the results of
previous ones and its massive repository of customer data. This strategy is less than ideal,
though, since it ignores the probability that as its techniques become less
innovative, competitors are likely to steal its market share.
The second alternative would be to
“double down” on its current IT investments, and expand funding for new
information technology initiatives to more aptly collect customer data and
analyze the benefits of marketing campaigns. One of the problems with the initial strategy was that the
IT department had failed to anticipate the memory requirements for the
marketing workbench and the decision was made to switch to Cognos Impromptu and
SAS. Additionally, originally
complicated queries failed to fall within the appropriate computing
window. Although these problems
were resolved, they reflect the need for fluid alteration to IT
infrastructure. Harrah’s could
redesign its data warehouse system to enable greater storage for increased data
collection, as well as update its existing analytical software based on current
market products. Considering the
tremendous internal rate of return Harrah’s has enjoyed from its IT
investments, if it can make measured decisions that are efficient and
fundamental to its expansion the company could capitalize on one of its
strengths and find a better way of dealing with increased competition. If the company were better able to
analyze its data through more updated software through its own programmers or
acquired from a third party, it could better serve its customers through the
Harrah’s experience and promotional offers, thus ultimately delivering maximum
profit to its shareholders. The
downside of this alternative, as previously mentioned, is the inherent risk
associated with any IT project and the possibility of profit lost to downtime
and unanticipated system inefficiencies.
Lastly, Harrah’s could seek to enhance
its marketing strategy by expanding the amount of data it collects and the ways
in which it is collected.
Currently, hotel system, tournament, and general gambling records are
used as source systems for data collection. The patron database primarily consists of these internal
sources. However, Harrah’s could
better attract potential customers by incorporating data from external data
points. Phone and online surveys
could be conducted to gauge the general demographic data in the markets it
currently operates casinos, and the potential efficacy of promotional activities
geared at improving foot traffic through an augmented customer base. Harrah’s could reach out to gambling
websites that could provide contact information potentially for customers in a
general proximity to existing casino locations, and reach these people through
direct mailings or online surveys (maybe with some kind of reward for a
response such as meal vouchers or a set level of gambling chips). Additionally, Harrah’s could attempt to
learn more information about its existing customer base with similar incentives
through in-room surveys at its hotels or even at various locations around its
casinos. Details like household
income, occupation, and greater information on gaming preferences could prove
invaluable in promotions and marketing campaigns. This would allow Harrah’s to increase its efficiency in its
current promotional campaigns and more accurately identify customer
segments. There is, however, the
possibility that attempts to learn additional information from existing
customers could be irritating and detract from their enjoyment of Harrah’s
facilities as well as their enthusiasm for Harrah’s services. Also, if investments in obtaining
information on and reaching out to people outside the existing customer base
provide little ROI, this could end up as a waste of time and resources.
Recommendation
I would recommend that Harrah’s avoid
the first alternative of inaction.
The company has worked so hard to create a competitive advantage and to
let it dissipate in the face of increasing competition would negate the
progress made by its comprehensive IT reforms and innovations. Harrah’s should implement some
combination of the second and third alternative, with resources being dedicated
towards new IT investment to increase its data storage and collection capacity
as well as better market towards its existing and potential customers through
improved knowledge of demographic and preference information. Harrah’s cannot “sit on its laurels” in
a industry of tight margins. It
should employ the same philosophy it had executed in rolling out its new
marketing strategy to better categorize, understand, and then market to
potential and existing customers.
Through an improved IT backbone for data collection and analysis and an
enlarged pool of data, Harrah’s can compete against other casinos and
entertainment centers by better understanding customers and thus more
effectively promoting its services to them.
Presentation
The consulting team should make sure
that any proposals should not neglect the progress our company has made by
shifting the paradigm to create a national brand and cohesive marketing
approach. While new ideas and
attempts at innovation are welcome, they should not conflict with our existing
marketing philosophy.
Additionally, the team should recognize our existing IT infrastructure
that has served us well for almost two decades, and use this as a means to
facilitate any suggested courses of action. The loyalty program that has been supported by WINet and our
marketing workbench has functioned properly due to our IT systems, which can be
improved upon but should not be dismissed. Lastly, I would personally appreciate if the presentation addressed
the possibility that our competitors could once again replicate any changes to
our marketing strategy, and include in their plan an explanation of how these
proposed actions can be as inimitable as possible.
Reflection
Reflection
Sir,
While
we are all extremely proud of the success that Harrah’s has enjoyed as a
result of our innovative marketing IT-supported approach, the
consultants provided an interesting portrait of how we could further
build upon our existing gains in market share and retain the competitive
advantage we have established. I appreciated that the proposals we
are to consider seem to utilize the same philosophies and core strengths
that previously netted us significantly increased cross-market pay,
casino foot traffic, and client retention.
The
first solution discussed of increasing resources devoted to data mining
makes complete sense in my mind. The 62% internal rate of return on IT
investments achieved since the inception of our new marketing strategy
in 1997 is fundamental to the progress Harrah’s has made in insuring
that every customer is as profitable as possible. Along these lines,
targeting 25,000 consumers at a rate of $210 per person seems extremely
sensible after we have defined these consumes to be part of a desirable
and profitable segment through our data analytics. Although I am unsure
that the projected profit increase of $3 million is completely
realistic considering that it is based on a 50% response rate, I am
convinced that this effort will convert enough quality customers
(defined as generating revenue of at least $1500 per year in 3 visits)
to make it a worthwhile initiative.
The
second proposal is one that I am surprised we have not already
enacted. The consultants’ idea to implement an online reservation and
concierge service is one that fits very well into our existing marketing
philosophy. In advance of a customer’s stay, we will now have an
abundance of personal information that could include age, party size,
e-mail address, phone number, and gambling/entertainment preference.
This is in line with what I had originally thought should be Harrah’s
direction, which would be to accumulate as much customer information as
possible to derive the greatest benefit from our existing closed loop
marketing tests and overall data analytics infrastructure. I was
slightly disappointed that more emphasis was not placed in the
presentation on the importance of increasing our data collection
efforts. I definitely agree with the proposal, but feel that the
consultants should recognize that our success has been achieved through a
scientific approach that demands accurate and significant quantities of
marketing and demographic data.
The
consultants’ last suggestion to upgrade our IT infrastructure and
analytics seems prudent considering their correct understanding that
there is a delay in the communication and updates of our systems that is
detracting from our ability to quickly collect and analyze data. This
was all similar to what I had initially thought would be reasonable to
improve our analytics capability, although my original thought also
connected to increased storage capacity. Again, I am unsure that the
simply by adopting this solution we will be able to net a 1% increase in
retention, however, I agree with the spirit of the idea. I would like
to see this upgrade in analytics coupled with a greater focus on data
collection, specifically the extraction of data from sources external to
Harrah’s properties. While it is imperative that we maximize the
revenue from existing consumers, there are a number of ways that we
could engage third party vendors to secure demographic data on potential
customers who would expand our client base markedly. Whether
contracting a third party marketing company or simply reaching an
agreement with online gambling sites, I believe that the proposal of
improving our data analytics would be that much more powerful if we were
to expand our customer base by marketing to customers outside of our
existing network.
Ultimately,
I was impressed with the presentation and felt it was in same direction
Harrah’s should be heading to make its competitive advantage
sustainable. I feel comfortable adopting all three of the
recommendations. However, I would add some modifications to each
suggestion. I would like our analysts to take a better look at the
response rate expected from increasing data mining to see if it falls in
line with our previously tested marketing campaigns. I would suggest
that we conduct a search of vendors that could provide the online
concierge service and see how the costs and benefits compare to those
associated with a Planyo partnership. Lastly, I would explore whether
we might consider going even further in upgrading our analytics
capability beyond the proposed Instant Saneness Test and improvements to
virtual analytics to see the tangible benefits of further upgrades to
both analytics and storage.
Thank you for your time and consideration.
