Analyzing and Enhancing Harrah’s High Payoff from Customer Information (And Reflection)

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

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.