The ins and outs of free play & its impact on the gaming enterprise
Correctly approaching casino marketing programs is essential in today’s world as we recover from “The Great Recession” and face a shrinking gaming market.
Consequently we must scrutinize and manage every initiative from free play to entertainment. Technology continues its forward trajectory providing information and efficiencies. We have easy access to data and automated systems for most everything. New media and real-time multi-media individualized messaging is, or should be, the norm. New media is now. It’s powerful and evolving daily, fueling a fundamental shift in the way we socialize, conduct commerce and make the majority of our everyday purchasing decisions. We need resolve and an updated “new world” tool-set in order to effectively compete. Our human needs and behavior, whether evolving as we catapult through the information age or deeply hard-coded in our consciousness, cannot be underestimated in its power to impact the performance of our organization.
In our consulting world, one of our highest priorities is helping clients to understand their data in order to make better decisions and to leverage their technology to build and execute better programs—all with the intention of improving results, of course. That’s what consultants are supposed to do. In my meanderings these past few years, I have observed similar challenges at a variety of casino operations, large and small and in diverse markets. It is the point of this series of articles to share with you a few epiphanies or “Ah Ha!” discoveries I’ve recently experienced in the field. The hope is that I can create a spark that inspires a positive change in your organization. If nothing else, I hope you’ll be amused as you read this piece. I’ll cover a different topic in each column, some practical and others more abstract and conceptual. I will focus on subjects that I believe are playing a significant role in building a more cohesive marketing effort, an energetic attitude and a material uptick to the bottom line.
THE PRICE OF FREE PLAY
The first topic I’d like to explore is free play and whether or not it’s toxic to the casino enterprise. Let’s examine the facts and see.
In the beginning, free play was conceived and developed as an efficient means of providing an incentive to a potential slot player—a way to prime the pump and get the gaming juices flowing. Pound for pound, it’s a really great idea that features lower administrative costs, less likelihood of walk-out… I could go on, but I suspect you’ve already heard the pitch. But properly delivered, free play lives up to its hype and is an efficient incentive.
So what went wrong? In the first decade of this century, some operators began aggressive use of free play to buy share, particularly in highly competitive markets like the Gulf Coast of the United States. Years before Hurricane Katrina, I observed some properties with total reinvestment via free play that was north of 50 percent—before comps and promotions. The economic downturn generated an even greater overuse of free play as frantic operators tried anything and everything to bolster the top line.
But free play has a cost. There are multiple variables that impact the cost to a particular enterprise, groups or a specific player. These include game volatility, the amount of the incentive relative to the player’s intended spend, the amount of time the player can spend in the casino and her propensity to “walk,” to name a few.
The solution of how to effectively utilize free play lies in understanding its properties and applying analytical techniques to control costs and maximize the bottom line. This is not rocket science, its dimensional segmentation that uses variables to indicate how much incentive an operation should give a specific player or segment to reap the highest ROI. Variables that should be used are textbook: Average Daily Theoretical Value (ADT), ATT (a historical cumulative theoretical used in some cases to segment hyper-local markets), distance from property, frequency of visits, and latency. Beyond that, models can quickly become more complex also factoring in just about any metric appropriate for a particular situation including player theme preferences, their appetite for volatility, non-gaming spend, preferred day of week, and other demographics.
Segmentation is a strategy fueled not only by technology, but by marketing management’s passion for using scientific technique to analyzing outcome, find efficiencies and make adjustments—some of which can be quite painful. There’s nothing fun about comforting an irate guest who received a $10 weekly free play award when, historically, she was receiving $25.
FINDING A BALANCE
We have found that adjusting the collective reinvestment to this type of player, typically found in the lower value segments, can have an immediate and positive impact on the bottom line. Consider the following: If a guest receives $10 in free play and subsequently walks with $1, from where does that $1 come? It’s coming straight from your bottom line. The collective overspending in these segments has a material and negative impact on profit. If you do the proper analysis, you’ll find the evidence for adjustments.
Used sensibly and prudently, free play is an invaluable component of a balanced marketing program. What sort of return should you expect? While that answer varies with every situation, we have developed a goal of receiving $4 of net win for every $1 of free play used. The three diagrams illustrating this article show a few of the ways we should look at our high-level analysis when reviewing results.
Hopefully you found this information useful.
Sidebar: What's the Matter with Loyalty
I’d like to make a quick observation on loyalty before I begin this series of articles.
I’ve noticed a few comments from industry thinkers lately that question the value of building guest loyalty. I’ve seen assertions that a loyal guest is more expensive and she (or he) is often times more of a pain-in-the-neck. I’m not buying it. There are lots of reasons why I think building loyalty must always be a core objective. I’ll be approaching the phenomenon of loyalty in a separate article, but please understand that loyalty should be at the heart of everything we do as casino industry marketers.