Are Cash and Comps Enough for Your Loyal Players?

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1 Are Cash and Comps Enough for Your Loyal Players? Don t Bet On It! Player Rewards: Beyond Cash and Comps Twenty-five years after the debut of airline frequent flyer programs, the good news is that loyalty rewards still work. Research shows that 80 percent of Americans who participate in at least one consumer loyalty program say that their membership influences their purchasing decisions. The gaming industry didn t invent loyalty programs, but it was well-suited for them. Its core product slot machines and table games is basically a commodity. No casino gets an exclusive game, at least not for more than a few months. And many casinos operate in extremely competitive environments. This reality produces what one writer called the notoriously promiscuous gambling customer. So it didn t take too many years for casino marketing executives, even at smaller properties, to appreciate the value of rewards programs. They are so prevalent in American casinos today that new customers often expect to sign up for the slot club when they first visit. In Missouri, a players club card is even mandated by the gaming commission as a requirement for admission to casinos (to help enforce state spending limits by players, and to assist in the prevention of underage admissions). While the programs vary widely in terms of how much play (and at which denominations) is required to earn a reward point, and what the points are worth when they re redeemed, the basic currency of casino loyalty programs has rarely evolved beyond the standard cash and comps. But some gaming firms have added merchandise to their rewards mix, and it may be time for more marketing managers to investigate this option. What s Wrong with Just Cash and Comps? It s easy to see the appeal of cash. Everyone wants more of it. It s easy to use and easy to understand, for both sides of the transaction. The casino knows exactly what it s giving away and the player knows exactly what he/she is getting. Some managers love cash awards because they believe that the money goes right back into their machines. It s true that much of it does, but there s also the cash walk out factor cash redemptions with no tracked play on the day of the redemption. Managers love cash awards because they believe that the money goes right back into their machines. It s true that much of it does, but there s also the cash walk out factor.

2 Even if the cash is used for additional play at the casino that awards the cash, the casino is basically running a discount program. This will appeal to players in the short run, but may do little to build long-term loyalty. Dr. Scott Jeffrey, a professor of management sciences at the University of Waterloo, in Ontario, has done some interesting research on goals and motivation. One of his reports, The Benefits of Tangible Non-Monetary Incentives, was written in the context of company incentives for employee performance, but its conclusions could readily be applied to casino players. players by treating them to meals. If the players were really strong and the casino had a hotel, the pit boss would also comp the players rooms. But the old system depended on subjective considerations: the pit boss had to watch the players carefully in order to rate them, and some players gamed the system by increasing the size of their bets when the pit boss moved closer to their table. The rewards programs solved two problems: how to comp the increasingly profitable slot players, and how to make the system more objective. As long as the player s card is in the machine, the tracking system is generating valuable data. Dr. Jeffrey wrote that participants may perceive non-monetary incentives to be more valuable than the retail value of that award in cash. For example, acknowledgement from peers and other dynamics can extend the value of non-cash incentives over and above the cash value of the incentive. This has been referred to frequently as trophy value. Comps may be awarded more objectively these days, but they have their limits. For one thing, they can lose their appeal for the most frequent, and hence most valuable, players. This is especially true if the casino lacks a hotel and the comps are restricted to meals. This is a simple fact of human nature. We ve all had the experience of having to watch appreciatively as a neighbor or brother-in-law showed off his super-size plasma TV. Imagine the additional impact that it would have on him and his circle of friends or relatives if he had obtained that TV free from a casino rewards program. He would associate that super-size plasma with the casino, and remember the award far longer than he would remember the equivalent amount of cash. Dr. Jeffrey observed that it is more socially acceptable to brag about non-cash incentives. And he wrote that the trophy value increases to the extent that the incentive award is regarded as a luxury that the participant would not be likely to go out and simply buy. Comps the other component of traditional rewards programs are a time-honored tradition in the gaming industry. Back in the days when table games ruled, pit bosses were expected to take care of their premium Comps may be awarded more objectively these days, but they have their limits. For one thing, they can lose their appeal for the most frequent, and hence most valuable, players. We have some players with so many points, it s like they don t know what to do with them, said an executive at a small Mississippi casino. They can eat at our restaurants every day, but after six months that gets old. In cases like that, I d like to give them another option. In a story two years ago about the rewards program at a major casino chain, the company s marketing director told a reporter: More choices and greater variety always wins. When merchandise is part of the rewards mix, choices and variety are restricted only by the imagination of the casino marketing staff and the rewards partner.

3 Another problem with cash and comps is that, by definition, they are applied to all markets in the same manner. In an age when customer segmentation is the buzzword among marketers, cash and comps are very limited tools. An international visitor may respond to incentives differently than a local player; a racino customer may want rewards that would not appeal to a customer at a Connecticut tribal casino; a player at a major Las Vegas Strip casino may be motivated differently than a regular at a Midwestern riverboat. And different age groups and different ethnic groups are likely to place different values on rewards. Merchandise Rewards Cost-Effective and Flexible Merchandise rewards offer maximum flexibility in catering to different player bases. Research on consumers in general can be combined with each casino s knowledge of its own players to design a collection that has maximum, and perhaps unique, appeal. Experimentation is easy and costeffective, because the casino doesn t pay for any merchandise until it s ordered by a player who is redeeming points. Cars, boats, fine jewelry, art masterpieces the sky s the limit. And the more extravagant the merchandise, the greater the trophy value. On the cost side of the equation, the casino depending on its vendor and its volume is likely to be paying less than the actual value of the product to the player. The player would to have to spend $200 to get a $200 MP3 player or digital camera, but the same product might cost the casino less. There is no such savings with cash. A casino that gives a player $200 in cash is spending $200. Even comps may cost the company more than the casino marketing staff realizes. A free hotel room isn t free to the manager of the hotel. That room has to be cleaned; it requires support from the front desk and the maintenance staff; and it needs periodic painting and upgrading of furnishings. If a room could have been rented to a paying guest on the night that it s occupied on a rewards club freebie, the cost to the parent company is very steep. Research on loyalty programs in other industries shows that electronics are the leading category of merchandise redemptions, followed by workshop and garden, and general merchandise. Sporting goods is also a popular category. One of the great attributes of any type of merchandise is that it does not get consumed, unlike a meal or a hotel room that is enjoyed once and then is gone. And perhaps forgotten. One of the great attributes of any type of merchandise is that it does not get consumed, unlike a meal or a hotel room that is enjoyed once and then is gone. Merchandise is a tangible reward that can be scaled for a casino s biggest players. No matter what point levels a premium player reaches, there can always be awards designed to motivate him/her to play even more. In fact, a national hotel chain calculated that it is cheaper to reward its best customers with merchandise than with a free room in its own hotels! Selecting a Merchandise Rewards Partner Developing and managing a merchandise rewards program is a serious business in its own right. To be done professionally, it can t be left to an in-house crew or outsourced to a Mom and Pop broker who merely searches for the best prices on quantities of merchandise. This is a job for an organization that appreciates the long-term value of the customer experience. The qualifications and experience of a potential partner should be examined from two perspectives: the intellectual and the practical. The intellectual component refers to the research and insights gained from managing merchandise rewards programs for other clients.

4 A casino that has been operating a player s reward club already has mountains of priceless data about its own customer base. This knowledge coupled with a supplier who has done the research and understands the psychology that motivates long-term customer loyalty is a potent combination. Some rewards programs in other industries, for example, have learned how to meet the challenge posed by the non-redeemer. This may be counterintuitive to a junior accountant; after all, a participant who accumulates thousands of points and rarely or never redeems them might seem to be saving the company money, because the company is spared the cost of the rewards. But a sophisticated rewards program manager recognizes that the system is not working when a participant just sits on thousands of points, and devises special ways to motivate the non-redeemer. Research has proven that players who redeem multiple times increase their spending and remain customers far longer than non-redeemers or one-time redeemers. The practical side of merchandise rewards is where a casino risks undoing the goodwill and loyalty it has worked so hard to earn from its players club and throughout its entire operation. One of the major complaints of participants in casino rewards programs is that the process for redemption is too complicated. A skilled rewards partner works with the casino in selecting the merchandise to be offered, the redemption levels for it and the procedures for redemption. Of course, a merchandise rewards partner must be an expert at fulfillment. When participants are ready to redeem their points for a reward, the experience must be positive, immediate, and certain. It is critical that your rewards partner fulfill the merchandise items within a day or two not weeks! Immediate delivery of the reward only enhances the participant experience and reinforces the fact that the casino delivered on its promise. The partner sources the highest-quality awards and arranges the most efficient shipping. And it s the partner, not the casino itself, that corrects any problems such as the receipt of the wrong award to the casino player s satisfaction. Loyalty is what this all about, and at every stage in the process, the player s experience in a merchandise rewards program must enhance his/her loyalty to the casino. Sources: An edited version of Dr. Jeffrey s report was published by the SITE Foundation in Lessons Learned in Las Vegas: Loyalty Programs Pay, by Louis Columbus, CRM News, July 29, 2005 What Price Loyalty? By John Hennessey, Forbes.com, March 15, 2005 Casino Rewards Total Loyalty, The Guardian, by Jack Schofield What Happens in Vegas survey, October 7, 2005

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