Tom Doyle

Casino Marketing

Developing a Successful Reward System

A successful casino marketing strategy will drive revenues throughout the casino and other revenue generating departments, while maximizing the effectiveness of marketing expenditures. The focus of this article is on the player reward strategy a casino employs to attract and retain players. A reward system consists of promotions, comps (complimentary services), points, free play, events and special privileges. At the core of the strategy is the casino’s ability to make players feel appreciated and rewarded in proportion to their spending. From the casino marketeer perspective, the rewards must be directed toward the player’s total net worth. Historically, casinos have viewed player worth based on “average daily theoretical win,” but now with the advent of much improved business intelligence analytics, the player total net worth and potential value including spending in restaurant and other retail venues has become the proper measurement of true value.

What is the financial formula for developing a solid reward system? The answer varies depending on the casino’s player base and whether the casino is in a highly competitive, limited competition, or almost a monopolistic environment. As a general rule, the percent of reward payback to players will increase, and the hold percentage of the gaming devices, table games and other betting opportunities will decrease when there is more competition.

The components of casino marketing include the following:

  • Analysis of reward system payback to players
  • Comp policies
  • Player Club design with appropriate tiering of benefits
  • Free play in form of points convertible to cash back
  • Free play based on club level with expiration dates for use
  • Special privileges for high-value players
  • Promotions including slot tournaments, drawings, bonusing events, etc.
  • Bonus point and point multiplier days and time periods also drive player club participation and player visits
  • Special events for club members
  • Ability to earn rewards at on-property restaurants, hotel, spa and retail outlets
  • Reward system connected to local businesses, credit cards and other entities

Marketing strategies should never be created in a vacuum. Casino and marketing management should regularly tour competitor casinos to view the activity, including customer volume, percent of carded play and general environment. In addition, a frequent review of competitor websites, joining their player clubs, obtaining their mobile apps if available and especially participation in competitor promotional events are all good methods of comparing success of strategies. There is nothing wrong with occasionally imitating a successful activity that your competitors have adopted. I know a casino owner that would drive to the other competitor casinos every Friday or Saturday night, give the valet parker a few dollars to hold their car, run through the casino quickly to check out the action and then jump back into the car and go to the next casino. The moral of the story is that managing a casino and marketing program cannot be totally accomplished sitting behind a desk at the computer.

It is always interesting to ask a casino marketing executive what percent of a player’s net worth does the casino give back to the player? First, let’s look at how the net worth is calculated for the casino revenues:

For slot machines, the theoretical calculation of win is very precise when a player has their club card inserted. The total wagers or “coin-in” is multiplied by the hold percent of the slots for the casino or specific type of game the player prefers. With today’s technology and the extensive variety of gaming devices, a casino can reward the player specifically based on the actual slot machine games the player is wagering on. A simple example of how a player’s expected loss is calculated is as follows: if a player wagers $1,000 (1,000 spins/hands at $1 each) and the casino slot hold percent is 8 percent, then the casino can expect that, on average, the player will lose $80. Another way of looking at it is that a player wagering at a rate of 10 hands per minute would play for 100 minutes to wager $1,000 and lose the $80.

For table games, such as blackjack or similar, the formula is less precise since it often depends on human observation of play. A common formula would be to assume 60 hands per hour and a hold of 1-3 percent per hand. Using these basic criteria, you could estimate that a player betting $100 per hand playing for three hours at a 2 percent hold would lose approximately $360 (60 x 3 x $100 x 2%) on average. Of course, casinos can employ technology to track these individual components to obtain a more exact theoretical loss. It could be argued that after a few drinks the house advantage may increase.

In a highly competitive market, such as Nevada, the reward system for casino play and other retail purchases is oriented toward complimentary (comp) services. In Nevada comps may range from 20-28 percent of gaming revenues. In market environments, such as New Jersey, the rewards could come closer to 35 percent. These percentages are generally applicable for the larger resort properties. Naturally, a resort property has more opportunity to comp players when they can offer amenities such as luxury suites, spa facilities, a variety of high-end restaurants, entertainment and other activities. Most player clubs and reward systems now reward players for both the casino gaming spending and the spending in the retail areas of the resort. It is an interesting fact that Nevada casinos generate around 42 percent of their revenue from gaming and the remaining 58 percent from other resort revenues. When examining casinos with less amenities to offer, the reward system may be less than half of what is offered by a resort property on a percentage basis.

A casino marketing reward system must be designed to attract high value players with a benefit structure that players perceive as generous compared to the competition. The old adage that 80 percent of the revenues are generated by 20 percent of the players still holds true to a large degree. Therefore, benefits and tiers of player club membership substantially increase the reward payback dollar value and percentage for the high value players.

But how should that benefit structure be designed when a casino has limited competition or almost a monopoly based on geographical distance to the nearest competitor? When a casino is the “only game in town,” an effective marketing program is still a necessity. The program and the reward system must now be focused on enhancing the player experience to drive more visits, longer play during visits and increased wagering. Casinos in a limited competition market also have the advantage of being able to set slot machine and table games hold percentages at higher levels than is possible in a competitive environment. Even with limited competition, casinos are competing with other non-gaming entertainment activities for their customers’ dollars.

Competition and gaming revenue tax rates often drive the basic hold percent that casinos target from the players. In Nevada, the hold percentage on slot machines statewide is about 6.8 percent. In Illinois riverboats, the tax rates are higher and competition is more limited. As a result, the hold percent is about 9.1 percent for slots. And the two tribal casinos in Connecticut compete with each other and hold around 8.1 percent. Slot machine hold is of little consequence for the Macau market, which generates about 90 percent of gaming revenues from baccarat.

When tiering player clubs the casino’s systems will normally use a tier credit system separate from a point structure. This allows the casino to rate players based on their play without having special multiple-point or bonus-point events pushing players to higher club levels without merit. Systems can automatically move players between club levels without ongoing analysis. However, it is a standard practice for casino management to review player activity before moving players down to lower levels. Table games’ ratings involve a combination of theoretical win calculation and actual observation of player buy-in and cash outs to generate an estimate of their actual win or loss. And whether fair or not, table games’ players have always had a higher expectation of comps and rewards than slot players.

There are many great stories of successful marketing efforts and promotions as well as examples of bad promotions and costly errors. A few of these stories follow.

In one case, a casino decided to reward players 10 percent of their play. However, the casino erroneously defined play as total slot wagers instead of net win. Players caught on to the error soon enough and, realizing the casino hold percent was less than 10 percent, immediately started team play to take advantage of the mistake. It was very costly until the casino finally realized the error and revised the program.

A casino put out an advertisement in the local newspaper offering $10 in free play just by bringing in the ad. The ad failed to place restrictions on the offer. After tens of thousands of dollars were given away, with almost no benefit, the promotion was cancelled. Rumor has it that the road leading away from the casino was littered with the discarded ads.

The world of slot tournaments has taken a dramatic turn in recent years. Historically, tournaments were operated on older, single theme games or with a time-consuming conversion of slot machines into tournament mode. With the advent of picture-in-picture technology, slot tournaments have been revitalized to become exciting events that include automated scoreboards, graphics and sound. The technology also enables tournaments where players can enter a tournament mode, participate in tournament play and post a score without any involvement by slot attendants.

Drawings in casinos have long been a staple for generating more play and creating excitement. Drawing tickets can be physically generated or electronically as a virtual drawing entry. There are some great examples of how to maximize revenues from drawings:

  • Always require “must be present to win”
  • For virtual drawings use your promotional system to confirm potential winner has inserted a player card for a defined time period before the drawing
  • As an option to a single selection event, set up drawing for five to 10 finalists – pick a finalist a day for a week, select a finalist every one to two hours on day of drawing and then a few at actual drawing event. This promotes additional casino visits and lengthier play on day of event. All finalists get prizes with main winner getting the big money.

Car and vehicle giveaways are another popular drawing prize. Several casinos have made the mistake of having outside companies arrange for the cars where the casino pays for the value of the car. Then some casinos allow those companies to offer cash instead of the car to the winner and the third-party company retains the difference. While it is always easier to contract out such efforts, in a high percentage of cases the player accepts the cash even if it is only 75 to 80 percent of the car retail value. On a $50,000 car the casino would save $10,000 by managing the car arrangements themselves in cooperation with a local dealership.

While player clubs and comp structures require consistency, promotions and special events demand innovation and frequent modification. There are two predominant reasons for this. The first is that promotions need to be fresh to continually provide players with fun and interesting experiences. The second reason is to avoid promotions becoming an entitlement, where players constantly expect the same rewards as a common expected activity.

No discussion of marketing would be complete without addressing “communicating with your players” as another important component. Frequent contact, system tracking of communications, use of mobile device messaging and offer distribution and old-fashioned phone calling all contribute to making your customers feel appreciated and creating urgency to take advantage of offers.

The bottom line for casino marketing programs is that they should be constantly analyzed for success of expenditures driving increased revenues. It is very easy to set guidelines and never review them. A marketing team should never become complacent. Frequent reviews will allow for changing the structure to increase revenues, including exploring new ideas that can be analyzed for financial success.

Develop a successful marketing strategy and reward system and never stop analyzing.

Tom Doyle (Retired CPA) is currently Chief Financial Executive for Thunderbird Lodge Preservation Society. Previously Tom was Vice-President of Product Management and Systems Compliance for Scientific Games. In this capacity he directed the various aspects of Bally System software products and regulatory compliance efforts from August 2002 to November 2017. Prior to Bally, Tom spent about 3 1/2 years as the General Manager of the Spa Resort Casino in Palm Springs, California working for the Agua Caliente Tribe. Tom has been in the casino industry since 1977 and has enjoyed positions with Lodging & Gaming Systems as a Director of Consulting and Financial Officer (4 years), the Peppermill Hotel Casino group as a VP (6 years), and the Nevada Gaming Control Board. At the Nevada Gaming Control Board he was Audit Supervisor and one of the key authors of the original NGCB Minimum Internal Control Standards. Contact Tom.