Gambling is a tricky business. Casino marketers know they’ve got to get people in the doors to spend money at games of chance, and they’re often times willing to provide complimentary beverages and even overnight accommodations to do so. But how much does one guest have to pump into a slot machine or drop at the blackjack table before he or she receives a free ticket to the all-you-can-eat buffet?
Until recently, one person’s guess was as good as another’s. Rapid advancements in technology have changed the game, and now the best casinos gather supply and demand data, analyze it and use it to make operational and pricing decisions. The practice of revenue management is helping casino managers and marketers handle their inventory better, staff the right amount of employees, market their casino to the right audience and price their product to boost bottom-line revenue.
As legalized gambling spreads through more states, casinos are faced with increasing competition and thinning revenues. It’s critical casino marketers make educated decisions on how to price rooms and look at hotel rooms less as giveaways and more as revenue generators. Casino marketers who practice basic revenue management can turn their lucrative gaming property into a profit-generating machine.
A simple example: If it costs $30 for you to maintain a hotel room and you can get $35 to rent it out for a night, you’re making $5 profit. If you can charge $40, you’re doubling your profits. Multiply that by 1,000 rooms, 365 days a year, and that number can make a huge difference to your bottom line. Revenue management allows you to observe trends in the marketplace and determine the right price to get the most profit.
Understanding Revenue Management
Revenue management strategies apply to a variety of industries. They almost all start with segmenting, or understanding your customers and sorting them into buckets depending on how they use your service. Hoteliers segment individuals and groups as separate parts of their business; business travelers are treated differently than leisure travelers; and business obtained through third parties is viewed differently than business that comes direct.
Segmenting in the casino industry can be expanded 1,000-fold. Guests who play high-stakes games and drink high-priced alcoholic beverages should be treated differently than guests who play penny slots and drink water. Advanced managers can view table-game-oriented players differently than slot customers, which allows marketing departments to target the right business with specific promotions.
Digging deeper, you can segment guests by how they got to your property. Online travel agencies such as Expedia and Kayak charge up to 25 percent commission to secure a guest. As the cost of doing business increases, it’s important to understand the different costs to acquiring guests on various channels and then determine how much inventory you want to provide to each channel.
The next key component of revenue management is forecasting upcoming demand. A forecast can be as simple as expecting 10 percent more customers this year as compared to last year. Even if you do nothing else, you can adjust your operations as needed, perhaps adding dealers or keeping your restaurants open an hour later. Start by importing historical data into a spreadsheet and then add, tweak or manipulate the data to make your forecast more accurate. Look at nearby event calendars to predict high-demand days.
For example, casinos can expect to be busy on the first Saturday in May: the Kentucky Derby. Using historical data and incorporating advanced consumer-centric data can help you more accurately determine how much demand to expect and price accordingly. The ultimate goal is to get the most profit for your rooms as you possibly can.
Rates should be tailored for the type of customer you expect. A better understanding of your guest combined with an accurate forecast of demand will lead to a more profitable business.
Unique Opportunities for Casinos
Casinos have historically looked at gamblers as the most profitable guest no matter how much the person spends. But that model is flawed. As casinos began including spas, high-end dining outlets and nightclubs, they began drawing customers who might spend a lot of money, but not gamble at all. You might serve a clientele who spends $50 to $100 a day on slot machines and another type of customer who will spend thousands in the spa. Should they both receive the same room rate?
Another hurdle casinos must overcome in their quest for the most profitable guest is the compartmentalization of operations. So often casinos have varying departments that are each in charge of their revenues almost exclusively. A classic example is when hotel managers and casino marketers argue over which guest is more profitable. The casino marketer usually yells the loudest and wins the argument.
Despite its challenges, the casino industry has an advantage over many other industries: its customers’ willingness to pay is considerably more. This requires different customer segmentation and pricing approaches that focus on driving profitability.
On top of that, a major differentiator for casinos is their ability to incorporate a loyalty program, which is often based on how much a person spends gambling. Loyalty tiers allow marketers to tailor their offers to guests based on how much revenue those guests are expected to generate.
The more advanced a loyalty program the better. The casino industry is truly at a crossroads in terms of personalization. Instead of using a number of different systems that often don’t sync, casinos now have the ability to connect various technologies and create a loyalty program that truly helps them understand the value of a guest across all revenue streams. The best programs are card-based, where guests are encouraged to swipe their personalized loyalty card with every purchase or to charge everything back to their room so the entire folio would be associated with the loyalty account at the time of checkout. Those programs can be costly because every terminal where you accept payment must accept the loyalty card and be tied back to a centralized system. The plus side? People love points, better deals and free stuff.
An effective loyalty program allows casinos to take the next step: better understand the profit margins on everything available for a guest to purchase. Each department has different profit margins. For example, $500 spent on a hotel room is different than $500 in gambling revenue. Analyzing different profit margins throughout the property allows casinos to better calculate reinvestment, or how much you should spend to retain a specific customer or segment of customers.
While it’s typical for the average casino to spend 30 percent of a guest’s revenue to retain him or her (often in the form of a free dinner, free room or other discounts), a solid revenue management strategy uses data science to more precisely determine the required amount of reinvestment.
Revenue Management and Reinvestment
Casino revenue managers today must understand guests’ propensity to spend and market to them accordingly. A big part of those marketing efforts are reinvestment, or taking the revenue a customer provides and deciding how much you want to incentivize them to return. Typical casino systems might determine based on previous trips how much a customer is worth and drop that customer into a certain bucket earmarked for a specific discount.
Advanced revenue managers understand that reinvestment should not be the same amount to every customer every time. Perhaps you incentivize guests differently on Tuesdays than you would on Saturdays. Perhaps you can get enough guests in your property without incentivizing at all. Casino marketers can rely on databases, algorithms and other technology to determine how much each guest is worth and how they should be rewarded individually, if at all.
A revenue strategy software system streamlines much of these decisions. Instead of automatically giving guests who spend over a certain threshold a “casino rate,” technology systems can pinpoint exactly how much you should charge that guest.
In addition, a more dynamic incentive strategy can ensure you don’t run out of rooms at a certain rate level and turn away business. By discounting individual guests, you’re not assigning a rate category with the risk of running out of inventory in that category.
Another important benefit to installing a revenue strategy software system is you can inherently get all of your departments on the same page. For example, denials and regrets from the call center or website can be shared among departments and follow-up marketing strategies can be customized.
Implementing even the most basic revenue management strategy at your casino will have a dramatic effect on profitability. Effective segmenting will help you build a more powerful marketing strategy that targets the right future demand for your hotel.
Casinos are facing more competition than ever before and it’s critical they employ the most advanced systems and strategies available to maximize profits.