Harrah’s Big Database Gamble
Harrah’s, with around 25 million customers in 2001, is headquartered in Memphis, Tennessee, and operates 25 casinos with 40,000 gambling machines in 12 states. For years it had been a fairly small gambling company but, by 2001, had emerged as the second largest in the industry. It is flourishing at a time when competition is more intense than ever.
By the mid-1990s, the gambling expansion appeared to reach the point of diminishing returns. The number of casinos in the United States swelled, thanks to changes in federal and state laws permitting gambling on riverboats and Indian reservations. There are only so many gamblers in the population, and so for the casinos to continue to grow they had to move some gamblers from competitors’ casinos to their own. How could Harrah’s succeed in this environment?
While other gambling companies have spent their investment dollars trying to lure customers by building flashy casinos with extravagant rooms and entertainment, Harrah’s has focused on technology that allows it to identify, track, and cultivate its most profitable customers.Harrah’sCOOGary Loveman explained the strategy this way: “The prevailing wisdom in this business is that the attractiveness of a property drives customers. Our approach is different.We stimulate demand by knowing our customers.”
By the early 1990s, casino operators had found that the slots and other machines surpassed the table games (such as dice and blackjack) as their biggest source of income. About the same time, the casinos began to use computers to keep records on individual gamblers, and they began recognizing the most profitable customers and giving them very special treatment while others would only get an occasional drink or sandwich. But Harrah’s has focused on customer relationship management much more intensively than its rivals. According to William Schmitt, executive director of CIBC World Markets in New York City, “Everyone tracks their customers’ play on a real time basis (using computers).” However, “Harrah’s matches what its customers are worth (as gamblers) with what they might be worth and has a 90 percent hit ratio in turning customers who are presently worth $500 into customers who are worth $5000.”
COO Loveman, a former Harvard business school professor, is the person primarily responsible for Harrah’s change to a customer-centered strategy. He recognized an opportunity in the gambling industry to apply what he taught about customer loyalty in the classroom. Loveman believes in treating each person as a long-range customer, whether or not that person is staying at a Harrah’s hotel, and whether or not that person is a big spender. He pointed out that Harrah’s got 36 cents out of every dollar their customers spent in casinos, and a rise to 40 cents “would be monstrous.”
After presenting his ideas to Harrah’s management, Loveman was immediately hired as COO. In fact, by applying Loveman’s strategy, Harrah’s “wallet share” had risen to 42 cents in 2001, and for each percentage point gained, Harrah’s