Harrah's Case Study

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If Harrah’s continued to use only the observed level of play, the company would miss out on opportunities to get more of the customer’s gaming dollars.  For example, a customer who spent only a few minutes at Harrah’s may be considered less profitable, resulting in the company not actively marketing to that customer.  However, the customer may have visited other competitor casinos prior to Harrah’s and spent more of his/her money there. The customer may have also simply had “bad luck”, causing him or her to go through money faster, resulting in a short visit. Relying only on this one time observation could cause Harrah’s to miss out on opportunities to gain more business from this customer who may be “high worth” and may deliver incremental sales and profit. In contrast, using a calculated “customer worth” would show Harrah’s the value of sending incentives to this particular customer to encourage them to come back and spend more time (and money) in their casino.    In Graphic B of the case, Harrah’s “Opportunity-Based Customer Segmentation” decision tree illustrates how focusing only on high observed frequency of play would miss out on two important customer segments: (1) Low Observed Frequency – High Predicted Frequency – High Worth (2) Low Observed Frequency – High Predicted Frequency – Low Worth – High Predicted Worth Harrah’s focused the company’s direct marketing efforts in the above customer segments and they were able to increase profits for their New Business Program. The positioning statement for the above customer segments can be stated as follows: (1) To High Worth Customers with high predicted frequency but low observed frequency, Harrah’s is the casino that provides the best customer service and the most flexibility in earning and redeeming rewards within our extensive distribution of casinos across the United States. (2) To High Predicted Worth Customers with high predicted frequency but low observed frequency, Harrah’s is the casino that provides the best customer service and the most flexibility in earning and redeeming rewards within our extensive distribution of casinos across the United States. There are two other high worth customer segments of importance to Harrah’s with high observed frequency of visits. Their positioning statements are listed below: (3) To High Worth Customers with high observed frequency, Harrah’s is the casino that provides the highest level of personal service and rewards to meet your unique needs. (4) To High Worth Customers with high observed frequency, low worth, but high predicted worth, Harrah’s is the casino that provides the highest level of personal service and rewards to meet your unique needs. To ensure that Harrah’s becomes the first (and perhaps the single) choice for these high worth customers, the company must develop promotions and rewards that appeal to them. Market research has shown that casino customers enjoy the feeling of exuberance and fantasy when they gamble. As the case exhibit 6 illustrated, their promotional letters emphasized this by providing an example of a customer who just won $42,468 by playing at Harrah’s slot machine. The letter also stated that “At Harrah’s you’re always a winner when you use your Total [Gold] card” which attempts to elicit the feeling of anticipation and exuberance at winning. Harrah’s had three performance metrics they considered when developing database marketing activities: acquisition of customers, increased customer loyalty and retention of existing customers. Based on those objectives, Harrah’s developed database marketing programs that utilized quantitative models which could accurately predict customer worth. Customer worth was based on customers’ play preferences, betting patterns, how often they visit, how much they play, etc. The models were implemented through the following marketing programs: (1) New Business Program: This program was designed to improve effectiveness at...
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