Harrah's Entertainment Inc

Q.1 Discuss the factors that drove Harrahs customer relationship strategy.
Ans: When Philip Satre joined Harrahs as CEO, he was focused on people management as his
main strategy. While this helped the company initially, Stare found that a lot of cross-visits were
happening in the gambling industry, that is, customers who visited Harrahs were not repeating
their visits. With rising competition and flashier properties, Satre realized the need for a new
customer relationship strategy. The company, being an old player, could not replicate the kind of
themed properties that were sprucing up in Las Vegas and other parts of the US. Times were
changing with new capital investments happening in a crowded market to attract new customers,
and a limit on the jurisdictions that allowed gambling. Harrahs knew it had to come up with a new
strategy to survive.
Satre identified that while the company was performing well on operational parameters and
technological brilliance, it was not able to retain customers largely because of a poor marketing
strategy. A friend advised him to tie his marketing strategy with operations, in other words,
connect all Harrahs properties with a single database and use insights gleaned from there to
implement customer retention strategies.
The aim was to implement marketing tools and programs across all Harrah's properties.
Company COO Gary Loveman disbanded the existing marketing function and rebuilt it with
experts who preferred quantitative methods to qualitative inputs. Customer Relationship
Management (CRM) at Harrah's came to consist of two elements: Database Marketing (DBM)
and the Total Gold program. While DBM allowed Harrahs to segment customers and sell them
offers based on analytical inputs, the Total Gold program motivated customers to consolidate
their play. The data collected through the program allowed Harrahs to execute direct marketing
strategies that increased the efficiency and effectiveness of the companys marketing spend.
Q.2 What are the Key Performance Indicators of the gaming industry. What are the
objectives of the various database marketing programs and how are they working?
Ans: The case identifies the following three metrics (KPIs) for the gaming industry:
1. Customer acquisition: The first phase, new business, is focused on customers new to the
brand or the property. The goal was to encourage customers to take a second and third trip after
making an initial visit.
2. Building customer loyalty: This was focused on customers known for at least six months or
three trips. The goal here was to continuously extend the relationship.
3. Customer retention: This was focused on customers who had broken their historical visitation
pattern. The goal was to reinvigorate customers who had demonstrated signs of attrition.
The objective of the database marketing programs was to improve Harrahs performance on
each of the above-mentioned KPIs. The company hired Gary Loveman from HBS to bring
quantitative muscle to its marketing strategy. What Loveman and his team did was development
of quantitative models to accurately predict customer worththe theoretical amount that the
company expects to generate from a customer based on his past usage of Harrahs properties.
This was a transformational move for Harrahs. From a historical model of operational CRM that
focused on the customers past usage patterns, Loveman proposed an analytical CRM model
that was predictive and therefore, radically different from how the company viewed profitable
customers. Analytical CRM was implemented through the following programs:
New Business Program:
The New Business Program was designed to improve the effectiveness at converting new Total
Gold members into loyal customers. The program used predicted customer worth (theoretical
wins) to make more effective investment decisions at the customer levelthus allowing the
particular offer to be more competitive with what the customer was currently receiving from their
existing scenario of choice.
Loyalty ProgramFrequency Upside
This program was designed to identify customers that, Harrah's predicted, were only giving
Harrah's a small share of their total spending in a particular market. Harrah's capabilities enabled
it to develop programs that offered incentives for these customers to visit Harrah's properties
more frequentlyi.e., switch a trip from a competitor to Harrah's. Harrah's calculated the

profitability of these programs by comparing the incremental theoretical wins to the incremental
cost of the program.
Loyalty ProgramBudget Upside
Harrah's also identified customers with budget upsidecustomers who were only giving a small
share of their gaming budget to Harrah's on each trip. In most cases, a customer's allocation of
budget was directly related to the order in which they visited casinos on a particular tripthe first
stop received the largest share, the second received the second largest and so on. Therefore,
the objective of this program was to encourage the customer to visit Harrah's first and thereby
capture the majority of the single casino trips.
Retention Program
The objective of Harrah's Retention Program was to reinvigorate customers who had broken their
historical visitation pattern. Harrah's tested a variety of offers with customer segments to
determine how much to reinvest in retaining loyal guests. Harrahs recognized that the full
potential of these ideas would be realized only if these capabilities could be used at the local
property level. Therefore, they made significant efforts in educating the local property managers
and their marketing teams about the potential and effective use of these Data Base Marketing
capabilities.
Q.3 Explain how the concept of customer worth/ customer lifetime value has been applied
at Harrahs casino in the Database marketing efforts to gain a competitive edge in the
industry w.r.t key performance indicators.
Ans Basing customer profitability on predictive worth (customer lifetime value) rather than
historical data, Harrahs came up with a new model to improve performance on each of the KPIs:
customer acquisition, building loyalty, and customer retention.
Database marketing:
As an example the case mentions one Ms Maranees, who, under the new system, became a
valuable customer who ought to be targeted with offers. This decision was made using decision
science tools to predict customer worth rather than relying on observed worth from her first visit
to the casino. While she would be considered a lousy customer based on her short visit to
Harrah's, with the help of the information generated from one visit and one visit alone, Harrah's
concluded otherwise by submitting her profile to the database. She was probably a great
customer, but a great customer of Harrah's competitors. It, therefore, made sense to invest in
converting her to a Harrah's customer. In the past, she would not have shown up on the radar
screen.
Proactive marketing:
Also known as opportunity-based customer segmentation, this process allowed Harrah's to track
customers play preferences, betting patterns, where they liked to eat in the casino and whether
they stayed the night, how often they visited, how much and how long they played. Combined
with the basic information contained on the application card, which included birth date and home
address, Harrah's could begin to develop a sophisticated customer profile.
Harrah's estimated that 26% of players provided 82% of revenues, with avid players spending
approximately $2,000 annually. These "avid experienced players" that tended to play in multiple
markets became Harrah's target customers. Using this detailed information for every customer,
Harrah's predicted potential customer playing behavior at its properties. Harrah's compared
observed to predicted behavior and identified opportunity segments based on a disparity
between predicted and observed values. Harrah's used customized marketing to achieve specific
objectives such as driving incremental frequency, budget, or both.
Marketing Experiments:
Harrah's quantitative approach also made it possible to conduct "marketing experiments" and
track customers over time. This helped Harrah's discover the right marketing instrument, for the
right behavior modification, for the right customer. One example in the case relates to how
tracking customer behavior let Harrahs cut down on costs by learning that certain no-frills, less
attractive promotions were actually more profitable than big packages.
Another example is the eradication of "same day cash" at most Harrahs propertiesthe process
by which casinos returned a portion of a customer's bet each day with the hope that the
customer would play more with the cash. By using sophisticated decision tools, Harrahs learnt

that it could eliminate "same day cash" without adversely affecting the business. Thus, the
company was able to eradicate practices that did not contribute to incremental revenues.
Q.4 Does Harrahs have a sustainable competitive advantage? Can other companies
duplicate what Harrahs has done? Discuss.
Ans. Harrahs realized early on that sustained competitive advantage will only come from a
rigorous customer focus and nothing else. Any other tool could only be a facilitator of the
process. High operational efficiency and implementation of IT are but ways to ensure that the
customer keeps returning to Harrahs properties. Harrahs has had a successful history of
reaching the customer on a personal level by trying to learn as much as possible about them.
This knowledge in turn helps the company to serve its clients better and also significantly
improve its operational effectiveness. For example, if a customer lives close to the casino he/she
will rarely receive an offer for a free night at the hotel since the likelihood of that person accepting
the offer is slim. Conversely, if the customer is a regular in the casinos restaurant, the chances
he will accept a free steak dinner invitation are relatively high.
Attention to customers at the service level also matters. Most customers, as mentioned in the
case, lose money during gambling and often feel shitty, and they are disgruntled. Good
customer service will take care of such disgruntled customers and ensure they have a good time.
Apart from the above, Harrahs has the option of protecting is innovative processes and
knowledge through proprietary means. This will give its business the necessary edge without
having to worry about competition trying to reproduce its innovative processes. Further, Harrahs
may license its intellectual property and earn revenue from its proprietary software.
Q.5 Discuss the privacy, ethical and security issues associated with what Harrahs is
doing. Are there concerns and how can Harrahs address them?
Ans. There are a number of business practices that Harrahs follows which may not be deemed
entirely ethical:
1. Given the nature of their business, they promote gambling. People go to the casino because
they want to feel exuberantly alive. Harrahs works at enticing customers to feel the adrenaline
rush of gambling. Most of their offers are targeted towards this. This has definite ethical issues
since gambling can become an addictive practice and Harrahs offers encourage such behavior.
2. Harrahs IT system relies on tracking customer behavior, right from their playing strategies to
their personal information including address and birth date. This raises issues of privacy,
particularly when Harrahs can track customers spending patterns on gambling. However, in
times of social media, this looks less like a security issue than earlier. With Facebook around,
concerns over Harrahs privacy invasion sound overrated.
3. The bigger debate around data mining is the problem of sharing Harrahs internal data with
credit card companies. This sort of data cartel can have far-reaching consequences for a
customers credit profile and ability to secure credit. So far, however, Harrahs has not been
accused of breaching this line.
4. Harrahs also runs the risk of too much profiling through its data. Forcing
behavioral/psychographic patterns on users can backfire, when all customers are looking for is a
good time. Customers behavior in Harrahs may only be a reflection of their less guarded selves,
and an incorrect pointer to their behavior metrics and/or psychographic positioning.