Harrahs Entertainment Inc.

Cosmo I: Xiaodan Dong & Meagan Carrow

What are the objectives of the various database marketing (DBM) programs and are
they working?
When its competitors entered new markets with advantages of innovation and
lower cost during the 1990s, Harrahs capped the business growth. However, the
company rather chose to make use of an existing advantage customer loyalty, instead
attempting to create new resources.
A marketing database contains information about individual customers or
potential customers that is relevant to the marketing process. DBM is an important tool to
build up customer relationship and increase the loyalty. To strengthen the loyalty
competency, requiresd Harrahs to process sophisticated database analysis of customer
profiles, so that the company could market the right customers with right ways, in order
to attract repeated visits and retain the loyalty (See Appendix A and B). Harrahs used the
data base in three programs new business program, loyalty program, and retention
program to build up the customer relationship and strengthen the loyalty.
Another objective of DBM is to predict consumer behavior and customer worth.
Customer profiles provide information about customers play preferences, betting
patterns, how often they visit, how much they play, etc. After retrieving detailed
information from every customer, Harrahs could predict potential customer playing
behavior at all of its properties through quantitative models. After the models identified
some opportunity-based customer segments for rationalized reinvestment, Harrahs sent
customized incentives to these customers, seeking relationships with them based on their
future worth, rather than on their past behaviors.

One more important objective of DBM is to track customers over time and
conduct some marketing experiments, so that Harrahs can find the right marketing
instrument, for the right behavior modification, for the right customer. When Harrahs
issues special promotions, it needs to know which kind of promotion is the most effective
at the lowest cost. For example, through marketing experiments, Harrahs found that a
less attractive offer was more profitable, and the return of a portion of customers bet was
unnecessary. Through the DMB program, Harrahs could gain a better understanding of
customers to increase customer satisfaction and achieve organizations objective at a
profit level.

Why is it important to use customer worth in the DBM efforts rather than the
observed level of play?
Customer worth (theoretical win) is the theoretical amount the house expects to
win. If DBM efforts focus on customer worth rather than observed play, Harrahs can
exploit more potential high worth players. When investment is just concentrated on
visitors with high observed frequency, the market would be narrowed down, because in a
high observed frequency market, there are only a limited number of customers with high
worth to work on. In a highly competitive gambling market, striving for a limited
number of customers is difficult. If Harrahs can discover and exploit some customers
with high worth in the low observed frequency market where less competition exists, the
business will have great potential to thrive. Accordingly, customer worth is more valuable
to exploit than observed level of play.

Harrahs has developed its own quantitative model to predict customer worth.
The prediction model helps Harrahs exploit more value from a broader customer base,
and also provides a better service for customers. Harrahs figured out customer segments
by differentiating customers. Subsequently, customized offers targeting different
segments were sent out. These offers strive for customers future worth by converting
competitors customers to Harrahs customers, retaining current customers, increasing
visit frequency and value, or reinvigorating customers. Customers were very responsive
to the customized offers (See Appendix A and B) and perceived the offers to be valuable
to their specific needs.
Generally, observed level of play only indicates the past customer activity, which
does not mean anything for current or future business. Only the prediction of customer
worth can serve the companys best interest in the long run, and more importantly the
customized offer based on prediction satisfies customers specific needs. Only a satisfied
customer can bring sustainable profit.

How does Harrahs integrate the various elements of its marketing strategy to
deliver more than the results of DBM?
Harrahs customer centric marketing focused on three key phases: new business,
loyalty, and retention. Correspondingly, the company made use of the DBM results to
carry out three programs: new business program, loyalty program, and retention program.
In the new business program, Harrahs made use of the results of DBM to predict
customer worth and make more effective investment at the customer level. For example,
in an experiment, Harrahs provides customers with particular offers to convert customers

from other casinos. After signups, each month had around 15% customers coming back
within three months (see Appendix C Figure 1). In the loyalty program, Harrahs offered
customers incentives to visit its properties more frequently and to visit it first. This
program stimulated customers to switch more trips from competitors to Harrahs. Also, as
the visitors first stop, Harrahs would be able to capture the major part of customers
spending (see Appendix A and B). In the retention program, Harrahs tested out the
declining patronage of some customers and sent them coupon incentives, in order to
invigorate relationships with there customers. For example, when Harrahs saw a
significant decrease of customer visit in the second half of 1998, it sent out incentives in
January 1999, visits and customer spending just bumped up again (see Appendix C
Figure 2 and 3). Those who came back were put into the loyalty program for upside
potential exploration. The three programs integrate with each other to satisfy customers
and achieve sustainable marketing goal.
Harrahs also branded itself with the feeling of exuberance. This branding
strategy avoided its shortcoming of having little meaningful brand differentiation, and
attracted people to come to Harrahs for the entertainment of monetary escape. Besides,
Harrahs made great efforts to improve service quality and earned a reputation of best
service from Casino Player (a magazine in the casino industry). Harrahs advertising
and emphasizing service quality strategy played important roles in building the brand
image.
The Total Rewards program established some emotional connection with
customers, because they believe Harrahs knew them, rewarded them, and satisfied their
specific needs. The program did have an impact on play consolidation based on the

theoretical worth. Also Harrahs encourage sign-ups and play by giving away houses,
cars, vacation packages, etc. These efforts, which can be a part of the new business
program, collected precious customer profiles.