WSJ: Harrah uses science to stimulate sales

Over the past decade, casino moguls such as Steve Wynn and Kirk Kerkorian built glamorous resorts in Las Vegas that depend on tourists — especially high rollers who make big bets. Harrah’s thinks those consumers aren’t as profitable as regular gamblers because it costs more to lure them to the casino.

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Based on the data churned out by this system, Harrah’s redid the layout of the East Chicago casino’s slot machines, using lessons learned from drugstore chains such as Walgreens and CVS. For example, the casino moved popular slots such as Wheel of Fortune to hard-to-reach areas, betting customers would seek them out just as they find the pharmacist in the rear of a store. That created more space in well-trafficked areas for other games.

To generate excitement, Harrah’s placed a “party pit” with blackjack and roulette games in a central location and staffed it with dealers trained to break into song. Around the pit, the casino replaced nickel slots with $5 Double Diamond and Hot Pepper games previously cloistered on an upper deck for high rollers, hoping low rollers would turn from the tables and take a flier on their way out. “This is the candy bars by the cash register,” says David Patent, vice president of casino operations.

The theory worked. The average amount spent on a single bet on these machines soared to $10, compared with $2 in the casino overall, because new gamblers were drawn to high-denomination slots. Overall, the casino’s profit margins rose to 15% in the third quarter, compared with 12% in the busy first quarter when that casino usually expects to earn its highest margins, Mr. Patent says.

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In one effort rolled out first in East Chicago this fall, Harrah’s dispatches “luck ambassadors” to give nominal gifts to big losers — people who are losing more than expected as tracked by the boat’s central computer system and Harrah’s loyalty cards. Harrah’s has learned that gamblers are more likely to play longer and make a return trip if they receive a small goody.

Richard Pearlman recently lost about $100 at video poker. As he was licking his wounds, Brenda Freeman Winfield, a Harrah’s luck ambassador, sidled up to his Deuces Wild machine. Mr. Pearlman told her he was feeling “terrible.”

“This will change your luck,” she said, handing him a $5 cash voucher. Mr. Pearlman, an 81-year-old resident of Buffalo Grove, Ill., brightened immediately. He winked and asked her to throw in “a blonde and two redheads” as he signed the voucher and turned back to the machine.

A successful intervention, says David Norton, a Harrah’s senior vice president of marketing, will leave a customer saying: “OK, so I lost my $75, but I got two-for-one” tickets to a Harrah’s show.

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Recently, a joint promotion with toymaker Hasbro Inc., maker of the game Monopoly, had the casino buzzing. Patrons stopped at a lobby desk to pick up a Monopoly game and register for a Harrah’s drawing to win prizes including cash and trips to other casinos. Gamblers, Harrah’s has found, love drawings, which offer a whole new range of ways to get lucky. Harrah’s loves drawings, too, because they keep patrons in casinos longer while they wait to hear the results.

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Harrah’s patrons can apply for a Total Rewards loyalty card and receive points toward anything from a hotel stay to catalog gifts; the more they gamble, the better the perks become. Each cardholder is assigned a “customer value” based on the theoretical revenue they will generate. Customers with higher values get quicker responses from Harrah’s phone systems. When a gambler dials Harrah’s toll-free reservation line, the computer bounces the number off its database and places the caller in the appropriate service queue.

The operator who picks up the phone is trained not to let on that the caller has been recognized. “That would be too creepy,” says Rich Mirman, Harrah’s senior vice president in charge of development, and a trained mathematician and economist.

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Unlike rivals such as MGM Mirage, Harrah’s tries hard to keep less profitable nongambling customers out of its hotels by calculating their customer value and making them pay through the nose. In October, a room at the aging Harrah’s Las Vegas was quoted to a caller at a nightly rate of $199, only $14 cheaper than a super-luxury room at Bellagio.

A frequent gambler could be charged anything from nothing to $199 at the Harrah’s casino, the company says. The price is based on a complex mathematical formula that takes into account how long the customer typically stays and what games he or she plays, among other details.

In one of Harrah’s biggest changes, the company has reconfigured the duties of its VIP hosts, who take care of the company’s biggest gamblers, previously one of the most old-fashioned jobs in the business.

In his gray-walled cubicle in East Chicago, Mr. Salvador’s job is more of a telemarketer than a traditional casino VIP host. Instead of spending time on the golf course or the casino floor, as hosts do elsewhere, Harrah’s hosts must phone at least 240 customers each month. The old hosts “were spending all their time on the loyal customers,” says Mr. Norton, who worked at American Express before joining Harrah’s. “We wanted them to stimulate sales.”

Unhappy with their new duties, about a quarter of Harrah’s hosts left after the company implemented the system about a year ago, the company says. But telemarketing is fueling Harrah’s VIP business, which is growing by about 20% a year, Mr. Norton says. Next year, Harrah’s plans to give its hosts hand-held computers to log every interaction they have with a customer, even a chat on the casino floor.

That information will come in handy as Harrah’s begins to move its customers around its soon-to-be expanded network. With new resorts in Las Vegas — increasing its holdings there to six from two — Harrah’s is planning to expand its cross-marketing. Customers who graduate from regional casinos to one of Harrah’s hubs tend to stay longer and spend more. Even a small number of extra trips will add significantly to Harrah’s sales.