MARKETING
Jay Sarno
YOUR “BEST CUSTOMERS”
VERSUS YOUR “BEST MARKET”
As your casino matures,
your databases ages and the
tactics to grow revenue
must eventually be fine
tuned to generating most
profitability from what is
likely to be fewer customers over time. This
requires constant examination of your return on your investment and the
depth of the pool of patrons to which you
derive your business. The question is related
to your overall marketing approach and what
is more important, your efforts to keep your
“best customers” versus your “best market.”
In regards to importance, how can you measure this? At the end of the day, the answer
becomes obvious, who contributes more dollars of player tracked profit?
We use metrics that are applicable to any casino
or any business that tracks each customer’s revenue. In our model we will be using the number of accounts per segment and the revenue
those segments generate for our property. An
additional metric we will use is frequency or
number of days played. All of the metrics we
will be using are based on a year of performance.
In the tables below we have gathered our total
universe of customers who have played in the
past year, calculated their ADT Segment,
Days of Play Range, and their Total Theo Win
generated:
Table A
As we can see, we have nearly 47k patrons
who generated in excess of $32M in this past
year. Typically we will start to get very envious of our HIGH market as they are so effec-
tive in driving revenue at the rate of $4.4M
annually (or 14% of this analysis total) and
often will consider these our best customers.
While this is true from one perspective, it is
not true on another.
This additional perspective is what you should
be questioning what is our “best market” versus who are our “best players.” To bear this
Table A
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GAMING & LEISURE
WINTER 2011
702.547.4545
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MARKETING
Based on the definition from Wikipedia, “Contribution margin-based
pricing maximizes the profit derived from an individual product
(based on the difference between the product's price and variable costs,
the product's contribution margin per unit), and on one’s assumptions
regarding the relationship between the product’s price and the number
of units that can be sold at that price.”
out, how many of you are participating in
numerous meetings designed to determine the
next event(s) for your HIGH market? I would
expect that if you charted the time you spend on
HIGH end events, it is much more consuming
than the time you spend on MIDDLE market.
And why not? It is much sexier to be going for
HIGH end. We can see the results immediately on the flash report and let’s be honest; it is
really fun to go to some of the events we take
such care to put on for our HIGH patrons.
Where there are some casino operators who
have far flung, world-wide player bases’ to
draw from and really extract significant
HIGH revenue, the majority of casinos are
local/regional properties that do not have the
amenities nor the financial depth to absorb
the risk that can come from one or two HIGH
players winning big.
On another level, look at profitability and the
contribution of each market to total profit.
In this example, the MIDDLE market has a
contribution margin of 71% of your total
profit and while more profitable on a percentage basis, HIGH accounts for only 15%.
Another way to look at this is that the MIDDLE market generates 5 to 6 times more profit than either HIGH or MASS. Again, this
points to your “best market” being MIDDLE.
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GAMING & LEISURE
WINTER 2011
702.547.4545
YOUR “BEST CUSTOMERS” VERSUS YOUR “BEST MARKET”
How does this information help? Ways to
view your database in the fashion just shown
should cause management to review the programs by HIGH, MIDDLE, and MASS. Not
only would you review your revenue, but your
total profit margin contribution.
Profit margin contribution comes from the
traditional cost accounting world. It has been
used extensively in manufacturing and in
recent computerize era, services. Restaurants
(menu explosion), airlines/hotels (yield analysis) and many other industries use contribution margin to determine where they will
maximize their profit dollar returns based on
individual products and product lines.
Based on the definition from Wikipedia,
“Contribution margin-based pricing maximizes the profit derived from an individual
product (based on the difference between the
product's price and variable costs, the product's contribution margin per unit), and on
one’s assumptions regarding the relationship
between the product’s price and the number of
units that can be sold at that price. The product's contribution to total firm profit (i.e., to
operating income) is maximized when a price
is chosen that maximizes the following:
The contribution margin per unit of each product
multiplied by units sold equals the contribution
to profit from sales of that product. The total of
Contributions to Profit from all a firm’s products
minus the firm’s fixed costs equals the firm’s
profit (more precisely, operating income).”
[http://en.wikipedia.org/wiki/Contribution_margin-based_pricing]
For casinos how can we translate contribution
margin components of price and variable
costs? Price, that is simple. It is our revenue
we derive by each rated customer. Our variable costs which are equivalent to raw materials and sales commissions would be free play
(promotional credits or any other moniker you
use to describe cash which would be electronic cash too), comps, cash back, and other
direct player expenses. These are all costs that
are associated with a level of play.
Once we have combined the results to produce
a traditional profitability review, you summarize by whatever categories or segments you
deem best suited for your business and look at
these parts as they contribute to your enterprise as a whole. You should strongly consider
deploying your marketing assets to the highest contribution margin and excessive expenses towards your weaker markets need to be
measured against the return you expect to
generate.
Again, all this information is in the data of
your player tracking system. It is up to you to
get this information and then act.
Jay has 20+ years of experience in the
Hospitality and Gaming Industry. Jay consults
on casino marketing segmentation programs,
software product development and technology
solutions evaluations, selections and implementations. Jay has implemented over 20 data
warehouse systems and currently also teaches
courses in Hospitality Management for Richard
Stockton (NJ) College. Jay can be reached at
JSA2002@comcast.net and welcomes your comments and questions.
Price - Variable Costs = Contribution Margin
Contribution margin is the difference between
the price of a product and the sum of the variable costs. Variable costs are all costs that will
increase with greater unit sales of a product or
decrease with fewer unit sales (i.e., leaving out
fixed costs, which are costs that will not change
with sales level over an assumed possible range
of sales levels). Examples of variable costs are
raw materials, direct labor (if such costs vary
with sales levels), and sales commissions.
Contribution margin is the difference between the price of a product
and the sum of the variable costs. Variable costs are all costs that will
increase with greater unit sales of a product or decrease with fewer unit
sales (i.e., leaving out fixed costs, which are costs that will not change
with sales level over an assumed possible range of sales levels).
WA N T A N i P a d ? S U B S C R I B E O N L I N E & Y O U C O U L D W I N ! S E E W E B S I T E F O R D E TA I L S .
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