Data Base Marketing Program

1. Please evaluate the effectiveness of Data Base Marketing programs.

The underlying principle as to why Harrah's Entertainment Inc. took such an information technology-driven and innovative initiative was to engrave the customer intimacy, which certainly results in loyalty in the long-run, into its core competency. The most promising approach for a company trying to occupy a sweet spot in the grueling gaming industry seemed to begin pursuing a strategy that can best distinguish itself from the rivals.

During the times the rivalry among competitors was getting intensified and the relaxation of gaming rules was prevailing, Harrah's Entertainment Inc. found its pathway in focusing more on people by utilizing direct marketing techniques the market had not been introduced before. The approach, however, failed the company to achieve its desired targets, especially after the competitors commenced innovating the way they served their customers, creating highly themed environments that promise new experiences for their customers. Nevertheless, Harrah's decided to base its core competency on customer loyalty unlike the competitors, and anticipated that it could be a market leader based on that skill.

In a bid to develop a viable strategy that would have a massive impact on the company, and eventually became a candidate for changing the industry dynamics, Philip G. Satre, Chairman and Chief Executive Officer of Harrah's Entertainment Inc., hired an individual, Gary Loveman, to fill the COO position. The hire of Loveman initiated a string of winds of change. Once the company set out the new organization structure, which promised to link all casinos belonging to Harrah's to each other so that a corporate level strategy could be diffused among the properties, Loveman began developing brand image strategies to differentiate the company. Improving service was perceived to be the key factor of shoring up customer and organization relationships.

Once the company laid the foundation of a superior marketing strategy based on customer loyalty, the next step was to specify the system. Data Base marketing (DBM) was therefore designed to include information about existing and potential customers, which is relevant to the customized direct marketing initiative. DBM was conceived as a significant business tool to strengthen customer intimacy, and subsequently increase loyalty. The notion of the effective utilization of this IT-driven marketing was to tap into the information of customers, which was already added to the system, to target specific customers in customized ways so that the company may have accomplished to retain them for a long time. This would come through attracting the new customers, increasing the loyalty level of existing ones by improving their visit of frequency and gaming budgets allocated for Harrah's (New Business Program, Loyalty Program and Retention Program)

Another advantage of DBM was to allow the company to envisage customer behavior and worth, which was considered to be an incredible innovation in the gaming industry. Customer profiles recorded on the information system were used to know about gaming preferences of customer, betting patterns, how often they visited, where they dined, how much they redeemed, and whether they are local and lodger etc. Harrah's capitalized on this information to engage in customer centric direct marketing by sending out personalized incentives to customers to play in. Besides, DBM helped to identify some opportunity-based customer segments for rationalized reinvestment. This would better be used to target untapped customers, for instance, who had low worth but high predicted value, or had low observed frequency but high worth. Furthermore, DBM was useful for tracing customers over time, and conduct marketing experiments, so that Harrah's could target right customer by using correct marketing techniques. This evidently allowed the company to shift into lean service system by eliminating the costly and useless business activities, such as "Same Day Cash". All things considered, Harrah's managed to gain a better understanding of customers to increase customer intimacy/loyalty, which eventually elicited positive financial returns.

2. Why is it important to use the "customer worth" in the DBM efforts rather than the observed level of play?

In the late 90's, Harrah's Entertainment decided to initiate the Customer Relationship Management program to intervene its market and boost its service. This program consisted two elements: Datebase Marketing (DBM), and the Total Gold program. DBM is a quantitative method to collect and analyze data that related to customer's behavior - mainly the Theoretical Win of its customers. Harrah's utilized the DBM approach to collect customers' base and Total Gold program to build a good relationship with its customers.

The main reason that Harrah's utilized DBM to decide customer worth was that it would accurately predict the theoretical amount the house expected to win based on customer's future worth. It would not be possible to determine the customer's future worth just by observing their past behavior, or their level of play. The Theoretical Win from a Customer per day was calculated by A*B*N*H, the product of the house advantage on a game, the average bet, the number of bets per hour, and the number of hours played per day. This equation could successfully predict the worth of a slot machine player. A more complicated model was built to predict the table game player.

Simply put, Database Marketing was a science tool. In the past, when Harrah's predicted customer's worth just by observing level of play, a customer who just paid Harrah's once and spent limited amount money would never be on its radar, even though he could be a great customer to other Casino's. DBM enabled Harrah's to find this kind of customers, and help Harrah's to steal these customers from its competitors.

Furthermore, initiating DBM with the Total Gold program simultaneously helped Harrah's to decide which group of customers should be its target customers, to whom Harrah's should invest more. To illustrate, using the data collect by the DBM, Harrah's their target customers should be divided to three segments .This was decided by comparing observed behavior to predicted behavior and identified the opportunities segments based on disparity between predicted and observed values. The opportunity segments should be those either with a high worth or a high predicted worth. Using the DBM approach, Harrah's successfully determined exactly which customer had a high worth or a high predicted worth.

DBM also made it possible to conduct