Year 2022-2023 - OSMOSMM2081 - Business Intelligence – Sem DJEGUEDE

Case Study: Double Down at Harrah’s

Harrah's Entertainment, Inc. is the largest gaming company in the world and has been in
operation since 1937. For most of its history, it has enjoyed financial success and
unprecedented growth. In 2000, it had 21 hotel-casinos in 17 markets across the United
States, employed over 40,000 people, and served over 19 million customers. By 2008, those
numbers had risen to 51 hotel-casinos on 6 continents, 85,000 employees, and over 40
million customers. Much of Harrah's growth is attributable to savvy marketing operations
and customer service, as well as its acquisition strategy.

Problem
Besides being a leader in the gaming industry, Harrah's has been a long-time leader in
the business intelligence and performance management arena. Unlike its competitors,
Harrah's has generally avoided investing vast sums of money in lavish hotels, shopping malls,
and attractions. Instead, it has operated on the basis of a business strategy that focuses on
"knowing their customers well, giving them great service, and rewarding their loyalty so that
they seek out a Harrah's casino whenever and wherever they play". The execution of this
strategy has involved creative marketing, innovative uses of information technology, and
operational excellence.

The strategy actually started back in the late 1990s when Harrah's hired Gary
Loveman as its chief operating officer. Loveman was Harrah Entertainment's chairman,
president, and chief executive officer (CEO). Prior to joining Harrah's, Loveman had been an
associate professor at the Harvard University Graduate School of Business Administration,
with extensive experience in retail marketing and service management. When he arrived at
Harrah's, he was given the task of turning Harrah's into a "market- driven company that
would build customer loyalty". At the time, Harrah's actually had little choice. Harrah's didn't
have the capital to build new luxury casinos and entertainment centers, a strategy being
pursued by its rivals like the Bellagio. Instead, it decided to maximize its return on
investment (ROI) by understanding its customers' behavior and preferences. It reasoned that
in the highly competitive gaming market, the need to attract and retain customers is critical
to business success, because customer loyalty and satisfaction can make or break a
company. Attraction and retention require more than opulent accommodations and
surroundings. Instead, the goal should be to persuade gamblers to spend a greater share at
Harrah's properties.

Because it had a couple of years' worth of loyalty card data, Harrah's already knew a
lot about its customers. But focus groups revealed what management suspected-they might
have cards, but they weren't loyal. Nearly 65 percent of their gambling expenditures went
elsewhere. The first step was to find out who its customers were. The analysis revealed two
facts: (1) Over 80 percent of revenues came from over 25 percent of customers and (2) Most
Adapted from Business Intelligence: A Managerial Approach (2nd Edition) By Efraim Turban, Ramesh Sharda, Dursun Delen,
David King 2010, Pearson
 Year 2022-2023 - OSMOSMM2081 - Business Intelligence – Sem DJEGUEDE
of the customers were "average folks" (middle aged or seniors) and not the high rollers
attracted by the luxury hotels. How could Harrah's collect, utilize, and leverage data,
analysis, and findings of this type to maximize the lifetime value of a customer?

Solution
Harrah's answer was Total Gold, a patented customer loyalty program that is now
known as the Total Rewards program. Not only did the program serve to reward customers
with cash and comps for their gaming and other activities at any of Harrah's properties, but,
more important, it provided Harrah's with a vast collection of high volume, real-time
transaction data regarding its customers and their behaviors. The data are collected via the
Total Rewards card, which is used to record guest activities of all sorts (e.g. , purchases at
restaurants and wins and losses from any type of gaming activity).

The data are fed to a centralized data warehouse. Staff at any of Harrah's properties
can access the data. The data warehouse forms the base of a "closed-loop" marketing
system that enables Harrah's to clearly define the objectives of its marketing campaigns, to
execute and monitor those campaigns, and to learn what types of campaigns provide the
highest return for particular types of customers. The overall result is that Harrah's has
established a "differentiated loyalty and service framework to continuously improve
customer service interactions and business outcomes". The system also acts as a real-time
feed to Harrah's operational systems, which can impact the experience of customers while
they gamble and participate in other activities at Harrah's properties.

Results and a new problem

Harrah's Total Rewards loyalty card program and closed-loop marketing system has
produced substantial returns over the past decade, including:

• A brand identity for Harrah's casinos

• An increase in customer retention worth several million dollars
• An increase in the number of customers who play at more than one Harrah's
property, increasing profitability by millions of dollars
• A high internal rate of return on its information technology investments

The bottom line is that customers' discretionary spending versus their competitors has
increased substantially from year to year, resulting in hundreds of millions of dollars in
additional revenue.

The system has won a number of awards (e.g., TDWI Best Practices Award) and has
been the subject of many case studies. It has been recognized as the "most spectacularly
successful example of analytics in action today". Of course, awards and accolades are no
guarantee of future success, especially in the face of a global economic downturn.

For the 10 years leading up to the end of 2007, the U.S. gaming industry had the
highest performing equity index of any industry in America. The past 2 years have been a

Adapted from Business Intelligence: A Managerial Approach (2nd Edition) By Efraim Turban, Ramesh Sharda, Dursun Delen,
David King 2010, Pearson
 Year 2022-2023 - OSMOSMM2081 - Business Intelligence – Sem DJEGUEDE
different story. Once thought to be immune to economic downturns, the gaming industry
has suffered substantially from the collapse of the capital markets and the world economy.
In cities like Las Vegas, not only have hotel occupancy rates declined, but the average spend
per visitor has also dwindled. The plight of many casinos remains precarious, because they
relied on huge amounts of debt to build newer and bigger hotel-casino projects and lacked
the reserves to handle declining revenues.

Unlike its competitors, Harrah's has never had an "edifice" complex. Yet, like its
competitors, Harrah's still faces substantial economic problems. In the first 3 months of
2009, it posted operating losses of $127 million, although this was an improvement over
2008. In the first 3 months of 2008, it had operating losses of $270 million. In 2008, Harrah's
also doubled its debt load (to the tune of $24 billion) when it was taken private in Janua1y
2008 by the equity firms Apollo Management and TPG Capital. Today, its debt load has left it
facing potential bankruptcy.

So, even though Harrah's has had an award-winning performance management

system in place for years and is a recognized leader in the use of data and predictive
analytics, it still confronts the same strategic problems and economic issues that its "lesser
equipped" competitors face.

Harrah's has continued to rely on its marketing campaigns to boost demand.

Additionally, it has instituted a number of initiatives designed to reduce its debt and to cut
costs. In December 2008, Harrah's completed a debt-exchange deal that reduced its overall
debt by $1.16 billion, and it is in the midst of another debt-reduction and maturity-extension
program involving $2.8 million in notes. Like most other gaming companies, it laid off 1,600
workers in Las Vegas, cut managers' pay, and suspended 401K contributions during the
downturn. It delayed the completion of 660 more rooms at Caesar's Palace, although it is
still working on a new convention center at Caesar's, which has had strong bookings.

Management has also been encouraged by the results of an "efficiency-

management" process, pioneered by Toyota, called Lean Operations Management. Lean
Operations Management is a performance management framework focused primarily on
efficiency rather than effectiveness. Harrah's has launched pilot programs at several
properties and planned to roll it out company-wide in 2009.

Questions
1. Describe Harrah’s marketing strategy. How does Harrah’s strategy differ from
its competitors?
2. What is Harrah’s Total program?
3. What are the basics elements of Harrah’s closed-loop marketing system?
4. What were the results of Harrah’s marketing strategy?
5. What economic issues does Harrah’s face today? Could the Total Rewards
system be modified in any way to handle these issues?
6. What is a Business Performance Management?

Adapted from Business Intelligence: A Managerial Approach (2nd Edition) By Efraim Turban, Ramesh Sharda, Dursun Delen,
David King 2010, Pearson