'Total Rewards' Pays Off for Harrah's

SAN FRANCISCO Remember when housewives back in the 1960s used to paste S&H green stamps in books, then redeem the books for dishes and coffee mugs? Today young people collect Coca-Cola bottle caps, input the imprinted codes into their mobile phones or laptops and redeem them for T-shirts, magazines and gadgets through the beverage giant's "My Coke Rewards" program. Loyalty programs, in which repeat customers are rewarded with products, services or discounts, have been injected with new life with the proliferation of online social networking and improved data-mining technology. Ideally, loyalty programs increase sales and generate a host of information about customers and their buying habits for use in marketing, product development and service improvements. But some programs simply subsidize buying behavior that would have happened anyway or fail to use the customer behavior data effectively, say experts. Harrah's Entertainment, with 49 gaming properties mainly in the U.S. and the U.K., is an example of a marketer whose loyalty program efficiently achieves both goals, according to a Forrester Research study released in July. Customers who sign up for the seven-year-old "Total Rewards" program earn credits as they gamble. They can redeem the credits for merchandise and airfare as well as food, entertainment and lodging at any of Harrah's properties. The vast majority of its revenue, nearly 80 percent, is tracked on its Total Rewards card, and about 1 million new members are signed up each year, according to Dave Norton, Harrah's svp of relationship marketing and former American Express executive. The program had 9 million active members in 2006. Data from the rewards tracking gives the company "amazing insights into its customer activity, and the company successfully leverages those insights into improvements in marketing, on-site customer service and online interactions," says Forrester analyst Dave Frankland, lead author of the report. Any marketer looking to build loyalty and revenue while generating useful customer data can learn from Harrah's experiences, he says. Norton says the casino company has boosted participation in its loyalty program over the years based on a handful of clear consumer insights. First, ease and variety matter. "Our guests want a single card they can use on a variety of purchases," says Norton. The card has to be easy to sign up for, easy to use, can accrue credits from any Harrrah's property and can be used on rewards at various company resorts. "For instance, people like the idea that they can save up rewards currency at the resorts near their home in Chicago and then spend those rewards impressing their buddies during an annual trip to Las Vegas," says Norton.Limitations and multiple rules proved to be a large disincentive for using the program, he notes. The program also attempts to be transparent; people can keep a running count of their credits on a dedicated Web site and even while they are accruing them. For instance, the slot machines keep a running tally of their reward points as gamers are playing. Second, consumers appreciate upward mobility. Harrah's customers strongly respond to the program's tier system, in which those with large numbers of credits get to use shorter lines and get greater levels of service than those with fewer credits. "People are committed and proud to get to the middle "Platinum" and the high "Diamond" levels," says Norton. "It is seen as an achievement and they [crave] the added recognition and superior service that comes with that status. No one wants to be an average Joe." The aspirational value and the differentiated service offered through the tier system are also less costly to the company than the typical rewards discounts and freebies, he says. Third, rewards members look forward to highly targeted promotions. The casino uses information from the card usage to create frequent direct-response promotions that customers would be likely to use. The response rate for such offers averages about 10 percent, says Norton. (The industry average is 2-3 percent, per the DMA) "Rewards members seem to like the direct mail. In fact, the more we send out, the better the response rate is," he says. And because rewards users employ their card for all gaming transactions, the company can follow them as they move around a casino and from property to property. "If the data tell us the customer is new, we send marketing messages that educate them about the range of sites and services. If the customer lives far away, the marketing focus is on hotels. If they play slots, the marketing material has pictures of slot machines," Norton says. Such customer information was behind the company's decision to replace some slot machines with table games in certain markets as gamers' taste and demographics changed, he says. In some cases the customer information has surprised Harrah's executives. For instance, in 2004 it showed that many high rollers at Harrah's were also high rollers at other casinos. "We assumed they were spending most of their gaming money with us to keep their Diamond status, but it turned out there was more revenue than we thought going to other companies," Norton says. As a result, Harrah's started the Seven Stars tier, to offer an even higher level of elite service. Harrah's loyalty program has been a key driver of the company's overall success, reports Forrester's Frankland. The company's net income grew 23 percent to $536 million from 2002 to 2006. The cost of reward credits is anticipated to be $76.6 million this year, according to Forrester research. "The information from the rewards program is the lifeblood of our organization, guiding our marketing and the analysis of our business," says Norton Experts recommend best practices for any marketer trying to achieve better results from loyalty programs in the digital era:1). Define the business outcome that the loyalty initiative will drive. Set clear goals, such as increased share of wallet, number of visits, number of referrals or overall purchases, says a second Forrester study, "Building Lasting Customer Loyalty," released in April 2007. In Harrah's case, the goal is to increase market share. "We don't differentiate whether someone is spending a little money over many visits a year, or comes once a year and blows it out," says Norton. "We want them to spend a greater portion of their gaming and entertainment budget at our properties and less at our rivals' properties." 2). Make your program an opt-in proposition for customers, rewarding those who join rather than penalizing those who don't. Then tell everyone up front that you are collecting data, to prevent an online backlash. "No one wants to be spied on by big brother and they don't want to feel forced into joining the program," says Seth Sarelson, COO, OnCard Marketing, a promotions and loyalty program agency. He cites grocery store rewards programs that make customers pay a higher price if they don't join the rewards club. "They are essentially saying that to get a fair price at our store you must trade in your personal information. That is a negative incentive," Sarelson says.3). Don't expect immediate results. Loyalty programs are a long-term investment in customer retention rather than a quick fix for flagging sales. A customer database is hard to build and takes time to produce results, according to the Forrester customer loyalty report. Straightforward programs take at least six months to get off the ground and several months to measure results. Complex programs take longer, according to the study. The bottom line is that many savvy customers are more than willing to help marketers collect valuable information about their purchasing habits if the endeavor is handled properly and the payoff in product, service or status is worth it. "Marketers underestimate the willingness of people to trade their data for rewards when they are given an honest choice," says Sarelson.

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'Total Rewards' Pays Off for Harrah's

Joan Voight

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