Dead Men Do Tell Tales By Randy Fine December 16, 2014 at 4:29 pm Things continue to be rough for our industry. Financial results remain soft; discussion of bankruptcy in other quarters abound. There is little optimism out there. With just cause. While it has taken far longer than it should have, the industry is finally realizing that the glory days (aka everything before 2007) will never return. This is partly due to the “new normal” of stagnant economic growth due to poor government policy, but also because the glory days were, in part, driven by unsustainable economic bubbles (dot-com followed by real estate) that never could have continued forever. It is also due to a realization that there is much, much more competition today, and that the days of being able to make money because governments arbitrarily restricted supply are over. Back in May, I wrote an article about how many industry executives had blamed “God” – quarter after quarter, year after year — for their problems. If only the “weather” was not bad; if only competition would go away; if only the economy would improve. The article was broadly disseminated and widely discussed – perhaps controversial, but certainly incontrovertible. Since then, I have started to see some change in that attitude. After a bad quarter, Anthony Sanfilippo, the CEO of Pinnacle, did not blame God, but put the blame on himself and his team, saying that they could do better. As far as I can tell, he got a fair amount of credit for “manning up.” A number of properties have closed in two of the industry’s three oldest markets – Mississippi and New Jersey. Harrah’s Tunica closed, largely due to a shrinking market caused most recently by new facilities in neighboring Arkansas. Margaritaville Biloxi closed because building a property based on pure cannibalization will not work in a mature market. And in Atlantic City, four (and potentially a fifth) of the twelve properties open at the beginning of the year have closed, as it became obvious that online gaming would not be a silver bullet to save the market from Pennsylvania, Delaware, Maryland, and New York casinos. Perhaps it took these closures – with the traumatic impact they have on all involved – to force people to internalize the challenges, but there does seem to be a new perspective. Even the management team whose constant excuses I highlighted in May has been sacked at the demand of outside shareholders. That said, we still have a long way to go. We’re not at the end of the road – I’m not even sure we’re at the end of the beginning. That it has finally dawned on us that we have to do things differently in the future does not mean we have figured out the strategies, tactics, skills, and people to get that job done. Admitting you have a problem is the first step to solving it, but it is not a solution in itself. What our collective problem calls for is new and innovative solutions – for us to start doing things we either haven’t done well before, or haven’t done at all. And so I’d like to expound on one such strategy that my group has developed and begun employing with some of our clients with great success throughout this year. It is just one of many potential strategies, but you have to start somewhere. The strategy focuses on finding value in an asset virtually every casino in America has given up on – “dead” customers. I don’t mean customers that have actually passed away, but those who have not visited the casino property for some lengthy period of time – six months, twelve months, etc. Let’s use Caesars database as an example – they claim to have eight million “active” participants, but forty-five million total database entries. By that math, it means they have four “non-active” people in their database for every one that is “active.” This sort of ratio is not uncommon. Take a look at your own database; I’d almost guarantee that (unless your property is new) you have a multiple of “dead” customers to active ones. It is a question you should explore – what is the number of customers, for example those who have material daily worth of $20+, that you mail to versus those you do not, irrespective of their last visit date? If the ratio is not one-to-two or greater, that would be unusual. This doesn’t mean we should mail every customer in our database, irrespective of prior visit. For some inactive customers, there is a good reason – they may be literally “dead.” More likely, they may have moved – more than 10% of Americans move each year, though often locally. Within your pool, however, there are many inactive customers that are simply inactive. Why? Perhaps your product or marketing became old and stale – they got burned out (not financially, but from lost interest in what you offered, or how you offered it). Perhaps they are not inactive at all — they are just inactive with you, having switched their allegiance to another competitor. Perhaps for one reason or another they lost their interest in casino gambling for a period of time (temporary income troubles, other personal commitments), but are poised to start buying again if only the right message comes their way. Consider this hypothetical. Let’s say you operate the average casino with a 100,000 person “active” database and 200,000 “inactive customers” to whom you are not marketing. If you could get 10% of those inactive customers to return once every two months and generate $50 each time, that would mean an incremental $6 million of gaming revenue annually. There are very few properties where a found $6 million wouldn’t make their year. This hypothetical is not unrealistic. My group has done it again and again for multiple gaming companies, tribal and commercial, north, south, east, and west. Which begs the question, why aren’t more people hitting that “dead” part of their database hard? First, it is extra work. As anyone involved with database marketing can tell you, it takes a lot of effort to get the core active database marketed to every month. If you want to focus your resources where you are most likely to generate revenue, the active database makes the most sense. That said, it does not have to be a choice between active and inactive – doing both just means more work to do and/or more resource needed. Even though it takes more effort to manage a 1000-machine slot floor than a 500-machine one, if the demand is there, we do not hesitate to do the work! Second, it can be very expensive. Finding inactive needles in a database haystack could cost a lot of money – lots of wasted mail pieces to literally dead, relocated, or simply uninterested customers. Some properties have been unwilling to spend the money on mail programs where the vast majority of pieces are for naught, even if the programs themselves have the possibility of being profitable. The solution to both of these problems is the creation of an algorithm that can scour that inactive database, determining which needles in that haystack are worth mailing to and then determining what exactly to mail them. It is a highly analytic targeting exercise, and requires a fair amount of creativity – simply mailing inactive customers the same offers that you send active customers does not work (if it did, they wouldn’t be inactive!). And taking the core active mailer and just adding $5 or $10 to what you offer does not work either. Investing in the staff and technology to develop the requisite algorithms is not inconsequential, in part because they constantly have to be updated based on the learnings of each month’s mail, but the rewards are not inconsequential either. What is $6 million per year in incremental gaming revenue worth? Which brings me back to the beginning. The industry is in a rough patch – and that will not change anytime soon. Properties are closing. Executives are under the gun. Owners and creditors are unhappy. We have two choices – keep doing what we always have, and blame God and the weather and the economy and our competitors – or we can start doing new things, harder things, more analytical things. We all wish life was easier; that we didn’t have to work hard; that “getting back to basics” and just keeping the lights on would be enough. It isn’t enough. So maybe it is time to start doing something that many believe God has done once or twice – raising folks from the dead.