New Shooters at Harrah's

When Phil Satre resigns as Harrah's Entertainment Inc.'s CEO on Jan. 1, a ripple effect will move direct marketing-savvy executives into several top positions.

The changes reflect the increased importance Harrah's has placed on mail and direct response. Four years ago, the company was spending around $24 million for 40 million individual solicitations. In 2003 Harrah's will lay out $50 million of its $300 million marketing budget for 80 million mail pieces.

Almost all of that targets the 6 million-plus active members of Harrah's Total Rewards loyalty program. (The company's files hold information on more than 25 million individuals, but only those who have played at least once within 12 months are considered active.)

In the past these efforts have paid off handsomely: Data-based marketing efforts have generated an increase of $24 per room in gaming revenue, every day of the year, across all 15,000 rooms in all 26 properties. Playing along at home? That's an additional $131 million annually.

Much of the focus on database efforts is due to Gary Loveman, who will replace Satre as CEO, while Satre will keep his position as chairman. Loveman, a former Harvard Business School professor, joined the company in 1998 as COO and was named president in 2001.

Besides Loveman, Richard E. Mirman is stepping into the chief marketing officer, senior vice president, new development position from his spot as senior vice president of marketing, and David Norton will become vice president of relationship marketing. Norton's current slot, vice president of loyalty marketing, will go unfilled.

It's no accident that the company's mail budget and volume have doubled since Loveman took over. Loveman's focus has been on using quantitative data to drive the company's marketing efforts. He has also strengthened Harrah's database of transaction data, first with a companywide warehouse called WINnet and most recently with a multimillion-dollar data analysis system.

The lesson of tailoring communications to reflect customer interests has not been lost on other Harrah's executives.

“Direct mail is our primary revenue driver,” Norton says. “It's what gets our customers to come back to our properties.”

To back this up, next year will bring an expansion of the company's variable print mailing use. Currently best customers — those within the top 2% and 3% of its active customer file — receive highly personalized mailings. These players, who are often worth in excess of $500 to the chain, have hosts — individuals at their preferred properties — who know them by sight and name, and provide additional amenities for them.

The variable printing mailings feature photographs of each customer's host, premiums suited to the customer's level of play and interests, and upcoming on-site events. Additional images are customized to the client's demonstrated preferences: Pieces addressed to slot-machine players feature the machines, while card players would receive photos of their favorite table games.

The mailings aren't cheap: At $1 per piece there was some initial concern about cost.

“We had to prove it was OK to spend the additional 40 cents per mailing,” Norton says, noting that Harrah's closed-envelope offers go into the mail at a cost of 60 cents, while self-mailers and postcards cost between 30 and 35 cents each. “But we did a test mailing and proved it.”

Hosts noted that there was a soft benefit (customers thought the pieces were neat) and a hard benefit (play and revenue among those receiving the piece increased 25%).

Since the program was tested in midyear, Harrah's has sent out more than 100,000 variable print packages, a pittance when compared with the 80 million pieces the chain sends out annually. But this will increase when the program is rolled out to all 26 Harrah's properties in 2003.

Even then, don't look for these highly customized pieces to become Harrah's control for all of its customers. “Variable print is not effective for larger runs,” Norton says.

Beyond mail, Harrah's owes its success to investing in its software, as opposed to its surroundings. For instance, The Bellagio, noted for its dancing fountains, spent $1.8 billion in site upgrades to attract customers, according to Mirman.

In contrast, last year Harrah's invested in a proprietary multimillion- dollar data analysis program, the Revenue Management System.

The system is automatically triggered by a Total Rewards member's telephone number when the guest calls for a reservation. This allows a front-line employee to give a lower price during a busy weekend to a high-value gambler, or to raise the price of a Saturday night stay for a nickel slots player.

Even though it has not yet been rolled out to all of Harrah's properties, the system has already earned back the hotel chain's considerable investment.

The system will even influence Harrah's use of e-mail in 2003. Harrah's has e-mail addresses for roughly 10% of its file, and relies on e-mail to quickly fill unforeseen vacancies. The quick turnaround nature of e-mail campaigns is especially germane to the hospitality industry.

“If our inventory [hotel rooms] is not used on a particular day, we can't carry it over,” Mirman says.

This year, Harrah's has begun to test proactive e-mail offers that price individual solicitations based on the guest's potential value, as indicated by the Revenue Management System. While Mirman didn't comment on the success of the program, he did indicate it would be expanded in 2003.

Neither the Revenue Management System nor mail in general will play a significant role in Harrah's prospecting efforts, however. While campaigns that target existing customers have a plethora of data to support them, the lack of data on prospects is a hindrance.

If prospects are already players at a competitor, that casino has a wealth of information on them and can send them tailored offers. Furthermore, Harrah's doesn't have an idea of these individuals' potential value.

“Because we don't know what they are worth, we don't know what to invest in them to dislodge them from the casino they are loyal to,” Mirman says. Conversely, the ones who would come in through unsolicited discount offers would likely be the easiest for another casino to peel away.

“It's an adverse selection problem,” Mirman says. “The customers you want to attract don't respond, and the ones you don't want to attract do.”

This is where the remainder of the promotional budget — $250 million — comes in. Harrah's is doing a combination of what Loveman calls “promotainment” and partnership agreements.

Promotainment runs the gamut of shows and other events to contests. Harrah's partnered with the Elvis Presley estate and from Aug. 10 has had “Mobile Graceland,” a traveling memorabilia exhibit, touring 21 of its 26 properties in a promotion that will run through mid-December.

The company also teamed up with retailer Carson Pirie Scott. In a pilot program that began in October, players at Harrah's Joliet and East Chicago properties can earn gift certificates.

But the relationship will not spill over into its direct marketing activities. “We are not getting access to their database of names, and we are not in the business of selling information,” Mirman says.

“We try to avoid standalone mailings [to prospects]. They don't work.”

One change to Harrah's strategy will be to cut back on its solicitation of “whales,” the handful of players throughout the world who routinely wager thousands of dollars on a single hand.

Customers that big routinely demand — and get — rebates on what they lose from any casino they play in. These rebates can amount to 20% to 25% of their losses. With house margins relatively small, this meant one or two customers who have a good run can change the financial performance of a property, as happened to Harrah's a few years ago.

“It's frustrating,” Norton says. “You do all the right things and two or three people beat you.”