Harrah s Entertainment

By focusing maximum resources on an underserved segment of low roller gamblers, Harrah s Entertainment has grown in the past decade from a four-property, second- tier casino operator with limited finances to a twenty-six-property gaming industry leader with a market capitalization of $4.4 billion. ^[12]

In the early 1990s, Harrah s lacked the financial resources to engage larger casinos, such as MGM, Mirage, and Park Place Entertainment, in contests of one-upmanship to see who could build glitzier, more glamorous casinos to attract a small base of superwealthy gamblers. Its CEO, Phil Satre, thus decided to forsake this approach, which aimed to attract free-spending high rollers, and instead pursued closer relationships with low rollers ”middle-market patrons who gambled away a few hundred dollars per visit on a repeat basis.

Harrah s market research revealed that this low-roller segment, neglected by the larger casinos, accounted for nearly 100 percent of the company s profits, despite representing just 30 percent of its customers. ^[13] Accordingly, the company invested heavily to identify, attract, cater to, and retain the low roller. It built a world-class customer information system, recruited top managerial talent from outside the industry, and provided its frontline workforce with extensive customer service and system operation training.

The point of departure for Satre s strategy was the development of the gaming industry s first centralized patron database system, a single repository of information linked electronically to all of Harrah s properties. The three-year development process cost a hefty $65 million, ^[14] but when complete, the system enabled Harrah s to track the characteristics and habits of its patrons and perform sophisticated statistical analyses that provided insights into customer behavior. Harrah s marketers could use the system to tailor incentive offers to individuals particular tastes and preferences, cross-promote its numerous properties, and estimate each gambler s expected lifetime profitability. Harrah s casino operators, for example, could use the system to provide customized services to a visiting patron and optimize game offerings to maximize profits at their respective properties.

Satre knew that his world-class system needed a world-class management team, and he paid handsomely to attract outside talent with advanced analytical capabilities and extensive information technology experience. Bucking the industry norm of hiring casino veterans , he hired Harvard Business School professor Gary Loveman as chief operating officer, and he recruited management consultants from world-class firms and graduates from top-tier business schools .

Satre also invested substantially in training his frontline employees , who would be operating the system, recording interactions with customers, and, it was hoped, encouraging more return visits . Hotel managers, pit bosses, restaurant workers, and marketing personnel received extensive instruction in the use of the complex information system and in how to leverage its capabilities to provide superior customer service. And every employee went through rigorous customer service training, a program Harrah s ran twenty-four hours a day to ensure all employees on all shifts were able to attend .

Satre thus made a commitment to obtain the best available management team to improve service, even though he was competing for individuals whose service needs had not been deemed worth meeting by other casinos. Additionally, he invested heavily in training his entire staff to use this information to focus on attracting and retaining this target segment with service well beyond that which they would have received from competitors .

This strategy of bringing maximum resources to bear on the low roller delivered dramatic results. By 2002, Harrah s customer base more than doubled , to more than twenty-five million gamblers, endowing the company with the most extensive and widespread customer database in the industry. Customer retention skyrocketed, and with more repeat business, customer acquisition costs plummeted. The number of customers playing at more than one Harrah s property jumped by over 70 percent, and over half of the company s Las Vegas profits came from patrons who normally gambled at Harrah s casinos outside the state of Nevada. ^[15] Owing to this tremendous success with the customer, Harrah s has enjoyed the widest profit margins, fastest earnings growth, and greatest appreciation in share price in the casino industry since 1999. ^[16]

Leadership Lessons

Harrah s strategy exemplifies focus on two counts but is atypical on a third. First, Satre wisely avoided the strengths of his competitors and focused his limited resources on an overlooked yet lucrative segment of the market. Second, Harrah s maximized the effectiveness of the resources it committed to this segment by using information to match product offerings to customers wants and needs with greater accuracy. Third, this application of focus is unique because Harrah s made a disproportionately large commitment of resources not to a specific market opportunity but to an intangible end ”gaining superior insight into customer wants and needs and building customer loyalty. This commitment in turn enabled the company to deploy its scarce resources at the most critical points and times.

^[12] As of May 28, 2003.

^[13] Binkley, Christina, Lucky Numbers, Wall Street Journal , May 4, 2000, A1.

^[14] Levinson, Meredith, Jackpot!, CIO Magazine , February 1, 2001, and Ashbrook Nickell, Joe, Welcome to Harrah s, Business 2.0 , April 2002, 48.

^[15] Ibid.

^[16] Based on 10-K annual reports from Harrah s, MGM-Mirage, Park Place, and Mandalay Bay.