Want to see the future of FF Programs? Look at Harrah's
Dec 29, 2002 | 12:27 am
#1
Original Poster
Join Date: Feb 1999
Posts: 1,278
Want to see the future of FF Programs? Look at Harrah's
Harrah's is one of the most successful casino gambling -- er, gaming -- companies in the United States. They became hugely successful by carefully cultivating it's database to encourage loyalty of it's profitable customers. Harrah's recognized that customers have choices for their gaming and can easily go to a different casino. Through brilliant use of database marketing to send specialized offers along with designating tiers of benefits levels, Harrah's built a loyal customer base.
Harrah's learned years ago to differentiate it's base of frequent customers from it's base of profitable customers. The company focuses on it's profitable vs. frequent customers, with extra effort to those who are both frequent and profitable.
What's the difference? Here's an example from Atlantic City. Many casinos have bus programs where a patron pays $20 for a bus ride from NYC or nearby. The casino gives the patron ~$15 just for showing up. Well, most of these patron's are senior citizens who might gamble $20. Profit for casino: $5. Not much. And these little ol' laidies may make 2-3 trips a week. Then there's the couple that drives down for the weekend once every 3-4 months. They stay at the hotel and gamble away ~$500-$1000 over 3 days. Figuring in some complimentary rooms and/or food, the casino makes $300-$700 each trip. If you do the math, the infrequent drivers are more profitable than the frequent bus patrons. (This is why Harrah's is the only casino in AC that does not have a bus program.)
What does gambling have to do frequent travel?
1) Both have low barrier to switch. A gambler can change casinos easily. A freqent traveler has many choices for airlines. With the exception of some totally locked hub cities, a traveler can easily change airlines. A traveler can easily change hotel chains and car rental agencies in just about any city in the US
2) Both have loyalty and reward programs in place.
3) Both have massive databases of it's custoemrs.
Us FT'ers know that when two people sit next to each other in coach, one may be quite profitable and the other a money loser for the airline. The big airlines are recognizing that giving awards to someone barely profitable encourages the wrong behavior.
Yet the airlines continue to push massive programs and offers that go out to everyone. CO & AA have experimented a bit with targeted offers by zip code and other segementation, but not much. DL & CO are starting to offer rewards and status based on profitability as much as frequency, albeit CO with a carrot and DL with a stick. Otherwise (generally speaking), awards and status are based on frequency.
So where does Harrah's come in? Harrah's uses targeted offers via direct mail. The more frequent customer who is worth less per trip may get offered a free lunch. The less frequent customer who is more than 100 miles away but has better profit potential would get offered free room to stay overnight. The airlines can use this quantitative business philosophy to do such things as:
- Target customers living in non-hub cities with a segment-specific offer of bonus miles for using their airline.
- Offer to specific customers who always fly on cheapest fares bonuses when they use a slightly more expensive fare class. (Note that this would not be a public offer -- it would be one that only certain segmented customer with specific profiles would receive.)
- Send "we miss you" offers to customers who used to be be loyal to the airline but haven't traveled for several months. The offers can have intrinsic more than huge financial value, i.e. one-time use of Elite check-in; headset/drink coupons. Or maybe a confirmed upgrade.
All of the above is IMHO.
------------------
On the road, In the air,
I enjoy travel, From here to there.
Harrah's learned years ago to differentiate it's base of frequent customers from it's base of profitable customers. The company focuses on it's profitable vs. frequent customers, with extra effort to those who are both frequent and profitable.
What's the difference? Here's an example from Atlantic City. Many casinos have bus programs where a patron pays $20 for a bus ride from NYC or nearby. The casino gives the patron ~$15 just for showing up. Well, most of these patron's are senior citizens who might gamble $20. Profit for casino: $5. Not much. And these little ol' laidies may make 2-3 trips a week. Then there's the couple that drives down for the weekend once every 3-4 months. They stay at the hotel and gamble away ~$500-$1000 over 3 days. Figuring in some complimentary rooms and/or food, the casino makes $300-$700 each trip. If you do the math, the infrequent drivers are more profitable than the frequent bus patrons. (This is why Harrah's is the only casino in AC that does not have a bus program.)
What does gambling have to do frequent travel?
1) Both have low barrier to switch. A gambler can change casinos easily. A freqent traveler has many choices for airlines. With the exception of some totally locked hub cities, a traveler can easily change airlines. A traveler can easily change hotel chains and car rental agencies in just about any city in the US
2) Both have loyalty and reward programs in place.
3) Both have massive databases of it's custoemrs.
Us FT'ers know that when two people sit next to each other in coach, one may be quite profitable and the other a money loser for the airline. The big airlines are recognizing that giving awards to someone barely profitable encourages the wrong behavior.
Yet the airlines continue to push massive programs and offers that go out to everyone. CO & AA have experimented a bit with targeted offers by zip code and other segementation, but not much. DL & CO are starting to offer rewards and status based on profitability as much as frequency, albeit CO with a carrot and DL with a stick. Otherwise (generally speaking), awards and status are based on frequency.
So where does Harrah's come in? Harrah's uses targeted offers via direct mail. The more frequent customer who is worth less per trip may get offered a free lunch. The less frequent customer who is more than 100 miles away but has better profit potential would get offered free room to stay overnight. The airlines can use this quantitative business philosophy to do such things as:
- Target customers living in non-hub cities with a segment-specific offer of bonus miles for using their airline.
- Offer to specific customers who always fly on cheapest fares bonuses when they use a slightly more expensive fare class. (Note that this would not be a public offer -- it would be one that only certain segmented customer with specific profiles would receive.)
- Send "we miss you" offers to customers who used to be be loyal to the airline but haven't traveled for several months. The offers can have intrinsic more than huge financial value, i.e. one-time use of Elite check-in; headset/drink coupons. Or maybe a confirmed upgrade.
All of the above is IMHO.
------------------
On the road, In the air,
I enjoy travel, From here to there.
Dec 29, 2002 | 2:01 am
#2
Join Date: Jul 2002
Location: Southeast USA
Posts: 1,253
I think the only problem with the analogy is that you think airlines will CONTINUE to resemble a casino- where the customer ALWAYS ends up getting screwed in the end...
I predict that in the future domestic roundtrip coach tickets will be capped at $600-800 and international coach tickets will be capped at $2000- any airline, any destination (maybe the US-EU cap will be $1000).
Whith prices so low and the market dominated by Southwest clones, there wouldn't be much difference between 'big spenders' and 'frequent spenders'. There won't be many big airlines offering $12000 tickets to Europe (there might be some specialized ones for business travelers), so with the revenue caps a 'low fare' traveller would not pay much less than a 'full fare coach' traveller.
Trust me people, the future belongs to AVIATION COMMUNISM...
I predict that in the future domestic roundtrip coach tickets will be capped at $600-800 and international coach tickets will be capped at $2000- any airline, any destination (maybe the US-EU cap will be $1000).
Whith prices so low and the market dominated by Southwest clones, there wouldn't be much difference between 'big spenders' and 'frequent spenders'. There won't be many big airlines offering $12000 tickets to Europe (there might be some specialized ones for business travelers), so with the revenue caps a 'low fare' traveller would not pay much less than a 'full fare coach' traveller.
Trust me people, the future belongs to AVIATION COMMUNISM...
Dec 29, 2002 | 3:09 am
#3
Join Date: Aug 2002
Location: San Francisco, CA
Posts: 206
ontheroad, since you bring this up, I have a suggestion:
Why not putting a casino on the plane? This may be the only way the major airlines can compete with SWA... Since the profitable customers from the majors have deeper pockets (paying full/B/F fare), they are potentially bigger gambler. OTOH, SWA flyers are the cheapies with your analogy, they have smaller budget. So, SWA can only put 5c slot machines on the planes whereas minimum bet on AA/UA/DL/NW/CO/US is $1.
Why not putting a casino on the plane? This may be the only way the major airlines can compete with SWA... Since the profitable customers from the majors have deeper pockets (paying full/B/F fare), they are potentially bigger gambler. OTOH, SWA flyers are the cheapies with your analogy, they have smaller budget. So, SWA can only put 5c slot machines on the planes whereas minimum bet on AA/UA/DL/NW/CO/US is $1.
Dec 29, 2002 | 8:34 am
#4
A FlyerTalk Posting Legend
Join Date: Feb 2000
Location: Cambridge
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Airlines have tried targeted offers in the past. It didn't work out well in the last few years due to the viral effect of the internet, because a narrowly targeted offer suddenly became public knowledge.
The usual result is that the profitable customers (who didn't get the offer) is upset that the program is rewarding people who didn't earn the comp to begin with.
The only way Harrah's has gotten away with the targeted offers is because their program is still small and low-profile. If their program ever gets to the point of one of the major FF programs, they'd have the same problems.
Last time I was in Vegas, I saw billboards saying some casinos are trying to band together to create a player's club card which can be used at multiple casinos. Presumably the data is shared along with some revenue sharing.
Conglomerate programs like that will likely to be the future trend, and they'll end up running into the same barriers and problems as FF programs.
The usual result is that the profitable customers (who didn't get the offer) is upset that the program is rewarding people who didn't earn the comp to begin with.
The only way Harrah's has gotten away with the targeted offers is because their program is still small and low-profile. If their program ever gets to the point of one of the major FF programs, they'd have the same problems.
Last time I was in Vegas, I saw billboards saying some casinos are trying to band together to create a player's club card which can be used at multiple casinos. Presumably the data is shared along with some revenue sharing.
Conglomerate programs like that will likely to be the future trend, and they'll end up running into the same barriers and problems as FF programs.
Dec 29, 2002 | 12:10 pm
#5
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One very signigicant difference between airline and casino programs:
With airline programs, they are very public about what you need to do to earn status, what your account balance is, what is needed to earn a reward, etc.
With most casino programs, all of this is very much cloaked.
Exactly how long do I need to sit at the blackjack table betting green before they'll buy me dinner? Before my room will be comped? Before I earn Harrah's status? I don't get monthly statements from them...
With airline programs, they are very public about what you need to do to earn status, what your account balance is, what is needed to earn a reward, etc.
With most casino programs, all of this is very much cloaked.
Exactly how long do I need to sit at the blackjack table betting green before they'll buy me dinner? Before my room will be comped? Before I earn Harrah's status? I don't get monthly statements from them...
Dec 29, 2002 | 12:27 pm
#6
Join Date: Feb 2000
Location: Pittsburgh
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There are already several multi-casino player cards, the biggest of which is the One Club, which is about a dozen casinos around the country (Mandalay Group properties). MGM Grand is now part of a multi-casino club, and Harrah's of course is also multi-casino (With all the Harrah's around the country).
I don't know how succesful the casino clubs are, personally, but I do know that I finally get more mail from the casinos than I do credit card offers, which is quite a feat
I don't know how succesful the casino clubs are, personally, but I do know that I finally get more mail from the casinos than I do credit card offers, which is quite a feat
Dec 29, 2002 | 12:30 pm
#7
Moderator: Luxury Hotels and FlyerTalk Evangelist
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It's easy to get an incorrect impression about an airline's customer base reading Flyertalk. Customers who get top status through cheap mileage runs are statistically insignificant -- and that would be an airline equivalent of the unprofitable little old ladies you mention.
Also, the airline's practice of selling miles for revenue doesn't have a casino equivalent.
So while better targeted offers and rewards could make a difference, I don't think it would make as much a difference as it does for Harrahs.
The real difference between success and failure at a casino comes from their ability to attract, and keep, high rollers. They do this with personal service, individually targeted. U.S. carriers have no clue how to apply this to the airline equivalent of high rollers -- frequent international passengers who pay full C/F fare. U.S. carriers also fail to sell to the person who has the authority to pay for the travel. For most business travel this is not the person who flies.
Also, the airline's practice of selling miles for revenue doesn't have a casino equivalent.
So while better targeted offers and rewards could make a difference, I don't think it would make as much a difference as it does for Harrahs.
The real difference between success and failure at a casino comes from their ability to attract, and keep, high rollers. They do this with personal service, individually targeted. U.S. carriers have no clue how to apply this to the airline equivalent of high rollers -- frequent international passengers who pay full C/F fare. U.S. carriers also fail to sell to the person who has the authority to pay for the travel. For most business travel this is not the person who flies.
Dec 30, 2002 | 1:40 am
#8
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Very good points!
I guess airlines will offer kind of a VIP elite status in the future for their (few) very best customers (based on revenue) with some sophisticated amenities for those people. Look at LH's plans for a black card / magellan e.g.
This is O.K. for me as long as they don't dillute the value of their current elite tiers further. Of course they earn big money on each of those VIP-tier members. But they'll definitely earn more money in total from their current gold/plat tier members as it's a much bigger base.
I guess airlines will offer kind of a VIP elite status in the future for their (few) very best customers (based on revenue) with some sophisticated amenities for those people. Look at LH's plans for a black card / magellan e.g.
This is O.K. for me as long as they don't dillute the value of their current elite tiers further. Of course they earn big money on each of those VIP-tier members. But they'll definitely earn more money in total from their current gold/plat tier members as it's a much bigger base.
Dec 30, 2002 | 3:58 am
#9
Join Date: Sep 2002
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<font face="Verdana, Arial, Helvetica, sans-serif" size="2">Originally posted by swag:
One very signigicant difference between airline and casino programs:
With airline programs, they are very public about what you need to do to earn status, what your account balance is, what is needed to earn a reward, etc.
With most casino programs, all of this is very much cloaked.
Exactly how long do I need to sit at the blackjack table betting green before they'll buy me dinner? Before my room will be comped? Before I earn Harrah's status? I don't get monthly statements from them... </font>
One very signigicant difference between airline and casino programs:
With airline programs, they are very public about what you need to do to earn status, what your account balance is, what is needed to earn a reward, etc.
With most casino programs, all of this is very much cloaked.
Exactly how long do I need to sit at the blackjack table betting green before they'll buy me dinner? Before my room will be comped? Before I earn Harrah's status? I don't get monthly statements from them... </font>
More info in Max Rubin's book, Comp City
http://www.amazon.com/exec/obidos/ASIN/0929712366
Dec 30, 2002 | 7:24 am
#11
Original Member
Join Date: May 1998
Location: Niceville, FL, USA
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<font face="Verdana, Arial, Helvetica, sans-serif" size="2">Originally posted by oldjack:
...
The title of this thread is: "Want to see the future of FF Programs? Look at Harrah's". I would say instead: "Want to see the future of casinos? Look at FF Programs".
</font>
...
The title of this thread is: "Want to see the future of FF Programs? Look at Harrah's". I would say instead: "Want to see the future of casinos? Look at FF Programs".
</font>
Dec 30, 2002 | 8:28 am
#12
A FlyerTalk Posting Legend
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The biggest difference between FF programs and casino programs is the level of employee empowerment to deliver one-on-one service. The single most important feature of a casino program for the top-tier players is the casino host. Personalized attention - somebody who makes you feel like royalty. If you are truly top-tier (i.e., a regular who spends a LOT of money on negative-expectation table games), the casino host probably knows your favorite food, drink, cigars, etc. Of course, we all know the motives for the royal treatment...
The airlines have no clue how to deliver quality one-on-one service. I know there are exceptions: if you belong to the Admiral's Club, perhaps you've gotten to recognize an agent there that treats you especially well. I remember a CTO agent from the mid-90's that was wonderful. But those are getting rarer and rarer. I'm not even talking about getting a bunch of free upgrades or waived fees: I'm just talking about people using logic and common sense to help other people when the situation calls for it. Too often now, the airlines regard frequent travelers as their enemy. They'd rather us fly another airline. It's a totally, totally opposite concept from a casino, where they WANT you at their tables.
The airlines have no clue how to deliver quality one-on-one service. I know there are exceptions: if you belong to the Admiral's Club, perhaps you've gotten to recognize an agent there that treats you especially well. I remember a CTO agent from the mid-90's that was wonderful. But those are getting rarer and rarer. I'm not even talking about getting a bunch of free upgrades or waived fees: I'm just talking about people using logic and common sense to help other people when the situation calls for it. Too often now, the airlines regard frequent travelers as their enemy. They'd rather us fly another airline. It's a totally, totally opposite concept from a casino, where they WANT you at their tables.
Dec 30, 2002 | 9:20 am
#13
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You are comparing apples and oranges. Keep in mind:
(A) most people using airline, hotel, car rental etc programs are traveling on their companys nickel ( I know, not all)
(B) Most casino patrons are gambling on their personal private nickel (really, almost all)
Thus most people will carefully watch their casino visits costs (and nickels) much more carefully. The AC casino bus programs can bring in money if properly managed. The casinos, including Harrahs, still underwrite these to a large level. but mostly in the off season. They are equivalent to the T and Q fares, ie they fill otherwise empty seats distributing fixed costs while occurring few if any variable costsie mainly the slot machines.
MisterNice
(A) most people using airline, hotel, car rental etc programs are traveling on their companys nickel ( I know, not all)
(B) Most casino patrons are gambling on their personal private nickel (really, almost all)
Thus most people will carefully watch their casino visits costs (and nickels) much more carefully. The AC casino bus programs can bring in money if properly managed. The casinos, including Harrahs, still underwrite these to a large level. but mostly in the off season. They are equivalent to the T and Q fares, ie they fill otherwise empty seats distributing fixed costs while occurring few if any variable costsie mainly the slot machines.
MisterNice
Dec 30, 2002 | 8:04 pm
#15
Ambassador: World of Hyatt
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On the Road
You bring up a great point here.
Also one that has been brought up by some leading industry experts at Cornell University this summer in the PDP program as well as the big marketing conferences worldwide
Frequency users of all brands are still vastly important to the bottom line at all companies.
I believe you are most correct that more and more attention will be paid to the most profitable customers as companies more then ever try to appeal to this very important group.
Happy New Year to all !
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AA & Starwood,Marriott Platinum
Hyatt, Hilton Diamond
Swissotel Club Gold
U/A 1k
[This message has been edited by 777 global mile hound (edited 12-30-2002).]
You bring up a great point here.
Also one that has been brought up by some leading industry experts at Cornell University this summer in the PDP program as well as the big marketing conferences worldwide
Frequency users of all brands are still vastly important to the bottom line at all companies.
I believe you are most correct that more and more attention will be paid to the most profitable customers as companies more then ever try to appeal to this very important group.
Happy New Year to all !
------------------
AA & Starwood,Marriott Platinum
Hyatt, Hilton Diamond
Swissotel Club Gold
U/A 1k
[This message has been edited by 777 global mile hound (edited 12-30-2002).]