Multi-Unit Franchisee Magazine Issue II, 2013 | Page 76
CustomersCount BY JACK MACKEY
Profiting from the
Service-Profit Chain
Rewarding its most loyal customers propels
Harrah’s to the top of its class
I
attend a lot of franchise conferences
in Las Vegas. When you look around
there, gambling seems to a very profitable business, right? But you also look
around and see a ton of competition. And
no matter where you play, it is basically
the same games. By that description, the
casino business is a commodity business.
Same games, lots of choices.
What is really the difference between
one casino and another?
Let me tell you a story about the unlikely little company that has become one
of the world’s most distinguished casino
operators. The company started as Harrah’s
in Reno, Nevada. Over time, Harrah’s was
acquired by Holiday Inn and built casinos
all around the U.S., including Harrah’s
Las Vegas. As the new luxury casino resorts were built between 2000 and 2010,
Harrah’s properties did not compare well
on style and class and resort amenities.
For example, the Harrah’s in Las Vegas cost $315 million to build. But then
down the street and across the block, the
Bellagio opened—at five times the cost
($1.6 billion). Not long after that Wynn
Resorts was built for $2.7 billion. Word on
the street in Las Vegas was that the Wynn
was the kind of place God would have
built—if He had the money. No expense
was spared. Harrah’s could not compete
on that basis.
Times were tough when Harrah’s hired
Gary Loveman, a Harvard Business School
professor, to figure out some way to entice
Las Vegas visitors to come to Harrah’s to
play the same games they could play at the
Bellagio, even though Harrah’s was just
not nearly as cool a place. Loveman told
me, “My chef’s names are Bob and Joe, not
Wolfgang.” Harrah’s didn’t have opulent
swimming pools or Céline Dion and Elton John performing. So customers would
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Multi-Unit Franchisee Is s ue II, 2013
have to go to Harrah’s for other reasons.
And those reasons would be all about service, they decided. Unfortunately, Harrah’s
service was nothing special or different,
either. Harrah’s knew that because they
collected a lot of data about the customers who visited them. The problem they
discovered was they had an absence of loyalty. Customers who gambled at Harrah’s
spent only 36 cents of their gambling dol-
Why give employees
bonuses for better
service? Because
better service would
be worth a ton of
incremental revenue
and profit—and
because it did not
require a huge
capital investment.
lar there. Where were customers spending
the other 64 cents? At the competition!
Harrah’s customers were giving nearly two
thirds of their business to the competition.
Harrah’s started scientifically measuring
the overall customer experience to figure
out the key drivers of customer loyalty.
They rewarded each property’s management and staff on how well they delivered
a loyalty-inspiring customer experience.
Why give employees bonuses for better
service? Because that better service would
be worth a ton of incremental revenue and
profit—and because it did not require a
huge capital investment to increase customer loyalty by creating a superior customer experience.
The basic idea is that behavior that gets
rewarded, gets repeated.
Harrah’s identified and ranked their
most profitable customers by creating a
customer loyalty program called Total
Rewards. Every dollar customers spent
on gambling, hotel rooms, dining, and
entertainment with Harrah’s translated
into points. And those points translated
into tiers in the Total Rewards Loyalty
Club. The highest tier is Diamond, then
Platinum, then Gold—and one Diamond
member is worth about 200 times as much
as a Gold Member.
Harrah’s made sure that their most
profitable customers always stood in the
shortest lines. Though every customer
could count on uncommonly friendly and
helpful employees, those who spent the
most at Harrah’s got tons of extra perks.
Besides short lines, VIP rewards included
free tickets to shows and restaurants, special
deals, even complimentary rooms.
Soon, Harrah’s had built the largest
customer loyalty program in the casino
industry. They had also improved their
customers’ experience every year, proven
by higher customer satisfaction and loyalty
scores. In 2006, Harrah’s acquired Caesars
Palace based on a brilliant premise: with
Caesars’ superior resort amenities and
brand name, the smartest way to merge
was to name the combined company Caesars Entertainment, but to have Loveman
and his leadership at Harrah’s actually lead
the business.
And that’s the story of how a little
company named Harrah’s grew to become
known as Caesars Entertainment, and has
come to be the industry leader in the casino business and one of the most admired
companies on the Fortune 500.
T learn what transformed Harrah’s from
o
also-ran to industry leader, I recommend
you read Putting the Service-Profit Chain
to Work, co-authored by Gary Loveman.
You can get a copy at http://pagesetup.
com/images/content/hbr-article.pdf.
SMG Vice President Jack
Mackey helps multi-unit operators improve customer loyalty and drive growth. Contact
him at 816-448-4556 or
[email protected].