Andrew Klebanow, principal at Klebanow Consulting, looks at how the pandemic has affected US casinos’ approach to marketing, including driving a shift towards digital communications, and discusses how Covid-19 has marked a move towards pursuing quality over quantity in terms of customers.
US casino operators have long been aggressive marketers. Prior to the pandemic, marketing and advertising expenditures as a percent of gaming revenue often consumed well over 20 percent of gaming revenue. Since the last recession, operators employed a variety of tactics to keep their properties busy during traditionally slow periods while adhering to the mantra of “peak the peak” during weekend and holiday periods. Casino marketing professionals were expected to drive bodies into the casino using whatever legitimate means possible, including headliner entertainment, food discounts, gaming coupons, and promotional drawings.
Marketers built complex promotional schedules that targeted different player segments during different day-parts. Seniors were targeted during early midweek periods with food discounts and free play offers. Lower tier customers were enticed to visit with “play and get” offers, hot seat promotions, and point multipliers. Mid-level customers received free midweek lodging offers. Higher-tier players received free rooms on weekends. Sundays often culminated with a drawing for a car or other large prize. The primary form of communication was through the mail system. While some operators migrated to e-mail and mobile apps, the majority continued to rely on the postal service to reach their customers. They held the belief that their customers preferred printed offers over electronic communications.
Like casinos across the globe, casinos in the US were forced to close in March 2020. Since US casinos are regulated by state and tribal governments, they re-opened at different times. In early May, tribal casinos began to open in Washington, Arizona and other western states. Commercial casinos, regulated by state governments, began to open shortly thereafter with the majority opening in June. New York State’s commercial casinos did not open until September while virus flareups caused others to close periodically. When casinos re-opened, operators had to reconfigure their gaming floors, shut down machines, limit occupancy, reduce restaurant capacity, and close entertainment venues, spas, and other non-essential businesses that put the health and safety of their customers and employees at risk. Face masks, temperature checks, and employees in bright t-shirts emblazoned with the words, “clean team” combined to create what could best be called hygiene theatre, giving customers a sense of safety and security. For some customers, no amount of cleaning would overcome their trepidation of entering a closed environment during a pandemic. For others, visits to casinos represented a sense of normalcy.
Operators faced a number of challenges, not the least of which was how to remain profitable with drastically reduced gaming capacity. Traditional marketing practices that were designed to fill casinos with bodies of varying degrees of monetary value had to be abandoned. The pandemic forced operators to be more selective, primarily targeting loyal customers of higher worth. The days of mailing out thousands of flyers with five dollar free play coupons to lower tiers of the database had come to an end, at least temporarily.
The reduction in operating expenses compounded with a more selective process in direct marketing had a very positive impact on casino profitability. While gross property revenues declined, for many casinos net profitability increased, often dramatically. Operators realised that they did not need to fill their casinos with bodies in order to be profitable. They did not need expensive headliner entertainment, unprofitable buffets, or drawings. Rather, by adopting the Pareto Principle, often called the 80/20 rule. and focusing solely on the top 20 percent of their databases (and often the top 10 percent) casinos were able to drive wagering volume with dramatically reduced marketing expense.
As of 30 March 2021, 53.4 million Americans, or 16 percent of the population, had been fully vaccinated against COVID-19. With a growing sense of confidence, Americans have been venturing out in increasing numbers. Las Vegas, the beach cities of Florida, and other vacation destinations have recently witnessed dramatically increased levels of visitation. While health experts believe this return to normalcy is premature, Americans have grown weary of staying at home, and many are eager to return to casinos.
The question that many casino operators have asked is how quickly should they increase gaming capacity, re-open shuttered restaurants and showrooms, and turn up the volume of marketing offers? Up until now, they have enjoyed dramatically improved operating margins, and higher levels of cash flow. They did so by eliminating non-essential operations, reducing marketing expense, and focusing on attracting customers who spend the most. Will their marketing behaviour change or will have they learned nothing from the pandemic?
One marketing tactic that may change is the reliance on postal mail and a shift to electronic communications. MGM Resorts has moved to digital communications to reach their customers. Other companies, such as Station Casinos, continue to rely on the mail as a primary communications platform. It remains to be seen which tactic other operators adopt.
With some exceptions, operators have been reluctant to turn up the advertising volume and fill their promotional calendars with layers of offers. They have learned that marketing discipline can improve bottom line performance. The question is, can they restrain themselves from returning to pre-pandemic tactics. As limits on capacity are lifted, restaurants re-open, and other noncore operations return, there may be a temptation to return to pre-pandemic marketing plans. To date, operators have shown restraint but there is nothing more disruptive to a gaming market than the irrational behaviour of one casino operator determined to increase market share at any cost. The mailing of a four colour brochure with the five dollar free play offer and buffet coupon by one casino may be all that is needed to cause other casinos to react, and the lessons learned over the last year would have been for naught.