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Designing Tiered Reward Programs for Asian Markets
by Andrew Klebanow

Tiered reward programs have long been used in US casinos to recognize and reward the most avid and profitable player segments. As competition increases in Asia and players begin to accept having their gaming activity tracked, tiered reward programs are being introduced in many Asian casinos with increased regularity, albeit with varying degrees of success.

Like any new marketing initiative, designing and implementing a tiered reward program requires realistic objectives, followed by sound strategies and tactics. Also, strategies that have been employed in say, US markets may not be salient to Asian gamers. Furthermore, Asian markets are themselves not homogeneous. Strategies that may work in Singapore may not be relevant in Macau. Therefore, it is incumbent on the casino operator to identify the needs of their market before designing and implementing a tiered reward program.

At the outset it must be stated that when discussing a tiered reward program, the casino operator must remove from the equation players brought in by third party agents. Basic reward programs are designed to serve the mass market segment and tiered reward programs are designed to identify and serve the more avid players within the mass market segment.
Why Have a Tiered Rewards Program?
The first question that any casino operator must ask is, why have a tiered reward program, particularly if only a small percentage of customers participate in a casino’s base reward program? There are in fact a number of reasons. The first is that a tiered reward program can increase overall carded/tracked gaming volume and solidify loyalty among the casino’s best players.

The more important reason is that all casinos operate under the Pareto Principle or more commonly, the 80/20 rule. The Pareto Principle states that, for many events, roughly 80% of the effects come from 20% of the causes. In business, this rule means that 80% of sales are derived from 20% of the customers. A cursory examination of virtually any casino database reveals that this principle holds true in gaming also. If one were to examine just the revenue derived from mass market players, the Pareto Principle would again hold true: 80% of mass market gaming revenue is derived from 20% of mass market players.

With so much revenue being generated from a relatively small portion of players, the loss of just a few such customers to a competitor could have a profound impact on revenues. As such, it behooves the astute casino operator to focus on this player segment and take steps to foster loyalty among those players and encourage repeat visitation. It is for this fundamental reason that every casino should focus particular attention on its most important customers.
Understand Your Market
Gaming markets are heterogeneous. Those gamers who play in Macao are dramatically different from those that play in Malaysia. Their visitation patterns, attitudes towards card usage and even the games they play can vary dramatically. The key to developing a successful tiered reward program is to first understand ones’ customers, what motivates them, and what perks entice them to return.
The Key to a Successful Programs
While tiered reward programs differ from market to market, the most successful ones have two common characteristics: they are aspirational and attainable. A tiered reward program that is aspirational basically means that the suite of benefits that are accorded to those attaining premium tier status are of such importance that players aspire to attain them. Players may see the entrance to a private players lounge and aspire to have access to it. They may be forced to stand on line, waiting to get into a restaurant, see others flash their card and be seated immediately and aspire to be accorded that same courtesy. A successful tiered reward program is able to tangibilize premium tier benefits in a way that players can see.

An aspirational reward program is particularly important in those cultures in which the display of wealth and status are important. Players who embrace luxury brands and the display of wealth would naturally find a reward program where higher tier players are afforded symbols of status very appealing. These would include private player lounges near the gaming pits, separate dining areas, and separate areas for hotel check-in and chip cashing.

A tiered reward program must also be attainable. An avid player with a basic rewards card must be able to attain membership into the first premium tier by allocating his entire gaming budget to his preferred casino instead of spreading it among other casinos and increasing his spend per visit by a modest amount. A player who has achieved that first level must be able to see the next level and believe that he/she can attain entry if they play a bit more. This may require the casino to develop three or four levels, with benefits increasing as one moves up the ladder. Regardless, it is imperative that players believe that they can rise to the next level and attain the status and benefits that come with that attainment.
Price versus Differentiation
Another critical factor to the success of a tiered rewards program is to identify the appropriate business strategy. Tiered reward programs can adopt a pricing strategy or a differentiation strategy. A casino that lacks a hotel, fine dining and space for a premium players lounge would have to resort to a pricing strategy in order to reward premium tiers. Players who achieve premium tier status would be rewarded with bonus point multipliers, free play and generous offers that enhance the value of their gaming experience. The casino would essentially be reducing the price of the gaming experience in exchange for a customer’s loyalty.

A casino that possesses a wealth of amenities and whose property is clearly differentiated does not have to resort to a pricing strategy. Rather, it can offer access to those amenities to its premium tier players. Higher tier customers can enjoy access to the players’ lounge, premium gaming pit, and exclusive dining room and enjoy the prestige associated with premium tier status.
The Most Common Mistakes
The single greatest mistake that the casino operator can make is to model a tiered reward program after its competition. The fundamental flaw in this strategy is that it assumes that the competition is smarter and that the competition committed thought and research in the development of their reward program. In fact, the vast majority of tiered reward programs that are in use today are based on those that managers had used in other markets. By copying the competition, the gaming operator is usually repeating the same mistakes made by others.

Each market is different and each property is different. Therefore, it is incumbent that each tiered reward program match both the market and the property. The best tiered reward programs are those that match the property to the needs of the market with a suite of benefits that appeal to the top 20% of its customers.

Date Posted: 27-Jun-2010

Andrew Klebanow is Principal of Gaming Market Advisors.
He can be reached by calling (702) 547-2225 or email
andrew@gamingmarketadvisors.com

 
 
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