Headquarters Las Vegas
Core Business Gambling, entertainment
Financials 1999 revenues: $3 billion
Why Harrah’s had a winning hand Harrah’s broke the mold of a conservative industry when it decided to invest in technology instead of more fantasy and glitz. Its bet has paid off big time, with a groundbreaking, coast-to-coast network and integrated customer database that has helped it boost revenue growth by multiples more than that of its flashier competitors.
Las Vegas is all about illusion. You put your money down, and the Strip promises a trip to a fantasyland that replaces reality with dazzle. That’s just as true for the business side of things, and Harrah’s Entertainment is the best example. nConsider the following. Every 15 minutes tourists mob the bubbling volcano outside of MGM’s $750 million Mirage hotel, and after, a few of them might even go into its casino to spend a couple of hours and a few thousand dollars. In comparison, on the other side of the street, the diminutive Harrah’s hotel and casino looks lost and forlorn.
The reality? In 1999, Harrah’s posted revenues from its nationwide business of $3 billion against just $1.6 billion two years earlier, and same-store sales grew 14 percent above the $242 million of 1998 —two to three times the growth of its competitors.
The difference is that most companies put money into the spectacle. Of the newest hotels on the Strip, Las Vegas Sands’s Venetian Hotel cost $3 billion to build and MGM’s Bellagio came in at $1.8 billion. Harrah’s, on the other hand, chose to put most of its money into the winner’s information network (WINet), the industry’s first national customer database.
Now Harrah’s can boast of having the only integrated, coast-to-coast system that allows real-time communication between all of its properties; it can inform a site in Nevada exactly how a visitor from New Jersey likes to gamble, eat and spend. It’s the key to Harrah’s Total Rewards program, a groundbreaking CRM strategy. “They changed their relationship with their customers, set themselves apart in their industry and created enterprise value,” says Gregor Bailar, CIO and senior vice president of the National Association of Securities Dealers, and a 2001 Enterprise Value Awards judge.
Bigger Risks Bring Greater Rewards
It has been a complete break with tradition. The prevailing wisdom in the industry is that it’s the property’s attractiveness that drives customers to one site or another, says Gary Loveman, Harrah’s COO—a view that has propelled the spending of ever-greater amounts on evermore lavish hotels and casinos to keep customers coming through their revolving glass doors and parked at their slot machines.
“That [belief] drove the $2 billion investment at the Bellagio,” Loveman says. “Our approach is different. We stimulate demand by knowing our customers.”
Before the development of WINet, Harrah’s was just like any other casino company. It operated under the assumption that its customers were partial to one particular casino, and its casinos around the country each operated independently and competed with one another. Each had its own player card that was valid only at the casino that issued it, and none of the information systems at these individual sites were integrated with those at other casinos or could even communicate with them.
Harrah’s CEO Phil Satre recognized back in 1988 that this might not be the way to go in the future. By doing market research and conducting a few satisfaction surveys, he found that customers did indeed patronize different Harrah’s sites around the country, rather than just staying loyal to one. That led him and John Boushy, Harrah’s senior vice president of brand operations and information technology, to muse on the possibility of extending its card player program so that customers could use their cards at any Harrah’s casino.
They realized that would allow the company to track particular customers—and, more important, the way they used Harrah’s facilities—on a national basis. Knowing when a customer last visited Harrah’s, for example, and which property and restaurant was visited, what games were played and how much was spent would enable the company to improve its service, customize the kinds of comps (free dinners, show tickets and hotel rooms) it offered, and better tailor its marketing promotions. All of that would help tie customers closer to the Harrah’s brand and increase the company’s share of the U.S. gaming market.
It was, in retrospect, a brilliant idea, but more pressing matters intervened at the time to push it onto the back burner. Gambling on riverboats and Indian reservations was legalized in the early 1990s, and the business entered a period of rapid expansion. What historically had been a business concentrated in Nevada and New Jersey’s Atlantic City began to flourish all over the country. Harrah’s moved to take advantage, tripling its casinos to 12 by 1997.
Committing to build a single nationwide database back then, which would have involved standardizing all of the company’s disparate IT systems, was too enormous a project at a time when the technology for doing it wasn’t mature, and while the company was preoccupied with building new properties, Satre says.
By the mid-1990s, however, expansion started to slow down and Harrah’s growth stagnated. While his competitors continued to pour money into evermore extravagant casinos to drum up new business, Satre once again picked up on the idea of a national approach to Harrah’s business.
“We decided that we needed to be able to create marketing programs that would allow us to compete without continuing to pour additional capital into our properties,” he says. “We realized our core competency was in the relationships we create with our customers, and we wanted to expand that competency using automated tools.”
But first, Harrah’s had to find a way to consolidate all of those far-flung and isolated IT systems, so that all of the company’s properties could communicate with each other and share information about customers.
Betting Against the House
It was no simple task. Boushy first began conceptualizing WINet’s functionality and architecture in 1993, and he and his team began building it in 1994. But the success of the project hinged on a redesign of the company’s IT infrastructure, which seemed at first an impossible demand. They had to make Harrah’s AS400 transactional systems that supported customer activity in the hotel, casino and event reservations areas at each property communicate with a Unix-based national customer database, called the Patron Database, which would be developed and would contain all of the company’s customer information.
IBM and AT&T, Harrah’s hardware vendors, told Boushy he would never be able to do that because the mainframes were incompatible with the Unix systems. Boushy and his team eventually proved them wrong by using middleware and software developed in-house, though that didn’t always seem to be the biggest obstacle.
“There were times during this project when the single greatest challenge we faced was convincing the IT people we could do this,” Boushy says.
He came up with some creative ways to try to motivate his team. In mid-1996, technical difficulties, a lack of enterprisewide standards and an underestimation of the whole project’s scope had thrown it off track. So Boushy committed to letting his then short hair grow until WINet was up and running, as a way to show confidence in the team. A month later, a software bug decimated the entire database, which Boushy and his team had to rebuild from scratch.
Boushy’s hair was a Samsonlike shoulder length by the time the Patron Database portion of WINet was running in February 1997.
But the pain was worth it. Once WINet was up, Harrah’s could finally share information across its properties, in real-time, for the first time in its history. If a customer who had just been gambling in Joliet, Ill., hopped a plane to try his luck at the Harrah’s casino in Reno, the employees there would know exactly what the customer did in Joliet and what services to provide.
The company’s 35,000 slot machines now also connect to the AS400 systems, and call-center reps are linked to both the AS400’s and the Unix Patron Database. The AS400s communicate with the Patron Database through a Unix gateway. Analysts in the marketing department use Cognos’ Impromptu query tool to access the data warehouse and use SAS software to do predictive modeling.
That real-time access is key to enabling Harrah’s Total Rewards program. A customer who receives a promotion in the mail will call Harrah’s to inquire about it, and as soon as the customer service agent gets on the phone, a slew of information identifying the customer pops up on the agent’s computer screen. It indicates the tier (platinum, gold or diamond) the customer falls into, where he usually plays, how much he’s won or lost, and even what he might be worth.
The agent then asks the customer where he wants to make a reservation and for what dates, and at the same time can bring up Harrah’s reservation system to see if a room is available. The agent asks if the customer is responding to an offer, which he doesn’t even have to have in his hand at the time, as the Patron Database contains information on what offers have been sent to him. The reservation system then automatically searches the Patron Database to see if the customer has already received or redeemed the offer and if it is still valid.
It’s this system’s ability to drill into Harrah’s extensive database, which in turn allows the company to customize its marketing and promotions to individual customers—particularly those at the lower end of the scale—that impresses industry observers.
“It has been able to retain those lower-end players by calling them up to ask them about their trips,” says William Schmitt, executive director at the Canadian Imperial Bank of Commerce. “Retaining a customer is one-tenth the cost of getting a new customer.”
Talk time has been reduced by an average of 12 seconds per phone call, according to Boushy, because employees no longer have to ask for information that other employees have previously asked for and they don’t have to rekey that information.
However, the CRM strategy wasn’t complete simply with the deployment of WINet. Harrah’s also had to radically change its relationship with its regional properties, which proved to be yet another painful process.
Before the Total Rewards program was rolled out in 1997, each of Harrah’s properties basically operated as a separate fiefdom. According to Satre, this developed during the course of the early ’90s expansion and is still common among Harrah’s competitors today. Regional Harrah’s managers, with turf to guard, were possessive of their markets, customers and data and had little but their own operation’s bottom line on their minds.
For Total Rewards to work, Satre says, they had to realize they were part of a broader system. “They needed to understand that what they did to support the over-arching goals of the corporation would also help their individual operations,” he says.
Calling the Hand
Regional property managers were worried that promoting certain destinations to customers in those regions would draw business away from their properties, says Richard Mirman, Harrah’s senior vice president of marketing. But, he says, Harrah’s executives challenged that premise and instead promoted the idea of the value of increasing cross-market visits.
The company eventually sold the regional properties on this new strategy. It argued that extending the benefits guests received for patronizing the casino in Joliet so that they could also use them at a casino in another region was important to customers. Satre was convinced of that based on the evidence his own satisfaction surveys had provided.
The corporate office also managed to convince the regional property managers that the IT capabilities and marketing tools it was developing would boost their businesses. For example, Harrah’s developed a national promotion called “Millionaire Maker,” which ties regional properties to select “destination” properties through a slot machine contest held at all of Harrah’s sites. Satre makes a personal invitation to the company’s most loyal customers to participate, and winners of the regional tournaments then fly out to a destination property, such as Lake Tahoe, to participate in the finals.
“Each one of these contests is independently a valuable promotion and profitable event for each property,” says Satre. “These kinds of events link all of our brands and all of our properties together. We couldn’t do this as efficiently and as effectively without information technology, and without having changed people’s attitudes about their property, customers and employees.”
None of that would matter, of course, unless it delivered on the bottom line. And that is what most impresses hard-nosed market watchers such as Marc Falcone, vice president of gaming and leisure for Bear Stearns in New York City, who says it highlights the ultimate success of Harrah’s attempt to leverage IT.
Since Total Rewards began, Harrah’s has saved $20 million a year in overall costs, while increasing same-store sales growth. At the same time, the number of Harrah’s customers playing at more than one of Harrah’s properties has rocketed by 72 percent, and cross-market revenues have consequently zoomed from $113 million to $250 million.
Some $50 million of the company’s 1999 profit of $594 million are directly attributable to an increase in revenues from cross-market visits. And more casino players today carry Harrah’s player cards than any other card in the industry, by a factor of two-to-one, according to Harrah’s own research. It’s making the rest of the industry take notice.
“Total Rewards has forced other [industry] players to take a closer look at their operations, and at how they can increase their customer base,” says Falcone.
Better yet, says Schmitt, people are not only looking at but are starting to copy Harrah’s methods.
“Station Casino [a local casino operator in Las Vegas] has done the same thing as Total Rewards with its player card, [which it calls] the boarding pass,” says Schmitt. “Park Place [Entertainment] is also looking to implement a national player card, as is MGM and Mandalay Bay [Resort and Casino].”
Faced with that emerging competition, Harrah’s is looking to cement the lead its investments have brought it by patenting the technology it created to allow its mainframes to talk to the Unix boxes. As Boushy puts it, if Harrah’s protects its innovations now that gives it an advantage in the future, whether it decides to use those innovations offensively or defensively.
In a cutthroat industry where every little bit of muscle counts, Harrah’s is betting that IT will be its edge.