Harrah’s Entertainment

In 1998, Harrah was in the verge of bankruptcy. And was struggling in almost all of its
major markets. In Los Vegas, the company’s $ 300 mn refurbishment was competing
against $ 1.6 b Bellagio. In New Orleans, the company’s bankrupt property was
struggling with regulations prohibiting casinos. In Atlantic City, the company’s
properties were run down and the whole gaming industry was facing serious downsizing.
The company’s share price performed very poorly. Quarterly earnings estimates were
missed for several years.

Today, the company is the world’s largest gaming entertainment services company with a
2005 revenue of more than $ 7 b and has a footprint in the United States that is
unmatched by its competitors, has an extraordinarily powerful and valuable data base
with detailed and pertinent information about 40 mn gamblers, against an estimated 50
mn gamblers in US. The company’s profits have skyrocketed, its productivity has
increased dramatically and CEO Gary Loveman ahs been labeled as the best senior
executive in gaming industry for several years in a row by Institutional Investor
magazine.

Inspired and enabled by a data collection and management system dressed in the garb of
“loyalty program”, the company has developed a very scalable differentiation
capabilities. Harrahs may be the only company that awards cash bonus to every property
level employee, if customer satisfaction scores (which are regularly measured) improve.

Given the fact that Harrahs had limited access to capital resources over the past eight
years, it has been able to extract maximum from the existing asset pool. A comparison of
average cash earnings on assets .in the period 1997 – 2005 in the gaming industry is as
follows:

Company Average cash earning on assets

Ameristar 15.2%
Harrahs 17.9%
Station 16.6
Wynn -1.4
MGM Mirage 11.4

Harrah’s has consistently used information technology to improve employee productivity.

The company continues to outpace the industry in productivity. Following is the revenue
per employee comparison between Harrah’s and the US casino industry.

Year Harrah’s ($) US casino industry ($)

2000 83.2 66.2
2001 87.9 70.4
2002 97.6 75.5
2003 96.3 77.2
2004 97.6 82.8
 2005 108.1 85.4
Comparison of Return on Invested Capital (ROIC)

Year Harrah’s MGM Industry composite

1998 10.4% 7.4% 8.4%
1999 11.8% 11.7% 10.3%
2000 10.6% 9.6% 10.0%
2001 10.7% 6.6% 9.7%
2002 11.2% 7.2% 7.0%
2003 10.3% 7.2% 7.7%
2004 9.9% 8.1% 7.5%
2005 8.0% 7.0% 8.9%

Scalable Service Differentiation

By meticulously tracking customer transaction data via its Total Rewards loyalty
program, Harrah’s has developed a formidable data base of customer behavior patterns
that are linked to customer-provided demographic data. Given the cumulative size of the
database (it grows in size every minute) and Harrah’s footprint, it is unlikely that any
other casino company will ever approach the breadth and depth of casino player
understanding that Harrah’s has achieved.

Harrah’s not only thinks about the value of a customer in a single trip, but about her
lifetime value. The company has taken customer analytics to a new level and has
accelerated its application to a real-rime environment. The operational customer
relationship management system (OpCRM) tools and their corresponding rules enable a
differentiated customer service.

While many companies utilize analytical customer relationship management tools to

analyze their value and worth if their customers to design appropriate marketing
campaigns, they usually focus on the “after-the-fact” actions. Harrah’s use of operational
CRM goes beyond analytical CRM in that it enables real-time application of data-analytic
insights derived from traditional CRM capabilities.

The scalable service differentiation capabilities that Harrah’s utilizes to deliver its
services have helped it compete effectively with more capitalized competitors.
Fundamentally this advantage arises from switching costs. The primary enabler for
Harrsh’a ability to generate switching cost is its Total Rewards database – which contains
transaction history of customers.

By growing its customer understanding over a period of time, Harrah’s has created a
basis for scalable service differentiation strategy. Over time, its services are becoming
increasingly personalized for its 40 mn customers, which in turn generates switching
costs.
The relationship marketing and other business intelligence capabilities fulelled by Total
Rewards are constantly bringing us closer to our customers so we better understand
their preferences, and from that understanding we are able to improve entertainment
experiences we offer (Harrah’s Entertainment 2005 Annual Report)

We had to treat our guests extremely well when they were in our casino. And then we
had to use the information we gather about them to make them want to come back
(Loveman, 2005)

Using Total Rewards system, the company is able to calculate the theoretical value of
each customer based on factors such as wager amount, game played, time played and
othis basis customer tiers are created.

Future Plans.

The company now plans to collect non-gaming transaction data. This is driven largely by
the acquisition of Caesar’s Entertainment, which has a wider customer base other than
traditional gamers. Harrah’s is looking at table games as a huge opportunity. But in table
games, data capture had to be manual unlike in slot machines.

In order to address this, Harrah’s has chosen Intelligent Table System, which will have
three components: a Table Manager technology that allows for automatic data
management, Chip Manager technologies to capture exact amount played using RFID
technology and Card Manager technology, based on optical recognition, to track which
player has which cards.

Slot Service Dispatch System (SSDS)

Despite all advancements, the slot machines are not 100% autonomous. There are a
handful of events that may occur at the slot machines that may require the attention /
service of a casino staff. The Slot Service Dispatch System was designed to help
organize these requests in an orderly manner. The fundamental objective of the system
was to enable the employees to prioritize their best customers and offer them service on
priority. Another objective was to improve service quality, so that the random method of
handling service requests on ‘first seen, first serviced’ basis would be replaced by an
organized algorithm-based dispatch system. Upon resolution of the problem, the service
ambassador electronically informs the system and the information is archived. The
performance metrics are collected on regular basis.

(Extracted from Ph.D. Thesis of Vikram Mensharamani titled Scale and Differentiation in
Services: Use of Information Technology to manage customer experience in Harrah’s
Entertainment and other companies”, submitted to Alfred P. Sloan School of
Management, Feb. 2007)
(Write-up prepared by S. Ramanathan for class discussion)