It is a common rule of
thumb in business: “80%
of your sales come from
20% of your clients.”
Mathematically, the 80/20
Rule is roughly followed by
a power law distribution
(also known as a Pareto distribution)
for a particular set of parameters,
and many natural phenomena have been
shown empirically to exhibit such a distribution.
1 This article is going to look at the
impacts of a newer version of the 80/20 Rule
based on Net Slot Win and how executing
good Net Win marketing may be affecting
your slot floor hold.
The new version of an old rule
The Pareto principle or derivative forms have
been used for years in retail marketing. When
casino database marketing ramped up in the
early 1990s, this baseline measurement was
followed by more than a few successful
marketers. The rule was generally applied to
player win contributions in order to identify
the subgroup providing the highest value to
the marketer.
As casino marketing evolved, so have the
methods to incentivize patrons through various
reward programs. Remember when cash
was king? However, there was a significant
drawback to using cash as a casino incentive.
The problem with cash incentives in casinos
lies in the redemption process or more to the
point, the ability of players to exit the building
after receiving a cash incentive. The percentage
of patrons walking out with cash or
“walk-rate” was well documented and often
exceeded 20% or more.2 The cure for the
industry challenge of high walk-rates was the
evolution of technology in the form of “cashless
gaming.” Cashless gaming is also used
interchangeably with promotional credits, eplay
or free-play, depending on the jurisdiction
and for the balance of this article we will
use the term promotional credits.
Introducing promotional credits was
appealing to operators as a way to better target
incentivized players while reducing the
walk-rate of cash leaving the building. The
walk-rate reduction was a result of players
who received promotional credits being
obliged to play the credits back into the
games. A subsequent benefit was the promotional
credit process allowed casinos to track
individual patrons. The process and systems
used for the issuance of promotional credits
readily identified players who received these
types of promotional credit benefits. The
associated data then allowed for subsequent
evaluation of player behaviors to identify
those players who were taking advantage of
the casino by playing only their promotional
credits and not giving the casino “a shot” at
their gaming wallet.
Fast forward to 2014
Promotional credit expense often represents the
large majority of casino marketing incentives at
most properties. This is especially true at properties
with fewer amenities such as hotel rooms
or a multiple food and beverage outlets.
So how does all this tie-back to the 80/20
Rule and the 2014 reality that it is this rule
that exacts significant influence on a casino’s
slot hold? In recent times, there has been significant
momentum towards marketing based
on “Net Win.” This momentum is enabled by
the quality of data collection offered by
today’s slot systems. The instances are rare
when we do not know the precise player revenue
and redemptions of promotional credits.This heightened tracking allows for analytics
to determine which players are playing more
promotional credits back into the system than
they are taking.
While the outdated style of the original
80/20 Rule offers value, casinos can now use
a Net Win 80/20 process to see which
patrons are truly the most valuable. As
Figure 1 shows, based on research with our
clients around the county, there is a 12% or
more increase in accuracy when using Net
Win versus Gross Win as the 80/20 Rule calculation.
When property management can identify
the breaking line for the value of the fewest
patrons generating the lion share of Net
Win, 87% in the case of Figure 1, they
focus on using promotional credits towards
these high value patrons. The alternative in
this case is to wastefully spend promotional
credits on patrons who, based on their
history, are expected to generate less than
13% of Net Win. When we engage in discussions
of marketing program expenses
with property management teams, we are
consistently communicating that efficient
promotional coin expense is the key to
incremental profitability. In short, focus
the promotional credit spending on player
sets that generate the most expected value.
This effort typically involves raising the
thresholds of reinvestment segmentation.
For most operators, there is significant positive
bottom line impact of focusing promotional
credit program reinvestment
efforts in this manner.
Impact of raising reinvestment
threshold of promotional credits
As is shown broadly in Figure 2, and more
detailed in Figure 3, there is an obvious decline
in slot hold as patrons are higher in value.
The decline in hold is not solely due to
more promotional credits going to better
patrons; however, it is one of the primary
considerations, especially if your total gaming
revenue is 70% rated or more. That said,
this also shows that marketing and operations
need to be ever more in-sync with each
other. In the end, if we incentivize our best
players accurately, the aggregate floor hold
SHOULD come down.
By understanding marketing’s plans and
tactics about promotional coin reinvestment,
slot operations can work to offset the lowerhold percentages by increasing the quantity of
lower denomination (generally higher hold)
games to floor.
To wrap up: In a sophisticated marketing
program, cash walk-rate should not be a concern.
Historically the walk-rate was a red
mark because of the antiquated methods used
to deploy the credits and who was receiving
them. If you think about it, 90 dollars of every
100 in promotional credit turns into cashable
credit after the initial play cycle (assuming a
10% hold). Based on our experience, the
walk-rate is reduced not so much because the
promotional credit issuance, but because we
are better targeted in the distribution of the
promotional credit.
Lastly, we should never forget that our
bills are not paid by hold percentage; they
are paid with real dollars. The goal of any
promotional credit program should always
be to increase the expected amount of Net
Win generated by the slot floor. Keeping in
mind higher value players typically play
lower hold games, it is reasonable to project
our gaming floors can generate additional
revenues through increased
wallet/market share from high worth players,
even if the aggregate floor hold
decreases slightly. This is the measured
outcome of successful marketing to higher
quality patrons.
1 Newman, MEJ. “Power laws, Pareto
Distributions, and Zipf’s law,” pg. 11
2 Based on personal experience of author in position
as Director of Strategic Planning/Marketing
Analysis for casino in Atlantic City 1993-1998
Jay Sarno has 20+ years of experience in
the Hospitality and Gaming Industry. Jay
consults on casino marketing segmentation
programs, software product development and
technology solutions evaluations, selections and
implementations. Jay has implemented over
20 data warehouse systems and currently also
teaches courses in Hospitality Management for
Richard Stockton College of NJ. Jay can be
reached at JSA2002@comcast.net and welcomes
your comments and questions.