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475 Hill Street, Suite G
Reno, NV 89501
Phone: (775) 329-7864
Fax: (775) 329-4947
[email protected]
www.ravingconsulting.com
How to kick ROI’s butt
Part 1: Evolving from cost center to profit center
By Nicole Barker and Toby O’Brien, Special to Indian Country
Today
First Published Oct 19, 2010 in Indian Country Today
http://www.indiancountrytoday.com/archive/How-to-kick-ROIs-butt105261428.html
Marketing is like the boxing match of profitability; you
bob and weave between spending money to make
money and cutting costs to improve the bottom line.
Round by round you try to adjust your strategy. At one
moment, you move quickly, innovate and dazzle, the
next, you economize and strive to become more
efficient. The championship goes to the marketer who
earns the most money without infuriating his
customers.
No prizefight is won without its challenges. There is a
reason why boxers enter the ring with exaggerated fanfare. Perception is half the battle. As a
marketer, do you enter meetings with a wish list for spending? Does the CFO groan when he is
asked for yet another off-budget promotion to counter competitive forces? If there ever was a
time for a “Rocky” soundtrack when a marketer sits down to plan the future, it is now.
First off, marketers in many organizations have an antiquated image problem. Many think
marketing is the department that spends the casino’s hard-earned money. Those days are long
gone. Marketing is now the department that is responsible for driving revenue. It’s time to
transform marketing from a cost center to a profit center.
Making sense of ROI (Return on Investment) and making it work for marketers is part of the
answer. ROI is merely the start of a longer set of strategic questions. A marketer must ask
herself: Are we spending marketing dollars in the most profitable ways? Are we investing in the
right customers? Are we getting back what we should based on what we spend?
But is ROI alone the answer? No!
Does ROI solve problems? No!
In order to drive revenue do we need to TKO ROI ASAP? Yes!
Well, then, let’s kick its butt!
ROI is a number. It’s a gauge to see if one effort, program or project is worth pursuing versus
another. If you take your total revenue (the expected return on the event/promotion), subtract
your expenses (all costs of the event/promotion), divide by the expenses, and multiply by 100,
you get the ROI percentage.
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ROI = [(Total Revenue – Expenses)/Expenses] X 100
But what does a percentage mean? A percentage needs a relevant point of reference that
reflects a similar time period or activity. A percentage usually is held against an expected result
to gauge whether too much or too little was spent to realize a predetermined outcome.
Otherwise, a percentage like ROI is still just a shot in the dark.
ROI is a measurement used to track results, but it’s often used as a weapon by the executive
management team. … one that can freeze and cripple marketing processes instead of enabling
and empowering decisions that improve business outcomes. We need to put ROI in its place
because, in most cases, it’s just a buzz word. Fortunately, as a marketer, you can turn this buzz
word into a tool to build credibility within your organization.
How do marketers gain footage within their organizations?
First, you have to make “nicey-nice” with the CFO: You speak the language of finance, you
connect short and long term benefits to each expenditure, and you contextualize each effort
within a larger strategic vision. Though you may not be able to conjure up a direct tie-in for
every effort to GGR (Gross Gaming Revenue), you can show how investments usher players
into and along the relationship cycle.
In essence, you recast your marketing department from a cost center to a profit center. The
secret is to stop running from financial conversations: Own them.
Here’s how to position yourself effectively within a financial conversation. Make time to know the
big picture of where your property sits in the world. What is the overall property strategy? Know
the competitive market. Understand your role and how to cooperate and interact with your
colleagues and other managers. And if you have true leadership grit, consider staking a portion
of your salary on the overall success of the property.
Revealing the fallacies of ROI
ROI can’t stand alone. You have to put it in context of other opportunities and ways to make
money. You have to qualify it against your objectives. Perhaps a smaller ROI is okay if you are
trying to accomplish a goal associated with your core strategies.
For example, if you want to spend less on direct mail with your younger players, but want to
begin to court their interests, you may want to spend resources on building a Facebook page.
You will measure that activity by the attendance at the upcoming event (i.e., concert) and
number of online friends your page draws. Increased play on your gaming floor may or may not
happen. Your ROI may not be measured in dollars, but in the balloon of attention you receive
from your targeted group within your community. What’s key here is putting ROI expectations in
perspective before the event. Though ROI may not be the quantitative measure for every event,
there are other means to measure and compare results.
ROI is not the same as incremental revenue.
In many cases, incremental revenue is more interesting. Did your chosen promotion or direct
mail coupon move the needle? Testing similar periods of time when you don’t have a promotion,
or using a control group to whom you didn’t send a coupon, will tell you whether your efforts
made a difference. ROI is a point in time that may not give you the whole picture.
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The danger of ROI is that many events on the same day or multiple departments may lay claim
to the same returns. Be mindful about double and triple counting the same revenue. You may
be over-buying your customer. More often than not, it’s very hard to isolate ROI to one reason a
player played on a particular day.
ROI is great for big picture management decisions, but perhaps incremental revenue and
comparative analytics of like events are more prudent when assessing one program or another.
False promises save money, but burn players
We all do it. We mess with Free Play and points programs like they were Monopoly money. We
try to boost ROI by using invisible tools, only to have the hidden costs cause damage to our
frontal lobe once their impact hits the books.
As marketers fight for profitability and the bottom line, so too do they need to champion their
players. Players do not respond well to massive marketing renovation. Part of flying like a
butterfly and stinging like a bee is in the footwork. … a step-by-step approach to change reigns
over erratic maneuvers. Strive for marketing finesse over dramatic shifts in marketing strategy.
Want to read about a point program horror story? This is a tell-tale example of making dramatic
overnight changes to a rewards program with painful consequences. The intent was to urge
players to make use of the points program. The intent was also to get the points expense off the
books quickly. ROI was staked on influencing players to earn and burn quickly.
In this woeful tale, a player earned points based upon her average play over the previous six
months. She was awarded her balance to spend each month and had 30 days to spend it
before it spontaneously combusted. This top player feverishly blew her points at the gift shop to
make use of them before they expired. Revenue for the gift shop skyrocketed. Multiple players
in the same position went home with a set of golf clubs each month. All went well, right? In this
example success should not be measured by short-term gains in ROI. The true yardstick for
success should have been whether individual play patterns changed. Common sense asks the
long-term question of impact versus the short term measure of ROI. Common sense asks: How
long can a player be motivated by another set of golf clubs?
Feverish point spending, table patrons blowing direct marketing coupons at the slot machines
when they’d rather be playing Blackjack, or alternately, the massive accumulation of point
balances, all deteriorate loyalty. Marketers relapse into cost centers when expensive incentives
miss their mark.
In order to avoid missteps made in the attempt to raise ROI, one has to recognize the difference
between breakage and expiration.
Breakage is when a gift disappears because it isn’t redeemed. Conversely, expiration is when a
gift is taken away because it isn’t used in a timely manner. One is a false gift. One motivates
behavior. When you pencil out your budget, plan for complete redemption. Profitability should
not be based upon breakage. All rewards should be relevant and used. All players should have
something to aspire to. The savvy marketer builds reward programs that recognize behaviors
we like and motivates players who reach for just a little more.
When it comes to the architecture of a tiered-card program or the math behind awarding and
expiring points, identify a set of player profiles that are achievable for three significant segments
of worth. The low-hanging fruit gives the modest player something to strive for that can be
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achieved quickly using low cost rewards that are sustainable. The next tier begins to grant
access to the finer amenities and is a visual reinforcement of status at the property. Players at
the top tier receive one-to-one communications and attention that is timely and proactive. Points
are the currency that rewards the frequency behind their play patterns.
ROI in this arena is not measured by dollars; it is measured by the health of our player pipeline.
Are you signing up enough players to counterbalance natural attrition? Do you have triggers in
place to identify players of significant value early on in the relationship to proactively court
loyalty? Are players progressing to higher levels of worth and demonstrating an attractive hang
time?
The first step in kicking ROI’s butt is not letting it control the decision-making process.
Understanding strategic goals, focusing on growing the value of your players, and building
programs that steadily improve acquisition, retention and growth outcomes are critical. ROI will
help us measure our results, but it should not dictate individual projects or ongoing programs.
Check out “How to Kick ROI’s Butt,” Part 2, in a future ICT Insider: Business, where we’ll share
ROI Busters – what NOT to do if you want to improve your return on investment.
Toby and Nicole have worked as a team at casinos all over the country with Raving’s “Marketing
Reinvestment Program." The goal of the program is to make sure your casino’s database will
GROW, your active players will STAY ACTIVE, your marketing efforts will be EFFECTIVE, and
your revenue will INCREASE.
For more information on having the fabulous duo come to your casino or to chat about any of
your gaming needs, please contact Amy Hergenrother, VP of Business Development, Raving
Consulting Company, 775-329-7864, [email protected].
Toby O’Brien, vice president of marketing and client services for Raving
Consulting Company since 2001, provides marketing expertise, mentoring
and training to Native American, commercial and government casinos.
Contact her at [email protected] or visit Raving’s website at
www.ravingconsulting.com to learn more about Raving services and training
programs.
Nicole Barker, is president of Barker Enterprises, Inc. In partnership with
Raving Consulting Company, she works with casinos across the country and
specializes in conducting database marketing assessments to maximize
marketing returns through segmentation and programming. She’s also a
sought-after speaker, trainer and writer whose main goal is to foster better
relationships between companies and their customers.
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