Harrah’s feedback frenzy
Gary Loveman, a onetime Harvard Business School professor and, improbably, the future CEO of Harrah’s in Las Vegas, stands in the lobby of his company’s Rio Hotel and gestures in the direction of the Palazzo Suites. Such opulence, he says, offers the kind of muted elegance that God might have designed. That is, if God’s tastes ran to 9,000-square-foot layouts, private Jacuzzis, towel warmers, remote-controlled drapes, and personal butlers. The suites were intended to lure billionaire baccarat players from Asia. But the marble floors are mostly empty now, rendered vacant in the current Darwinian world of Vegas economics. Harrah’s Entertainment has ceded pursuit of the highest of the high rollers to such wow-the-crowd hotels as Bellagio and the Venetian. High-end gambling “is a very sexy business,” concedes the 42-year-old Loveman. But with the major casinos competing for the same top-500 gamblers, baccarat became Harrah’s loss leader–too much loss and not enough lead–a glamorous stepsister to the lowly slot machines, Harrah’s true glass slipper.
In 1997, when Harrah’s bowed out of the trend toward faux Eiffel Towers, Cirque du Soleils, and erupting volcanoes, analysts questioned whether the company could continue as a long-term industry player. But Harrah’s had a plan, embraced by Loveman, then a consultant, to grow the company without expanding into saturated markets or concocting replicas of the Statue of Liberty.
So far, that plan seems to have worked. Through branding, cross-casino marketing, loyalty cards, and technology, Loveman and company have made Harrah’s Entertainment, the most diversified of the big four gaming companies, a model of effective customer feedback. In an industry accustomed to relying on intuition, Harrah’s has built a database of 25 million UFA customers that drills down through all its activities. Digital profiles are based not on observed behavior of what customers have spent but on analysis of what they are capable of spending. The technology includes built-in marketing interventions designed to close the gap between actual and potential spending. In this new world of computer-generated predictions, the customers are willing participants. Harrah’s may be the best example of this kind of ongoing feedback system that, Loveman contends, could be applied to theme parks, ski resorts, cruise lines, retailers, and subscription businesses such as AOL and satellite TV.
Loveman joined Harrah’s in 1998, when it already had invested in a $17 million computer system to harvest data from customers at all its casinos, a revolutionary concept in the gaming industry. With customers wielding “Total Rewards” loyalty cards, Harrah’s patented a tracking system to shadow them-syncing up name, sex, age, zip code, playing time, money won and lost, and a history of each gambler’s behavior at Harrah’s properties. Data gushed in from the slot machines, which require almost no labor and as a result are the most profitable part of the business. What Harrah’s lacked, and what Loveman could contribute, was analysis of that data and marketing to take advantage of it.
Loveman had taught a case study on Harrah’s to his students and had done some work for the company when he sent an unsolicited letter to CEO Philip Satre proposing ways to expand the business without incinerating capital.
A year after analysts questioned the company’s viability, Satre had been advised that he needed a marketing maven for COO. He settled on a choice so unconventional that he didn’t tell his board about it until it was a fait accompli. The choice surprised Loveman as much as anyone. He was then just a year away from tenure at Harvard and knew that his wife and kids wouldn’t want to leave the venerable culture of Massachusetts for the neon desert. But the professor was won over when Satre said he could commute from his home in Massachusetts. Concerned board members pointed out the obvious: That for all his academic credentials, Loveman completely lacked any experience that qualified him to manage 26 casinos, 15,000 hotel rooms, more than 100 restaurants, and 40,000 employees. Until then, Loveman had managed only one secretary and one research assistant. But years orchestrating discussions at the B-school, where his course was one of the most popular electives, had prepared him to make smart decisions on the fly.
Showing a guest around the Rio, one of two Harrah’s properties in Las Vegas, Loveman laughs as a parade of harlequin jugglers, stilt walkers, and mimes snakes through the crowded aisles. It’s as if he’s compensating for the solitude of his youth.
Loveman grew up in Indianapolis, Indiana, the child of older, frugal parents. His father was a factory worker, his mother a homemaker. His brother and sister were already out of the house by the time he started school. The family rarely went on vacations, or even to restaurants. Outings were limited to drives to relatives’ houses.
As a kid, Loveman was driven and competitive. He attended Bobby Knight’s basketball camp, where he could outshoot the other boys, not, he says, because he was a natural player but because he had practiced for hours in the rain, the dark, and the cold. When he wasn’t chosen for the camp’s all-star team, Loveman took up tennis. By the time he reached his senior year in high school, he was the top-ranked player in Indianapolis. On the public courts he met his wife, Kathy, a formidable athlete herself with 11 varsity letters.
He moved on to Wesleyan University, where the work for a kid from an average public school was “so hard, so voluminous” that it threatened to overwhelm him. But once he caught up with his peers, he surpassed most of them, graduating Phi Beta Kappa with honors. Similarly at MIT, his modest training in math proved insufficient for basic economics courses in his doctoral program. “They might just as well have been teaching it in Slavic,” Loveman says. “I was drowning.” With the help of a friend, he taught himself what he needed to know, eventually graduating with one of three prestigious Alfred P. Sloan Doctoral Dissertation Fellowships. Getting his Ph.D. from MIT, he says, “was the most intimidating thing I’ve ever done.”
That Loveman, Harrah’s COO and president, has an advanced degree in economics from MIT might seem superfluous in the business of gaming, but given the direction Harrah’s had taken, a background laden with statistics helps. However, the roots of his thinking were far from academic. When Loveman was 12, his father took him to “family night” at the Western Electric Plant in Indianapolis. He was shocked at the roar of the machinery and the oppressive and dehumanizing environment his father had worked in for 40 years. Much of his thinking about the business world, which he taught in his standing-room-only Service Management course at Harvard, was derived from that factory visit. Simply put, his message has been that great employees deliver great service, which makes money for a company.
The leap from Harvard to Harrah’s was clearly the road less traveled. But the fit has been right for Loveman. He went from an annual income of approximately $120,000 (not including consultancies) to more than $3 million last year in salary and options; from driving a Honda Accord to a silver Ferrari F-355 Spider; from flying commercial to corporate jets; and from off-the-rack suits to custom-made tailoring. Loveman and his family are building a large home in the same Massachusetts community he’s lived in for years.
Loveman clearly relishes his job. “I like the business,” he declares, “and I like gambling.” (He does seem to be a latecomer to the latter, however. Aside from a little dabbling at the tables while on holiday in Monaco, he’d never gambled until he was 32 and already working as a consultant for Harrah’s.) “I like the fact that customers enjoy what we sell. I like the hotels, restaurants, and the entertainment and complexity that comes with trying to deliver those services all the time. I like the mathematics–and the fact that at its base, gambling is a statistical activity.”
When Loveman signed on, Harrah’s was collecting 36% of its customers’ gaming dollars. With tiered Total Rewards cards and a Harrah’s property in nearly every gaming market in the U.S., the take has increased to 42% in four years. Second-quarter revenues for 2002 rose to $1 billion, up 17.9% from a year ago.
Late one night, Loveman sweeps by the line of visitors at the Rio reception desk, past posh rooms where Diamond customers are greeted by white-gloved receptionists. He moves into the sprawling, carpeted football field of slot machines. The system of Pavlovian marketing isn’t visible, except for one lit sign that reads “Bathrooms” and “Total Rewards.” In the world of Harrah’s, both are necessities.
Shortly after he became COO, Loveman told his managers they could pay more productive workers a higher wage. The “terrific employee” theory seems to be paying off. A Las Vegas driver dropping off someone at the Rio succinctly explained what’s going on: “They treat their people good,” he says. “Employees pass it on to the customers.”
Harrah’s accelerated effort to understand and appeal to its customers “can be pushed much further,” Loveman says, “as we improve our predictive and diagnostic capabilities, we become ever closer to customer preferences, and add more powerful inducements.”
Loveman’s latest move, engineered by CIO John Boushy, allows customers to put Harrah’s coupons directly into slot machines rather than having to go to a desk to exchange them for cash. This streamlined system, currently available only in Nevada, cuts down on labor costs while letting Harrah’s discover which customers respond to which pitches, enriching the database.
Pretty soon, Loveman and Co. will have taken the guesswork out of everything. Everything but the gambling, that is.