It might be ugly, but it’s true. At an average of 13 spins per minute, a $20 bill will be gone in less than five minutes for most people who play a slot machine. At most blackjack tables on the Strip, $20 gives you less than one minute of play to hit a 21.
Be it tables or the latest Pawn Stars™ slot machine, the price of gambling is so expensive and the returns so unsure that only a small percentage of the population does it regularly. When a two-hour movie costs less than $20 and a $3 app keeps you entertained for weeks, who can afford to gamble for upward of $300 an hour?
The ugly truth is that as casino operators, our pricing has nothing to do with satisfying our customers, but instead everything to do with satisfying our budgets. We preset our hold percentages at the highest amount tolerable to ensure we hit profit goals because we don’t think there is any other way.
What’s ironic about this truth is it’s the exact opposite philosophy that would have the biggest impact on our profitability—to satisfy the customers first and the budget last.
Before you start to think too much about why this statement is totally wrong and try to justify your budget’s influence on hold percentage in your head, let’s answer a fundamental question: Why do people even gamble?
Is it to kill time? Is it to escape reality? Is it to win money? If the latter is right, we are in a business without a future.
Our Current Pricing Doesn’t Work
Our players are aging, our current games don’t interest the upcoming generations and the multitude of Internet gaming options continue to lure new customers away. We can no longer just open our doors and expect people to come pay our outrageous prices for outdated entertainment experiences. Instead, we must entice new generations of gamblers to get off their couches and into our casinos.
If this industry wants a future, business will demand we adjust our pricing model to fit the needs and expectations of the new customers we must attract. In fact, this new pricing concept may also tempt back many mid-range customers who can’t afford our product’s current unpredictability.
It is generally accepted that in the United States, roughly 5 percent of the population, or 15 million people, gamble regularly in casinos every year. Compare that to the 100 million people who play games on their smartphone, tablet or iPod Touch (Newzoo’s 2012 Trend Report on Mobile Games), and you can see that there is an extraordinary number of potential customers who already enjoy a product not unlike our own. The key difference is that for those 100 million people, the product is either free or costs a small monthly fee. We believe it’s possible to tap into this potential player base by adjusting our pricing model to match this new way of doing business.
There are more than 50 million subscribers to Xbox live and 90 million PlayStation accounts that have been registered since each product’s release. The subscription price for their premium offerings averages well under $10 a month and allows the subscriber to enjoy a suite of online multiplayer games, movies, sports, special membership offers and cloud storage. Our current pricing models and entertainment offerings cannot compare to this consumer-driven model.
Rethinking Old Models
Understanding the basics of supply and demand is crucial in the pricing of a product and essential to ensuring your product meets a particular demand. But before you can even think about pricing as a component of supply and demand, you need to truly understand what your business is all about.
As we discussed before, for us in the casino industry it isn’t as straightforward as it seems. Not understanding that gambling isn’t about winning money affects our ability to price our products for real ROI. Let us take how we set our slot prices for example.
If you ask most casino operators, they would say the price of the product is the denomination on the machine. They would argue the player knows how much the experience will cost by that simple 1-cent, 25-cent or $1 symbol. But is that really true? Nowhere do we tell consumers what or how long that 1-cent, 25-cent or $1 is going to get them. Unclear pricing from the customer’s perspective is only one factor in beginning to understand how our current pricing models are killing us. Another factor is how we currently view what increasing “time on device” means. For most, this means getting more money from existing players. But what if we used “time on device” as a way to create a more predictable player experience? Instead of changing hold, we could create an experience where our players knew that for $50 on a 1-cent game, they could get one hour of play. Our bet is that it would change a player’s willingness to buy into our product. Take this a step further, and we could price our games based on a customer’s play history, allowing us to further segment our players down to the exact game they prefer and adjust the hold to the time desired, and poof! You now have a truly personalized player experience that rivals the price and thrill of those smartphone games.
If we rethink our pricing model to package in amenities, we could create an even more compelling model for attracting new players. When you go to Cancun, you get a hotel, drinks, food and entertainment for one all-inclusive price. Why not get the same when you visit a casino? For $1,500 you could offer a two-night stay, food, drinks, three hours of gambling and a trip to the spa.
Challenging our vendors to create new gaming experiences with higher quotients of entertainment value using non-monetary wins will also be essential in ensuring our products attract new customers and that we can afford to offer them at an affordable price. We know smartphone gamers love non-monetary awards like badges and leaderboard recognition, yet we still think our customers are solely after the money. Opening our eyes and learning from the ever-expanding Internet gaming space will help us stay relevant and better price our products.
Instead of our standard budget-driven pricing, the model we should be using is customer-driven pricing. That’s where sellers (i.e., casinos) make a pricing decision based on how much the customer can justify paying, not just how much they are willing to pay. Customer-driven pricing considers all the variables around the product and services to create a pricing model based on the customer’s perspective.
So what can you do about this pricing problem that’s killing us now? Well, with millions of dollars being spent on analytics and new mobile gaming technology, it is possible to start testing these experiences in traditionally non-gaming areas. That way, you’ll begin to build a new player paradigm that helps become the profitable casino of the future, instead of the dying entertainment option where people leave wondering, “It costs how much?!”