Get Higher Response & More Profit From Your Database Now!

You may take for granted that customer segmentation is necessary, but do you know why? Knowing the “Why?” is crucial to your business’s success, because once you understand why the results you have generated are successful, you can replicate them consistently. In this article I will provide you with the information that will allow you to take your loyalty and marketing programs to the next level for maximum results. Here’s an overview:

• Why segment?
• What does customer segmentation really mean, anyway?
• Are my segments right?
• How do I improve my customer segmentation strategy?

So, why segment?

In order for your hotel or casino to market effectively, you need to sell your property and benefits in a way that appeals to your target audience so powerfully that the message evokes emotion that inspires your market to act. Maybe that action is a phone call to make a reservation, or a trip into the casino, but, in any case, when impactful, your message drives action that generates revenue for your company. The challenge is, what evokes emotion for me won’t necessarily evoke emotion for someone else. And the reason I have a high perceived value of your property may not be the same reason for other customers. THAT is why we segment customers! Different consumers respond to property offerings and messages differently. In order to develop the most powerful and effective marketing program, we segment customers to increase impact. If we do it right, response rates and revenues increase. Benefits of customer segmentation include:

1. Marketing ROI boost
2. Increased revenue
3. Improved profit

What does customer segmentation really mean, anyway?

Customer segmentation divides markets in well-defined slices, and each segment consists of a group of customers that share similar needs and wants. Consequently, offerings and messages can be customized to them to maximize revenue. Following are the core segmentation categories that allow us to recognize guest differences:

• Geographic: Often defined as drive, fly, or local markets.
• Demographic: This includes basic elements that are often associated with consumer needs and wants, which is why they are so popular. Key data points are age, gender, income, race, and nationality—but they can also include elements often overlooked in gaming and hospitality: family size, life cycle, religion, and generation.
• Psychographic: Don’t let the word throw you off; it just means using the science of psychology and demographics to better understand guests. When using this category of segmentation, guests are divided into groups based on personality traits, lifestyle, or values. People within the same demographic group can exhibit very different psychological profiles, which is why folding this element into your customer segmentation strategy can be so powerful. This is a highly unleveraged category that can be your secret sauce if you add it to the mix.
• Behavioral: This is where guests can be divided into groups on the basis of their historical behavior derived from your property’s direct experience with them. It includes their attitude toward, use of, or response to, your property’s offerings. A simple example is when we categorize slot vs. pit players, inactive or active, or guests that pay a premium room cost for suites—but this can even be taken to another level, which will be discussed later.

At the end of the day, the core goal is to obtain a detailed picture of your players and guests (or persona) through the various data points in the segmentation categories.

Let’s explore an example of a highly simplified persona based upon what we know about the ideal player for a casino to help this concept and the definitions of segmentation categories come to life.

Geographic Information:

• Residence in Michigan—fly market

Demographic Information:

• Male
• Aged 47
• Married, with children
• Household income $875k

Psychographic Information:

• Luxury brand conscious
• Healthy lifestyle focused
• Country club sports enthusiast
• Cigar aficionado

Behavioral Information:

• $22,500 average trip theo
• 92% pit player
• 5 trips per year

Looking at the four lists above, it’s easy to see why you need all of them. Use geographic and demographics alone, and you have only a vague picture of your player—you understand basics about him, but not how to find what specifically appeals to him strongly enough to evoke emotion that inspires action. Psychographics along with behavioral data gives you a lot more insight to increase the power and impact of your marketing efforts.

Are my segments right?

The short answer is . . . no. Even if your customer segmentation strategy is Gary Loveman–inspired, with corresponding high response rates and revenue, there is always room for improvement. The dark side of a high-profit-yielding segmentation strategy is that it takes a high-performing team to develop and increase manpower to market the segments effectively. For example, if you decide to add a psychographic layer to your current schema and it creates twenty additional segments, those segments take additional labor to set up custom marketing campaigns for each of them. Make sure to take that into account and weigh the anticipated return you will get from an increased segmentation strategy with the additional cost associated with the manpower to execute it successfully. One quick way to make sure you are on your way to having a solid segmentation strategy is to make sure you incorporate all five categories outlined. If you’re not, start working on a plan to fold them in, and try not to get frustrated. There will always be new ways to improve your segmentation strategy. The trick is to reexamine and revamp it a little every quarter, or, at the very least, annually.

How do I improve my customer segmentation strategy?

 Do you feel like your segmentation strategy is solid and now you want to take it to the next level? Here is how:

1. Augment your database with psychographic data
2. Leverage behavioral economics principals with “Nudge Marketing”
3. Profile your best players and guests for high-response prospecting

Augmenting your database with psychographic data.

 Odds are, you aren’t using psychographic data in your current segmentation schema. Most companies aren’t. That’s okay! This represents an excellent opportunity to take your data-driven marketing program to the next level and give yourself a leg up on the competition. Often, companies make the mistake of attempting to gather this information from the players and guests themselves in the form of a survey. While this can be effective, there are some challenges with this approach. Self-reported data is often inaccurate, difficult to obtain, and requires a long time. There is a better way! Credit card companies, such as Experian, have made compiling data their business. A good example is transactional information from credit cards. Sourcing psychographic data from them is quick, easy, and relatively inexpensive.

Ideally, this information would be integrated into the operation system so front-line employees can leverage it at various guest touch points through methods you outline. However, most operational systems aren’t set up for sophisticated data appends. That’s okay! Using the data via an outside database system without folding it into your CRM efforts will give you more than enough ROI to make this effort worth your while.

Leverage behavioral economics principals with “Nudge Marketing.”

 There is a discipline growing in popularity called Behavioral Economics—the study of the psychology behind why people make the financial decisions they do.

A derivative of these behavioral economic principals is Nudge Theory—in action it is called Nudge Marketing. The concept is simple—you take information gleaned from behavioral economics, and you encourage customers to make the choice that benefits your property. In gaming and hospitality, we are masters at this but may not know the practice in these terms. Putting all the data segmentation you have done to good use by stepping up your game in this area can yield big returns.

Following are three examples of behavioral economic principals in Nudge Marketing form:

1. The Anchoring Nudge: This is often used in negotiating. The idea is to anchor high meaning—start with a high-level price and a high-level option that will likely be out of your guest’s range. This sets a high value in the guest’s mind and gives them the opportunity to say no to you (when your reservations center is upselling a suite, for example). Then, offer a much lower cost, a value option immediately following the first “no” from the guest. This elevates the perceived value of the second offer in their mind and makes them feel like it’s the bargain of the century. When done right, this strategy has been known to result in acceptance of the second offer over 80% of the time!
2. Temporal Discount Bias Nudge: This is the concept that something of value now has a higher perceived value than something of the same or greater value later. This strategy approach works like a charm with millennials. For example, $50 in cash now has more value that $100 six months from now. Many lotteries put this to the test by offering winners $1,000,000 over 20 years via payments versus an immediate payout of $300,000. Winners almost always take the full amount available now.
3. Status Quo Bias Nudge: This is one with serious opportunities for high revenue generation that is highly underleveraged in hospitality and gaming. It’s a simple concept: make saying yes to the desired action easier for the player than saying no so as to take advantage of the human tendency to keep things status quo. An excellent way to put this into play is for the player development team to book reoccurring visits for their players on an agreed-upon schedule and obtain approval to book their flights automatically using their credit card.

Profile your best players and guests for high-response prospecting.

A Final word.

I would be remiss if I didn’t mention Customer Value Analysis (CVA), also referred to as database scoring in this article. Recency, frequency, and monetary value (RFM) scoring is one of the many ways to analyze customer value. There are variations of this core model that include duration of interaction, engagement, and the number of interactions by a guest. Whichever model you choose, it is important to select one and layer all segmentation categories into the model. Happy segmenting!

Sarah Procopio, President of Thrive Marketing Science, a business intelligence and driven marketing firm. Sarah specializes in loyalty program development and turning around flailing companies and marketing programs quickly. She can be reached at sprocopio@thrivemarketingscience.com or 949.230.7873. This article was original published in Gaming & Liesure Magazine and can be found at https://mygamingandleisure.com/digital-edition-archives