Setting Your Battlegrounds, Part One
Many casinos are in very competitive markets. Given the lack of top-line growth around the U.S., the casinos are constantly striving to gain more top-line and this generally evolves into taking share from the competition. One of many issues for those in highly competitive markets is to determine the viability of attacking and at what level can Property A, the attacker, afford to confront Property B, the competition.
To do this we suggest providing a review of the current level of market penetration for area(s) in question on a geographic basis from Property A, as compared to Property B. Often, Property A management has specific areas that they already consider as these potential “battleground zip codes.” This article will look at the first phase of how such a market analysis can be constructed.
When preparing a comprehensive market analysis, we look at both market penetration and then augment with the more advanced statistic of potential market revenue. Generally speaking, market penetration is a measure of brand or category popularity. “The market penetration rate is the percentage of the relevant population that has purchased a given brand at least once in the time period under study.”
For the purposes of this article, we will focus on the preliminaries to building market penetration analysis. Market penetration metrics and duration we define as the number of people who have gamed at Property A in the most recent trailing 12 months. Using geographical segmentation, we then focus on those who reside within the battleground zip codes and the overall area within the trading range of the property. We then quantify the market penetration rates for Property A in their battlegrounds.
After the initial plunge of the market penetration analysis, it is highly recommended to review the more advanced statistics of potential market revenue. In contrast to penetration rate, which is based on a relatively simple comparison of headcount of current customers to overall population in target area, potential market revenue is determined by comparing Property A’s zip code-based revenue generation to the potential revenue within the relevant market. These calculations are based on gaming revenue generated by Property A’s player database compared against the estimated gaming market potential based on the same zip codes for total gaming age population and their specific income levels. As it is much more complex to prepare and interpret than is the market penetration analysis, we will delve into this methodology in our follow-up article.
As part of a normal strategic planning process, properties should continually be reviewing the local gaming climate to see what markets could be viewed as targets for increased spend and test to see if these markets may offer better potential for increased revenue.
The study should be designed to determine the penetration rates for Property A local and battleground zip codes and to build a forecast of the prospective adult casino gaming population (21 and over) for each zip code. This high-level visualization of our area simply shows the populations and the concentrations of slots machines. Depending on the data you have gathered, you can also look at a number of other data sets such as quantity of hotel rooms and casino square footage, to name a few.
For our article, we have created a hypothetical territory with two competing facilities that share obvious territory. We look at the territory where Property A and Property B are within a trading range. Property A has determined which zip codes it should investigate to attack against Property B. This map would resemble Figure 1.
Sources: JSA Analytics, US Census Data, American Gaming Association, UVA-Weldon Cooper Center Demographics & Workforce Group, August 2013, MS MapPoint
Secondly, we find a very good way to review the battleground zip codes is to also visualize the entire area in conjunction with the population demographics overlaid with competition. In this case, the number of slots (sized green circles) of Property A and the competition along with population counts and the battleground zip codes are as shown in Figure 2.
By the geo-mapping, we can see that there are larger population areas within the competitive area. Additionally, major roadways would appear to serve Property A very well in accessing the battleground areas. So at this point, it appears that so far there is nothing to say the tactic of going after these battleground zip codes is flawed.
Despite the positive outlook on attacking the battleground zip codes, we would be remiss not to briefly discuss some tactical issues related to directly taking on the competition. Before jumping in and planning/executing campaigns, it should also be determined if the likely outcomes of these opportunities, such as overcoming customer loyalty to a strong competitor (assuming Property B is a strong competitor) as well as overcoming distance, are challenging.
As a wrap up for this article, we have demonstrated how to complete the very basics of a high-level market visualization of the demographics and competition, as well as our battleground zip codes. Once the market penetration analysis is completed, we give a logic check and if the logic is sound based on the data presented, we can move onto more advanced statistics of potential market revenue.
Here is a glimpse as to what will be in our next article covering the next steps needed to build the potential market revenue analysis: To determine the potential total gross gaming revenues (“GGR”) for the trading range, we source data from population and income demographics by geography. To forecast the GGR market potential for each area, we apply disposable income rates to relevant market demographics with respect to historic patterns in gaming behavior.
Where possible, we also utilize carded play database information from Property A. In doing so, we are able to segregate the gaming revenues into local & regional visitor segments to determine the potential gaming budgets of those areas’ casino guests relative to the projections.
Once both the market penetration and the potential market revenue projects are integrated, the goal is to help the Property A management understand:
a) If there are reasonable opportunities to spend more; and
b) If there are opportunities, are we able to quantify a higher expected return with the battle zone areas?
We will go over what the results of these next steps can look like in one of our next articles.
http://en.wikipedia.org/wiki/Market_penetration, Farris, Paul W.; Neil T. Bendle; Phillip E. Pfeifer; David J. Reibstein (2010). Marketing Metrics: The Definitive Guide to Measuring Marketing Performance. Upper Saddle River, New Jersey: Pearson Education, Inc.
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.