Scientific Game

Room for Improvement?

Macau’s hotel offer could benefit from more strategic pricing and marketing

Monday, 14 November 2011 11:51
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With an estimated average 95% of all revenues from Macau casino-hotels currently being generated by gaming, how focused are Macau operators on strategic marketing of their hospitality offers? Some analysts think mainland China’s social and economic development isn’t yet at the stage where Macau casinos can do extensive cross-marketing of gaming and hospitality to support each other. Macau’s Chinese visitors are either very rich or quite poor, goes the conventional wisdom. The relatively poor ones can either afford to gamble or to shop—but not many of them can afford to indulge in both forms of discretionary spending.

China does have a growing middle class. And the issue of driving non-gaming revenues in these multi-billion dollar properties is especially pertinent given the low house edge on baccarat (and thus low profit margins for casinos on baccarat play) compared to say slot machines—the dominant method of gambling in the US casino market. Retail customers have expressed a strong preference for booking room nights along with a bundled ferry ticket and other add-ins such as casino credits and breakfasts. Or have they? Are customers really demanding packages? Or has the Macau market simply created bundled deals with value propositions so great that customers would be foolish to book at a room-only rate?

Which came first—packages or package demand?

Research of available Macau casino packages reveals that the most basic (hotel accommodation plus a one-way ferry ticket) will save customers at least MOP100 (US$12.5) compared to buying the two components separately. More complex packages that add elements such as show tickets, credits and breakfasts save customers even more. A scan of Macau casino resort websites indicates that promotions and ‘packages’ are featured far more prominently than room-only booking options. It can actually be a challenge to find out how to book a room-only hotel stay, while packages are always at your fingertips.

In one example, a package containing two premium show tickets, breakfast, retail credit and a ferry ticket cost consumers an additional MOP300 as compared to the room-only rate. When considering the individual components but omitting breakfast—the price of which is harder for the consumer to estimate accurately—this package represented a saving of MOP700 to the customer.

Operators may look at this example and think there is no harm done. Such packages can be used to generate incremental consumer demand. Although the saving is MOP700 to the customer, the actual cost to the resort is far less, and “breakage” as marketing experts call it—where components of the package never get redeemed—make this cost even lower. These are fair points; however, the real-life example above was found on a Saturday night during a major holiday. Surely, if the strong gaming demand on this date could not fill the hotel alone, full-price paying retail guests could.

Once packages have been established, operators can easily slip into a ‘set it and forget it’ attitude. Package bookings are often considered the same as regular free independent traveller (FIT)—or retail—demand and remain open and available throughout the future booking horizon. However, the profitability of some packages is far less than a room-only booking. During high-demand periods, more revenue could be generated by restricting package availability while allowing room-only bookings to continue.

The ultimate result of this strategy is displacement. Packages are currently very appealing to retail guests based on price. Therefore, a guest who may initially only want a room will likely instead book a package for a few hundred additional MOP. That same guest may have instead booked their room and then decided upon arrival to book a show ticket or ordered room service. However, since they have booked the package, these higher-profit ancillary transactions will not happen. This quickly turns into a chicken-and-egg problem. Because casino resorts see these guests redeeming packages instead of making individual purchases, operators can fall into the trap of thinking that all guests want a ferry ticket with their room, that no one will pay full price for show tickets, and that room service is not popular for breakfast.

Discounts and package rates available to FIT guests can greatly dilute their potential revenue generation. Packages booked through wholesale agents reduce this even further due to negotiated rates and commissions. As a result, the perceived value of FIT guests to Macau’s resorts is very low, when in fact the profitability of high-paying retail guests can be stronger than low-value casino guests once reinvestment and gaming taxes are considered.

When packages benefit both guests and operators

Macau resorts should not do away with packages, but rather, they should refine the process of how packages are planned and executed. Packages do work—but they work best when they are a win-win for both guests and resorts. Packages can be extremely beneficial when accomplishing the following objectives:

• Generate incremental demand on ‘need’ dates for hotel rooms or attractions.

• Strategically encourage guests to extend their length of stay—potentially generating additional revenue on the gaming floor. Hotels can also capture a greater share of wallet for F&B and ancillary services, which increase the total customer value of each guest.

• Attract families and companions of gamers, again increasing share of wallet and potentially extending the length of stay.

• Encourage gamers to stay within one property or complex.

• Introduce a new product or service, such as a pool party, spa service, loyalty programme, or generate buzz for a new entertainment option.

• Encourage retail guests to book directly with the resort instead of through a wholesale partner or online travel agency. This assumes that the package is exclusively available to direct bookers.

Recommended next steps

To maximise profitability, operators must assess which of their packages deliver incremental demand to the property and which are simply diluting the profitability of their FIT business. Here are several ways to evaluate and optimise your package strategy:

• Accurately forecast demand in order to enable the resort to know when to close and open more attractive packages.

This helps to ensure packages are only available when needed, to generate incremental demand.

• Experiment with different types of packages. Try various component combinations to determine what is attractive.

• Test more modest deals with savings at 5-10%, instead of offering savings as high as 20%.

• Check that packages designed to attract families or to extend the length of stay are not available for one-night-only stays.

• Check that packages designed to keep guests within the property or complex require mid-day or evening activities.

• Adjust the types of packages available to wholesale and third party partners to ensure they execute your strategy. The most attractive packages should be reserved for your own website or call centre to encourage direct bookings.

• Ensure it is as simple and straightforward for FIT guests to book room-only reservations as it is for them to book packages. Your booking engine should be easy to find on your website. In addition to package promotion, banner ads could also advertise clear room-only messages such as “Rates starting from….” Call centre agents should also be trained to lead with a room-only rate and offer packages based on a further guest inquiry or rate resistance.

• Maintain attractive, deeply-discounted packages; but instead of making them available at all times, apply them strategically, when you know they will accomplish one of the objectives listed above.

A resort’s revenue management team must strategically lead the charge to build and apply effective packages. It is also important for Macau revenue managers to think like the consumer and review, in addition to the retail rates, the package offerings of competitors.

Finally, balance FIT demand with gaming demand. An accurate forecast will enable resorts to determine the most profitable mix of customers and promotions. By understanding the total profitability of each guest segment, you can optimise hotel rooms and strategically make them available to the market for growth in profits.

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