As gaming companies around the world decrease their marketing spend due to reduced revenues during COVID-19, Sudhir K. Kalé argues that increasing spend can help you stand out from the crowd.
Okay, here’s the situation. In Las Vegas, gaming revenues were down more than 50% in June 2020 compared to a year ago and visitor numbers down a staggering 70%. In Macau, gaming revenues were down around 95% during the same period compared to June 2019.
In Australia, clubs and most casinos have reopened. Visitor numbers at clubs are down 30% to 50%, but some clubs made more in revenues last month than they did for the same month in 2019. So, while COVID-19 has had an almost ubiquitous impact on the casino industry, the severity of the impact has varied a lot from one jurisdiction to another. What seems universal during the crisis are the drastic cuts made by gaming operators to their marketing budgets.
Do the deep reductions in financing marketing activities stem from well-thought out decisions or do they characterize a knee-jerk reaction from gaming operators? What impact will the cuts have on market share during the pandemic and post-pandemic?
The urge to cut marketing expenditures during a recession is understandable. Spending cuts on advertising and marketing items are easier to accomplish than on other items such as payroll and overheads. However, previous recessions have taught us that businesses that bounce back most strongly are those that do not cut their marketing spend during the recession.
For example, let’s look at Reckitt Benckiser Group Plc/N.V., the Anglo-Dutch multinational consumer goods company. In the recession following the 2008 financial crash, the company launched a marketing campaign aimed at persuading its consumers to continue purchasing its more expensive and better performing brands, despite the harsh economic climate.
The company increased its advertising expenditures by 25% at a time when competitors were reducing their marketing footprint. The net result was that Reckitt Benckiser actually grew revenues by 8% and profits by 14%, when most of its rivals were reporting profit declines of 10% or more. The difference between Reckitt Benckiser and other FMCG marketers was that while one company viewed advertising as an investment, its competitors all looked at it as an expense.
Of course, the content of advertising should reflect and respond to customers’ aspirations and apprehensions in the midst of the crisis. During the current COVID-19 pandemic, the iconic brand Coca Cola has used its advertising budget to showcase the efforts of frontline workers in the battle against COVID-19, while the brand is subtly featured in the background of these messages. In a similar vein, Singapore Airlines showed how its grounded crew was redeployed to help the community deal with the outbreak.
Responses on the part of casino companies to revenue shortfalls have ranged from cutting back player reinvestment percentages to restricting casino entry to higher tier players. The survey of casino gamblers conducted by Synergy Blue in late April 2020 suggests that only 51% of gamblers intend to return to casinos upon reopening. Of these, only 35% said that they will go back to their usual casinos. These numbers suggest that under 18% of previously loyal customers will return to their previously visited casinos.
With customer loyalty teetering on the precipice of oblivion, now is certainly not the time to slash player reinvestment. Also, with only half the usual customer base, price increases (in the form of admitting only higher-tier players to the property) will make recovery all the more elusive.
While the specifics of marketing investment will vary from jurisdiction to jurisdiction, and sometimes from property to property, a few generalizations are in order. First, your internal marketing activities should be the last item to be featured on the chopping block. Internal marketing comprises all marketing-like activities where management treats all employees as customers.
Second, player reinvestment as a percent of theoretical win should be increased, not decreased. Third, in cases where mass media advertising is permitted, now is the time to use meaningful advertising to build a strong customer franchise.
Advertising works best when competitor clutter is low. Your competitors are slashing their mass media outlays; it is time for you to stand out and be truly counted. Let us not forget what the greatest management guru Peter Drucker had to say about marketing.
“Because the purpose of business is to create a customer, the business enterprise has two – and only two – basic functions: marketing and innovation,” he said. “Marketing and innovation produce results; all the rest are costs. Marketing is the distinguishing, unique function of the business.”