Understanding pricing structure and customer engagement
I don’t know about you, but one of my least favorite chores is visiting the grocery store. Before you even get through the front door, you are accosted by adorable little girls or boys fundraising for this cause or that, and who can say no, right?
Then once through the sliding glass doors, the store is undoubtedly overcrowded with hurried moms, the retired couple who wants to discuss every item before checking it off the list, the social club (you know, the folks who group together to chat about the weather or the lack of shaded parking while blocking the aisles so you cannot pass), and then there is me, the one who just wants to get in and get out, all the while praying that I don’t forget anything on the list and have to return.
AAAAHHHH, the list, I forgot the list, leaving me no alternative but to walk up and down every aisle in the store to find the products that I had dutifully listed on a note pad, lonely on my kitchen counter. During this particular trek through the store, I find myself intrigued by the product placement strategy that the store has chosen to utilize as a part of its pricing scheme. While perusing the aisles, I begin to realize that casinos and grocery stores are not all that different with product placement strategies and how they choose to engage their customers.
Let’s examine the similarities between slot floors and grocery stores as they relate to pricing structure and customer engagement.
When considering how the pricing of a slot floor should be set and maintained, there are three essential questions that slot operators must address:
- What am I trying to achieve?
- What is the objective of setting an overall pricing
- How do the variable pricing models of different products fit in to this scheme when looking at the bigger picture?
Answering these questions is important because how you price a slot floor is critical and will have a direct impact on the success of the business. (And for those of you not from the slot floor world, when we refer to “pricing of your slot floor” – “pricing” is another word for by game hold percentage).
Pricing strategy and the variables surrounding it can be complex; the four golden rules of pricing are straightforward:
- The pricing must cover costs. This includes the cost of the product, infrastructure and staffing.
- The best and most efficient way of offering a lower price point is to lower costs. Always look for innovative options that offer cost-effective alternatives to traditional platforms. An example of offering an innovative option at a lower price point could be offering a class II wide area progressive in the place of a class III wide area progressive. The customer will still be offered the chance at a life-changing jackpot, but the cost to offer that jackpot will cost the casino far less in revenue share fees and taxes to the local and state governments, while still making it an option for the guest.
- Prices must be established to guarantee play. Don’t set pricing based on the needs of meeting the budget numbers alone; the pricing must be attractive to the customers you are targeting. Knowing your customer base and their constraints, whether it be budget or time, can allow you to set game offerings that will foster play. When configuring a game, rather than setting the minimum line as 250 on a 250-line game, offer lower line bets like 100, 150, and 200; those lower line selections may speak to those customers with budgetary constraints.
- Perceived value from the point of the player. The player must feel like they received commensurate value for the monies they are wagering. Perceived value will be different from one player to the next, so this also goes back to knowing your player base, offering a variety of gaming experiences, and correctly marketing those experiences. Some players will come in and want to chase a multi-million dollar jackpot with little regard for the amount they are spending, and others will come in on a small budget and seek entertainment, not necessarily looking to win, but just to have a good time and burn a few hours. The games you offer should range in volatility to satisfy the million-dollar jackpot chaser, the customer looking to burn some time, and all of those in between.
There are many different strategies to consider if the end goal is to optimize the pricing structure. Here are five strategies to consider:
Slot Segmentation
If you have ever taken a child shopping, you are well aware that products appealing to kids are located from the floor to cart level, specifically positioned at the relative height of a demanding and insistent three-year-old sitting in the little seat attached to the cart. This price adapting technique is known as segmentation. On the slot floor, we use segmentation around venues that offer unique experiences for customers, or in high traffic areas of the casino. Walk the floor of your main competitors and see if you can see this strategy in practice. Oftentimes, operators do not fully understand that they are instituting this strategy, or the basis behind their motive for using this option.
Premium Pricing
Quite honestly, given that segmentation is the basis of much of our slot marketing strategy, it is reasonable to expect segmentation to strongly influence pricing. One can ask for and receive cost plus pricing for specific products on the slot floor. Cost plus pricing guarantees that all costs, both fixed and variable, are covered and that the desired profit percentage is achieved. Typically, more customers will be introduced to a centrally positioned game, based on nothing more than the location. Any number of these customers will sit and play this game because it’s easily accessible and marginally appealing. When we place popular games in premium areas, we really hit a home run! In other words, prices may be adapted to meet the most basic desires of our customers based on that old real estate adage, “location, location, location”!
Discount Pricing
Price adaptation can also be utilized as a discount tool. Lowering hold percentages on games in low traffic or environmentally challenged areas, offers strong incentives to draw players into your casino looking for a value. We can also create discounting through incentives in the form of free play or point play. As operators, we should strategically offer these incentives on lower volume days or to different groups of players that we are striving to attract (bus patrons, senior groups and off-peak travelers). Remember to be careful with these tools, as those paying full price may perceive price adaptation negatively.
Differentiated Pricing Strategy
Both premium and discount placement are powerful tools for casinos, and can be marketed by utilizing a form of differentiated pricing. Depending on the portion of your player base doing the purchasing, you can charge a different hold percentage based on perceived differences between not only your product and a competitor’s, but the different products on your own floor. This is why you can offer similar games for a certain amount in one area of your casino, but at a higher price point in a high traffic location.
Price Skimming
Price skimming is the practice of charging the highest possible price for a given product. A great example of this is a wide area product that offers life-changing jackpots. The larger the jackpot, the higher the price that customers are willing to pay. While charging a price premium, it is important that the pricing is seen as fair, as opposed to gouging, in the eyes of your consumers. We need to remember that only a small portion of our floor can be dedicated to games of this nature, and the game will target only a small portion of the available player pool. This game will be perceived as “exclusive” in nature to the majority of players, and offers unique marketing opportunities in itself.
If you doubt product placement strategies, answer us this … do the checkout stands at the supermarket affect you the same way that they do us? We can’t help but notice all the products they place for us, the captive customer, to peruse while we are just standing there near the checkout stand. This technique is to create impulse purchases that you wouldn’t normally make. In the casino world: by placing your exclusive premium product near a major exit, you can make additional revenue that would otherwise have left your facility. If you doubt that this technique works, check the junk drawer in your kitchen and see how many super glue tubes, Sharpie markers, lip balms, PEZ dispensers, BBQ lighters, and sewing kits you have. Yup, impulse buys!
