Why Would a Casino Need a Revenue Management System?

by Jason Q. Freed, Managing Editor | November 19, 2018

A year after Lebron James departed Cleveland for the bright lights of Los Angeles, some thought his former team, the Cavaliers, still had the pieces to make a run at the playoffs.

Well, a month into the season, the team sits at 2-12 at the bottom of the Eastern Conference and the Cavaliers are, frankly, hard to watch. So much so that media outlets recently reported that season-ticket holders were re-selling their seats for as low as $2.

Don’t get me wrong, though: it still costs a lot of money to take your family to a Cavs game. Because even with $2 tickets, there’s still the incredibly high costs of parking, food, beverages, merchandise, etc. In fact, should enough fans stay home and enough seats remain empty, one could argue it would behoove the Cavaliers’ organization to give tickets away for free, thus getting people in the door and in a position to buy concessions and merch. 

For a long time, casinos had the same strategy, and many still do. Many casinos take the approach of giving away overnight stays (hotel rooms), so long as it gets people in the door who will likely sit at slot machines and gaming tables. Many casinos will completely fill their hotel rooms with comped guests, hoping gaming revenue will make up for little-to-no hotel room revenue.

But here’s the reality: the Cavs will never give seats away for free, and neither should a casino fill its hotel with non-paying guests. Yes, casinos should offer discounted rooms for some of their larger spenders, and reserve comped rooms for the high-rollers. But often times casinos are over-comping and filling their rooms before the high-rollers even step through the door.

The problem is that, without a revenue management system, casinos are making these discount and comp decisions based on gut feel, without any data to back them up. A revenue management system not only helps casinos decide how many rooms to discount, how many to comp and how many to charge full price, but it helps casinos focus on getting the right players in the door – the ones who are going to spend the most money on the casino floor.

Data and metrics are at the crux of these decisions. Instead of relying on spreadsheets or the property management system, an RMS automates the calculation of metrics like number of cash rooms vs. number of comp rooms, cash revenue generated and theoretical contribution from gamblers who stay in the hotel rooms. From this, management can calculate some form of “gaming revenue per available room.” 

The data, and the decisions they support, are most important in casino markets with high demand where properties are 100% occupied most of the time. When casinos have this hyper demand, it’s critically important to manage that demand accurately. The goal is not only to get players in the door, but to get the right players in the door. 

Segment Your Different Groups of Players

For instance, it’s common knowledge that high-rollers tend to book their casino trips closer to day of arrival, often at the last minute. On the other hand, low-level players are often enticed with deals earlier in the booking window. Even when casinos understand this concept, they often fill up with low-level players, save some rooms for high-rollers and shut out many of the middle-rated players. The ability to forecast the demand by these three important segments on any given day is the kind of calculation that no human can do manually. 

A casino RMS will give you those number in a forecast, and it’s important casino operators become comfortable with that data. Through segmentation, a casino RMS will help you categorize your players and slot them accordingly. This gives you a better idea of when to send out promotions and how many promotional discounts to offer. 

Some casinos with advanced CRM systems can take this a step further. Through loyalty-card tracking, some casinos are not only factoring in gaming spend, but are able to make discount and comp decisions based on revenue from other on-premise areas, like restaurant, spa and golf. Once you’re able to aggregate spending data across the entire property you can make even more informed decisions.

So why are some casinos hesitant to implement an RMS? Some operators think they don’t need it, that they’re making enough money without it. These operators, unfortunately, don’t realize how much revenue they’re leaving on the table.

Others tend to think that an RMS is complicated and requires a team of data scientists to run it. In reality, RMSs can be as easy or as complicated as you want to make them – you can do very little and allow the system to make the pricing decisions for you, or you can be heavily involved, exploring all the data in detail and formulating strategies to position your property best in its market.

Are you calculating gaming RevPAR? Do you have the data to tell you whether you’re getting the highest-valued players in the door?

If you’re unsure, take a look at how some other casinos are using an RMS to make more data-driven discount and comp decisions.

Jason Q. Freed, Managing Editor

Jason joined Duetto as Managing Editor in June 2015 after reporting, writing and editing hotel industry news for a decade at both print and online publications. He’s passionate about content marketing and hotel technology, which leads to unique perspectives on hotel distribution and revenue management best practices.

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