October 2008

Comps: The Mystery Revealed
by Randy Fine

Who doesn’t like free stuff? It never ceases to amaze me the length that some people will go to in order to get a chotchkee or two. Ever been to an event where t-shirts get loaded into the “t-shirt cannon” and fired into the crowd? Well, the good news is that my business – and your favorite pastime – gives out just about more free stuff than any other. In fact, the average casino gives back 25 cents of every dollar of revenue to customers in various forms. In super-competitive markets, or markets struggling with the entrance of new competitors, the rate can be 40 cents or more. The bad news is that it isn’t always easy to figure out who gets all those goodies and why (and no, it doesn’t involve who can catch something from a cannon).

While last issue I discussed what casinos track and why, over the coming issues, I will discuss all the different ways that we hand out these goodies, starting with that unique casino freebie, the “complimentary,” or “comp” for short. A comp is anything – except cash – that a casino might give you when you are on property. There are two types – “soft” and “hard.” A soft comp is something that the casino provides and where there may be a wide disparity between the retail price of the item and the actual cost to provide it to you. For example, when we give you a “free room” that we were charging $250 for on Expedia, it doesn’t really cost the casino $250. If the room was going to be empty that night anyway, it costs the $30 or so in housekeeping costs to clean up whatever mess you make. Steakhouse dinners and buffets are other great examples of soft comps. Sure that buffet costs $16.99 retail, but what does it actually cost a casino to feed one more customer at the buffet? A couple of bucks, if that.

Hard Comps are those items that casinos have to pay for just like you or I – they buy them. Ever wonder why casinos are so quick to offer you a free room, but so hesitant to pay your airfare or gas? Because airplane tickets and gas cards are a “hard comp.” Sure, we might be able to negotiate a slight discount with Delta or Mobil on their products, but in general it costs a casino $250 to buy you a $250 airplane ticket. That $100 steakhouse dinner, on the other hand, might only cost $20 or $30.

Beyond travel reimbursement, the most common hard comps are electronics and other merchandise that casinos may include in their loyalty program. Which begs the question – if it is so cheap for a casino to offer food and hotel rooms, why offer anything else? Most readers of this magazine frequent casinos relatively often; if you didn’t, you probably wouldn’t be reading this. So I am guessing that at some point in your “gaming career,” you have probably experienced what I like to call “buffet fatigue” – where you simply get tired of getting comped to the same old buffet or steakhouse over, and over, and over again. And if you live near the property, you may have no interest in a free hotel room. Worse (from a loyalty marketing perspective), if you are a decent player, you can probably get that free buffet or steakhouse comp at any property in your market on a given trip. As a result, food turns out to be very ineffective in creating customer loyalty – i.e. getting you to play more of your bankroll at a single casino. Certainly giving food away is a critical part of the casino’s value proposition – if you lose a couple hundred dollars but have a full belly, you feel like you have gotten some value for your money. But the simple act of free food probably doesn’t incent you to give more of your trips in a given month to one casino.

That’s where hard comps like electronics come in. You probably won’t earn enough points to get a plasma screen TV in a single visit, but consolidate enough of your trips with a single casino over months and years, and hey, before you know it, that plasma is sitting in your living room. Comp programs tend to be structured in two ways: what I like to call “visible” programs and “invisible” ones. Visible programs tend – but not always – to be easier to understand, so let’s deal with these first. In most visible programs, customers earn points that go into some sort of bank account system based on some sort of criteria. The points are used for items off of a menu, and unused points are voided after some period of time. When evaluating a “visible” comp program, look for the following: How simple is it to understand? Good comp programs make it easy to understand how you earn points. If the players club rep can’t tell you, that is a bad sign. In our opinion, the best programs are based on “coin-in” (refer back to last month’s column for more on the various metrics casinos use). How much control do you have over your points? Do you get to decide when they are used (or does the casino charge you when they offer you a free night in the hotel)? How reasonable are they with the expiration period (expire every 3 months versus 3 years)? How many places can you earn and redeem points? Obviously $1000 worth of comp points is better if you can use them in Louisiana and Las Vegas rather than just in Louisiana. Are there good things to use your points for? This is the hard comp/soft comp debate. The best programs give you a huge variety of items to choose from – the more choice, the better. If your casino uses a visible program, always use your card. Because no matter how long or short a time you have on property, every point goes into that bank account.

Less sophisticated properties tend to use an “invisible” system. In these programs, you don’t earn any points, there is no “bank” and the only way you find out what you have is by asking someone – a host, pit boss, or players club rep. And quite often, they won’t tell you! They just ask, “what would you like?” And then you have to negotiate. In reality, in these programs, comps are often based on a percentage of theoretical – and even worse, sometimes a percentage of your theoretical average over a certain number of trips (Sound confusing? That’s because it is.). These programs suffer because players can never get a straight answer on what they have – or why.

And oftentimes, hosts and players club reps can also give comps based on a percentage of actual loss (usually 10%), which can mess around with the actual number even more. And some casinos actually do both systems at the same time – offering customers both a visible and invisible comp system. Talk about confusing.

My advice – if your casino has an invisible system, be careful about using your card if you are only going to be on property for a few minutes. If they do some sort of averaging to figure out your comps (and this is going to be an even bigger issue when we discuss direct mail in a few months), a short trip to a casino – where you use your card – can actually bring down your average and have you end up getting less free stuff. In other words, for a short trip, loyalty doesn’t always pay.

One final note: people ask me all the time, “What is the best way to earn a comp?” I have a simple answer – just go buy it. Never gamble for comps – you should play for your responsible enjoyment of the game – because it will almost always be far cheaper to go buy the item than to play to the level required to get it for free. It’s like going to the arena just to fight for the t-shirt coming out of the cannon. This business should be about helping people have a good time, so if you are going to play anyway, then use this guidance and advice to maximize what you deserve.

Next month, we’ll shift our focus from food and electronics to that most valued of the casino incentives – Cash Back.

 — Randy Fine is the Managing Director of The Fine Point Group, the gaming industry’s leading consultancy focused on relationship marketing strategy and execution. FPG is a ten-person firm, with offices in Las Vegas, Tunica, and Florida, that has worked with more than 200 casino properties around the world. He is best known as the sole patent inventor of Harrah’s current loyalty program, Total Rewards. You can contact him at rfine@thefinepointgroup.com.