Macau casinos putting cost cuts above customer care?

As Macau’s gross gambling revenue has slumped, operators have been paring costs to the bone to protect margins, with the first casualty usually being spending on marketing and player reinvestment.

However, this may be a short-sighted approach that will cost dearly in the longer term.

This situation being played out at casino properties in Macau reminds me of an old dilemma in marketing—does advertising lead to sales or do sales lead to marketing? Any Marketing 101 student will tell you, without a moment’s hesitation that advertising should lead to sales. Yet, witness the behavior of most companies: when sales are down, advertising budget is often the first casualty.

Financial crisis is a time when every person in the company needs to pull together and try their best to nurture their most valued asset, the customer. Yet, it is precisely at such times that you find companies cutting back on “discretionary” expenses in areas such as staff development, staff training, corporate culture development, player reinvestment, marketing, and customer service. Consequently, employee morale deteriorates, and customers are alienated. At a time when retaining valued customers should be paramount, most Macau casinos are doing whatever they can to drive customers away, all in the name of cost savings.

Sounds familiar? It should. I hark back to the global financial crisis of 2008. It was during this time that almost every airline in the world went on a massive cost-cutting mission. Airlines started charging customers for bags, headsets, food, aisle seats, even blankets and pillows. Aircraft maintenance crews were sacked, and maintenance was moved overseas to low-cost countries. Massive wage concessions were demanded from labor unions, and customers were saddled with an exorbitant fuel tax. Sorry as they were, the airline company executives lamented, they had no choice but to resort to these measures.

Thankfully, not every company reacted the same way, though the challenges each and every company faced were the same. Southwest Airlines still let customers’ bags fly free, and still strived to maintain the same friendly and humorous customer service they have been renowned for. Singapore Airlines, whose focus is on delighting customers rather than selling products, refused to compromise on what mattered most. The airline did not reduce spending on safety and security, nor on staff training and skills development. The company continued to maintain its flight attendant to customer ratio, which is, by far, the lowest of any carrier. At a time when most airlines viewed their business environment as doom ridden, Southwest Airlines and Singapore Airlines saw the world differently. They capitalized on the bleak environment, viewing it as an opportunity to attract new customers and retain existing ones by offering them the same high standards of service delivery.

It is during the darkest hours that the character of both individuals and corporations is put to the test, and both airlines came out with flying colors. Southwest Airlines proved yet again the truth of what former CEO Colleen Barrett used to tell potential recruits. In one interview she was quoted as saying, “We tell job applicants we’re in the customer service business. We just happen to provide airline transportation.”

Back to casinos in Macau. Once can come up with numerous reasons for the downturn in casino revenues—crackdown in corruption, tightening credit, falling real estate prices, slowing of the economy, smoking laws, visa restrictions, onslaught on credit card transactions, and so on. Some of these problems will disappear with the passage of time; some others might remain or even intensify. Already, some casino executives have begun to admit publicly that the VIP business model is broken and that we will never have the kinds of junket revenues we had gotten used to.

So what is the solution to stem if not override the tsunami of disappearing revenues that has been attacking Macau casinos for some time now? The answer is quite simple: take care of your customers and offer them the best experience you possibly can. This may sound as heresy to some executives who have become used to opening their doors and have swarms of customers come in for far too long.

In the current market environment of Macau, which no longer is a seller’s market, the only sustainable competitive advantage that a competitor can have is inimitable customer service. Competition for customers is only going to intensify with added room keys and expanded gaming facilities. Instead of cutting back on customer relationship initiatives such as loyalty programs, companies need to generously increase their budgets for player reinvestment activities. Senior executives should walk the customer journey, identify touchpoints of experience failure, and make fail-proof service their very top priority.

Sure, icons such as replicas of the Eiffel Tower or a Hollywood Movie Studio will bring in lots of visitors to individual casino properties in Macau. Yet, as some properties have found out in recent months, increased visitation does not always translate into increased revenues. In order to remain ahead of the curve, casino operators in Macau need to worry less about their assets relating to building and entertainment, and focus more on retaining and growing the only asset that counts—the right customers.

Of course, deciding on who the right customer is, will take some work. Traditionally, most properties in Macau have done less than an ideal job of market segmentation and targeting. They have taken the customer for granted for far too long. Now is the time to engage in meaningful market segmentation, precise targeting, and offering an engaging customer experience to the targeted segments.

The sooner casino operators wake up to the new normal and adjust their operations to reflect this reality, the further along they will be in their march toward customer orientation.

*Sudhir Kalé, Ph.D., is Founder and CEO of GamePlan Consultants, a boutique consultancy that advises casino companies on marketing and customer service initiatives. He has published over 100 articles on gambling and responsible gambling. Sudhir has consulted for casino companies and policy makers on five continents. You can reach him at [email protected].