predictive analytics in the gaming industry

Confidential+ Page+1+ 5/30/13++

PREDICTIVE)ANALYTICS)IN)THE)GAMING)INDUSTRY)

By))

Andrew)Pearson)

“In$business,$as$in$baseball,$the$question$isn't$whether$or$not$you'll$ jump$into$analytics.$ The$ question$ is$ when.$ Do$ you$ want$ to$ ride$ the$ analytics$ horse$ to$profitability...or$follow$it$with$a$shovel?”+

+++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ +~+Rob+Neyer,+ESPN+

+

+

Overview'

+

Predictive+ analytics+ refers+ to+ a+ variety+of+ statistical+ techniques+ that+ analyze+ current+ and+historical+ facts+ to+make+

predictions+about+future+events.+Using+such+techniques+as+predictive+modeling,+machine+learning,+data+mining+and+

game+theory,+predictive+analytics+can+build+models+that+exploit+patterns+found+in+historical+and+transactional+data,+

patterns+that+can+identify+business+risks+and+potential+opportunities.++

+ Predictive+analytics+is+not+a+new+technology,+it+is+a+decades+old,+proven+technology+that+encompasses+such+

disciplines+ as+ statistics+ and+ data+ mining.+ A+ forwardKlooking+ technology+ that+ uses+ past+ events+ to+ predict+ future+

activity,+predictive+analytics+arose+out+of+ the+management+ information+systems+and+standard+ reporting+world+of+

the+1970s.+The+drill+down+technology+of+ the+1980s+ led+ to+ the+data+warehousing+and+OLAP+cubes+systems+of+ the+

1990s,+which+allowed+for+more+complex+ad+hoc+data+querying.+The+analytics+and+Business+Intelligence+solutions+of+

the+2000s+evolved+into+the+more+complex+world+of+predictive+modeling+and+optimization+of+today.+These+systems+

can+do+more+ than+ report,+ they+can+actually+help+predict+ future+business+activity.+The+Predictive+Analytics+Pocket+

Guide1+(2009)+defines+predictive+analytics+as+such:'

'

Unlike$ Business$ Intelligence$ applications,$ which$ merely$ present$ summaries$ of$ historical$ data,$

predictive$analytics$focuses$instead$on$the$prediction$of$future$outcome$of$events$not$yet$observed$

in$ the$ data.$ These$ predictions$ are$ made$ by$ creating$ a$ model$ from$ the$ observed$ data$ using$

statistical$ techniques.$ These$ models$ can$ range$ in$ complexity$ from$ simple$ linear$ equations$ to$

powerful$techniques$such$as$neural$networks2.$+

1 Available at www.predictivesource.com. 2A predictive analytics technology that can learn the relationship between inputs and output through training.


+

+ Predictive+analytics+can+be+broken+down+into+three+different+types+of+models:+

+

+

1. Predictive:+ these+ analyze+ past+ performance+ to+ predict+ the+ likelihood+ that+ an+ individual+ customer+will+

exhibit+a+specific+behavior+in+the+future.++

2. Descriptive:+ these+ identify+ different+ relationships+ between+ customers+ to+ group+ or+ segment+ them+ for+

marketing+or+other+purposes.++

+

3. Decision:+these+predict+outcomes+of+complex+decisions,+relationships,+products+and/or+processes.+

+

+ Predictive+ analytics+ extracts+ information+ from+ data+ sets+ and+ uses+ it+ to+ anticipate+ future+ trends+ and+

behavior+ patterns+ based+ on+ statistics+ and+ data+mining+ (Ramakrishnan+ and+Madure,+ 2008).+ The+most+ important+

element+of+predictive+analytics+is+the+predictor,+“a+variable+that+can+be+measured+for+an+individual+or+other+entity+

to+foresee+future+behavior”+(Ramakrishnan+and+Madure,+2008).+The+real+trick+is+to+find+the+predictive+model+best+

suited+for+the+outcome+one+is+trying+to+study+(Ramakrishnan+and+Madure,+2008)+and+this+is+no+easy+feat.++

+ “Predictive+ analytics+ also+ encompasses+models+ that+ seek+ out+ subtle+ data+ patterns+ to+ answer+ questions+

about+customer+performance,+such+as+churn+prediction,+fraud+detection+and+propensity+to+buy+additional+products+

and+ services”+ (Ramakrishnan+ and+ Madure,+ 2008).+ Predictive+ analytics+ solutions+ include+ SAS's+ suite+ of+ analytics+

products,+ IBM's+ SPSS,+ EMC's+ Greenplum+ and+ Revolution's+ R+ open+ source+ product.+ Whichever+ solution+ is+ used,+

predictive+analytics+can+enhance+customer+acquisition+and+retention,+identify+crossKsell+and+upKsell+opportunities,+

identify+customer+ lifetime+value,+spot+ fraud+detection,+determine+the+ life+cycle+of+a+slot+machine+and+help+direct+

and+improve+marketing+campaigns.+Predictive+analytics+can+even+“perform+calculations+during+live+transactions+to+

guide+ a+ decision”+ (Ramakrishnan+ and+ Madure,+ 2008),+ but+ without+ data+ mining+ predictive+ analytics+ would+ be+

useless.++

+

Data'Mining:'An'In1House'Goldmine'

Data+mining+–+the+process+whereby+hidden+patterns+within+data+sets+are+discovered+–+is+a+component+of+predictive+

analytics+ that+ entails+ an+ analysis+ of+ data+ to+ identify+ trends+ and+ patterns+ of+ relationships+ among+ data+ sets+

(Ramakrishnan+and+Madure,+2008).+To+put+is+simply,+data+mining+helps+transform+raw+data+into+usable+information.+

In+their+article+Neural$Networks$in$Data$Mining,+Singh+and+Chauhan+(2009)+state+that+data+mining+is+the:++

+

Business$ of$ answering$ questions$ that$ you've$ not$ asked$ yet.$ Data$ mining$ reaches$ deep$ into$

databases.$ Data$mining$ tasks$ can$ be$ classified$ into$ two$ categories:$ Descriptive$ and$ predictive$


data$ mining.$ Descriptive$ data$ mining$ provides$ information$ to$ understand$ what$ is$ happening$

inside$the$data$without$a$predetermined$ idea.$Predictive$data$mining$allows$the$user$ to$submit$

records$ with$ unknown$ field$ values,$ and$ the$ system$ will$ guess$ the$ unknown$ values$ based$ on$

previous$patterns$discovered$in$the$database.$+

+

+ By+employing+automated+predictive+analytics+to+sift+through+a+casino+operator’s+customer+database,+data+

mining+can+discover+hidden+opportunities+and+connections+that+might+otherwise+be+missed.'Many+casino+operators+

have+terabytes+and+terabytes+of+data+–+everything+from+customer+player+card+information+to+information+about+a+

customer’s+room+preference+–+and+sifting+through+this+ information+to+discover+meaningful+connections+would+be+

an+impossible+task+without+data+mining.''

' Data+mining+ and+ predictive+ analytics+ aim+ to+ identify+ valid,+ novel,+ potentially+ useful+ and+ understandable+

correlations+and+patterns+in+datasets+(Chung+&+Gray,+1999)+by+combing+through+copious+amounts+of+data+to+sniff+out+

patterns+and+relationships+that+are+too+subtle+or+complex+for+humans+to+detect+(Kreuze,+2001).+Data+must+be+gathered+

from+disparate+sources+and+then+seamlessly+integrated+into+a+data+warehouse+that+can+then+cleanse+it+and+make+it+

ready+for+consumption.+Trends+that+surface+from+the+data+mining+process+can+help+in+monetization,+as+well+as+ in+

future+advertising+and+marketing+campaigns.+

'For+ casinos,+ data+ mining+ can+ cull+ through+ data+ from+ such+ disparate+ sources+ and+ departments+ as+ sales+ and+

marketing,+thereby+allowing+users+to+measure+patron+behavior+on+more+than+a+hundred+different+attributes,+which+

is+a+far+cry+from+the+three+or+four+different+attributes+that+statistical+modeling+used+to+offer.++

+ Unlike+ traditional+ statistical+ analysis,+ which+ relies+ heavily+ on+ hypothesis+ testing,' data+ mining+ tries+ to+

identify+relationships+and+interdependencies+that+affect+a+marketingKrelated+opportunity+or+problem+(Thelen,+et+al.,+

2004).+While+ traditional+multiple+ regression+methods+can+only+use+a+ limited+number+of+complexity+ levels,+neural+

networks+and+decision+trees+can+easily+handle+up+to+200+predictor+variables+(Thelen,+et+al.,+2004),+allowing+them+to+

do+much+more+complicated+computations.'

' Normally,+ with+ statistical+ modeling,+ an+ analyst+ poses+ a+ simple+ question+ such+ as:+ “Are+ higherKincome+

people+prone+to+be+more+loyal+to+a+casino+player+card+than+those+with+lower+income+levels?”'The+hypothesis+would+

elicit+ two+ responses,+ either+ “yes”+ or+ “no.”+ Data+ mining,+ however,+ can+ reveal+ factors+ that+ contribute+ to+ casino+

loyalty;+factors+that+the+analyst+might+never+have+thought+to+test+for.+According+to+Thelen,+et+al.+(2004),+the+data+

mining+process+is+as+follows:+

+

1. Identify+the+business+opportunity+

2. Cleanse+the+data+

3. Transform+the+data+into+meaningful+information+

4. Confirm+the+model++

5. Tweak+and+perfect+the+model'


'

' Since' data+ mining+ systems+ are+ inherently+ reliant+ on+ so+ many+ departments,+ they+ can+ be+ difficult+ and+

complicated+ to+ implement.+ Marketing+ managers,+ corporate+ strategists,+ statisticians+ and+ IT+ directors+ are+ all+

required+ to+ add+ their+ input.+ Casino+ operators+ should+ keep+ in+ mind,+ however,+ that+ data+ mining+ will+ only+ be+

successful+if+their+casino+patrons+are+willing+to+provide+information+on+themselves+(Thelen,+et+al.,+2004).+Although+

player+cards+provide+a+wealth+of+information,+if+the+patron+doesn’t+trust+the+casino+with+information+beyond+what+

is+gleaned+from+the+player+cards,+the+casino+will+only+have+a+incomplete+view+of+that+individual+patron+(Thelen,+et+

al.,+2004),+which+severely+limits+the+predictive+analytics+capabilities.++

+

Data'Mining'Techniques''

+

Regression'models:+ Regression+ analysis+ is+ the+ process+ of+ predicting+ the+ continuous+ dependent+ variable+ from+ a+

number+ of+ independent+ variables.+ It+ attempts+ to+ find+ a+ function+ that+ models+ the+ data+ with+ the+ least+ error.+

Regression+ analysis+ can+ be+ used+ on+ data+ that+ is+ either+ continuous+ or+ dichotomous,+ but+ cannot+ be+ used+ to+

determine+a+causal+relationship.+Regression+analysis+focuses+on+establishing+a+mathematical+equation+as+a+model+

to+ represent+ the+ interactions+ between+ the+ different+ variables+ under+ consideration.+ Regression+ models+ are+

particularly+ effective+ to+ find+ patron+ worth+ because+ the+ model+ can+ be+ used+ to+ score+ historical+ data+ to+ predict+ an+

unknown+outcome+ (Sutton,+ 2011).+ +Multiple+ regression+models+ “utilize+ a+ variety+of+predictors+ and+ the+ relationships+

between+those+predictors+to+predict+future+worth”+Sutton+(2011)+states.'As+an+example,+Sutton+(2011)+explains+that+“a+

model+built+to+predict+future+gaming+trip+worth+might+be+generated+based+on+historical+information+about+theoretical+

win,+actual+win,+credit+line,+time+on+device,+nights+stayed,+and+average+bet.”'+

+

Linear'regression'models:+These+analyze+the+relationship+between+the+response+or+dependent+variable+and+a+set+of+

independent+ or+ predictor+ variables.+ This+ relationship+ is+ expressed+ as+ an+ equation+ that+ predicts+ the+ response+

variable+ as+ a+ linear+ function+ of+ the+ parameters.+ These+ parameters+ are+ adjusted+ so+ that+ a+ measure+ of+ fit+ is+

optimized.+Much+of+the+effort+in+model+fitting+is+focused+on+minimizing+the+size+of+the+residual,+as+well+as+ensuring+

that+ it+ is+ randomly+ distributed+ with+ respect+ to+ the+ model+ predictions.+ An+ important+ assumption+ of+ regression+

analysis+ is+ linearity,+ which+ defines+ a+ straight+ line+ relationship+ between+ Independent+ variables+ and+ dependent+

variables.+For+example,+in+Figure+1,+we+could+make+the+assessment+that+an+increase+in+average+bet+also+increases+

actual+win+and,+using+the+straight+line,+we+could+predict+how+much+the+actual+win+would+be+affected.+


+

Figure$1:$Linear$Regression$Model$

+ For+the+casino+and+hospitality+industry,+regression+models+can+be+used+to+predict+a+patron's+future+worth+

(Sutton,+ 2011).'Multiple+ regression+models+ “utilize+ a+ variety+ of+ predictors+ and+ the+ relationships+ between+ those+

predictors+to+predict+future+worth”+Sutton+(2011)+states.'As+an+example,+Sutton+(2011)+explains+that+“a+model+built+

to+ predict+ future+ gaming+ trip+worth+might+ be+ generated+ based+ on+ historical+ information+ about+ theoretical+ win,+

actual+win,+credit+line,+time+on+device,+nights+stayed,+and+average+bet.”+

+

+

Neural' networks:+ Artificial+ Neural+ Networks+ (ANN)+ or+ just+ “Neural+ Networks”+ are+ nonKlinear+ statistical+ data+

modeling+tools+that+are+used+when+the+exact+nature+of+a+relationship+between+input+and+output+ is+unknown.+ + In+

their+article+Neural$Networks$in$Data$Mining,+Singh+and+Chauhan+(2009)+claim+that+a+neural+network+is:++

+

A$mathematical$ model$ or$ computational$ model$ based$ on$ biological$ neural$ networks,$ in$ other$

words,$ is$ an$ emulation$ of$ biological$ neural$ system.$ It$ consists$ of$ an$ interconnected$ group$ of$

artificial$neurons$and$processes$ information$using$a$ connectionist$approach$ to$ computation.$ In$

most$cases$an$ANN$is$an$adaptive$system$that$changes$its$structure$based$on$external$or$internal$

information$that$flows$through$the$network$during$the$learning$phase.$+

+

Neural+networks+can+be+used+to+find+patterns+in+data.+A+key+feature+of+neural+networks+is+that+they+learn+

the+relationship+between+inputs+and+output+through+training.++

+ There+are+three+types+of+training+in+neural+networks;+reinforcement+learning,+supervised+and+unsupervised+

training,+with+supervised+being+the+most+common+one.+Neural+Networks+(see+Figure+2)+are+data+processing+systems+


whose+ structure+ and+ functioning+ are+ inspired+ by+ biological+ neural+ networks.+ Their+ fundamental+ characteristics+

include+parallel+processing,+distributed+memory+and+adaptability+to+their+surroundings.+

+

Figure$2:$A$Neural$Network$Chart$

+ For+ casino+ and+ hospitality+ marketing+ purposes,+ neural+ networks+ can+ be+ used+ to+ classify+ a+ consumer's+

spending+pattern,+ analyze+ a+new+product,+ identify+ a+ patron's+ characteristics+ as+well+ as+ forecast+ sales+ (Singh+ and+

Chauhan,+2009).+The+advantages+of+neural+networks+include+high+accuracy,+high+noise+tolerance+and+ease+of+use+as+

they+can+be+updated+with+ fresh+data,+which+makes+ them+useful+ for+dynamic+ environments+ (Singh+and+Chauhan,+

2009).+

+

Logistic' regression:+ This+method+ transforms+ information+ about+ a+ binary+ dependent+ variable+ into+ an+unbounded+

continuous+variable+and+estimates+a+regular+multivariate+model.+Logistic+regression+(see+Figure+3)+is+a+generalized+

linear+ model.+ It+ is+ used+ mainly+ to+ predict+ binary+ variables+ (with+ values+ such+ as+ yes/no+ or+ 0/1).+ Thus,+ logistic+


regression+techniques+may+be+used+to+classify+a+new+observation+whose+group+is+unknown,+in+one+of+the+groups,+

based+on+the+values+of+the+predictor+variables.+

+

A/B'testing:+Also+known+as+split+testing+or+bucket+testing,+A/B+testing+is+a+method+of+marketing+testing+by+which+a+

baseline+control+sample+is+compared+to+a+variety+of+singleKvariable+test+samples+in+order+to+improve+response+rates.++

+ A+ classic+ direct+mail+ tactic,+ this+method+has+ recently+ been+ adopted+within+ the+ interactive+ space+ to+ test+

tactics+such+as+banner+ads,+emails+and+landing+pages.+For+casino+marketers,+A/B+Testing+(See+Figure+4)+is+the+most+

effective+way+to+identify+the+best+available+marketing+offer+(Sutton,+2011).+It+can+test+“two+different+offers+against+

one+another+ in+order+to+ identify+the+offer+that+drives+the+highest+response+and+the+most+revenue/profit”+(Sutton+

2011).+

+

Figure$4:$A/B$Testing$Table$

+

Decision'trees:+Used+to+ identify+ the+strategy+that+ is+most+ likely+ to+reach+a+goal.+ It+ is+a+decision+support+ tool+ that+

uses+a+graph+or+model+of+decisions+and+their+possible+consequences,+ including+chance+event+outcomes,+resource+

Figure 3: Logistic Regression Chart


costs,+ and+ utility.+ Decision+ trees+ are+ sequential+ partitions+ of+ a+ set+ of+ data+ that+ maximize+ the+ differences+ of+ a+

dependent+variable+(response+or+output+variable).+They+offer+a+concise+way+of+defining+groups+that+are+consistent+

in+their+attributes,+but+which+vary+in+terms+of+the+dependent+variable.++

+ The+ construction+ of+ a+ decision+ tree+ is+ based+ on+ the+ principle+ of+ “divide+ and+ conquer”:+ through+ a+

supervised+learning+algorithm,+successive+divisions+of+the+multivariable+space+are+carried+out+in+order+to+maximize+

the+distance+between+groups+in+each+division+(that+is,+carry+out+partitions+that+discriminate).+The+division+process+

finalizes+when+all+of+the+entries+of+a+branch+have+the+same+value+in+the+output+variable,+giving+rise+to+the+complete+

model.+The+further+down+the+input+variables+are+in+the+tree,+the+less+important+they+are+in+the+output+classification+

(and+the+less+generalization+they+allow,+due+to+the+decrease+in+the+number+of+inputs+in+the+descending+branches).++

For+the+casino+and+hospitality+industry,+decision+trees+can+be+used+“to+identify+patron+characteristics+that+

can+predict+the+likelihood+of+a+patron+(or+segment+of+patrons)+to+abuse+an+offer”+(Sutton,+2011).+Figure+5+shows+a+

decision+tree+for+responses+to+a+marketing+campaign+using+age+and+zip+code+as+the+variables.+++

Time' series' model:+ A+ time+ series+ is+ an+

ordered+ sequence+ of+ values+ of+ a+ variable+ at+ uniformly+ spaced+ time+ intervals.+ According+ to+ the+ Engineering$

Statistics$Handbook,+time+series+models+can+be+used+to:++

+

• Obtain+an+understanding+of+the+underlying+forces+and+structure+that+produces+an+observed+data;+

• Fit+a+model+and+proceed+to+forecasting,+monitoring+or+even+feedback+and+feedforward+control.3++

+

3 http://www.itl.nist.gov/div898/handbook/pmc/section4/pmc41.htm.

Figure 5: Decision Trees Chart


+ A+Time+Series+model+ (see+Figure+6)+can+be+used+to+predict+or+ forecast+the+future+behavior+of+a+variable.+

These+ models+ account+ for+ the+ fact+ that+ data+ points+ taken+ over+ time+ may+ have+ an+ internal+ structure+ (such+ as+

autocorrelation,+trend+or+seasonal+variation)+that+should+be+accounted+for.+For+the+casino+and+hospitality+industry,+

a+Time+Series+Analysis+can+be+used+to+forecast+sales,+project+yields+and+workloads+as+well+as+analyze+budgets.++

+

Figure$6:$Time$Series$Model.$

+

+

Nearest'Neighbor'Method:+Initially+introduced+by+J.+G.+Skellam,+the+Nearest+Neighbor+Method+is+a+technique+that+

is+ based+ on+ the+ concept+ of+ similarity+ where+ “the+ expected+ and+ observed+ mean+ value+ of+ the+ nearest+ neighbor+

distances+is+used+to+determine+if+a+data+set+is+clustered”+(Skellam,+1952).+The+Nearest+Neighbor+Method+(See+Figure+

7)+constructs+a+classification+system+without+making+assumptions+concerning+the+shape+of+the+function+that+relates+

the+dependent+variable+with+the+independent+variables.+The+aim+is+to+identify+in+a+dynamic+way+observations+in+the+

training+data+that+are+similar+to+a+new+observations+that+we+want+to+classify.+This+method+does+not+impose+a+priori+

any+assumptions+about+the+distribution+from+which+the+modeling+sample+ is+drawn.+ It+ involves+a+training+set+with+

both+positive+and+negative+values.++


+

Figure$7:$Nearest$Neighbor$Method$

+

Discriminant' Analysis:+ Discriminant+ or+ discriminant+ function+ analysis+ is+ a+ method+ used+ to+ determine+ which+

weightings+of+quantitative+variables+or+predictors+best+discriminate+between+two+or+more+than+two+groups+of+cases+

and+do+so+better+ than+chance+ (Cramer,+2003).+ It+ is+a+method+used+ in+statistics,+pattern+recognition+and+machine+

learning+to+find+a+linear+combination+of+features+that+characterizes+or+separates+two+or+more+classes+of+objects+or+

events.++

+ Because+ of+ its+ ability+ to+ classify+ individuals+ or+ experimental+ units+ into+ two+ or+ more+ uniquely+ defined+

populations,+discriminate+analysis+can+be+used+for+market+segmentation+and+the+prediction+of+group+membership.+

The+discriminant+score+can+be+the+basis+on+which+a+prediction+about+group+membership+is+made.+For+example,+the+

discriminant+weights+of+each+predictive+variable+ (age,+sex,+ income,+etc.)+ indicate+the+relative+ importance+of+each+

variable.+For+example,+if+age+has+a+low+discriminant+weight+then+it+is+less+important+than+the+other+variables.+For+a+

casino+and+hospitality+marketing+department,+use+of+discriminant+analysis+can+help+predict+why+a+patron+frequents+

one+ casino+ over+ another.+ Discriminant+ analysis+ (See+ Figure+ 8)+ is+ specifically+ useful+ in+ product+ research,+

perception/image+research,+advertising+research+and+direct+marketing.+


+

Figure$8:$Discriminant$Analysis$Model$

+

+

Survival' or' duration' analysis:+ A+ branch+ of+ statistics+ that+ deals+with+ death+ in+ biological+ organisms+ and+ failure+ in+

mechanical+systems+(see+Figure+9).+It+involves+the+modeling+of+time+to+event+data;+in+this+context,+death+or+failure+is+

considered+an+“event”+in+the+survival+analysis+literature+–+traditionally+only+a+single+event+occurs,+after+which+the+

organism+ or+mechanism+ is+ dead+ or+ broken.+ Survival+ Analysis+ is+ the+ study+ of+ lifetimes+ and+ their+ distributions.+ It+

usually+involves+one+or+more+of+the+following+objectives:+

+

• To+explore+the+behavior+of+the+distribution+of+a+lifetime.+

• To+model+the+distribution+of+a+lifetime.+

• To+test+for+differences+between+the+distributions+of+two+or+more+lifetimes.+

• To+model+the+impact+of+one+or+more+explanatory+variables+on+a+lifetime+distribution.+

+

+ By+applying+survival+analysis+to+revenue+management+models,+casino+operators+can+gain+a+truer+picture+of+

their+table+games+revenue+(Peister,+2007).+


+

Figure$9:$Survival$Analysis$Model$

+

+ There+are+several+other+data+mining+techniques+that+can+be+used+but+the+ones+listed+above+are+the+most+

commonly+used+ones+in+the+industry+and+much+of+what+you+will+need+to+glean+from+your+data+can+be+discovered+by+

using+them.+Once+the+data+has+been+mined,+a+business+ intelligence+solution+can+tell+you+what's+going+on+ in+your+

data+while+a+predictive+analytics+program+can+actually+analyze+ current+and+historical+ trends+ to+make+predictions+

about+future+events.++

+

Predictive'Analytics:'Actionable'Intelligence'

+

Customer+ analytics+ have+ evolved+ from+ simply+ reporting+ patron+ behavior+ to+ segmenting+ customers+ based+ on+

profitability,+to+predicting+that+profitability,+to+improving+those+predictions+(because+of+the+inclusion+of+new+data),+

to+actually+manipulating+customer+behavior+with+targetKspecific+promotional+offers+and+marketing+campaigns.++

+ Predictive+analytics+can+graph+a+customer’s+value+over+time+as+well+as+anticipate+that+customer’s+behavior.+

From+ this+ analysis,+ a+ casino+ operator+ can+ tailor+ highly+ specific,+ laserKfocused+ marketing+ campaigns+ to+ each+

customer+in+the+casino’s+patron+database.+By+consolidating+the+various+patron+touchpoint+systems+throughout+the+

casino+property,+the+casino+operator+can+create+a+full+view+of+each+patron.++

+ Drawing+ on+ data+ from+ casino+ player+ cards,+ predictive+ models+ can+ set+ budgets+ and+ calendars+ for+ the+

casino's+ gamblers,+ calculating+ their+ predicted+ lifetime+ value+ in+ the+ process.+ If+ a+ gambler+wagers+ less+ than+ usual+

because+they+may+have+skipped+a+monthly+visit,+the+casino+can+intervene+with+a+letter+or+phone+call+offering+a+free+

meal,+a+show+ticket+or+gaming+comps.+Without+these+customer+analytics,+casino+operators+might+not+notice+what+


could+ be+ a+ slight,+ almost+ imperceptible+ change+ in+ customer+behavior+ that+ portends+ problems.+ For+ example,+ if+ a+

longKtime+customer+decides+ to+cash+ in+all+ their+player+card+points+perhaps+ it’s+because+they+are+dissatisfied+with+

their+last+experience+at+the+casino.+Predictive+analytics+can+quickly+spot+these+trends+and+alert+casino+management+

to+ the+ issue+so+ that+ they+can+approach+ the+ individual+ to+ find+out+ if+ there+ is+a+problem.+This+kind+of+personalized+

attention+can+go+a+long+way+in+appeasing+disgruntled+customers,+which+might+be+the+difference+between+retaining+

or+losing+them+as+a+customer.++

+ Predictive+analytics+can+glean+data+from+a+variety+of+disparate+sources,+including:+

+

• Data+integrated+throughout+the+casino's+gaming+systems.+

• Feedback+information+derived+from+postKvisit+surveys.+

• Web+data+mining+from+customer’s+individual+online+behavior.+

• Social+media+websites.++

+ +

+ With+ predictive+ analytics,+ gaming+ organizations+ can+ easily+ segment+ their+ customers+ and+ coordinate+

marketing+campaigns+to+effectively+target+each+segment+across+each+outbound+channel.+For+example,+ if+a+casino+

customer+is+scheduled+to+receive+all+of+his+or+her+event+promotions+via+eKmail,+the+predictive+analytics+solution+will+

automatically+remove+him+from+concurrent+campaigns+being+run+through+other+channels.+This+ensures+consistency+

and+also+ improves+ customer+ satisfaction,+ since+ the+organization+ respects+ the+customer’s+ contact+preference+and+

doesn’t+ inundate+ him+ or+ her+ with+ multiple+ offers.+ Moreover,+ a+ predictive+ analytics+ solution+ monitors+ channel+

capacity+and+usage+to+eliminate+overload,+while+distributing+campaigns+equally+across+the+various+channels.+If+one+

channel+is+at+risk+of+overload,+the+solution+automatically+shifts+the+remainder+of+a+campaign+to+a+different+channel+

to+ ensure+ completion.+ This+ enables+ organizations+ to+maximize+ the+ capacity+ and+ value+ of+ each+ channel+ without+

resorting+to+timeKconsuming+manual+monitoring.++

+

Manipulating'Customer'Behavior'

Successful+marketing+ is+about+reaching+a+consumer+with+an+ interesting+offer+when+he+or+she+ is+primed+to+accept+

that+offer.+Knowing+what+might+ interest+a+patron+ is+half+ the+battle+of+making+a+ sale+and+ this+ is+where+ customer+

intelligence+ and+ predictive+ analytics+ come+ in.+ Customer+ analytics+ has+ evolved+ from+ simply+ reporting+ customer+

behavior+to+segmenting+customers+based+on+their+profitability,+to+predicting+that+profitability,+to+improving+those+

predictions+because+of+the+inclusion+of+new+data,+to+actually$manipulating$customer$behavior+with+targetKspecific+

promotional+offers+and+marketing+campaigns.++

+ Predictive+ analytics+ can+ deconstruct+ a+ casino’s+ massive+ data+ warehouse,+ making+ the+ information+ held+

within+ these+databases+more+meaningful.+ It+ can+extrapolate+ trends,+ invent+and+validate+a+hypothesis,+ as+well+ as+

predict+future+activity.+Predictive+analytics+can+be+used+in+a+myriad+of+ways,+but+mostly+for+crossKselling/upKselling,+


campaign+ management,+ customer+ acquisition,+ budgeting,+ forecasting+ and+ attrition/churn/retention,+ amongst+

other+things+(see+Figure+10).+

+

+ Casino+ operators+ can+ enhance+ their+ customer+ relationships+ by+ crossKselling+ and+ upKselling+ items+ that+ the+

customer+might+actually+be+interested+in,+rather+than+offering+them+products+they+are+likely+to+reject.++

+ Predictive+analytics+can+also+enable+call+center+personnel+to+act+on+inbound+calls+by+providing+offers+that+are+

likely+ to+ be+ attractive+ to+ certain+ caller+ profiles.+ Inversely,+ telemarketers+ can+ listen+ for+ such+ trigger+ phrases+ as+

“Baccarat+ tournament”+ or+ “seafood+ buffet”+ or+ “hotel+ room”+ to+ help+ casino+marketers+ come+ up+ with+ the+most+

enticing+offer+for+an+individual+patron.+In+addition,+automated+systems+like+kiosks+and+customer+service+agents+on+

the+ casino+ floor+ can+ use+ predictive+ analytics+ to+ provide+ customers+ with+ appropriate+ offers+ during+ other+

interactions.++

+ In+ their+ article+ “Knowing$What$ to$ Sell,$When,$ and$ to$Whom,”+ authors+ V.+ Kumar,+ R.+ Venkatesan,+ and+W.+

Reinartz+(2006)+showed+how,+by+simply+understanding+and+tweaking+behavioral+patterns,+they+could+increase+the+

hit+rate+for+offers+and+promotions+to+consumers,+which+then+had+an+immediate+impact+on+revenue.++

+ By+ applying+ statistical+ models+ based+ on+ the+ work+ of+ Nobel+ prizeKwinning+ economist+ Daniel+ McFadden,+

researchers+accurately+predicted+not+only+a+ specific+person’s+purchasing+habits,+but+also+ the+specific+ time+of+ the+

purchase+to+an+accuracy+of+80%+(Venkatesan+and+Reinartz,+2006).+The+potential+to+market+to+an+individual+when+he+

or+she+is+primed+to+accept+the+advertising+is+advantageous+for+both+parties+involved;+marketers+don’t+waste+time+

Figure 10: Applications for Predictive Analytics


advertising+ to+ consumers+when+ they+ aren’t+ primed+ to+ accept+ the+ advertisements,+ but+ do+market+ to+ consumers+

when+and+where+they+might+want+to+use+the+advertisements.++

+ Predictive+modeling+is+only+useful+if+it+is+deployed+and+it+creates+an+action.+Taking+advantage+of+the+more+

powerful,+ statistically+ based+ segmentation+methods,+ customers+ can+be+ segmented+not+only+by+dollar+ values+but+

also+on+all+known+information,+which+can+include+behavioral+information+gleaned+from+resort+activities,+as+well+as+

the+ patron’s+ simple+ demographic+ information.+ This+ more+ detailed+ segmentation+ allows+ for+ more+ targeted+ and+

customerKfocused+marketing+campaigns.+

+ Models+can+be+evaluated+and+reports+generated+on+multiple+statistical+measures,+such+as+neural+networks,+

decision+ trees,+genetic+algorithms,+ the+nearest+neighbor+method,+ rule+ induction,+and+ lift+and+gains+charts.1+Once+

built,+ scores+ can+ be+ generated+ in+ a+ variety+ of+ ways+ to+ facilitate+ quick+ and+ easy+ implementation.+ The+ projects+

themselves+can+be+reKused+and+shared+to+facilitate+faster+model+development+and+knowledge+transfer.++

+ In+his+paper+Predictive$Analytics,+Wayne+Eckerson+(2007)+advises+creating+predictive+models+by+using+the+

following+six+steps:+

+

1. Define+ the+ business+ objectives+ and+ desired+ outcomes+ for+ the+ project+ and+ then+ translate+ them+ into+

predictive+analytic+objectives+and+tasks.+

2. Explore+ and+ analyze+ the+ source+ data+ to+ determine+ the+ most+ appropriate+ data+ and+ model+ building+

approach+and+then+scope+the+effort.++

3. Prepare+ the+ data+ by+ selecting,+ extracting,+ and+ transforming+ the+ data,+which+will+ be+ the+ basis+ for+ the+

models.++

4. Build+the+models,+as+well+as+test+and+validate+them.+

5. Deploy+the+models+by+applying+them+to+the+business+decisions+and+processes.+

6. Manage+and+update+the+models+accordingly.++

+

+ By+utilizing+data+from+past+campaigns+and+measures+generated+by+the+predictive+modeling+process,+casino+

operators+can+track+actual+campaign+responses+versus+expected+campaign+responses,+which+can+often+prove+wildly+

divergent.+ Additionally,+ casino+ operators+ can+ generate+ upper+ and+ lower+ “control”+ limits+ that+ can+ be+ used+ to+

automatically+ alert+ campaign+ managers+ when+ a+ campaign+ is+ over+ or+ underperforming,+ letting+ them+ focus+ on+

campaigns+that+specifically+require+attention.++

+ One+of+the+benefits+of+automating+campaigns+is+that+offers+based+on+either+stated+or+inferred+preferences+

of+patrons+can+be+developed.+Analysis+can+identify+which+customers+may+be+more+responsive+to+a+food/beverage+

offer,+ a+ room+offer,+ and/or+ a+ free+ chip+ offer.+ The+ result:+more+ individualized+offers+ are+ sent+ out+ to+ the+ casino's+

patrons+and,+because+ these+offers+ tap+ into+a+ customer’s+wants,+desires,+needs+and+ expectations,+ they+are+more+

likely+to+be+used;+more+offers+used+mean+more+successful+campaigns.+++

1Cumulative gains and lift charts are visual aids for measuring model performance.


+ By+understanding+what+ type+of+patron+ is+on+ its+property,+why+ they+are+ there,+ and+what+ they+ like+ to+do+

while+they+are+there,+a+casino+operator+can+individualize+its+marketing+campaigns+so+that+they+are+more+effective,+

thereby+increasing+the+casino+property's+ROI.++

+ With+ predictive+ analytics,+ casino+operators+ can+ even+predict+which+ lowKtier+ and+midKtier+ customers+ are+

likely+to+become+the+next+high+rollers.+In+so+doing,+casinos+can+afford+to+be+more+generous+in+their+offers+as+they+

know+that+there+is+a+high+likelihood+that+these+customers+will+appreciate+the+personalized+attention+and+therefore+

become+long+term+–+and,+hopefully,+highly+profitable+–+patrons.++

+

ROI:'Predictive'Modeling'in'the'Real'World''

It+ is+ hard+ to+ get+ an+ exact+ Return+ on+ Investment+ (ROI)+ figure+ with+ predictive+ analytic+ solutions+ because+ many+

companies+who+have+ implemented+these+solutions+haven’t+conducted+ formal+ROI+studies.+The+very+nature+of+an+

ROI+study+can+be+rather+nebulous+as+the+revenue+generation+isn't+always+easily+quantifiable.+However,+according+to+

Wayne+Erickson+(2007),+“companies+with+highKvalue+analytic+programs+that+have+calculated+ROI+invest+on+average+

$1.36+million+and+receive+a+payback+within+11.2+months.+It+should+be+noted,+however,+that+this+study+was+based+on+

responses+from+only+37+survey+respondents.”+

+ Although+they+are+not+in+the+casino+industry,+according+to+a+July+7,+2009+press+release+about+their+use+of+

the+ SAS+ Analytics+ suite+ of+ tools,+ the+ National+ Geographic+ Society+ saw+ “a+ return+ on+ investment+ of+ 200+ to+ 300+

percent,+ with+ the+ bestKperforming+ customer+ segments+ realizing+ 50+ percent+ overall+ campaign+ performance+

improvements”+(SAS,+2009).++

+ Some+other+ real+world+examples+of+how+predictive+analytics+have+helped+companies+ increase+customer+

service+as+well+as+drive+profits+straight+to+the+bottom+line+include:+

+

• To+ test+ a+marketing+ campaign+hypothesis,+Harrah's+ chose+ two+ similar+ groups+of+ frequent+ slot+ players+

from+ Jackson,+Miss.+Members+ of+ the+ control+ group+were+ offered+ a+ typical+ casinoKmarketing+ package+

worth+ $125+ that+ included+ a+ free+ room,+ two+ steak+meals+ and+ $30+ of+ free+ chips+ at+ the+ Tunica+ casino.+

Members+ of+ the+ test+ group+ were+ offered+ $60+ in+ chips.+ The+ more+ modest+ offer+ generated+ far+ more+

gambling,+suggesting+that+Harrah's+had+been+wasting+money+giving+customers+free+rooms.+Thereafter,+

profits+from+the+revamped+promotion+nearly+doubled+to+$60+per+person+per+trip+(Binkley,+2000).+

• When+ Pearl+ River+ Resort+ initiated+ a+marketing+ campaign+ using+ SAS+ PVO,+ they+were+ surprised+ by+ the+

results,+ which+ showed+ that+ not+ all+ highKvalue+ guests+were+ the+ same,+ some+ actually+weren’t+ very+ big+

gamblers+but+their+spend+in+other+parts+of+the+resort+more+than+made+up+for+their+lack+of+gambling.+This+

information+ was+ put+ to+ good+ use+ during+ times+ when+ the+ casino+ was+ hosting+ poker+ or+ blackjack+

tournaments,+ a+ time+when+ the+ casino+ property+ knew+ that+ the+ tables+would+ be+ crowded.+ Pearl+ River+


Resort+was+able+to+fill+the+resort+with+people+the+company+knew+had+little+intention+of+venturing+onto+

the+gaming+floor4.+

• By+using+predictive+analytics+Harrah’s,+was+able+to+identify+a+small+group+of+customers+who+accounted+

for+about+30%+of+their+overall+gamblers+(Binkley,+2000).+These+customers+spent+between+$100+and+$499+

per+trip+but+actually+accounted+for+about+80%+of+the+casino’s+revenue+and+nearly+100%+of+the+casino’s+

profits+(Binkley,+2000).+

+

Predicting'a'Patron's'Future'Worth'

Modern+casino+analytics+and+patron+management+systems+have+provided+the+gaming+industry+with+an+enormous+

amount+ of+ highly+ detailed+ data+ about+when,+where,+ how+ often+ and+ how+much+ patrons+ are+ playing+ at+ a+ casino+

(Sutton,+ 2011).+ This+ is+ information+ that+ can+ be+ used+ by+ a+ casino+ to+ better+ segment+ its+ customers+ as+well+ as+ to+

predict+ future+ behavior,+ and+ improve+ marketing+ outcomes+ (Sutton,+ 2011).+ “Patron+ analytics+ are+ essential+ for+

maximizing+ revenue+ driven+ by+ mass+ market+ marketing+ campaigns,”+ Sutton+ (2011)+ argues+ in+ his+ paper+ Patron$

Analytics$ in$ the$ Casino$ and$ Gaming$ Industry:$ How$ the$ House$ Always$Wins.+ Sutton+ (2011)+ claims+ that,+ when+ it+

comes+to+casino+patron+analytics,+casino+operators+must+seek+answers+to+the+following+questions:+

+

• How+much+is+a+patron+worth,+how+much+can+we+expect+a+patron+to+lose+in+the+future,+and+who+are+the+

most+valuable+patrons?+

• What+patrons+come+together?+

• What+patrons+are+most+likely+to+abuse+an+offer?+

• What+patrons+are+the+most+and+least+likely+to+respond+to+an+offer?+

• Which+offers+perform+the+best?+

+

+ The+ single+ most+ important+ thing+ patron+ analytics+ must+ determine+ is+ the+ patron's+ worth+ to+ the+ casino+

property+(Sutton,+2011).+Predicting+a+patron's+future+behavior+is+not+an+easy+thing+to+do+as+it+can+be+affected+by+a+

number+ of+ variables,+ including+ total+ income,+ expendable+ income,+ ethnicity,+ reasons+ for+ a+ trip+ (convention+ vs.+

vacation),+ among+many+ other+ things+ (Sutton,+ 2011).+ However,+ “although+ that+ information+ is+ often+ available+ to+

append+through+third+parties,+there+is+still+a+plentiful+amount+of+information+found+with+inKhouse+data+and+this+data+

can+be+used+to+build+models+and+metrics+to+predict+a+patron's+future+worth”+(Sutton,+2011).+Once+worth+has+been+

determined,+patrons+can+be+“segmented+into+groups+based+on+other+behaviors+and+effective+marketing+campaigns+

can+be+developed+around+those+behaviors”+(Sutton,+2011).++

+ Determining+ a+ patron's+worth+ is+ imperative+ because+ it+ helps+ reveal+ how+ valuable+ that+ patron+ is+ to+ the+

casino,+and+ this+ is+ information+ that+ can+be+used+ to+dictate+how+much+ should+be+ reinvested+ in+ the+patron+ in+ the+

4http://www.sas.com/news/feature/02jun05/pr.html (Accessed April 2, 2012)


future+(Sutton,+2011).+Sutton+(2011)+argues+that,+“There+are+two+main+components+of+worth+–+the+financial+sources+

of+worth+(i.e.,+gaming+or+hotel)+and+the+unit+of+time+to+which+it+refers+(daily,+weekly,+monthly,+etc.).+Additionally,+

worth+can+refer+to+historical+worth,+which+is+already+known,+or+future+worth,+which+is+unknown”+(Sutton,+2011).+'

' Most+revenue+sources+are+fairly+straightforward+–+room+revenue+refers+to+how+much+the+patron+paid+for+

the+ room,+ restaurant+ revenue,+ obviously,+ is+ how+ much+ he+ or+ she+ paid+ for+ food+ and/or+ drinks,+ (Sutton,+ 2011).'

Gaming+ revenue,+ however,+ isn't+ quite+ as+ simple+ because+ probability+ is+ involved+ and' there+ are+ “two+ important+

measures+used+to+assess+a+patron's+gaming+worth+–+actual+and+theoretical+loss”+(Sutton,+2011).'Actual+loss+refers+to+

how+much+money+ the+ patron+ actually+ lost+ (or+ won),+ “whereas+ theoretical+ loss+ usually+ refers+ to+ the+ amount+ of+

money+ a+ patron+ is+ expected+ to+ lose+ based+ on+ the+ amount+ of+money+wagered,+ the+ time+ spent+ playing,+ and+ the+

probability+ associated+with+ the+ type+ of+ games+ played”+ (Sutton,+ 2011).'Whereas+ actual+ loss+ is+ generally+ used+ to+

measure+campaign+performance+and+profitability,+theoretical+loss+relies+more+heavily+upon+predictive+analytics+and+

is+a+much+stronger+predictor+of+future+behavior+(Sutton,+2011).'For+Sutton+(2011),+the+formulas+used+to+calculate+

the+theoretical+loss+for+table+games+and+slots+are+as+follows:+

+

• Table$Theoretical$Loss+=+Average+Bet+x+Time+Played+x+Speed+of+Game+x+House+Advantage.$

• Slot$Theoretical$Loss+=+Coin+in+x+Hold+Percentage.+

+ ''

' Once+ patron+ worth+ has+ been+ defined,+ data+ mining+ and+modeling+ techniques+ can+ be+ used+ to+ estimate+

predicted+worth+in+the+future+(Sutton,+2011).+“Simple+metrics+based+on+historical+behavior,+such+as+Average+Daily+

Theoretical+Loss+or+Average+Trip+Theoretical+Loss,+will+produce+fairly+accurate+predictions+of+future+worth,”+Sutton+

(2011)+notes.+“However,+advanced+predictive+models+are+able+to+predict+worth+with+more+accuracy+and+power+by+

accounting+for+both+patterns+ in+behavior+over+time+and+relationships+between+predictive+ inputs+that+exist+within+

casino+data,”+Sutton+(2011)+argues.++

+ There+ are+many+ different+ techniques+ that+ can+ be+ used+ to+ develop+models+ to+ predict+ future+worth,+ the+

most+ common+ of+ which+ are+ regression+ models+ (Sutton,+ 2011).'Multiple+ regression+ models+ “utilize+ a+ variety+ of+

predictors+ and+ the+ relationships+ between+ those+ predictors+ to+ predict+ future+worth”+ Sutton+ (2011)+ states.'As+ an+

example,+Sutton+(2011)+explains+that,+“a+model+built+to+predict+future+gaming+trip+worth+might+be+generated+based+

on+historical+information+about+theoretical+win,+actual+win,+credit+line,+time+on+device,+nights+stayed,+and+average+

bet.”'+

+ Regression+models+could+also+be+“built+using+such+categorical+variables+predictors+as+gender,+ethnicity,+age+

range,+ or+ demographic+ variables”+ (Sutton,+ 2011).' “Regression+ models+ are+ particularly+ effective,”+ Sutton+ (2011)+

concludes+“because+the+model+can+be+used+to+score+historical+data+to+predict+an+unknown+outcome,+which+is+worth+

in+this+case,+with+a+certain+degree+of+confidence.”'

'


Identifying'the'Casino's'Most'Valuable'Patrons+

One+ way+ to+ determine+ who+ the+ casino's+ best+ patrons+ are+ is+ to+ try+ to+ separate+ the+ skilled+ gamblers+ from+ the+

unskilled+gamblers+(Sutton,+2011).+Most+casino+databases+don't+have+a+very+good+measure+of+skill;+however,+ it+ is+

possible+ to+ look+ at+ whether+ a+ patron+ is+ usually+ a+ loser+ or+ a+ winner+ (Sutton,+ 2011).+ “A+ quick+ and+ easy+ way+ to+

evaluate+ a+ player's+ skill+ is+ by+ calculating+ the+ percentage+ of+ trips+where+ the+ player+ actually+ lost+money,”+ Sutton+

(2011)+explains.+For+example,+as+Sutton+(2011)+states:++

+

Did$a$player$with$ five$ trips$ lose$money$on$all$ five$of$ those$ trips?)Although$ this$might$ just$ be$an$

indicator$that$the$patron$will$play$until$he$is$out$of$money$or$time,$it$is$also$a$fairly$simple$way$to$

identify$the$patrons$that$do$not$come$away$as$winners$very$often.$This$is$an$instance$where$actual$

loss$might$be$a$good$predictor$of$worth,$as$we$would$rather$have$these$patrons$in$the$casino.$+

+

' Although+ slot+ machines+ are+ not+ really+ skill+ based+ and+ loses+ could+ be+ more+ attributed+ to+ luck,+ a+

differentiation+can+be+made+between+patrons+by+looking+at+behaviors+and+strategies+of+slot+players+(Sutton,+2011).'

“Since+casinos+have+to+pay+a+certain+percentage+of+win+or+handle+to+the+slot+manufacturer+for+participation+games,+

patrons+that+primarily+play+nonKparticipation+games+are+slightly+more+valuable+to+the+casino”+Sutton+(2011).+Casino+

operators+should+keep+in+mind+how+much+play+a+slot+patron+has+on+participation+machines+compared+to+machines+

it+owns+outright.''

' Another+thing+to+ look+at+for+slot+players+ is+their+average+bet+relative+to+the+maximum+bet+on+the+games+

they+play+(Sutton,+2011).+In+most+cases,+a+patron+has+to+play+the+maximum+bet+in+order+to+be+eligible+for+jackpots+

and+progressives+(Sutton,+2011).'Given+two+patrons+of+comparable+theoretical+worth,+the+one+who+plays+closer+to+

the+maximum+bet+allowed+is+more+likely+to+hit+a+jackpot+than+the+other+(Sutton,+2011).'Sutton+(2011)+argues,+rather+

counter+ intuitively,+that+“the+patron+with+the+higher+average+bet+would+seem+to+be+more+valuable,+but+since+the+

lower+bet+patron+is+less+likely+to+hit+a+jackpot,+the+lower+bet+patron+might+be+a+lower+risk.”'Although+this+metric+has+

usefulness+on+its+own,+casino+management+could+also+“use+it+as+either+a+predictor+in+a+model+for+future+worth+or+a+

decision+tree+predicting+whether+a+patron+will+respond”+to+an+offer+(Sutton,+2011).++

+

Identifying'Patrons'Who'Come'Together+

Beyond+a+patron's+worth+is+the+combined+worth+of+a+household,+which+“refers+to+the+combined+worth+of+multiple+

patrons+that+tend+to+make+their+trips+together”+(Sutton,+2011).'This+can+be+difficult+to+identify+because+patrons+of+

the+ same+household+might+ stay+ in+ separate+ rooms,+ take+ trips+ separately,+ or+ one+patron+might+ only+ come+when+

accompanied+ by+ another+ patron' (Sutton,+ 2011).' Although+ tricky,+ identifying+ household+ worth+ can+ pay+ huge+


dividends+by+helping+to+“account+for+revenue+that+looks+like+two+separate+individuals+but+can+be+combined+into+one+

'household'”'(Sutton,+2011).'+

+ Although+many+ patron+management+ systems+ allow+ the+ linking+ of+ accounts+ so+ that+ patrons+ who+ come+

together+can+be+easily+ identified,'data+mining+can+help+to+identify+groups+of+patrons+who+come+together+without+

linked+accounts+(Sutton,+2011).'To+do+this,+the+casino+must+first+identify+patrons+who+make+their+trips+at+the+same+

time+as+each+another.+Then+a+combination+of+various+data+points+ is+studied+to+identify+the+“households”+(Sutton,+

2011).+For+Sutton+(2011),+these+include:+

+

• Last+name:+this+can+identify+relatives+who+come+together.+

• Address:+this+reveals+roommates+or+patrons+living+together+with+separate+last+names.+

• Room+or+floor:+patrons+in+a+group+tend+to+request+rooms+that+are+near+each+other.+

• City+and+State:+this+could+reveal+friends+and/or+relatives+who+are+from+the+same+area.+

• Time+of+day+that+games+are+played:+this+will+reveal+players+who+are+together+on+the+casino+floor,+which+

is+obviously+the+behavior+of+friends+or+family+members.+++

• Game+type:+this+reveals+patrons+who+are+playing+in+the+same+area+on+the+casino+floor,+or+at+least+close+

to+one+another.+

• Restaurant+and+retail+charges:+this+reveals+patrons+who+have+charges+from+the+same+outlet+on+the+same+

day.'

'

' By+grouping+patrons+ into+a+“household+worth”,+a+group+of+ four+patrons+who+might+be+of+modest+worth+

individually,+ can+ “come+ together+ and+ stay+ in+ the+ same+ room+ every+ time+ and+ thus+ are+worth+more+ as+ a+ group”+

(Sutton,+2011).'Armed+with+this+grouping+ information,+a+casino+can+adjust+ its+marketing+effort+and+send+an+offer+

that+ is+ based+ on+ the+ patron's+ combined+ worth+ rather+ than+ on+ their+ individual+ worth+ (Sutton,+ 2011).+ It+ is+ a+

distinction+that+could+be+the+difference+between+the+offer's+acceptance+or+its+rejection.'

'

Minimizing'Patron'Abuse+

Predictive+models+ of+worth+ should+ take+ into+ account+ the+ likelihood+ of+ a+ guest+ playing+ on+ a+ future+ trip+ (Sutton,+

2011).+It+is+also+advisable+to+build+a+separate+model+that+identifies+patrons+who+are+likely+to+use+a+future+offer+but+

not+play+in+the+casino,+thereby+taking+advantage+of+the+property+(Sutton,+2011).+“Since+many+offers+in+the+casino+

industry+tend+to+be+for+complimentary+rooms+that+are+given+to+patrons+upfront,+patrons+that+redeem+offers+and+do+

not+ play+ have+ a+ considerable+ impact+ on+ campaign+ success+ and+ profitability,”+ Sutton+ (2011)+ points+ out.+ For+

marketing+campaigns+to+be+successful+over+the+long+term,+it+is+important+to+not+only'identify+the+patrons+who+are+

abusing+the+system,+but+also+to+adjust+the+offers+they+receive+(Sutton,+2011).'According+to+Sutton+(2011)+“Decision+


trees+and+ logistic+ regression+are+ common+statistical+methods+used+ to+ identify+patron+characteristics+ that+predict+

the+likelihood+of+a+patron+(or+segment+of+patrons)+to+abuse+an+offer”+(Sutton,+2011).+'

' Factors+such+as+age,+gender+and+history+of+abuse+are+likely+predictors+of+abuse+(Sutton,+2011).+Data+from+

postKvisit+ followKup+ surveys+ can+ be+ used+ to+ identify+ these+ predictors+ (Sutton,+ 2011).' “If+ a+ patron+ had+ a+ bad+

experience+in+the+past,+they+might+take+an+offer+for+a+free+room+as+revenge+for+that+bad+experience,”+Sutton+(2011)+

warns.' But+ by+ identifying+ those+ patrons+ at+ risk+ of+ abusing+ offers,+ the+ casino+ property+ can+ decide+ how+ best+ to+

market+to+these+individuals+(Sutton,+2011).+Instead+of+receiving+the+general+offer+of+a+free+room,+the+patron+would+

be+sent+an+offer+that+requires+them+to+play+up+to+a+certain+level+or+they+would+be+required+to+pay+for+their+room”+

(Sutton,+2011).''

'

Campaign'Optimization+

In+addition+to+predicting+ the+ future+worth+of+a+patron,+casino+marketers+must+know+which+marketing+campaigns+

are+ the+most+effective+at+driving+up+response+rates,+as+well+as+which+campaigns+will+ increase+gambling+revenues+

and+property+profits+(Sutton,+2011).'Understanding+a+patron's+probable+future+worth+is+critical+in+determining+the+

eligible+reinvestment+levels+that+make+financial+sense+for+the+casino+property+(Sutton,+2011).++

+ “A'patrons'+behavior+and+interests+can+be+used+to+identify+the+offer(s)+that+will+be+most+appealing+to+each+

patron+and+generate+the+most+profitable+response,”+argues+Sutton+(2011).+Although+offers+of+free+rooms+and+free+

gaming+play+are+historically+the+strongest+drivers+of+response,+the+cost+associated+with+them+can+be+detrimental+to+

the+property+ (Sutton,+2011).+ Sometimes+ it+doesn't+make+good+business+ sense+because+“not+every+patron+who+ is+

eligible+for+a+free+room+has+to+be+offered+a+free+room+to+respond+–+some+might+be+willing+to+pay+for+a+discounted+

room+or+even+a+full+price+room”+(Sutton,+2011).'“By+analyzing+the+likelihood+that+a+patron+will+respond+to+a+certain+

offer+or+offers,+casino+executives+can+optimize+the+offer+that+each+patron+is+given+in+order+to+maximize+the+amount+

of+revenue+and+profit+driven+by+marketing+campaigns+as+a+whole,”+concludes+Sutton+(2011).''

+ A/B+ testing+ is+ the+most+ effective+ way+ to+ identify+ the+ best+ available+ offer+ (Sutton,+ 2011).+ As+ previously+

mentioned,+A/B+testing+“involves+testing+two+different+offers+against+one+another+in+order+to+identify+the+offer+that+

drives+the+highest+response+and+the+most+revenue/profit”+ (Sutton,+2011).+Logistic+regression,+decision+trees,+and+

discriminant+analysis+can+also+be+used+to+cull+through+a+casino's+historical+data+and+uncover+factors+that+are+related+

to+whether+ a+patron+ responds+ to+ an+offer+ or+ not+ (Sutton,+ 2011).+ “These+ factors+ can+ then+be+used+ to+ assess+ the+

likelihood+of+ response+based+on+the+similarity+of+a+patron+profile+ to+ that+of+ responders,”+explains+Sutton+ (2011).+

Obviously,+“to+build+accurate+and+predictive+response+models,+historical+data+about+response+is+required”+(Sutton,+

2011).+ “The+ likelihood+ of+ response+might+ be+ a+ broad+measure+ of+ response+ that+ refers+ to+ the+ likelihood+ that+ a+

patron+will+ respond+to+any+offer,+or+ it+might+be+specific+to+the+ likelihood+of+response+to+a+specific+type+of+offer,”+

notes+Sutton+(2011).+Effective+response+models+have+a+dual+purpose;+they+can+help+identify+which+patrons+are+most+

likely+ to+ respond+ to+an+offer,+as+well+as+ reveal+which+offer+patrons+are+most+ likely+ to+ respond+ to+ (Sutton,+2011).+


According+to+Sutton+(2011),+“There+are+at+least+three+main+uses+of+response+modeling+that+can+improve+marketing+

results:+

+

• Identify+the+likelihood+of+patrons+to+respond+to+the+offer.+

• Identify+the+offer(s)+to+which+patrons+are+most+likely+to+respond.+

• Predict+when+a+patron+is+likely+to+return.”++

+

+ Determining+which+offers+a+patron+is+most+likely+to+respond+to+is+only+half+the+battle.+It+is+also+important+to+

know+ exactly+when+ that+ patron+ is+ planning+ to+make+ his+ or+ her+ trip+ as+well+ (Sutton,+ 2011).'Although+ it's+ almost+

impossible+to+know+exactly+when+a+patron+is+likely+to+return+(without+them+making+a+reservation,+of+course),+there+

are+ a+ variety+ of+ predictive+ analytics+ methods+ that+ can+ help+ take+ out+ the+ guesswork+ (Sutton,+ 2011).+ Frequency+

analysis,+ regression,+ and+ survival+ analysis+ can+ all+ be+ used+ to+ assess+ when+ a+ patron+ is+ likely+ return+ to+ a+ casino+

(Sutton,+2011).++

+ Knowing+when+a+patron+is+likely+to+return+can+help+identify+patrons+who+haven't+been+to+the+property+in+

while+and+might+be+at+risk+of+leaving+for+good+(Sutton,+2011).'To+identify+these+patrons,+the+casino+should+discover+

the+ average+ or+ median+ time+ between+ a+ patron's+ trips+ (Sutton,+ 2011).+ This+ could+ be+ segmented+ by+ geography,+

worth,+or+even+historical+ frequency,+such+as+trips+made+weekly,+monthly,+quarterly,+annually,+biKannually,+and+so+

forth+(Sutton,+2011).+Patrons+who+“have+not+made+a+trip+within+the+decided+amount+of+time+for+their+segment+are+

subsequently+ flagged+ and+ dealt+with+ appropriately”+ (Sutton,+ 2011).+ Sutton+ (2011)+ believes+ a+ casino's+marketing+

department+should+have+two+primary+goals;+generate+trips+sooner+than+expected+and+convert+patrons+ into+more+

frequent+visitors.++

+ A+lesser+goal+would+be+identifying+patrons+who+are+at+risk+of+leaving+the+property+for+good+(Sutton,+2011).+

In+cases+such+as+these,+sending+the+patron+an+offer+using+“last+chance”+or+“we+miss+you”+language+could+help+retain+

them+(Sutton,+2011).+The+offer+contained+within+should+probably+be+better+than+the+patron+has+received+in+the+past+

to+ really+catch+ their+attention+ (Sutton,+2011).'By+knowing+when+a+patron+ is+ likely+ to+ return,+a+casino+“can+adjust+

marketing+ strategies+ appropriately+ in+ order+ to+ save+money+ on+mailing+ costs,+ retain+ guests+ and+ increase+ loyalty”+

(Sutton,+2011).+These+are+all+important+strategies+that+should+help+drive+profits+straight+to+the+casino's+bottom+line.++

+

Conclusion'

I+ started+ this+ chapter+ with+ a+ quote+ that+ asked+ the+ question,+ “Do+ you+ want+ to+ ride+ the+ analytics+ horse+ to+

profitability...or+ follow+ it+ with+ a+ shovel?”+ and+ I+ believe+ the+ return+ on+ investment+ of+ implementing+ a+ predictive+

analytics+solution+in+the+casino+business+would+be+substantial.+Casino+patrons+the+world+over+like+the+same+thing+–+

free+rooms,+free+gaming+comps+or+free+meals+–+all+delivered+within+a+marketing+campaign+that+taps+into+their+own+

personal+wants,+desires,+needs+and+expectations.+This+can+only+be+done+with+predictive+analytics.++


+ Modern+casino+analytics+and+patron+management+systems+contain+enormous+amounts+of+highly+detailed+data+

about+when,+where,+how+often+and+how+much+a+casino+patron+ is+spending+at+a+casino+property+(Sutton,+2011).+This+

information+can+be+used+to+better+segment+customers,+to+predict+future+behavior,+and+to+improve+marketing+outcomes+

(Sutton,+ 2011).+ Sutton+ (2011)+ claims+ that,+ when+ it+ comes+ to+ casino+ patron+ analytics,+ casino+ operators+ must+ seek+

answers+to+the+following+questions:+

+

• How+much+is+a+patron+worth,+how+much+can+we+expect+a+patron+to+lose+in+the+future,+and+who+are+the+

casino's+most+valuable+patrons?+

• What+patrons+come+together?+

• Which+patrons+are+most+likely+to+abuse+an+offer?+

• What+patrons+are+the+most+and+least+likely+to+respond+to+an+offer?+

• Which+offers+perform+the+best?+

+

+ Answers+ to+ all+ of+ these+ questions+ can+ be+ found+ by+ utilizing+ predictive+ analytics,+ a+ variety+ of+ statistical+

techniques+ that+ analyzes+ current+ and+ historical+ facts+ to+ make+ predictions+ about+ future+ events.+ Using+ such+

techniques+as+predictive+modeling,+machine+learning,+data+mining+and+game+theory5,+predictive+analytics+can+build+

models+that+exploit+patterns+found+in+historical+and+transactional+data+to+identify+business+risks+and+opportunities.++

Predictive+analytics+can+be+broken+down+into+three+different+types+of+models,+predictive,+descriptive+and+

decision.+ By+ combing+ through+ copious+ amounts+ of+ data+ to+ discover+ patterns,+ trends+ and+ relationships+ that+ are+ too+

subtle+ or+ too+ complex+ for+ humans+ to+ detect,'data+mining,+ along+with+ predictive+ analytics,+ can+ identify+ potentially+

useful+and+understandable+correlations+and+patterns+in+a+property's+datasets.++

+ For+the+casino+industry,+data+mining+can+cull+through+copious+amount+of+data,+data+that+is+coming+from+such+

disparate+sources+and+departments+as+sales,+credit,+and+marketing+and+then+measure+patron+behavior+against+more+

than+a+hundred+different+attributes.+This+is+a+far+cry+from+the+three+or+four+different+attributes+that+statistical+modeling+

used+to+offer.+The+most+common+data+mining+techniques+are+linear+regressions,+neural+networks,+logistics+regressions,+

decision+trees+and+A/B+testing.+

+ Predictive+analytics+can+graph+a+customer’s+value+over+ time+as+well+as+anticipate+ that+customer’s+behavior.+

From+this+analysis,+a+casino+operator+can+tailor+highly+specific,+laserKfocused+marketing+campaigns+to+each+customer+in+

the+ casino’s+ patron+ database.+ Drawing+ on+ data+ from+ casino+ player+ cards,+ predictive+ models+ can+ set+ budgets+ and+

calendars+for+the+casino's+gamblers,+calculating+their+predicted+lifetime+value+in+the+process.+Armed+with+this+kind+of+

information,+casino+properties+can+use+predictive+analytics+to:++

+

• Create+direct+mailing+campaigns.+

• Create+seasonal+promotions.+

5The study of mathematical models of conflict and cooperation between intelligent rational decision-makers (Myerson, 1991).


• Plan+the+timing+and+placement+of+advertising+campaigns.+

• Create+personalized+advertisements.+

• Define+which+market+segments+are+growing+most+rapidly.+

• Determine+the+number+of+rooms+to+reserve+for+wholesale+customers+and+business+travelers.+

+

+ Patron+worth+is+the+single+most+important+thing+patron+analytics+must+determin+(Sutton,+2011).+Once+it+has+

been+discovered,+patrons+can+be+“segmented+into+groups+based+on+other+behaviors+and+effective+marketing+campaigns+

can+be+developed+around+those+behaviors”+(Sutton,+2011).+Determining+a+patron's+worth+is+imperative+because+it+helps+

reveal+ how+ valuable+ that+ patron+ is+ to+ the+ casino,+ and+ this+ is+ information+ that+ can+ dictate+ how+ much+ should+ be+

reinvested+in+the+patron+in+the+future+(Sutton,+2011).+Once+patron+worth+has+been+defined,+data+mining+and+modeling+

techniques+can+be+used+to+estimate+predicted+worth+into+the+future+(Sutton,+2011).++

+ Regression+models+are+particularly+effective+ to+ find+patron+worth+because+ the+model+ can+be+used+ to+ score+

historical+ data+ to+ predict+ an+ unknown+ outcome+ (Sutton,+ 2011).+ Multiple+ regression+ models+ “utilize+ a+ variety+ of+

predictors+and+the+relationships+between+those+predictors+to+predict+future+worth”+(Sutton,+2011).+

+ In+ addition+ to+ predicting+ the+ future+ worth+ of+ a+ patron,+ casino+ marketers+ must+ know+ which+ marketing+

campaigns+ they+ are+ running+ are+ the+ most+ effective+ at+ driving+ up+ response+ rates+ (Sutton,+ 2011).+ Understanding+ a+

patron's+ probable+ future+ worth+ helps+ determine+ the+ eligible+ reinvestment+ levels+ that+make+ financial+ sense+ for+ the+

casino+property+(Sutton,+2011).++

+ A/B+testing++is+one+of+the+most+effective+way+to+identify+the+best+available+offer+to+be+made+to+a+patron,+but+

logistic+ regression,+ decision+ trees,+ and+ discriminant+ analysis+ can+ also+ be+ used+ successfully+ (Sutton,+ 2011).+ Effective+

response+models+have+a+dual+purpose;+they+can+help+identify+which+patrons+are+most+likely+to+respond+to+an+offer,+as+

well+as+reveal+which+offers+patrons+are+most+likely+to+respond+(Sutton,+2011).++

+ Casino+ operators+ should+ keep+ in+mind+ that+ data+mining+will+ only+ be+ successful+ if+ their+ casino+ patrons+ are+

willing+to+provide+information+on+themselves.+Privacy+is+a+big+issue+and+will+always+remain+so+in+the+mobile+age.+Casino+

properties+ that+ can+ honor+ a+ patron's+ privacy+ demands+will+ find+ patron+ loyalty+ comes+with+ voluminous+ amounts+ of+

priceless+patron+data.+This+is+data+that+can+be+used+to+create+marketing+campaigns+that+should+prove+highly+effective.+

By+understanding+what+type+of+patron+is+on+its+property,+why+they+are+there,+and+what+they+like+to+do+while+they+are+

there,+ casino+ operators+ can+ individualize+ their+ marketing+ campaigns+ so+ that+ these+ campaigns+ are+ more+ effective,+

thereby+increasing+the+casino+property's+ROI.++

+

+

predictive analytics in the gaming industry

Technology