Regularly surveying customers is a common practice among successful companies. Customer research is a complicated process that requires an investment of time and money. Many companies outsource customer surveys to survey research firms for three reasons:
1) it saves time;
2) it saves money and, most importantly;
3) it leaves survey design and analysis in the hands of highly trained professionals.
Why do companies make this investment in customer research? Because they believe that knowledge of customer behaviors, attitudes, and perceptions can lead to increased profits. However, there are two different types of research—basic and applied. If you conduct basic research with your customers what impact will it have on your profits?
In order to have a positive impact on profits, you must conduct applied research. What is the difference between basic and applied research? In science, basic research is research done solely for the pursuit of knowledge. It is conducted when a scientist simply wants to know more about a certain phenomenon. Applied research, on the other hand, is conducted to solve a practical problem. Since customer research is conducted to gain knowledge about customers that can be used to increase profits, it is applied research—at least in theory.
Applied research must actually be applied or used to qualify as applied research. When teaching introductory courses in psychology and sociology, during the first week of class I explain the scientific method to my students. I will describe the steps of identifying a research question, selecting a method, and collecting and analyzing the data. At this point I will typically ask the class, “Once I have analyzed the data, am I finished with my research?” Even introductory students know the correct answer to this question is “No!” When I ask them why I can’t just analyze the data and then lock my results away in a file cabinet, they correctly respond, “Because then no one will know about your research and if no one knows about the research it cannot be used.”
Simply learning about customer perceptions is not enough. Unfortunately, some companies conduct customer research, look at the results, and then file the report away without ever taking action. Thus, what they have actually conducted is basic research—they have learned some interesting information about their customers. However the information is of no real value. Something must be done with the information. But what?
Let’s examine how customer research has been applied in the gaming industry. Recently there has been an emphasis in the gaming industry on using customer research for customer relationship management (CRM). CRM involves tracking customer behavior for the purpose of developing relationship building and marketing programs that bond customers to a brand. CRM is used in casinos to identify preferences, demographics, and other measures to predict customer behavior and customize marketing efforts. In an article published in the Journal of Revenue and Pricing Management, Rom Hendler and Flavia Hendler described how CRM can be combined with revenue management to maximize profitability. Casinos are using customer research to determine the destination, dining, and gaming choices of their customers. This information is used to build complimentary and special offer programs that are customized to the individual customers. Customer relationship management enables the casino to determine the resources to be allocated to a customer based on their value. The customer’s value is typically based on their theoretical revenue (the total amount wagered multiplied by the house advantage) and/or their average daily theoretical revenue (ADT)—the total revenue divided by the number of days a player gambled. After assessing a customer’s profitability, the casino can customize offers and determine how much the customer is eligible for in complimentary rooms, tickets, gifts, discounts, etc. The reinvestment is usually a percentage of the customer’s estimated theoretical.
Casinos typically obtain the data used for customer relationship management through gaming rewards programs. Each customer enrolled in the program has a card that enables the casino to keep track of their demographic information, their gaming behavior, and their spending in the casino’s restaurants and other entertainment venues. As stated earlier, this information is then used for revenue management and determines the comps and special offers given to the customer. While this approach to customer research is applied and does have some impact on profits, you must go beyond this to get the most out of your customer research. This micro level approach will be ineffective unless the customer returns to the casino. Whether you are operating a gaming venue or any other type of business, you must keep customers coming back in order to maximize profits. So how is this accomplished?
By utilizing applied research at the macro level.
To maximize the effectiveness and profitability of customer research, you must conduct applied research that will keep your customers coming back to your establishment. Research of this type examines the attitudes and perceptions of your customers and then, using cutting edge statistical techniques, identifies the specific issues that must be addressed to increase customer satisfaction and intent to return to your business.
In the scientific literature you can find studies that come close to this approach to applied research. For example, Anthony Lucas and K. Pearl Brewer, from the University of Nevada in Las Vegas, examined how a hotel casino can manage slot operations using applied research. Their study, published in the Journal of Hospitality and Tourism Research, was designed to identify and explain the sources of variation in the daily slot handle (i.e., the amount of money wagered in all the slot machines) of a locals’ market hotel casino in Las Vegas. Their results helped the casino under study improve their marketing efforts to increase profitability by using inferential (predictive) statistics. Lucas and Brewer’s research showed the hotel casino management that some of their beliefs were incorrect and some of their approaches were ineffective. For example, the casino management believed that food covers drove the slot business in a locals’ market casino. However, the research showed that food covers were not significantly related to slot handle. The casino was also aggressively advertising and promoting its restaurant business at the time of the study. However, it recorded a net loss on its departmental income statement in the food department. Since the research revealed that the effect of food covers was not significant in influencing slot handle, the casino’s management was advised to reconsider their use of food covers.
Such studies in the literature can provide some insight into customer behavior, but the information cannot be generalized (applied) to other businesses, even within the same genre. Human behavior is extremely diverse and dynamic. If you want to utilize science to help you understand your customers and predict and influence their behavior, you must conduct applied research with your customers. Conducting applied research with your own customers on a regular basis will enable you to identify the dynamic drivers of their behavior. You can also identify the drivers of customer satisfaction and intent to return for every key segment of your target market.
Recently, the National Business Research Institute (NBRI) conducted customer research for a large gaming company. NBRI utilized the gaming company’s customer database to conduct customer research that identified the key drivers of customer satisfaction and intent to return. Recall that this information is vital because customer relationship management is ineffective without it—you have no relationship with a customer unless he or she continues patronizing your business. Not only did NBRI identify the key drivers of customer behavior in general, but they were also able to conduct analyses based on customer average daily theoreticals. Recall that part of CRM is using ADTs to determine the comps and special offers given to customers.
In this study, customer behavior was analyzed by three card types based on ADTs. Card type “A” includes customers with ADTs of $300 or more. Customers with ADTs ranging from $100 to $299.99 were classified as card type “B” and those with ADTs from $20 to $99.99 as card type “C.” A proprietary Root Cause Analysis (RCA) was utilized to identify the drivers of overall satisfaction and intent to return for each card type. The RCA uses a combination of regression analysis and a psychological path analysis to identify the drivers of customer behavior.
For card type “A,” both overall satisfaction and intent to return were driven by customers’ perceptions of the casino being a place where they have fun. Overall satisfaction for card type “B” was driven by the customers’ perceptions that the casino had a good mix of slot machine themes and by how appealing they perceived the casino’s restaurants to be. However, intent to return for card type “B” was driven by their perceptions of the wait time at the player rewards card center and by how fair they perceived the comps earned based on play to be compared to those at their other favorite casino. For card type “C” overall satisfaction was based on the customers’ perceptions that the casino had a lot of action and excitement. It was also based on the friendliness and helpfulness of the restaurant staff and the perceived value of the gaming rewards program benefits. Intent to return for card type “C” was driven by the customers’ perception of feeling lucky in the casino. Friendliness and helpfulness of the restaurant staff was also a driving factor for intent to return for card type “C” as was the perceived quality of the food and beverages in the casino’s restaurants.
This information can be used by this gaming company to take actions that will increase overall satisfaction and intent to return for customers of all ADT levels. Taking actions to increase satisfaction and intent to return will make any micro level or customer relationship management efforts more effective. This type of applied customer research is vital to the success of any business. If you would like to learn more about how to utilize applied customer research to increase your company’s profits, contact the National Business Research at 800-756-6168.
Cynthia K. S. Reed, Ph.D., Ph.D.
Organizational Psychologist & Sociologist
National Business Research Institute