IT'S NOT ABOUT THE ROOM, IT'S ABOUT THE STACK
Room revenue drives financial health in nearly every hospitality segment, but for a notable exception. Casino hotels are unique because rooms are only one component of a much larger enterprise. This does not mean rooms are a mere loss leader to attract casino gamers; far from it. Top gaming companies like MGM Resorts, Boyd Gaming and Trump Entertainment Resorts use sophisticated revenue management systems to optimize hotel room rates, but the rates they suggest are based on a guest's total revenue potential for the company, not on room costs or market segment.
“In a traditional hotel, room rates are based on the source of business, such as corporate, AAA, Internet, wholesale and the historical price elasticity exhibited by different customer types,” says Ravneet Bhandari, senior vice president of revenue management for Trump Entertainment. “In a casino property, we can accurately forecast a guest's revenue potential from their player history, so our segmentation and room pricing is based on their ‘total value,’ including their projected gaming value, and other factors from past visits. We call this their theoretical value, or theo. It is not about a room, it is about the guest.
“We use a specialized revenue management system from The Rainmaker Group that pulls in a guest's theo from the player tracking system and factors in comp-set data, demand forecasts, price-elasticity and other variable influences to set room rate,” adds Bhandari. “In simplified terms, if a guest's forecast total value for a date is $200 and the ‘value threshold’ or ‘bid price’ for that day is $300, the room rate is calculated to make up the difference.”
Casino hotels have vastly improved on the outdated hospitality discipline of guest history. According to Lyra Beck, the corporate director of hotel yield and teleservices for Boyd Gaming, “We track every gaming customer's casino activity.
“Boyd knows each gamer's name, play history, frequency and value,” she says. “Our corporate revenue management system automatically downloads player data through a link with the casino's central processor each day.” The system combines that information with cash expenditure data from the property management system and point-of-sale to create property-specific forecasts “and enable our yield managers to input local market factors that inform the availability recommendations for all guest pricing segments.”
Guests with a high theoretical value are comped or offered an attractive rate, while lower-rated players and guests who do not gamble pay prevailing rates. As one casino revenue manager put it: “Casino revenue management is not about the cost of the room, it is about the size of a guest's stack on the gaming table.”
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