Earlier this month, I spoke at Casual Connect about lessons from Real Money gaming that could be applied to the social space. These lessons range from product to CRM to VIP. See the full talk here:
Leaderboards are a common feature in games but developers are often surprised because they are ineffectual or quickly lose impact. The problem is not in the underlying value of leaderboards but in how they are often designed. A recent blog post by Omar Ganai and Steven Ledbetter, How to Motivate with Leaderboards, does a great job of presenting the underlying psychology driving leaderboards and best practices.
What makes leaderboards work
The key principle behind leaderboards is that people want to win and winning improves status. What is often neglected, however, is that some players do not want to win, they want to avoid losing. The latter is important as players who want to avoid losing perform worse when competing. Competition is good for motivation and achievement only when it helps users feel competent. You need to design your leaderboards so it does not make your players feel incompetent.
Ganai and Ledbetter point out that self-determination theory shows people seek and engage in undertakings that fulfill three basic needs. Thus, a well designed leaderboard is consistent with these three needs:
- Competence. The emotion a player feels when they successfully complete a challenging goal. The opposite feeling is ineffective or helpless.
- Relatedness. The feeling a player has when they are understood and liked by other players. The opposite feeling is rejection and disconnection.
- Autonomy. The satisfaction a player gets resulting from a personal commitment and choice. The opposite here is coercion and manipulation.
An effective leaderboard will combine competence, relatedness and autonomy while not making the player feel helpless, disconnected or manipulated.
Best practices in designing leaderboards
To design a leaderboard that drives behavior and incorporates the three needs above, the authors point to four “ingredients”:
- Goal-setting.Goal-setting involves giving or guiding a user toward a goal, and has become recommended as an effective building block for behavior change. The goal of most leaderboards implicitly is to be number one. You need to go beyond this implicit goal and guide your player toward a goal. Effective goals include having fun, learning and showing autonomy. They also recommend nesting intrinsic goals with the extrinsic goals, like making yourself a better poker player by competing on the leaderboard. Finally, an effective technique nests individual goals inside team goals, so the leaderboard is more about playing with others than being number one.
There are also some goals you should avoid as they will prove demotivating. These goals include meaningless rewards (get more worthless points by finishing number one), emphasizing outcomes players cannot control and focusing on pride (i.e. you should win because only the smartest win).
- Feedback. A strong feedback mechanic can promote feelings of mastery and competence. You should provide feedback for players on how they are progressing tied to the above goals they have set. The authors also suggest proving juicy feedback, “juicy feedback is varied, unexpectedly excessive sensual positive feedback on small user actions and achievements.”
- Social comparison. Social comparison helps players understand how they are doing compared to others. Rankings are inherently a form of social comparison. The trick is doing it right because social comparison can make people feel ineffective and unrelated. People tend to compare themselves with people above them so it is easy for them to then feel incompetent.
There are some techniques to mitigate the risks in social comparison. First, you can tell players they have achieved a standard, even if they did not finish first. Second, explain why players got the score they did and explain how they can do better. Third, give players a choice of playing more or stopping (putting them in control). Finally, acknowledge losing is not fun. If you keep players focused on improving and playing well, they are likely to stay engaged. Also, if they lose as part of a team, the impact of the loss will not be as great, thus it is critical to emphasize connections and relationships.
- Social rewards. Just as Facebook uses the Like button, let other players reward a player for their activity. You can achieve this impact by letting them follow the player or just sending a virtual high-five. It also helps to make the rewards surprising, as predictable rewards undermine intrinsic motivation.
What to do
Rather than avoiding leaderboards, build them but build them correctly. If you employ a lazy approach and just rank players 1 to one million, the leaderboard will not work well and impact will diminish over time. If you take the time, however, to set up effective goal setting, provide good feedback, employ social comparison and have strong social rewards, you will have a winning feature and move up the AppStore leaderboard.
- While leaderboards are a central feature in many games, for them to be effective you must build them properly or else they will be ineffective.
- A key to good design is keeping players from feeling incompetent or inferior.
- The other critical components of powerful leaderboards are clear goals, a strong feedback loop, social comparison and rewards that are social.
One of the challenges successful game developers face is what features to add to the product. With a successful game, you are not in panic mode but you also must deal with the reality that in a free-to-play product you need to keep players engaged or you will become the next Trivia Crack. The fundamental issue is adding features that are useful and fun for your existing players, that enhances their enjoyment of your game.
Keys to adding successful features
- The new feature must retain players. The feature itself retains the player and you do not have to drive players artificially to it from other parts of the game. For example, if you add Blackjack to your social slots application, it works if players engage with Blackjack and then come back to play it regularly. You can use the same retention metrics (D1, D7, D30 and CURR) to assess if a feature is working as you do to look at an app.
- The feature can drive its own use at scale, you do not need to create a plan to build adaption. To use the Blackjack example, if you integrate it in your lobby players will try it without forcing you to run specific campaigns.
- The feature must improve KPIs of your core product. To use the blackjack example, it needs to improve either your overall retention or monetization.
The last point is critical to success. I used to be at a game company where product managers regularly presented analysis of their features and bragged about the great performance of the feature. Overall, though, the company’s games continued to lose players (DAU) and monetization per player (ARPDAU) was also decreasing. While the features appeared to perform great in a Powerpoint, they actually were costing the company money because they drove lower overall performance.
How to add features that improve LTV
While you may infer from the previous sections that you should only integrate features that appeal to everyone, the opportunity is to segment your players and build features to appeal to target segments. If you limit yourself to only adding features that are accretive to everyone, you have a small pool to pull from.
Given you already have a successful game, by definition your players are already enjoying your product. While there may be opportunities to add features everyone enjoys, you have a bigger set to choose from if you also identify features that may appeal to a subset of your players. This is particularly powerful because this feature can appeal to a segment that is likely to churn and keep them engaged or a segment that does not monetize and prompts them to spend. Conversely, it could only appeal to the ½ of 1 percent that are VIPs but given how much they spend could have a great impact on revenue
If you are building a feature that appeals to a specific segment, then you must be careful not to violate the third key to creating a successful feature, you do not want it to impact negatively overall KPIs. The way to achieve this balance is by positioning or displaying the feature only to the target audience. This can be done as an AB test, where you only surface the feature to specific players. It can be achieved through targeted CRM (in-game banners, push notifications, email, etc.) that is only sent to players in the target group. Surfacing a different UIUX to players who you want to engage with the feature can also accomplish the same goal. The key is maximizing how much the target audience uses the feature and minimizes how much other players see it.
Using the blackjack example yet again, we can illustrate how it could help a social casino game. Overall, slots monetizes much better than blackjack. It is a faster game and many blackjack players will play in a way so they lose very few chips. If you added blackjack to a successful slots game and promoted it across your player base, you probably would get great engagement as a lot of people love blackjack. It would, however, drive some players from your slots to blackjack where they are likely to monetize at a lower rate. If you were looking at how it would impact overall performance, then, you would say blackjack is a failure.
If, however, the blackjack game was not in the main lobby but embedded deeper in the game and you then drove players who were likely to churn (maybe you have a nice machine learning algorithm that can identify these players) to blackjack, it would engage some of these players. They would then come back regularly to play and rather than churn some would monetize. Thus, you would have a successful feature that helps the overall product.
Add features that help your game
Although it sounds obvious, when building your product roadmap you need to dive deeply into each potential feature and identify how it will improve KPIs of a target segment. Effectively, how will it solve a problem for you or your player (user churning, user not spending, etc.). The bigger the problem, the higher the priority.
- The key to adding new features to a successful product is ensure the feature itself retains players, can generate its own use and helps the overall KPIs of your game.
- You must avoid features that seem to perform well when reviewed in a vacuum but actually hurt the KPIs of the game.
- You can achieve launching a successful feature by targeting your players and then only showing or promoting the feature to players who will benefit from it.
Most investors know that to optimize the expected value and risk of their financial portfolio they need the right mix of domestic and international stocks, bonds and cash. Many game companies, however, fail to heed the core principals of diversification when building their portfolios and deciding what projects to green light. Ironically, very successful companies often amplify this mistake by replicating (i.e. cloning) their hit.
Mistake 1: Copying your hit
The most common mistake successful game companies make is re-skinning or cloning their biggest game. The logic behind this decision is that it is quite difficult to create a hit game so copy what you know. Most frequently, however, the clone fails to reach expectations and the company is left relying on the original hit.
The flaw in this strategy, leading to a negative result, is that the new product appeals to users who are already highly engaged with your company. Since the existing product is a success, players are not looking for an alternative. They already love what they have, why give them the same thing in a different wrapper. I recently wrote about how challenging it is to steal VIP customers from a competitor because they already love the product, it is just as difficult to steal them from yourself.
In the social casino space, you often see this mistake by companies that have a hit slots product, just change the feel of the casino, keep the same slots, and then the new product does not perform as well as the original.
Mistake 2: Appealing to the exact same market
If you base your new product on one of your existing products, you will appeal to the same customers. By appealing to the same users, you are not expanding your potential market but can only increase your share of wallet.
Again, using the social casino space as an example, there are different types of slots players. If your existing game is appealing to players who enjoy land based casinos, rather than creating another product for this target market you can build off of your success by creating a product that appeals to recreational online-only players. Thus, you can still monetize the land-based players with your core product, and increase monetization by improving that game, but you open up a new market.
Mistake 3: You are not creating a blue ocean opportunity
The core of the issue in creating a copy of an existing product is you are not creating a blue ocean opportunity, that is moving to a market space where the competition is not relevant. I have written frequently about Blue Ocean strategy, and rather than repeat it the key is that you have a higher ROI by pursuing a blue ocean strategy than competing in a red (bloody competitive) market.
Blue Ocean strategy is incompatible with cloning your existing product because a new product needs to fulfill four criteria to create a blue ocean:
- Raise. You need to raise some of the elements of value you are currently competing on.
- Eliminate. You need to eliminate some features or aspects that you compete on.
- Add. You must add new features or attributes that other products do not have.
- Reduce. You have to reduce some of the features that the industry relies on.
By definition, if you are copying an existing product you are not doing any, let alone all, of these changes needed to move into a space where the competition is non-existent.
Mistake 4: No new VIPs
VIPs are the lifeblood of a successful mobile game. Less than one percent of players normally drive over 80 percent of revenue, thus it is critical to have a strong VIP base for a game to be successful. When you re-skin or clone an existing game, it becomes virtually impossible to build a strong new VIP base. Your existing VIPs already love the old product, hence why they are VIPs, so they have no reason to move (and you probably have no benefit in moving them). New customers were already exposed to the same mechanics in the existing product and chose not to become VIPs, thus it is very unlikely the new product will generate a different reaction.
What you should do
The easy part of the game industry is recommending what not to do, the challenge is how do you grow your product base. There are many different ways to run a good green light process, assess market conditions, etc., and that is not the purpose of this post (please see my post on how to create a mobile gaming hit). Instead, I recommend you build out a strong green light process that looks at the market, the competition, your strengths and gaps in the market and build your product strategy from there. If you already have a hit product, rather than start from scratch, see how you can leverage key elements of that product to expand into a different segment of the market or create an entirely new space.
- While it is tempting to try to replicate your successful product by re-skinning or cloning it, such a strategy is likely to fail as it will not expand your market.
- Cloning a product is the inverse of pursuing a Blue Ocean strategy (which requires focusing on four core elements: Eliminate, Raise, Add, Reduce), and Blue Ocean generates a higher long-term ROI that traditional strategy.
- If you have a hit, rather than start from scratch see how you can leverage key elements of that product to expand into a different segment of the market or create an entirely new space.
I will be speaking next month at Casual Connect Europe on lessons from real money that give your free to play game a competitive advantage. If you are attending the show, please come by my session.
There is a lot of buzz now about hypercasual games, and, for once, I agree with the buzz. There is a new big thing in gaming every year – a new console, technology, mechanic, etc. – that people expect to change the industry, investment flocks to it and a few years later it becomes an afterthought and a lot of people have to send out their resumes. I am usually skeptical of these fads, if you look at my posts there is not one about VR, blockchain, 3D, etc., but hypercasual is the exception
Hypercasual, is not a fad because it taps into what is one of the strongest drivers of building a successful product, simplicity. I have written repeatedly about how people gravitate to easy products that minimize cognitive load, and often use the example of Uber’s success to show that simple and straightforward can generate tens of billions of dollars of value. Hypercasual games tap into that formula for success.
A recent article, 100 Million Downloads: How Hypercasual Mobile Games Are Rewriting the Game Design Rulebook by Tom Kinniburgh, does a great job of both quantifying the success of the genre and pointing out key rules to building hypercasual games.
What is hypercasual
The first step to analyzing the hypercasual market is defining what is hypercasual. If you do not define it, you cannot build towards it. As Kinniburgh writes, “the term ‘hypercasual’ has become a collective way to reference games of this nature. Such titles typically have a single mechanic and a single goal, yet reaching a high score can be fiendishly difficult.” Effectively the core game loop is very straightforward, do one thing, get rewarded (so you can try again) and keep repeating to get a higher score.
The state of the hypercasual market
Hypercasual is not the next big thing that developers and investors are flocking to but an already established space in the game ecosystem with hundreds of millions of players. There are already tens, if not hundreds, of hypercasual games with over 100 million downloads. To put that number in perspective, 100 million downloads is more downloads than if everyone in Germany or France or the UK installed the app. These games include Agar.io, Finger Driver, Balls Race, Dunk and most of the other games at the top of the various app stores’ charts. The acquisition of Harpin, a one-person studio that built a solitaire game, for over $42 million also validates the hypercasual market, as companies usually do some due diligence before investing millions of dollars.
How to build a hypercasual game
The core game mechanic is even more important in the hypercasual space. As mentioned above, hypercasual games have a single mechanic that the player keeps repeating to get a superior score. Thus, the single mechanic needs to be fun, easy and compelling or else the player will not want to continue.
This core mechanic must also be easy for the player to understand quickly and provide for ever improving scores. Kinniburgh writes, “Great hypercasual are easy to grasp, but rely on players having a perfect run to succeed, and they measure that perfection with a score.”
By being easy to understand quickly, players recognize that playing more leads to better scores. If it is difficult to comprehend how to play, the score and activity would not be linked in the player’s mind so they would not be driven to keep playing. Also, if continued play did not yield higher scores, then the key incentive to more gameplay would not exist.
This simplicity exists throughout the game. Unlike other game genres, you do not introduce more features (complexity) as the game progresses. According to Kinniburgh, “great games in this genre rely on mechanics that provide everything the player needs to play from the start of the game, either with a single life on offer – such as Flappy Bird – or with multiple lives, like Ballz. In each case, however, the game ends when said lives count reaches zero.”
While the gameplay mechanic needs to stay consistent, the game must also scale so players do not get bored. If they can master the game, then the score is capped. Instead, you need to introduce variety by making higher levels more difficult (less time, bigger opponents, etc) or making the level more complex (a puzzle game with more area blocked). According to Kinniburgh, there are three ways to scale hypercasual games:
- Changing the underlying environment
- Changing the speed
- Adding a PvP element
When designing, use one or a combination of these elements to keep the player engaged.
How do you make money
I, and most others, would not care about hypercasual if there was not a way to translate the popularity of these games into revenue. The most obvious answer is in-game advertising. Throughout the game space, advertising is becoming an increasingly important revenue stream. Players in games already see rewarded video as a benefit; adding watch to earn almost always increases your retention metrics. Machine learning now allows for more targeted advertising, creating a better user experience (you see ads you are actually interested in) and a better value for advertisers (you only pay to show ads to people who are really potential customers). These two forces are further driving ad revenues for game companies.
Hypercasual taps into this trend because of the sheer number of players you attract. With hundreds of millions of players, algorithms have more data on who to target with what, providing better advertiser and user experiences. And, with each player generating some revenue, hundreds of millions of players directly translates to more revenue.
In addition to direct advertising revenue, you can improve company revenue by using hypercasual as an acquisition channel. While the Harpin acquisition may be ROI positive based on advertising revenue, my guess is that the revenue it generates by driving players to Zynga Poker and other games with strong lifetime values actually is more valuable than the direct revenue from Harpin’s games. Using hypercasual as a portfolio play rather than a standalone opportunity further builds value.
Future opportunities for hypercasual
With many trends, by the time you read about it, it is too late to capitalize, but in the case of hypercasual there are still many opportunities. First, the underlying principle of a single, simple mechanic will always lead to a good user experience. My philosophy is simpler is better, and hypercasual is defined by simplicity.
Also, for those in the casino space, hypercasual has barely raised its head. While Harpin and several other hypercasual companies have built great businesses around solitaire or solitaire like apps, that is largely the extent of its penetration of the most exciting gaming vertical (social casino). There are no hypercasual games that target slot players, which represents about 80 percent of the social casino market. Same for table games (roulette, baccarat, etc), which seem to lend themselves perfectly to hypercasual.
The opportunity also is not limited to free to play casino, but the real money space can learn from it. The success of lottery products not only shows willingness to gamble on hypercasual experiences but a strong and continuing desire to do so. Also, the high customer acquisition costs in real money suggests the value of hypercasual as an acquisition tool would dwarf the benefits free to play companies get from these games.
- Hundreds of millions of people play hypercasual games; apps that have a single game mechanic where players keep returning to get a higher score.
- Hypercasual games are a great opportunity in the free to play social casino market, as there is still no hypercasual games that target slots players, the biggest segment of that space
- Hypercasual is also an untapped opportunity in real money gaming, as lotteries show players willingness to gamble on a hypercasual experience and they provide a way to offset the very high customer acquisition costs.
While projections for the social casino (free to play slots and poker) industry continue to be overwhelmingly positive and the industry has never seen a revenue decline on a sequential basis, there is an ominous KPI that nobody is discussing. While the industry continues to grow, that growth is from better monetization, not bringing new customers into the market. This fact potentially puts a ceiling on potential growth or worse portends to a future decline.
The value of VIPs in social games and social casino is now a truism, everyone realizes that less than 0.5 percent of players drive more than 80 percent of revenue in most social casino games. Given this reality, an effective VIP scheme is a strong tool to convince customers to be more loyal and learn more about all of your customers’ preferences to personalize further your communication strategy.
This truth has driven many companies to create VIP programs and VIP concierge initiatives. I am proud to say I built one of the first at Zynga, but in the social space the are often haphazard and do not incorporate the learnings from other industries. Many companies create the programs with little insight into what makes a truly great VIP initiative.
A new book from David Norton does a wonderful job of showing how to build a great rewards program (as well as other initiatives I will write about later), The High Roller Experience. Norton is the former CMO at Harrah’s (Caesars) and created its Total Rewards program, probably the most successful program in the casino space, so he knows what he is talking about.
While the value in building a rewards program is largely unquestioned, the challenge is underestimated. Norton points out that customers are on average in 18 loyalty programs, but only actively engage with about a third of them. This lack of use means that not only are companies wasting millions of dollars on programs by rewarding customers who do not value the rewards but actually incur a higher opportunity cost by not engaging many of their customers. These unengaged customers could potentially have a huge financial impact on the company. Norton points out several keys to building a successful loyalty program.
Make the currency bankable and under the customer’s control
A successful rewards program starts with bankable currency. The rewards system should create a currency that customers save up across multiple session, visits, applications, etc. and use however they want. For online and real money casinos, this currency represents a big shift, as compensation to high rollers is often subjective and disproportionally allocated to the most vocal customers. You should allocate a majority of your rewards/compensation budget to a points based program (Norton mentions Harrahs/Caesars put 80% of their $350 million budget to Total Rewards) that customers understand and control.
An effective program then allows customers to use the bankable currency the way they want to use it, so they get the most possible value (to them) out of the program. At Harrahs, the marketing around their Total Rewards program was “MORE”: more control for the customers, meaning they could use their comps for a broader variety of things than food— and could use them in more locations. To drive this point to customers, Harrahs supported the launch of the second iteration of Total Rewards with an advertising campaign that it called the 100 Million Reward Credit Giveaway with a broad set of prizes that were reflective of what was available in the program, including merchandise and experiences at its properties such as Jazz Fest in New Orleans or lift tickets at Heavenly in Lake Tahoe. This campaign showed all the different ways customers could potentially use their points.
Get customers engaged
If customers are not engaged with your loyalty program, nothing else matters. You can have the best loyalty program on paper, but you need to get your customers to engage. Given how many loyalty programs they are already members of; you must find ways to ensure they are interacting with yours. Harrah’s discovered that guest satisfaction with Total Rewards was much lower for those customers that had not yet redeemed any of their Reward Credits, the theory being that they had yet to have a positive experience with the program’s new currency.
To get customers more engaged and likely to redeem, you need to eliminate friction in the customer experience when customers interact with your loyalty program. Rather than having hurdles to redemption (which may save you funds in the short term), make the experience quick and easy. Also, promote as Harrah’s did the different rewards players can earn and notify those players who have outstanding points of the options they have. Get them to redeem and enjoy the benefits of your program.
Create multiple tiers
The next key to a successful loyalty program is multiple tiers. Tiers create aspiration and engender loyalty. Compelling tiers are a productive way to create aspiration from customers and have them give you more share of their spend.
With multiple tiers, you can maximize the return on rewards by providing the most to customers where you have the greatest opportunity to increase their lifetime value. Tiers must be meaningfully differentiated.; having meaningful differences in the benefits and services between tiers is critical.
The rewards spend also should be surgical, tied to incremental spend and behaviors, as opposed to programmatic, associated with purchases the customer would have given you anyway.
You also need to provide always aspirational tiers. People want to advance, make progress, so there must be a tier for them to strive for. Although you may not want to market the tier formally (you do not want to alienate other high tier players) but you do need to let your top customers know there is even a higher tier (possibly through your VIP hosts or targeted social media). I remember speaking to a VIP several years ago, one of our top spenders, and his biggest complaint was he was already on the highest tier so why keep playing (regardless of the fun in product and the benefits he was accruing).
Have aspirational levels
As just discussed, you should also ensure there are aspirational benefits in the highest tiers. These tiers provide benefits, experiences, and services that customers value, often more than points, and are a key part of successful loyalty programs. If developed properly, the cost to deliver differentiated benefits will not be directly correlated to the customer’s spend.
At Harrahs, one of the key changes they made to the Total Rewards program was adding the Seven Stars tier in mid-2004. According to Norton, “there were several reasons that led us to want to add a tier at the extreme high end of our customer distribution. First, we discovered that we were capturing only a 50 percent share from our Diamond customers, as many of them were trying to achieve the equivalent tier at a competitor much like a business traveler in some markets tries to achieve status in two airline programs to provide more choices to be upgraded when flying. We wanted to make the decision more difficult to try to attain a high status at a competitor. Second, we found that for our top 5,000 out of 10 million customers, there was significant revenue churn year to year at an individual level. That is one year a customer would spend $85,000 and the next $70,000. Given that this group was spending or losing $80,000 a year with us, a 20 + percent revenue drop from a quarter of them was significant. We realized that some of this drop was a matter of having less time or disposable income to gamble in a given year, but we also felt that a big reason for the variation year to year was that there was no transparent goal to attain.“ These reasons drove development of an ultra-exclusive tier for Harrah’s most valuable customers.
Differentiate service to loyal customers
The next key to a successful loyalty program is differentiating the services customers experience. If built properly, the perceived value of premium service is much higher than the actual cost of delivering the service. The additional revenue the special services creates will not be linear to the additional revenue it generates.
By providing unique and better services as customers move up tiers, your loyalty program will have a stronger impact. Norton points out “airline programs do this very well with their tier benefits such as early boarding, the chance to be upgraded, and shorter security lines that enhance the travel experience. A mix of service items and access to unique “priceless” experiences should be developed as part of a three- to four-tier program depending on the size and distribution of the database. “
There are several ways this can be achieved in games. You can provide players with early access or unique content, allow them to attend VIP experiences (visits to your office or special events) or even provide special badges.
Transparency is important
For the loyalty program to have its strongest impact, particularly driving customers to try to move up tiers, you need to be transparent. Let your customers check their status where and how they want to: online, on a mobile site or in an app. Wherever they see their status, also remind them of what they need to do to attain or retain a status, especially as the earning time frame approaches its end.
So is profitability
While it is important to be transparent, the key is to build a program that increases profitability. Norton points out that “While there is a need to have an earning process that is easily understood to members, points earning should be tied to profitability and, ideally, to incremental behavior even though it adds a level of complexity.” In the case of Harrah’s, customers earned points tied to how much profit (not simply revenue) they generated. If they played slot machines that had a lower return to player than other slots, they would earn more rewards for playing those slots.
This approach also allows you to drive behavior that in the long-term is strategically beneficial. If you are launching a new business or game, you can provide extra points for consuming the new product. This provides a more cost effective way of launching a new business or testing a new game.
While it is hard to convey to players how exactly they are earning points, Total Rewards overcame this problem by clearly showing players the rewards they had and what they just earned. The additional benefit from this approach is that players who are rewards driven learn what activity generates the most points and then focus on that activity. If the activity also generates the most profits, then that is exactly the outcome you want.
Another hotly debated topic is whether you should downgrade status or if customers who earn a high status keep it for a lifetime. I have been in many “debates” about this point, with the argument for status being permanent being that you do not want to insult a top customer or give them a reason to move to a competitor (because their status has been downgraded). Norton, however, makes a compelling case that status should be earned on an annual basis.
First, the desire to maintain or increase status is compelling, and often drives the behavior you want at the end of the status period. Second, it separates customers who will spend at a low level regardless of whether there is a loyalty program, so you do not waste resources on rewarding players who do not value the rewards.
Start with less
When you are building and rolling out your rewards program, it is best to start with the minimum viable product. You can (and should) always add features and benefits but it is very challenging to take away something once you give it to a customer. Launch with a small number of meaningful components that you can execute and that customers can understand, but realize it is always better to add elements than it is to have to take them away.
Monitor and model rigorously
Loyalty programs can have a great impact on customer behavior but also a great cost. Successful programs require rigorous financial analysis that includes models of customer behavior. The key is to understand the incremental behavior the program generates against the costs of the program for each customer segment. The more granularity you build into the segmentation, the easier to optimize as you can discontinue rewards to segments where there is not a positive ROI, change the mix to segments where there is a low ROI and accelerate efforts where you see a strong ROI.
Innovate and iterate
You can always improve your reward program. Even if you do everything right at launch, your customers are unique and different elements of the program will resonate more with customers. You need to identify those elements and build off of that, as competitors will always be launching new loyalty initiatives to win over your customers. Even with Harrah’s Total Rewards, Norton writes, “despite our many accolades, we at Caesars never stopped evolving, testing, and tinkering with Total Rewards, making it great for customers, but also for us.“
Integrate rewards and CRM
The final, but possibly most important, key to a successful rewards program is integrating it with your CRM. Loyalty schemes and CRM should work together to drive optimal customer behavior. Tiers in loyalty programs provide the clear goals that encourage loyalty, and CRM activities give incentive in between the tier hurdles. Additionally, the loyalty program provides great insights into customer behavior. It shows you where they spend their time and what their aspirations are. You can then feed this information back into all of your CRM campaigns to ensure they have the greatest impact.
Do it, but do it right
To succeed today, you have to have a loyalty program and that needs to be your first priority. Just having one, however, does not ensure success. Most people are in many loyalty programs but only a few influence their behavior. For you to have a truly effective one and get a strong return from it, you need to follow the steps above.
- Service benefits are an economical way to add real value. Creating compelling differentiated benefits and experiences is a very economical way to add value to a loyalty program and deepen relationships with customers.
- Successful loyalty programs require rigorous financial analysis that includes models of customer behavior so you can understand the incremental performance for each customer segment.
- Great loyalty programs are integrated with your CRM. Loyalty schemes and CRM should work together to drive optimal customer behavior.
When I accepted my first job in the social casino (free to play slot machines) space, I did not understand fully (or believe) why anyone would pay to play a casino game (slots, poker, bingo, etc.) if they could not win money. After all, people gambled to win money, or so I thought. It was, however, difficult to argue with the data that showed social casino consistently the most profitable genre in social and mobile gaming. Moreover, I also did not fully understand why people would spend real money for a virtual good (i.e. a virtual tractor) and assumed the two must be related.
Those questions prompted me to do research before starting my position in the social casino, which led to my blog post Why would anyone buy a virtual good? . The post also included information that people gamble for three reasons – economic, symbolic and pleasure-seeking – and only one of them was tied to making money.
Recently, I came across an article, Segmenting slot machine players: a factor-cluster analysis by Sandy Chen, Stowe Shoemaker and Dina Marie Zemke, that provides even more insight into why people would spend money on a social casino game. While the research was about real money slots players, it shows their motivations are often non-financial; that is they are not playing to make money.
Chen, Shoemaker and Zemke segmented slots players into four clusters based on five sets of factors, and by looking at each cluster it provides a good understanding of the people who play and monetize on social slots products. The five factors are ego-driven, learning, relaxation, excitement and financial rewards. Based on how players ranked the various factors, the authors were able to create four distinct clusters that show different types of players. Below, I recap the four clusters, which you can then use to make your products and marketing better fit for your target customers.
The “excitement gambling seekers” cluster
Players who are excitement gambling seekers are playing for the stimulation. Their primary motivation is the strong sensations they experience while playing, the positive memories from winning moments and the thrill of winning or losing. Excitement seekers were the largest cluster of slots players (27.5%) in the research.
The key takeaway about this cluster is they are not playing to win or make money, they are playing for the same reason someone rides a roller coaster, excitement.
The “relaxation gambling seekers” cluster
These customers are playing slots to escape. Their key motivation is to release tension and because the game is fun. They will often credit slots as the best way to relax completely. This cluster is more interested in the experience of playing rather than focusing on winning. This is has more men than women (51.5% to 49.5% respectively). 25.5 percent of slots players make up this cluster.
The key takeaway with this cluster is that they are playing largely for the same reason someone goes to the cinema or reads a book, to relax and escape. As with the excitement cluster, they are not looking for financial rewards.
The “utilitarian gambling seekers” cluster
These are players who play as a means of socialization, communing with friends or as an escape from everyday boredom. It is referred to as utilitarian because the purpose is functional (utilitarian) and players gamble to satisfy experiential motives. About 20 percent of the players sampled fell into this cluster (which was also the oldest group).
These players place little value in some of the features many social casinos focus on. They do not care about themes or progressive jackpots. One of their most important considerations is the minimum bet of the slot machines.
Earlier this month, I wrote about Robert Thaler’s work on behavioural economics, including his theory regarding mental accounting. Mental accounting is a psychological theory of how limited cognition affects spending, saving, and other household behavior. In particular, people group their expenditures into different categories (housing, food, clothes, etc.), with each category corresponding to a separate mental account. Each account has its own budget and its own separate reference point, which results in restricted movement between the accounts. When integrated with the research of Chen, Shoemaker and Zemke, mental accounting explains how people have a set sum to spend on slots and will chose the purchase that allows them to optimize use of those funds.
The “multipurpose gambling seekers” cluster
The multi-purpose cluster, as its name suggests, play for several reasons. Players in this cluster play because slots are fun but also because there is a good chance to win and it is in their budget. These are players who think (fantasize) about what they will do with their winnings and want to make a lot of money. These players normally do not care about themes around games. About 27 percent of slots players are in the multipurpose cluster.
The takeaway with this cluster is that it combines a desire to win money with the entertainment value of playing. These are the players who might seek a real money alternative when it is available but play free to play (social) slots if they are in a location where they do not have access to real money.
How men and women differ
One other interesting insight in this research is the difference between male and female slots players. Many female players were excitement gambling seekers or utilitarian gambling seekers, while male players were relaxation or multipurpose gambling seekers. Thus, if you target different genders, your messaging and promotions should apply to what they are more likely to find important.
Remember these are real money players
The most important takeaway from the above cluster analysis is that it was done with real money land based slots players, not social players. This is critical because even people gambling in the traditional sense are largely not gambling to make money but for excitement, relaxation, etc. Once their motivations are understood, it is obvious why people would spend to play slot machines where the real money opportunity does not exist. As the authors write, “American slot players were mainly motivated by hedonic and experiential motives…gambling is a type of recreation or entertainment in America.” Hence, why social casino is such a strong and growing genre.
- Research shows that there are four types of slots players, with each group having different motivations.
- Three of the four groups are driven by non-economic reasons (excitement, relaxation, fun, etc.) to play slots, thus they get the same satisfaction from social casino products that they get from playing real money slots.
- Gambling is primarily recreation and entertainment in the US.
Last year, one company, Aristocrat, made two of the largest moves in the social casino space. In August, Aristocrat announced it was acquiring Plarium for $500 million. It followed up that transaction by acquiring Big Fish Games from Churchill Downs in November for almost $1 billion. While there were other deals in the space last year, these two showed Aristocrat’s intention to try to dominate the space. While one of these transactions was very savvy, the other is one they are likely to regret.
I have been through many mergers and acquisitions, including several at the company that is probably the best at integrating new businesses, Disney, and there are two hallmarks to successful M&A (mergers and acquisition).
- The first key is that at least one of the parties adds value to the other party. The company that is being acquired could have a technology or expertise that makes the acquiring company more valuable. An example would be Google’s acquisition of DeepMind. Post acquisition, DeepMind was able to accelerate Google’s own AI efforts as well as potentially improve its search technology. The other type of benefit is where the acquiring company adds value to the company it acquires, either through tech, expertise or channels. An example here would be Disney’s acquisition of Marvel, where it used its superior film making skills to help Marvel separate its movie business from competitor DC Comics, owned by Warner Brothers.
- The second key to a successful acquisition is that the rationale is the combined business is more than the sum of its parts. An acquisition is not likely to generate long-term value if it is only meant to make a company bigger. If the number two company in a space buys the number three company it may become number one but that is not a real financial benefit (unless it paid below market price), the return on capital is likely to remain unchanged. Only if the combination makes the new entity more efficient does it generate a market return above a traditional investment.
As with all rules, there are exceptions. Private equity (PE) companies consistently have a strong return on investment by acquiring companies whose value can be increased by making them more efficient either organically or via combining them with other businesses. Even in these situations, however, the PE companies are actually adding value because they have an expertise in efficiency or an ability to acquire financing at a lower cost.
Looking through the lens of increasing value for one or both parties in an acquisition, it becomes much clearer where Aristocrat got it right and where it is likely to fail.
Big Fish Games
The Big Fish acquisition was a master stroke by Aristocrat. Big Fish, whose crown jewel is the Big Fish social casino app, has been one of the leaders in the social casino space for more than five years. In 2014, Churchill Downs acquired Big Fish for $885 million, hoping to grow the business even further. This was a case of not adding any value, however, as Big Fish did not boost Churchill’s core business and they were not able to help Big Fish grow.
Big Fish traditionally succeeded in the social casino space by layering true social features on a average to below average slots and casino product. The social features both kept core players engaged and drove high revenue from players, especially VIPs. Big Fish Casino was consistently in the top 5 percent of monetization, generating over $0.80 in ARPDAU, more than twice many of its competitors. Big Fish, however, has largely stagnated the last couple of years under Churchill’s ownership as other companies, such as Huuuge Games, have replicated the social features leaving Big Fish’s lower quality casino offering a liability.
Aristocrat, meanwhile, has grown from a major land-based slots developer to one of the top-five social casino companies. Combining its Product Madness social slots business (acquired in 2012) with their land based real money content, they have gone from an afterthought to a top social slots company. It’s Heart of Vegas title is consistently among the top-5 grossing title, often number one, and they dominate the world’s second largest social casino market, Australia.
By acquiring Big Fish, Aristocrat is likely to improve both the Big Fish business and its internal social casino efforts. Big Fish will benefit from access to Aristocrat’s land based slots content, eliminating its greatest weakness (mediocre slots). Big Fish should also gain market share in Australia, given Aristocrat’s dominant position there.
Conversely, Aristocrat will grow its core social business (Product Madness) by understanding how to bring the most valuable social features to social casino. These features have driven revenue for Big Fish (and competitors like Huuuge) but they are a challenge to implement. Big Fish’s expertise with social features is likely to improve the core Aristocrat social casino products.
The Plarium story is not likely to have as happy an ending. While Plarium is a very competent mid-core game company (with great games like Vikings) and Aristocrat is a great social casino company, there are few areas they can help each other. Plarium’s games appeal to a younger, male demographic while Aristocrat’s social casino (and land based) products appeal to older (55+) women. This is an awful starting point for cooperation. Few of Plarium’s players are likely to be interested in social casino games, and those who do are even less likely to be VIPs. Conversely, a social slots player is not likely to be interested in a mid-core combat game. Additionally, the product features that work in a combat game like Vikings will not be transferable to the social casino business while Plarium will learn very little from Aristocrat’s product management.
The best case for Aristocrat is that Plarium continues to grow its revenue and contribution and proves to be a sound financial decision. I say best case as the acquisition needs to be compared to any other investment since it will not improve the core business. The reality is most acquisitions fail and as Aristocrat is not adding any value to Plarium; for it to have a positive ROI simply in financial terms they need to have seen a better value opportunity than anyone else. Given the cost of the acquisition, I would not bet on it.
2018 will bring more deals in the social casino space, it’s not a prediction but an extrapolation of the past eight years. The deals that will be successful long-term are the ones that are symbiotic, where one of both companies brings additional value to the combined entity.
- Successful mergers or acquisitions are ones where at least one of the companies also improves the other company, not simply adding together financial results.
- Aristocrat’s acquisition of Big Fish is likely to be a successful acquisition, as Aristocrat can share its great real money slots content with Big Fish and Big Fish can provide its expertise in creating social features.
- Aristocrat’s acquisition of Plarium is less likely to end up a success, as they have completely different player bases and there is little opportunity for cross over.