We all like to be liked. So when you see your loyalty program is drawing more players to your games, you may break out in a big smile. But if you’d look a little more closely at the numbers, that smile might turn to a frown. And the frown might turn into a yell: “Stop the loyalty program! Stop it now!”

Sometimes operators get a little too sure of themselves, convinced that they’ve got the edge over the players. See, for example, Tropicana vs. Don Johnson.

Humility is a helpful attribute, but math skills are what it really takes to stay profitable. What we need to calculate is the exact percentage we can give back to our loyal customers without harming our profitability. Better still would be to figure out the expected growth in play due to these incentives.

I recently read an article (an old one, I confess) that took on this complex topic, but focusing on bricks-and-mortar casinos. The article included somewhat complex mathematics (“a second order polynomial with a quadratic equation”; yes Thomas, you understood the “a” part and nothing more). The authors were looking at “slots clubs” — a generic term for loyalty clubs in offline world that track Slots play, using a unique membership card inserted to the machines prior to the gaming activity. These clubs provide the players discounts, such as a prime rib meal for less than $5, so they’ll draw more traffic. The aim in the long run is to convert them into more lucrative activities (lucrative to the operator, yes?).

The writers also distinguished between three types of loyalty schemes:

1. Points can be used to buy “non-gaming” items (room, food, etc., and possibly even another version of etc.)
2. Points can be used as a “cash back” that is, converted back into gaming money
3. Points can be converted into “cash rewards” — real, withdrawn money (following a certain play-through requirement)

The fine gentlemen behind this essay (and the white papers that are the basis of their thesis) have calculated all sort known parameters such as house advantage, tax in the specific jurisdiction (don’t you just adore gaming tax? It’s so cute!), theoretical win, cash back and cash rewards (as percentages of “drop”/bet/handle/wager). The next step was to check the extreme scenarios regarding the potential growth of play due to the loyalty benefits 1) if the player took the money and left or 2) if the player risked his funds again and “played until exhaustion of cash back funds.”

These two options were later checked and a formula derived in the simple form of {C% x (1/(1-C%R))} / (1-P%) to try to determine the range between no-play and play-till-my-diaper-is-soaked.

Going through the abstract, I have also made the following interesting observations:

A. People actually play in 10% house advantage slot machines. LOL!

B. Offline retention experts really have tough life, lacking even the basic tracking tools considered mandatory (like players’ login, NGR on all game types, and even customers’ identity!).

C. “What is the real cost of customer loyalty?” is a valid question both in online gambling as well as for our land based relatives.

I have introduced in the past another perspective on this fundamental question, and reading this again, I am now certain that these equations could be easily adopted into our highly moral industry as well. For that, I would really like to hear more about your own feedback from comparing predication with hard core expenditures. Feel free to share your own take on this right here at the bottom.

Here’s a link to the complete article. If you’d like to read the technical white papers the writers are referring to, simply send us a quick mail with a pleading request. We might even answer :)

After all, we value all of our friends, even if they are in our heads.

PS: Next Thursday (May 10), eGR will conduct their prestigious B2B Awards Ceremony, with Hybrid Interaction being shortlisted for the “Retention Partner of the Year” Category. WE ROCK!!