Love Growth & Customer Happiness? Learn from the Mob.
Part 1 — ‘Things were better when the Mob ran this town’.
A trope you’re likely to hear from an ole’ timer, slowly pulling their lever to the tune of the addictive Slot Machine.
‘Dingalingalingaling’, it rings. From every corner, from all the walls. You look around, people smoking, people laughing, pure ecstasy on their faces. Free drinks all around. You’re in the Flamingo, 1963, a Mob run casino and one of the largest on the strip. You’ve heard the rumors of all the trouble, but none of that is apparent in the front of house. It must be kept behind closed doors, you think to yourself. You hear that the casino is expanding, adding a new hotel and even more games. Apparently it’s chaos, millions of dollars being skimmed every month. But it’s all kept together here. Apparently men are being buried out in the desert over all of this, hundreds of millions have been invested and the powers at be want to make sure they see their investment return exponentially.
We’ve all seen the movies. Casino, The Godfather. The sins of early Las Vegas are attractive, alluring, cult like. But behind it all was shrewd business. The pioneers of what is now known as ‘Customer Happiness’. These guys took investment rounds and Growth to an entirely new level. They optimised Retention before the word was even coined. Their Acquisition funnel and onboarding merged perfectly. Also, apparently, they were pretty decent at squashing out bugs.
For me, there’s something about the old mafia of Las Vegas that brings out the 14 year old boy in me. The fast cars, celebrities, flashy lifestyle. Things I don’t necessarily align myself with these days. Watching Casino this last week as an adult and as someone working in Growth, I couldn’t help but find myself admiring something else, their Growth Strategy. You see, in the current Growth meta, we’re forced to look at recycled case studies from Airbnb, Dropbox and so on. Anecdotal, incredibly lucky one offs. You don’t really learn anything from them, but it’s great for the wannapreneur types.
We’re also funneled into thinking that we can only learn from online companies, that whether you’re in SaaS or eCommerce or something else, you should be replicating what the others of your namesake are doing.
For me, this is a huge mistake. As we’re essentially missing out on a solid 8000 years of business history dating back to the Archaic Mayans. Maybe we should look further than the last 6 years?
The Comp. One of the most outstanding tactics employed by the Casinos.
It worked a little like this:
Comps are layered into tiers. The more you gamble, the more you spend, the higher the tier you earn. ‘Shadi, that’s gamification mate’, yes, yes it is. Casinos were able to give away things that may have retailed at a high price, but have a relatively low cost to the Casino. Drinks, food & vacant hotel rooms. The perceived value of these things were incredibly high for the customer and the casino made them seem attainable. 8 hours of blackjack for a free hotel room? Bargain! The tiers would usually follow this format:
- Just for walking in, you get free drinks.
- Been at a table for an hour or so, or spent $100 on the table? Have a free Meal
- Spent a couple of days playing or spent a significant amount? Free hotel room.
- Spend quite a bit of $? Full RFD (Room, food and drinks)
- Spending serious, serious money? Suites, Private Jets, Loss rebates, limo rides. Hell, meet Frank Sinatra!
Let’s relate this back to ‘our’ world.
Tier 1 is the opt-in bait. It’s the freebie. It’s the thing one can create once, which scales incredibly well with the amount of people that demand it. Requiring little effort once the initial infrastructure is in place. This is your ‘foot in the door’, getting that email address, getting them into the demo, creating that lead. Arguably the most important step.
Tier 2 is Activation. You’ve got them in the door, now let’s lead them to the ‘aha moment’. Let’s get them through an initial payment wall and start building trust. With hostesses ready to take you straight to the table, or perhaps the bar. You’re never left alone, from the car park and the valet right up to the table and your dealer. Never left alone (NEVER LEFT ALONE). This is where the value is immediately provided. Take their money too fast, they’re likely going to leave. Slowly take it, with a house game such as the slot machine, or blackjack, they’re inevitably going to stay longer.
But why stay longer? Tier 3, the time debt. ‘Wait, so I’ve earned X amount of points and if I stay just 3 more hours you’ll give me a room for free?’. ‘Well I’ve already been here 5, so I may as well’. A Casino is a relatively homogeneous product. Time debt (Something I made up) is really important here. Relate it back to your App or platform. What’s truly stopping your user from switching? It’s the Time debt! They’ve set everything up, they’ve learnt your UI, they’ve met your Customer Happiness rep. They’re situated.
Your VIP, the enterprise client. Tiers 4 and beyond. This is where we need to really ‘wow’ them. This is really where I see so many startups and even long running businesses going wrong. They think they can simply add a higher traffic allowance, user allowance, xyz allowance and they’ll pay 5 times more. No. You’re charging 5x more even though the relative cost to your servers is minimal? Price of a Big Mac? Cmon’ mate. Think big, 2 hour Onboarding session, 20 hour a day instant customer support, free training to 1 of their agents. Shit, invite them into your Slack, invite them to a party you’re throwing, send them a cheese selection. You get the Picture.
Practical Advice — how to work out how much you should comp.
For a Casino, it works like this:
You take the Casino advantage and multiply it by the total wager. The Comp is a long run calculation.
So, the Theoretical Loss of a player = (Casino Advantage) * (Total Wager). There is some more maths, like average amount of time a player is likely to play, as volume is likely to iron out short term variance. But we can leave that for now.
Again, let’s relate back.
The variables we have to play with are:
- CPA (Cost per Acquisition)
- LTV (Life time Value)
- Cost of our services (Server time, employee hourly)
- Comp Cost The Total cost of the Comp
Total Cost (TC) = CPA + Cost of service
Profitable cost of comp is when (LTV - TC - expected cost of comp) is above 0.
So, factoring in all your costs against the average Life Time Value.
Q — ‘But Shadi, does this not just mean that the total cost of the comp takes away from our profits?’
A — Yes, it takes away from your profit IF the comp doesn’t increase acquisition AND IF the comp doesn’t reduce churn AND IF the comp doesn’t increase LTV AND IF the comp doesn’t increase word of mouth/social sharing AND IF the comp doesn’t increase activation.
That’s a lot of AND IFs. In short, creating more value for your customer, that is tiered and somewhat gamified, can cost you very little but be worth a lot to them. Think about what you can offer very easily, that adds far more value to your initial offer, that will cost you very little; either scaled or on a 1–1 basis, relative to the cost of your product.
I hope that was enjoyable. If it was, give it a share for us and I’ll write part 2.
‘Environment, Reputation and the Feedback Loop’
The 8760 is a hyper-flexible network of high level experts that share common culture, infrastructure and experience in the TGE & Consensus space. We work on projects ushering in the fourth industrial revolution, zeroing in on their Strategy, Investment, Marketing and Creative.