Table Games Grandfathering Policy Analysis: Customer Service vs Profit?
To remain competitive in this day and age, businesses must optimize all facets of their operations. One optimization lever for table games operators to increase profits is dynamically yielding table minimums based on patron demand.
When increasing table minimums, the implementation strategy varies from operator to operator. Some prefer to price up immediately, leaving the players to decide to play up or leave. Other operators choose to grandfather-in the players at the previous minimum for a limited time, or in some cases indefinitely. The trade-off decision is customer service vs profitability. As each operating environment is different, competitive vs monopoly and regional vs destination, this blog will present a framework for a grandfathering strategy for your property.
Commonly referred to as ‘yielding up’, dynamically pricing up on table games, especially on tables that are continuously dealing (e.g. no ‘last shoe’, ‘last shooter’, etc.), could be analogous to being at a gas station and experiencing a price increase while filling up. Would you be back? What if there is no other gas station nearby, would you be back? What if there is a gas station across the street that doesn’t raise prices, but always has a 30 car line-up, then would you be back?
For a table games operator, table minimums influence patron behaviour and help segregate their demand. Table games profitability is impacted by game speed and time on device; having higher value, time-constrained clients at a lower occupancy allows for more rounds to be dealt and better customer service. This also aligns with prioritizing the most profitable segments first, but the operator must still make trade-off decisions.
Grandfathering vs Not Grandfathering
Here is a summary of some of the advantages for each approach to dynamic yield management:
We have previously investigated how pricing can impact your profitability. Let’s show an example that helps quantify the impact of grandfathering vs not grandfathering.
Dynamic Pricing Examples
Let’s show a couple of examples to compare grandfathering vs not grandfathering and quantify the impact on Theo. Win/hour for each scenario. For these examples, we will use the following parameters to calculate the Theo. Win.
In the Start scenario, we have 2 Blackjack tables, both priced at $15. Table 1 has all $15 players whereas Table 2 has a combination of $15 and $50 players. A new $15 player walks through the door. He can sit at either Table 1 or 2. In Scenario 1, this player chooses to sit on Table 2, decreasing revenue by $6/hour.
Assuming this property allows grandfathering, they have decided to raise Table 2, keeping all the players there; however, now the new $15 player can only sit on Table 1. In Scenario 2, we have increased profits by $4.50/hour compared to the Start scenario. So far, grandfathering is showing that it is helpful from both a customer service and profitability standpoint.
What if this property did not adopt a grandfathering policy? In Scenario 3 below, we see that by pricing up Table 2 to $50 and forcing the current $15 player to leave, we are actually more profitable than the Start scenario. Table 2 is more profitable because there are more rounds dealt to the $50 players. In Scenario 4 a new $15 player walks-in and sits on Table 1 and now the profits have increased by $28.50/hour compared to the Start scenario.
Now let's compare Scenario 2 and Scenario 4 from Grandfathering vs No Grandfathering and compare the Theo Win/Hour values. We can clearly see that no grandfathering is 16% more profitable than grandfathering. ($148.5 vs $172.5)
Implementation Considerations of the Grandfathering Rule
From a purely mathematical point of view, implementing a grandfathering policy in many situations is not as profitable as simply forcing players to play up or leave. What the examples fail to cover are the players' reaction to dynamic pricing. Will we be chasing players away? Is the staff comfortable implementing dynamic pricing?
Ultimately, one of the most important aspects to your dynamic yielding will be how to determine if it is a success. Patron behaviours and adoptions are different based in the various types of markets. True success will be determined by measuring the effects on playtime, empty table percentage, average occupancy and, importantly, win during a pre- and post-policy change. This will allow you to try different approaches and benchmark them against each other to understand the policies that are best for your property.
There are two important factors to consider for grandfathering:
- Your casino’s market power
- The size of the table games operation (whether or not capacity constrained)
1. Market Power
If you are in a monopoly, implying strong market power, then implementing a grandfathering rule may sacrifice profits because players do not really have any other option. With a limited amount of seats, would you rather serve a lower or higher player segment? If you are in a regional competitive market, this may hurt you because some of the regular players have another option nearby and may prefer not to be pressured to lose their spot.
In a tourist-dominated market, where there is high turnover and multiple places to play, there may not be much loyalty from the majority of your patrons. In these markets it may not be worth providing the extra customer service at the expense of profits, although it can still affect brand perception.
2. Capacity constraint
The level of scarcity in respect to table capacity also plays a role when deciding whether to adopt the grandfathering rule. When capacity is constrained in relation to the market size, the need to capture incremental revenue at the opportune time becomes more pressing than when table capacity is less of a concern.
Adopting the Grandfathering Rule: Decision-Making Matrix
*For properties operating mostly continuous dealing games (e.g. no ‘last shoe’, ‘last shooter’, etc.)
- Not Capacity Constrained & Market Power is low: Seriously consider implementing the grandfathering rule. In this scenario, there are a lot of tables or potential pricing options for patrons to choose from. With more options available, you are more at risk for the patron perception that you are chasing them away (e.g. why did you pick this table and not another one) or the house is viewed as greedy by playing up. With low market power, patrons could easily go to the competition.
- Capacity Constrained & Market Power is low: Consider implementing the grandfathering rule. With a lower number of tables, you would like to make as much revenue as possible but with lower market power, you are at the risk of chasing players away. Based on your operations, consider a strategy around your dynamic pricing opportunity. For example, games with one game type are grandfathered but games with four tables open or more are not.
- Not Capacity Constrained & Market Power is high: Consider not implementing the grandfathering rule. Similar to Scenario 1, where there are a lot of options available for patrons but the brand trust is high (i.e., viewed as high-end in your market) or perhaps you are in a monopoly, patrons will play the limits offered when they are offered. Grandfathering only reduces profitability.
- Capacity Constrained & Market Power is high: Consider not implementing the grandfathering rule. With a low number of tables, you are looking to maximize yield and because of the high market power, there is no reason to take on a gradual approach and reduce profitability.
Also consider that this matrix can be subdivided for your various games. For example, perhaps you have high market power and table capacity with your Blackjack games but low market power and low capacity for your Roulette or Carnival Games and can adopt a different strategy.
This brings us to our second consideration, the ability of the staff to implement dynamic yielding. If there is a lot of resistance from the staff to price up, is it better to yield up 60% of opportunities with a gradual approach to profitability, or only yield up 20% of opportunities?
In almost every industry, it is accepted that your products or services change their price based on demand. The grandfathering policy could be a fantastic way for the table games industry to increase adoption by its customers but there needs to be some thought put into it because you may be sacrificing extra profitability. We have introduced a decision framework to help transition your operations. With whatever approach you are considering, ensure that you monitor and measure your KPIs to ensure you are going in the right direction.
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As the Senior Manager of Analysis and Optimization at Tangam Systems, Patrick has been helping clients for over a decade to understand and solve their business challenges and drive performance improvements for their table games operation. He earned a Bachelor of Computer Science at Ryerson University and a Master of Science specializing in Computer Vision and Artificial Intelligence at one of the top programs at York University.
With nearly 20 years of casino experience, Victor has worked at various Canadian casinos where he trained staff and managed both table games and slots operations. At Tangam, he helps clients all over the world implement data-driven management of table games spreads and pricing on the gaming floor to achieve their revenue management objectives.
Shweta works behind the scenes with casinos to optimize their game-mix, table spreads, schedules, and general operations to increase profitability and improve patron experience. With 10 years of experience in data and analytics, she earned a Bachelor of Technology from the College of Engineering Roorkee and MBA from the Indian Institute of Information Technology & Management.