THE BOTTOM LINE IMPACT
by Ray Knight and Rob Sanders
OF INTERNAL MARKETING
a corporate culture through internal marketing is not about making employees
feel good. It's about getting the best, most profitable and efficient
performance from the company's primary asset -- its people. It's about
making money. Internal marketing is the process of positively influencing
employee behavior through the implementation of strategically planned communication
and cultural development tactics.
Every day at your casino, two things happen -- you gain new customers
and you lose old ones. Of the new customers you pick up, you retain
some and some you don't. Of the old customers you lose, most leave because
of poor service. In the pressurized competitive environment of gaming today,
it is much harder and costs considerably more to acquire a new customer
than it does to hold onto one you already have. For every ten dollars you
spend to get a new customer, it costs only one dollar to keep a customer
you have, according to TARP (Technical Assistance Research Program - Arlington,
Va.), a leading authority on consumer retention dynamics and economics.
That is an astonishing leverage. Yet few casinos spend an amount equal
to 10% of their marketing budgets on retaining customers. Do you?
Consider just one factor that affects whether you keep a customer or
not -- employee turnover. Employee turnover links directly to customer
turnover. Both link directly to bottom line profits.
This connection is well-documented. Harvard Business School professors
Leonard A. Schlesinger and James L. Heskett, in a 1991 Sloan Business Review
paper, clearly identified what happens to service company profits when
employees become dissatisfied and quit. They called it the "Cycle of Failure."
In most hospitality and service industry companies, high turnover is
viewed fatalistically, a forgone conclusion. This feeds a downward spiral.
Frontline employees are farthest from the vision, mission, goals, and objectives
of the company, buffered by a layer of supervisors and middle management.
Pay is low, so employees come into a new job with a short term attitude,
knowing they probably won't stay. They tend to feel indifferent. They also
tend to get little training, so they are ill-prepared to serve customers'
needs. They get fed up with failing to please customers and their superiors,
so they quit. Their replacements will likely be just as inept and last
about as long.
When customers encounter poor service, they are dissatisfied and "vote
with their feet," taking their business elsewhere. Management makes certain
judgments from this experience:
They respond with decisions colored by their experience with turnover:
Can't find good people
People today just don't want to work
Good people cost too much
It doesn't pay to invest in them
High turnover is a fact of life
According to Schlesinger and Heskett, this is the low profit approach.
Minimize the selection effort
Design repetitive tasks that require little training
Minimize efforts to build commitment
By contrast, the "Cycle of Success" commands the problem from the inside
out. Senior management follows its strategic imperatives to a much more
productive set of decisions:
Better quality employees, selected for desired traits and properly prepared,
respond with a positive service attitude; they are confident and able to
please their customers. Success gives them satisfaction, and they stay
around longer, resulting in lower turnover.
Intensive selection effort
Extensive communication and training
Maximum effort to build dedication
Recognition & reward
As a result, customers experience higher initial satisfaction and appreciate
seeing the same faces, the continuity in the relationships. So they remain
loyal customers. This is the high profit model of service. It comes about
by using internal marketing to create a strong corporate culture. Does
it work? Ask the Marriott Corporation, as Schlesinger and Heskett did.
In two divisions of the Marriott group, it was determined that reducing
employee turnover by only 10% will reduce customer "non-repeats" by one
to three percent. The reduction in cost from turnover combined with the
increase in revenues from retained customers added up, in Marriott's case,
to savings that were greater than the company's total current profits!
Will it work for your casino? Let's look at the numbers.
Suppose you could reduce your turnover by a modest 10%. An easy way
to measure turnover is to divide the number of W-2 forms you send out in
January by the number of people you currently employ. If you have average
turnover of 100% -- not uncommon in the gaming industry -- this means you
need only keep each employee on the job just two-and-a-half more weeks
than currently. The replacement costs for getting a new employee involve
recruiting, interviewing, hiring incentives, drug testing, orientation,
and training, among others. The costs vary from company to company, but
a Wall Street Journal article fixes the average replacement cost for an
employee in the service sector of America at $3,500. For a casino with
3,000 employees and 100% turnover, for example, a 10% reduction in turnover
would result in a savings of $1,050,000 a year! This is pure, straight-to-the-bottom-line
That's only part of the opportunity. The other good news is the money
you can make by holding onto your customers. Consider the Marriott experience
of a 1-3% increase in customer retention. Take the middle of that
-- 2%. A casino is open 52 weeks a year. If you can hold onto only 2% more
of your customers, that's the same as adding one full week per year of
revenue -- all pure profit!
So far, we've only dealt with hard numbers, the kind of bottom line
performance that makes boards of directors gleam and stockholders' eyes
light up. The other important dimension is productivity. Better performance
means getting more for less. This is another tangible, trackable benefit
of employee satisfaction generated by internal marketing.
In gaming, the brick and mortar and the decor are packaging. The gadgetry
of gaming provides the props. It is the casino employees, the people, who
create the gaming experience for the customer. Whether the experience is
magical or not depends on the culture of the casino. Whether the
customers keep coming back depends on their experiences. Think about it.
The customers' experience in your casino is in the hands of the doorman,
the coatcheck girl, the blackjack dealer, the housekeeper, the security
guard, and the bartender. If that's a scary thought to you, it may be time
to examine whether you are in a Cycle of Failure or a Cycle of Success.
(This article appeared in the February 1997 issue.)