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August 21, 2017

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The four basic buckets of Vegas tourists, and what they’re worth

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Las Vegas Sun

Las Vegas visitors can be categorized into four categories: wholesale customers, group customers, FIT (free independent travelers) and casino discount customers.

Las Vegas is a gambling mecca that attracts millions of tourists from around the world with its great climate and entertainment-packed resorts.

Those millions of visitors, hotel marketing experts say, can be categorized into four buckets: wholesale customers, group customers, FIT (free independent travelers) and casino discount customers.

“Basically, the way a lot of it is broken up, is just into those four segments,” said Brad Goldberg, a marketing and advertising executive who has worked for the MGM Grand, Luxor, and New York-New York resorts as well as for Station Casinos.

Resorts may make guests in one bucket a marketing priority at times. But because of most resorts’ massive room inventory, gaming companies have to persuade customers from all the categories, at some point, to stay in their properties.

“You kind of need them all,” Goldberg said. “Because if you fill a lot of rooms with certain segments, you can charge others more for the rooms that are left.

If one customer is paying more for a room, they may gamble less or vice versa, Goldberg said. One type of guest may be more profitable for one department of a resort and less profitable for another.

“So you need all four segments because they can all work in harmony,” he said.

That’s not to say, of course, those four buckets are the only way of categorizing Las Vegas visitors. Earlier this month, the Las Vegas Convention and Visitors Authority released its Las Vegas Visitor Profile Study — an annual survey that tracks the habits of Las Vegas tourists while they’re planning a trip and while they’re here in town.

A portion of the study is dedicated to describing demographics of visitors. In 2016, visitors were, among other things, more likely to be married, employed, earn $40,000 or more, and at least 40 years old.

Even when looking at marketing segments, rather than demographics, there can be many more categories than four based on who is doing the sorting.

“It depends on the property you go to,” said Tony Lucas, a professor in UNLV’s William F. Harrah Hotel of College Administration. “If you go to, say, Caesars and look at their revenue-management system, they probably have 80 different buckets. At least they told me once they had 80. But I think, really, you could probably get it down to four if you wanted to generalize.”

Still, those four categories are a quick and easy way of understanding the habits of Vegas tourists and their importance to Strip resorts, according to both Goldberg and Lucas.

The group customer

Group customer is the marketing name for the convention and meeting guest, an increasingly important target for Las Vegas marketers.

While a vacation is still the primary reason people visit Las Vegas, according to the LVCVA’s Visitor Profile, convention attendance here is growing. In the Visitor Profile, 10 percent of people questioned in 2016 said they came to Las Vegas for a convention, tradeshow or meeting, up from 7 percent in 2013.

“Every hotel likes the group business, and lot of hotels look to group business to make a base. Then they determine their hotel rates from there,” Goldberg said.

The group business reserves rooms earlier than other groups, Goldberg explained, often a year or two out, so hotels have a more predictable base of customers.

And Lucas said group customers can be more valuable for the hotel department in a resort.

“Group sales are really a lucrative segment for the Strip now,” Lucas said. “It’s a very important segment for them. They get a really high hotel room rate.”

This group is price insensitive, Lucas said, because their companies are paying for the rooms. Also, they pay for additional catering and event-related services, earning the resorts more money than other customers.

The wholesale customer

According to Lucas and Goldberg, the wholesale customer group comes from aggregators in the Midwest or other feeder markets that sell discounted hotel rooms and also from online travel agencies such as Orbitz or Expedia.

And this segment is getting larger. According to the LVCVA survey, in 2016, 30 percent of people who booked their rooms online used a hotel website, down from 38 percent in 2013 and 41 percent in 2014.

These customers, Lucas and Goldberg said, can fill up rooms not used by the group customers and can also drive up occupancy during midweek or on slower, non-holiday weekends.

Older middle-of-the-pack resorts rely on these types of operators to give them room nights, Lucas said. In many cases, these hotels are unable to sell all rooms on their own and need the help, he said. But even the nicer places rely to a degree on the wholesale customer.

“They all use the channel,” Lucas said. “Some places don’t need it as much as others, but they all use it.”

The FIT, or free independent traveler

The main characteristic of FIT customers is that they buy their rooms directly from the hotel’s website, Lucas said. They’re relatively profitable because they pay the rack rate, the industry term for the non-discounted room rate.

However, Lucas said, that’s not typically as high a rate as what the group customer pays.

Because they’re more profitable, creating FIT customers by encouraging them to use the hotel websites instead of online travel websites is an important part of overall market strategy, Goldberg said.

But it’s a difficult task, he said, because companies such as Expedia and Travelocity are very good at making their websites easy to use.

“They put a lot of research behind it and a lot of man-hours and technology behind it, and they do an amazing job of converting searches into sales,” Goldberg said.

“Research has shown people will shop several different booking sites including the resorts’ website before make a decision. But in many cases, they buy where there’s the least amount of friction and where it’s the easiest. And, to be honest, Expedia's website is just easier.”

The casino discount customer

This is the classic casino guest people often envision when they think Las Vegas. They are the players who get discounted rooms and meals based on their gambling habits. Sometimes they even get what Lucas and Goldberg called the “full RFB.” In other words, their room, food and beverage expenses are fully comped.

“The casino customer is typically your most loyal customer,” Goldberg said. “And with them you have a greater degree of frequency of visitation. These customers, by definition, have signed up for your loyalty program. That’s how they got in that segment.”

In many cases, these customers have booked rooms based on offers they received because of their status in the loyalty program, Goldberg said. And it’s usually a better offer than the one on the hotel’s website or even online travel sites.

At first glance, because they are regular players, it may seem that this class of customers would be the most profitable. But Goldberg said that’s not always the case.

“Overall, for your casino segment, it’s kind of hard to say,” Goldberg said. “It really depends on how much you spend on what’s typically called the reinvestment. That’s the amount of money for the offers or incentives you are providing these guests to get them to come back into your property.”

Goldberg said in some cases, the FIT segment can be more profitable because the hotels are not giving them any incentives.

A special Las Vegas challenge

The differences between the various buckets of customers and their potential spending habits illustrate a challenge Las Vegas resorts have that hotels in other tourist destinations don’t, at least not to the same degree: It can be very difficult to figure out which of these customers are the most profitable, given the many entertainment options these large facilities have.

While FIT customers spend more on hotel rooms, they may gamble less. While casino customers gamble more, you have to offer them more to get them to book a room. And wholesale customers may spend less on their rooms, but spend more at restaurants or other entertainment options.

Even within individual categories, some customers are worth more to the resort than others.

“You can get a convention of doctors in your place, but they might not be great gamblers,” Lucas said. “But you can have a convention of homebuilders who could gamble more. So, even though they’re in the same group segment, they may be more valuable.”

If guests are not members of a resort’s loyalty program, tracking their spending and ascertaining their profitability are hurdles. It’s hard to know how much they have gambled and if they don’t charge purchases to their rooms, it’s a challenge to track how much they spend at restaurants, spas or in hotel shops.

Even in cases where the resorts gather a lot of statistics — as in the case of loyalty programs or purchases charged to rooms — they aren’t always able to find actionable information in the numbers.

“We are very good at collecting data,” Lucas said. “We’re not always so good at using it.”

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