Despite the gambling industry’s near-religious reliance on free-play bonus offers, new evidence affirms that other factors like amenities and ambiance might be more important to customer retention in a retail casino environment. One recent study found that reducing or even eliminating free-play offers had little impact on retail gamblers’ behavior. A similar discussion is underway in the iGaming space, as online operators and their investors are increasingly concerned about whether they’re getting a return on their promotional investments. In both channels, experimentation and selective targeting of free play spending seem to be key, while traditional scattershot approaches may be a waste of money.
The new study, “Measuring the Impact of Reduced Free-play Offers on Casino Loyalty Behavior,” investigated the consequences of limiting one land-based casino’s free-play offerings. When complete, results showed “a general insensitivity” to the reductions, according to the paper published in the University of Nevada, Las Vegas’s (UNLV) Gaming Research & Review Journal.
One of the authors, Professor Anthony Lucas of UNLV’s William F. Harrah College of Hospitality, spoke to Bonus about the findings. His co-author, Professor Katherine Spilde, teaches at San Diego State University.
The conventional wisdom is that free play gets casino customers in the door, boosts their engagement, and ultimately results in them spending more money.
Lucas said the body of research fails to offer compelling proof that these free-play promotions achieve those primary objectives. His study confirms that, in many cases, operators may be better off not giving so much away.
Either you’re getting a customer to spend more per visit, or you’re getting more visits or both. And we’re just not seeing that. And given that it’s such a big annual expenditure, we’d like to see better results.
Buying Loyalty Via Free-Play a Costly Expense
Lucas said casino marketers are under extensive pressure to attract new and returning players.
Free-play offers have been a staple of casino marketing strategies since about the mid-’90s, although the offers and method of delivery have changed, he added.
Initially, free-play incentives were simply coupons sent out by mail, promising things like $25 for a $20 buy-in, often tied to a particular day. At that time, Lucas said a customer could present their coupon and a $20 bill and walk away with $25 without wagering.
By the late ’90s or early 2000s, casinos implemented technology requiring players to run that $25 through a slot machine once before cashing out. But, by then, players had learned to expect perks as an entitlement for past play, not an incentive for future bets, he said.
Lucas noted that thanks to competition and “one-upmanship,” free-play campaigns have only become progressively bigger and more costly over the ensuing decades.
For example, in Pennsylvania in 2021, casinos accepted more than $425 million in free play wagers, a whopping 23% of $1.9 billion in total gross revenue.
Said Lucas:
Now they are sort of a snowball that’s rolling down the hill and out of control.
Today, casino operators and marketers fear that cutting back on bonuses will result in losing valuable play, he said.
However, this study indicates the reigning assumption might be off-base, and there are reasons beyond free play that draw people to casino properties.
Lucas added that there are certainly other uses for the massive annual spend on free play. He suggested improved amenities and priority access to on-site restaurants, parking, and events as additional loyalty-building perks.
That said, free-play offers could still play a role without remaining a casino’s primary focus.
Customers Mostly Unfazed by Free Play Reductions
Working with an unnamed tribal casino in the Western US, the research team started by randomly selecting 400 players from a lower-tier free-play offer level.
Lucas said any experiments into reduced free-play should start with the lower-tier reward levels to alleviate potential risk. With significantly fewer high-reward earning, high-revenue-generating players, should an experiment targeting higher-tier players go sideways, casino revenues could suffer. Lucas estimated that close to 85% of loyalty program members are in the lower tiers.
Based on previous research, Lucas and Spilde had two hypotheses going into the study:
- There will be no change in the net revenue from reductions in free play.
- There will be no change in the visitation frequency from reductions in free-play
In year one of the study (December 11, 2017 to June 8, 2018), all 400 players received their typical $15 weekly free-play offer. Researchers then monitored the players’ activity for six months.
In year two, which occurred over the same period in 2019 to mitigate seasonality effects, the researchers broke the same players into four 100-person groups, each receiving a different free-play offer over the following six months.
While group one continued to get their usual $15 offer, the others received a reduced bonus.
- Group 2: $10 (33% reduction)
- Group 3 $5 (67% reduction)
- Group 4 $0 (100% reduction)
When the study wrapped, researchers discovered their hypotheses held for the most part.
Reducing Bonuses May Be Better Than Eliminating
After removing outliers from the results, the researchers found that play didn’t shift much in response to the reduction in bonuses. They did, however, find a negative when free play was eliminated entirely: players demoted to the $0 free-play level made fewer return visits to the property, on average. However, even in that group, researchers said there was no “mass exodus.” Moreover, despite seeing fewer return visits from the group receiving no free-play offers, the casino’s net win from that group failed to change significantly. That is, the loss resulting from diminished visitation was similar to the amount of money saved by eliminating the bonuses.
The researchers said this suggests “players were generally insensitive to free play reductions.”
Remarkably, the $5 free-play segment visited the casino more often and spent more during each visit. The researchers argued this further suggests that free plays aren’t as integral to casino loyalty as once thought.
Short of a complete removal of the free play awards, there may be room for considerable reductions without a significant loss of business.
Lucas pointed out that the property in question was in a competitive market, with nearby casinos offering their usual bonus offers. He said study participants had “plenty” of opportunities and outlets to go elsewhere, but they seemingly chose not to.
Social Theories Underpinning Player Response
Social Inequity Theory argues that “people are attracted to status-based structures and enticed by the chance to ascend an established hierarchy.”
To that end, tiered loyalty programs’ structure accommodates this “common proclivity” with their status-conferring framework. According to the researchers, the offer reductions in year two could have “created the potential for perceived inequity in the input-reward relationship.”
Perceived inequities could lead subjects to limit their play and/or visitation frequency to match the level of the downgraded free play award.
However, as the paper noted, throughout the study, loyalty behaviors in the post-reduction period “remained largely unaffected,” providing “little support for social inequity theory.” Rather, results showed only limited support at the extreme.
Considering other drivers, researchers determined that a force of habit may have contributed to the inability of free play reductions to decrease customer loyalty significantly. Within consumer psychology, research has identified habit as a primary force underpinning behavioral loyalty.
Further, in behavioral learning theory, the force of habit is considered an “inertia-based phenomenon, resulting in repetitive behavior such as repatronage.” And, as noted in the paper, the primary objective of loyalty programs is to encourage repetitive engagement.
The research team also found their results were “in step with the familiarity effect.” They said this suggests repeated exposure to free-play offers, and the venue in the pre-reduction period may have made it the familiar or preferred option.
The researchers added that the lack of “statistically significant” declines also suggested an unwillingness to engage in deliberative decision-making.
Force of habit may prevent or limit a decline in revenues following free-play reductions.
This result would align with studies that found the cognitive effort required to break away from a habit becomes a switching cost many are unwilling to pay.
Similar Concerns at Online Casinos, Sportsbooks
While this research focused on brick-and-mortar casinos and the potential impact of reductions to their free-play offers, similar discussions are underway in the online casino and sports betting space.
However, while brick-and-mortar casinos and sportsbooks have amenities, attractions, and loyalty programs to entice customers, online casinos or sportsbooks suffer from their lack of physical presence. For the online channel, the equivalent of adding amenities may be spending on software improvements.
At this year’s iGaming NEXT conference, one panel, The Race to Profitability: Overcoming the Generosity Habit, dove into the nature of online bonusing and the struggle to maintain profitability.
Moderated by Bloomberg Intelligence’s global head of financial modeling, Brian Egger, the speakers, Tomer Imber, Optimove’s senior director of US gaming sales, and Thomas Berman, director of sportsbook marketing at Bally’s Interactive, covered a range of topics, including the importance analyzing player data to create personalized strategies.
When thinking about bonuses, Imber said, companies need to recognize that giving bonuses will impact their profits. Something he said not everyone seems to understand.
Further, while retail casinos can rely on their amenities, Imber said online operations are more dependent on variables like consistency.
We’ve seen, for example, in the casino space, a 53% increase to bet amount just by optimizing the banners on an email and being consistent with the homepage and the layout of the app or site.
Online Operators Caught in ‘Catch-22’
The reality is, no two players are the same, added Berman.
We have to tailor different offers to different users based on what they’re playing, If you’re somebody who only bets $100 a week, a $25 free bet is going to look pretty good. You do that same offer to someone who bets $100,000 a month, they’re going to be furious.
Further, in what other industries are companies continually incentivizing customers in the same fashion, Berman asked. Still, he said he feels that by now customers expect this treatment.
On the other hand, competitors all have their own offers, which necessitates a certain level of competitiveness. The result, he said, holds companies in a “catch-22.”
Lucas: Experimentation is key
While challenges are unique depending on whether operators serve customers in-person, online, or both, free-play and bonusing seem due for deeper discussions.
Indeed, Lucas, who has done extensive work around free play over the years, thinks they should be.
However, the next move is up to the operators, he said.
I’m convinced, based on the body of work, that it’s just not working. I think I’ve demonstrated, beyond a shadow of a doubt that it’s just not doing what they think.
In science, he said, there’s a concept called triangulation.
When you look at the same problem with different methods and different samples, but you get the same answer. You’re probably on to something. So, at some point, we have to do two of two things. We have to admit that we’re not measuring very well, and we have to go back to the drawing board.
He added that this doesn’t mean free play is categorically bad. It just means the evidence suggests a strategy shift is necessary.
However, for operators, like their customers, the force of habit seems to win out over uncertainty and risk.
That hesitance is to be expected, said Lucas:
There’s a lot of internal championing for these campaigns. And there’s a lot of resistance to articles like this because corporations are very political.
Lucas said a study that challenges long-held and costly assumptions is threatening, and often, the audience tends to focus on its limitations.
He added that it’s hard to admit that something might not work when there’s a lot of pressure. It’s a gamble because change might have negative blowback.
But, his message to senior management would be to let their teams try.
Do some controlled experimentation, where you don’t wipe out the whole program but make gradual adjustments.
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