Turning Pareto’s Principle on its head
LeanConvert Founder Tim Axon explains how gambling companies can mobilise the large majority of their customers that contribute least to their revenue
The practice of gaming is likely as old as humanity itself with evidence appearing frequently in the archaeological record. Some of the first known ‘dice’ date back to around 500 BC and were found near the altar of Aphrodite Ourania in Athens, Greece. The dice are thought to be astragali, sheep knuckle bones marked with symbols which when cast onto the ground were used as a form of divination – a very early form of ‘rolling the dice.’ A few thousand years later, there is evidence of the Ancient Egyptians playing Mehet, a similar game to modern-day roulette, complete with a wager, whilst poker fans have the Ancient Chinese to thank as they were responsible for developing the first playing cards nearly 5,000 years ago.
The reason for gaming’s long history is quite simple. It is entertaining. And despite the intervening few hundred decades nothing much has changed, people still enjoy playing games. Epic Games, the makers of Fortnite, will certainly agree, as it is the world’s most-played video game with an estimated 3.8 billion cumulative days played. Like the Ancient Egyptians, people also still like a flutter. It is unsurprising then, that since the 1700s there has been an established industry to service its customers’ needs.
In the UK, the gaming sector should be proud to be one of the most inclusive in the world. It has worked hard to reinvent itself from the seedy stereotypes forged back in the 70s, 80s and 90s. Technology has enabled it to do this, creating games, experiences and communities that are appealing to specific audience segments. This has broadened the market considerably with an estimated 32 million active gaming accounts in the UK, over double those held 10 years ago.
In the UK, the gaming sector should be proud to be one of the most inclusive in the world. It has worked hard to reinvent itself from the seedy stereotypes forged back in the 70s, 80s and 90s
However, it is a well-known fact a high proportion of the revenue for UK gaming firms comes from a small proportion of its customers. This is reinforced by the fact that the average person in the UK spends £2.60 ($3.21) per week on gaming – including entry into the National Lottery. This imbalance has always been problematic for the sector, however with the impending white paper on gaming reform due out soon, this will likely become even more of an issue and something that the industry will need to address.
It is no secret that there are at-risk customers, and in the past, some people have been let down. Consequently, the upcoming gaming reform is aiming to protect vulnerable people whilst also reducing the cost of addiction on the economy. This is like the minimum unit pricing for alcohol in Scotland which came into force in 2018 to reduce the burden of alcoholism on the NHS – although the most recent research reveals that the measure has not reduced problem drinkers’ alcohol intake, instead it has prompted them to cut back on food and heating. All too often well-meaning interventions have unintended consequences which result in a worse situation than those they were trying to address – just ask Liz Truss and Kwasi Kwarteng…
It remains to be seen what impact gaming reform will have on customer behaviour, but assuming it goes ahead, it is widely believed that it will make stake and deposit limits a legal requirement irrespective of the financial situation or behaviour of the player. The reality being that millions will be instantly wiped off the P&L when the changes come into effect.
So, what can be done?
Whilst it will be almost impossible to negate the impact of the changes, the key will be to mitigate them as cost-efficiently as possible.
The answer lies in Pareto’s Principle. If the revenue can no longer be guaranteed from the top 20%, then the 80% are going to have to step up to cover some of the shortfall (or in this case more like the 90%). If gaming companies can re-engage customers that are dormant or infrequent, then they can recoup some of the losses they will incur at the hands of reform. To look at it another way – if you were a luxury chocolatier and the majority of your customers were one-time purchasers buying a gift for a loved one, it makes sense that by converting 10% of these customers into second-time purchasers incremental revenue would increase by 10%. Moreover, because retention is cheaper than acquisition your ROI would increase too. Setting a similar goal for infrequent, lower-value customers would result in increased revenue and lower marketing spend.
The big question is how. The problem is one of wallet share and cost, the law changes can be mitigated by leading experience, offers and support so that you pull people’s attention towards your brand and conversely away from others. Focusing on getting them in and extending those sessions is the key. How is your current site set up for that? Have you got all marketing nudges optimised? Are your forgotten-account-details flows optimised for customers that forget?
These are all important questions. Yet how do you know? The answer lies in experimentation, to understand what effect a prescribed action will have on specific audiences. By constantly testing different hypotheses it is possible to optimise the entire experience in incremental chunks.
The temptation for many gaming companies will be to bury their heads in the sand and maintain the status quo until the status quo is taken away. The technology is in place to do this now. It is a matter of adapting the tooling that is used to map the customer experience and identify different segments, such as managing potentially at-risk customers and driving improved and entertaining experiences so that customers want to engage more with your brand, over others.
The right attitude for the gaming industry in the UK is to set the wheels in motion now and start working to grow the lucrative middle base of customers, the customers that enjoy playing games and having a flutter. Customers like Michael Clark, who works at a mental health unit and recently won Betfred’s largest jackpot on a single spin. The customers, like Michael, that are not vulnerable; those that budget for their entertainment and aren’t necessarily playing to win but, instead, are playing for the experience and fun of it.
Experimenting and website optimisation will be an immediate and cost-effective way for gaming companies to mobilise and reinvigorate the masses
Experimenting and website optimisation will be an immediate and cost-effective way for gaming companies to mobilise and reinvigorate the masses. For instance, instead of offering one large deposit bonus that typically attracts high-value players, break the bonus down into much smaller but more frequent rewards. Hedonic framing, which means multiple smaller gains feel greater than one big windfall despite them both adding up to the same value, is proven to encourage lower value, repeat play from a wider audience. This is just one example of an easy-to-implement alteration that could have a significant impact on conversion. The good news is that there are many, many other tactics that can be tried and tested. The key, however, is to do it now, before the competition.
Those gaming companies that engage their 80 percenters (who are 80 percenters at multiple gaming companies) will be those that win in the long term by turning Pareto on its head.
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