CRM Targeting With Reference-Dependent Sensitivities: Evidence From The Casino Industry

43 Pages Posted: 12 Jul 2023 Last revised: 17 Jul 2024

See all articles by Wayne Taylor

Wayne Taylor

Southern Methodist University (SMU) - Marketing Department

Jonathan Z. Zhang

University of Washington - Michael G. Foster School of Business

Date Written: June 30, 2023

Abstract

This research explores heterogeneity in customers' reference-dependent sensitivities using rich, individual level CRM data from a large casino in the U.S. and discusses implications for targeting decisions. We use a unique panel dataset of over 12,000 slot machine gamblers over 14 years and model heterogeneity in reference-dependent sensitivities at the individual level using a hierarchical Bayesian model. This analysis focuses on gains and losses relative to three reference points unique to the casino industry but conceptually extends to many other settings such as the financial services industry and hospitality: gambling outcomes relative to 1) zero, 2) prior trip outcomes, and 3) expected losses based on the house advantage of the slot machines. Firms can use heterogeneous reference-dependent sensitivities to improve their targeting decisions by considering the sequences of gambler outcomes in tandem with gamblers' individual sensitivities to marketing promotions. In our empirical application, we estimate that incorporating reference-dependent sensitivities improves marketing efficiency by 25%-38% relative to the standard industry practice.

Keywords: casino, customer relationship management, targeting, reference-dependent sensitivities

Suggested Citation

Taylor, Wayne and Zhang, Jonathan Z., CRM Targeting With Reference-Dependent Sensitivities: Evidence From The Casino Industry (June 30, 2023). SMU Cox School of Business Research Paper No. 23-10, Available at SSRN: https://ssrn.com/abstract=4501436 or http://dx.doi.org/10.2139/ssrn.4501436

Wayne Taylor (Contact Author)

Southern Methodist University (SMU) - Marketing Department ( email )

United States

Jonathan Z. Zhang

University of Washington - Michael G. Foster School of Business ( email )

Box 353200
Seattle, WA 98195-3200
United States

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