Reference Dependent Targeting: Evidence From The Casino Industry
Publication Date
6-30-2023
Abstract
This research explores heterogeneity in reference-dependent sensitivities using rich, individual level CRM data from a large casino in the U.S. and discuss 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 and at the segment level using a latent class model. This analysis focuses on gains and losses relative to three reference points unique to the casino industry but conceptually easily 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. The heterogeneous reference-dependent sensitivities interact with marketing offers, suggesting that firms can improve targeting decisions by considering both the sequences of outcomes a gambler experiences in tandem with their most likely latent class assignment. In our empirical application we estimate that controlling for reference-dependent sensitivities improves lift by 11.7% relative to targeting that excludes these heuristics, and vastly outperforms standard industry practice.
Document Type
Article
Keywords
casino, customer relationship management, targeting, reference-dependent sensitivities
Disciplines
Marketing
DOI
10.2139/ssrn.4501436
Source
SMU Cox: Marketing (Topic)
Language
English
