Good Example Of Situation Analysis Case Study
Competition in the northern cluster casino sub-industry is intense and as is the nature of any other oligopolistic market structure, strategic interdependence has ensured that market share divisions are rigid. Consequently, the Rebel Resort, and the majority of its competitors, struggle with underutilized capacity, strategic inflexibility in fear competitor retaliation or loss in market shares. The prospect of backlashes due to aggressively competitive strategies has forced many operators into a strategic waiting game and risk aversion. However, the Rebel Resort management faces increasingly intense pressure from the Indian tribal council to maintain high profitability and revenue growth. The choice of the strategic direction for the business has also drawn passionate differences by key departments and decision-makers (marketing and finance departments), making it difficult to choose and implement drastic strategies. Effectively, the resort is exploring new strategic alternatives not only to increase profitability and revenues in the short term, but to develop sustainable competitive advantages that would secure the same in the future.
Rebel Resort SWOT Analysis
The Rebel Resort has excellent facilities that it can leverage to increase revenues. It has excellent restaurants and specialty outlets, a hotel with 500 rooms (with 15 best luxury suites in the northern cluster), including a full-service spa, a spacious pool area that is not monetized and has limited conference resources because the facilities cannot accommodate large groups. The casino has 3000 slot machines, along with a 12-table poker room, 78 table games, a keno game and a bingo hall, which makes one of the best equipped in the northern cluster.
The resort is poorly positioned to capitalize on the meetings and events business. In addition, the resort is barely known for its food and its1400-seater concert venue is underutilized despite the heavy capital investments in the facility and the potential value that it could bring to the business. The inability and/or failure to attract big-ticket performers is in part responsible for the underutilization of the concert facilities. Effectively, it is important that the resort invests in attracting big-ticket performers and advertising/promotion to generate larger audiences for concerts, which has since been unprofitable because of the low demand. The Rebel Resort also lacks in several key amenities (and has opportunities that it can leverage to overcome this limitation), other than a lack of a retail presence.
The competing casinos in the northern clusters come short in multiple key amenities and Rebel Resort could capitalize on this. To begin with, Pechanga Resort & Casino’s non-gaming facilities are poor in quality and variety, besides a limited retail presence. Similarly, Pala has a limited retail shopping experience given it only has two shops (supplying designer apparel and accessories) and has no spa, and has an outdoor amphitheatre that is only operational when the weather permits. Full monetization of the pool area and increased utilization of the idle capacity will reduce fixed costs and increase profitability.
Harrah’s Rincon Hotel, like many other competitors in the region, lacks a retail presence, despite its excellent hotel facilities (which can be discounted based on its relatively small slot machine capacity and its lack of direct access to the San Diego clientele). The slot rooms easily generate the vast amount of revenues for Rebel Resort, in common with its key competitors. If the resort carries on with the amenities improvement strategies that would generate increased customer traffic to the casino, then it natural that the demand for slot machines is likely to increase (especially in the long term). According to the finance department, slot machines had a better chance of increasing play time and house advantage, and even if this increase does not much the reduction expected from rescinding the free to play offers, it would most certainly generate more revenues for the casino.
The resort is surrounded by competing casinos on all access road approaches and does not have the best geographical vicinity to the I-15, which places it away from the gamblers’ thoroughfare. In addition, the Rebel Resort faces stern direct (from casinos in the northern cluster) and indirect competition (from card rooms and casinos in the prime metropolitan areas in the region), which means that the cost of competition e.g. FP expenditure is considerably high. Lack of distinctive product differentiation has resulted in polygamous customer loyalty and higher costs of retaining existent customers. This is worsened even more by the nature of an oligopolistic market structure, which means that competitors will readily match any competitive strategies that the Rebel Resort adopts.
Continued use of free to play offers and old current slot machines (the status quo)
No extra cost
Maintenance of current market share and customer base
Unsustainable in the long term
No product differentiation
Considerable unutilized capacity, including the concert and pool facilities
Increased Utilization of Existent Amenities
Increased concert traffic will generate will result in spill-over expenditure for the slot machines and other segments of the business and thus even if it is not independently profitable, it adds value to other profitable segments of the Rebel Resort
Unutilized capacity in the existent facilities results in losses due to the high fixed costs and high initial capital investments
With the exception of Harrah’s most competing businesses are struggling in this market segments and thus this will generate competitive advantages that can be sustained, at least for the short term.
Considerable resources are required to attract big budget acts and promote facilities, which are not currently profitable and would remain unprofitable without attracting larger audiences
It may take a considerable amount of time to attract a sufficiently large clientele to make these segments profitable
Investment in the development of more competitive amenities including a presence in retail
The lack of a conference services to accommodate large groups has kept it out of the meetings and events business. The available land should be used to construct a covered outdoor parking (which adds value to every business segment at the Rebel Resort), while the concert space should be redesigned and/or expanded to along the lines of Harrah’s. The construction of a multi-purpose space similar to Harrah’s Events Centre that would include a concerts venue, banquet space, and meeting space, would not only allow the Rebel Resort to capitalize on the meetings, events, retail and concerts businesses, but the versatility of the facility would increase the probability that they would be fully utilized compared to dedicated facilities. Lastly, the Rebel Resort’s pool area has not been monetized despite the fact that it is bot spacious and has beautiful mountain visitors. It is imperative that the Rebel Resort builds cabanas at the poor area, to ensure that the pool area does not only generate revenues, but perhaps most importantly, add to the casino’s competitive advantages in the area of accommodation.
Without excellent amenities to attract customers to Rebel Resort, the casino and many of its direct competitors in the northern cluster suffer from a geographical disadvantage compared to competitors such as San Manuel Indian Bingo & Casino, established Card Rooms and other facilities located in prime metropolitan areas.
Unlike free to play offers, excellent amenities would confer lasting competitive advantages to the Rebel Resort because differentiated facilities cannot be matched (at least not exactly) by the competition
Capitalizing on the meetings and events business will generate increased visitor traffic, which would in turn create demand for the hotel facilities, slot machines, table games and other product offerings. Effectively, while the meetings and events business generates its own revenues, it would lead to spill over expenditure that would benefit other product segments
If the Rebel Resort leads its competitors in the development of excellent facilities above the existent ones (e.g. establish a strong retail presence), it would have the pioneer’s advantage that would allow it to consolidate a strong brand image and customer loyalty, which would ultimately serve to insulate it from direct competition.
The quality and variety of amenities and products would create synergies that lead to lower costs and increased revenues because they bring more patrons to the Rebel Resort
Development of amenities requires hefty capital investments, which may prove to be a challenge in the short term
The high capital investment requirements mean that it this strategy is adopted, other strategies would have to be excluded because resources are limited. Effectively, this strategy’s benefits must be assessed against the short-term and long-term benefits of other strategies that must be excluded
It is a long-term strategy and thus it may not lead to immediate improvements in the Rebel Resort’s competitive advantages
Discontinue/Reduction of Free Play Offers
It is striking that despite the widespread use of free play offers by casinos; the most important benefits of this strategy remain largely theoretical. If free play offers do, in fact, increase the number of patrons to the Rebel Resort by retaining the existing clientele at no cost at all, then it has value to the business. However, it is evident that the marketing department ignores the costs associated with the increased revenues and that this strategy is employed across the industry as a defensive as against an aggressive strategy. It does not afford the Rebel Resort any competitive advantages, but only serves to protect its loyal clientele. It is equally unlikely that customer loyalty is tied to $20 free to play offers, but the wider product and amenities portfolio on offer at the Rebel resort, including its geographical advantage. Further, given the fact that the Rebel Resort is geographically surrounded by even better-situated competitors like Pechanga, it is unlikely that free to play offers are solely or even majorly responsible for return clients and customer loyalty. This is especially since scientific evidence by the MIT Sloan Management Review, showing that the cost of retaining old customers may be higher than the cost of acquiring new clients, backed by the fact that most customers had “polygamous” loyalty. Effectively, free to play offers should be discontinued, and instead investments in sustainable competitive advantages such as facilities improvement should be redoubled.
This strategy can be easily reversed if there is indeed a considerable fall in the number of customers as the marketing department expects. In fact, if customers are as sensitive to free to play offers then if there is a backlash then the program can be re-introduced with even better offers that would eat into the competitors’ market shares
In an oligopolistic market structure such as the casino sub-industry in the northern cluster, the free to offer strategy is easily matched by competitors and thus it does not lead to sustainable competitive advantages
It will lead to cuts in the associated costs involved in the generation of repeat players and reduce the costs of maintaining existing customer base
The marketing department can use the additional resources to pursue more sustainable competitive advantages
Discontinuation of the free to play offers would allow for the empirical studies to determine the actual value that these programs bring to the Rebel Resort since this has until now been strongly opposed by the marketing department.
It may result in the loss of the market share if it indeed true a major driver behind the customers’ decision-making
Recovery of the lost market share (if it indeed lost) may be more costly, even though it should not be difficult
This strategy would only work better if it is implemented after the Rebel Resort develops more infrastructure/amenities that would offer customers more value in order not to switch loyalties once the offers are pulled
Acquisition of Slot Machines with Low Variance Pay Tables
The low variance pay tables increase the expectation of winning, effectively increasing play time and increasing the likelihood that the customers will plough back winnings to more gambling. This strategy will make use of the same factors that the marketing department has so strongly touted i.e. the fact that the customers are gamblers.
Increasing probability of winning will increase play time and likelihood of winners to plough back their winnings into further gambling, which only benefits the house more
The low variance pay table slot machines generate better returns for the house compared to the regular slot machines
It is not clear if competitors have invested in these machines, and since there is a $60 million cost barrier to acquiring the machines, it will take a while before competitors decide to adopt them
Cross-talk among gamblers would serve to drive the demand to the Rebel Resort if indeed it is as effective as the marketing department believes it is in driving consumer decision-making, effectively ensuring the casino’s market share increases in the short term.
It requires an investment of $60 million to replace all the 3000 slot machines
The cost investment in the low-variance pay table slot machines is relatively low for the casino businesses that generate in excess of $300 million in annual revenues (from slot machines alone). Effectively, if these machines result in any competitive advantage, it is expected that close competitors will also invest in the same machines, effectively cancelling out the competitive advantages. This will almost certainly happen in all oligopolistic market structures such as the casino industry in the northern cluster unless the businesses invest in genuine product differentiation.
Best Strategic Solution
A twin strategy that would combine the acquisition of low variance payoff slot machines and the development of competitive amenities presents the best possible strategy for the Rebel Resort. This is not least because moving away from the free to play offers may alienate the marketing department and potentially result in the adverse effects envisaged by the department. Given the cost of this offers is low (or free), the casino can carry on with it in the short-term. On the other hand, while increased utilization of the existent capacity is important, the financial results show that the cash cow for the resort is the slot machine. Effectively, the immediate acquisition of the low variance payoff slot machines should be implemented immediately, but since competitors can match this strategy, it should be coupled with long term investment in the development of amenities. Long-term investment in amenities will differentiate the Rebel Resort and give it sustainable competitive advantages, which are presently lacking in the northern cluster casino industry.
Kotler, P. and K. L. Keller. Marketing management . Upper Saddle River, N.J: Prentice, 2012.
Rugman, A. M. and S. Collinson. International Business (6th Ed). London: Pearson Education, 2012.
Shin, Jiwoong and K Sudhir. "Should You Punish or Reward Current Customers? ." MIT Sloan Managament Review Fall (2013). Web.