North American Association of State and Provincial Lotteries Where the Money Goes

Issue 21 - December 3rd, 2018

How Consumers React

In the spring of 2008, a large national pizza chain inadvertently experienced a debacle related to a famous basketball player from Cleveland, who also subsequently played for Miami and L.A. (take a guess who). The pizza chain later publicly apologized and offered a one day special - a 23-cent large one item pizza per customer, valid at all of their Northeast Ohio locations. Thousands of people lined the streets in front of the local pizza shops, spending tireless hours waiting in line until they obtained their 23-cent pizza. One unfortunate woman even had her pizza stolen from her after waiting for the special offer! An estimated 172,000 pizzas were sold that day. Let's estimate that the large one item pizza was valued at $10.00, so each customer obtained an offer worth $9.77. Now if you randomly told a person "I'll pay you $9.77 to stand on the sidewalk for three hours with a crowd of people," what do you think the response would be?

Is this consumer behavior rational or irrational? Why would people spend several hours of their life to obtain $9.77 worth of free pizza? What caused the ground swell of the growing pizza lines? Was it because of the media buzz, the thrill of getting a 23-cent pizza, or some unknown phenomenon?

One of the most interesting and fascinating aspects of the lottery industry centers around the psychology and behavior of our customers and non-customers. We tirelessly try to answer many difficult questions, such as who our customer is, who our customer isn't, and why some products sell while others don't. We seem to spend endless dollars doing segmentation studies, surveys and focus groups to gain valuable insight, but nevertheless we never totally and completely obtain all of our answers or know how to proactively react to the research results.

How powerful is brand loyalty and familiarity to the products we sell? Prior to the Powerball/Mega Millions cross sell agreement, I found it interesting that when our in-state lotto game Classic Lotto had a higher jackpot than Mega Millions, weekly Mega Millions sales could still double that of Classic Lotto despite the fact that the odds of winning the Mega Millions top prize were well over 10X more difficult than Classic Lotto. How can it be possible that sales are higher on a game with a lower jackpot and longer odds? Is it because consumers are not aware of the Classic Lotto game or because Mega Millions has better brand equity? Or are players simply loyal and keep playing their favorite numbers for Mega Millions? From a purely logical, mathematical and statistical perspective, Classic Lotto was the better buy but Mega Millions sales still exceeded those of Classic Lotto, making this an interesting observation.

Why do players feed sales at record high jackpots but are fatigued at lower but still significant jackpot amounts? $500 million isn't enough for anyone, but $1.0 billion is? Or is it the dream to have the fame of being the one person who wins the largest jackpot? Why do some people who are fundamentally opposed to gambling tend to sneak in a purchase or two, or join in the office pool when the jackpots are at all-time highs?

Most people are creatures of habit, whether it's a morning routine to grab a hot cup of joe, catch up on a morning media fixation, or take a normal commute path to work. Just look at the predictability of where everyone will sit at the conference table at your office. With about a 90 percent probability, your staff will sit down at the same position meeting after meeting. It's the power of habit!

Through their experiences and associations with peers including coworkers, teachers, family and friends, people tend to develop predictable patterns. If your family was into boating when you were a child, you are more apt to take on that hobby in your adult life. If your father was a golfer, you'd be more likely to take up golfing. But for everything, there is a first time experience. That initial experience could shape the probability and predictability of whether you continue. You might go bowling as a child and the bowling ball may be too heavy and therefore you dislike the sport, or your mother might have forced you to eat brussel sprouts and you gagged. Conversely you might try pizza for the first time and find your lifetime food friend. These impressions can be factors going forward in predicting how you react in the future. Unfortunately and ironically, a positive first gaming experience with a "big win" could be a precursor to a longer term problem gambling addiction.

Over time attitudes can change, habits can be broken, and new experience opportunities are always presented to us that can shift our attention to new adventures. You may have participated in an activity or perhaps a dining event and encountered one bad experience. That negative experience can vastly shape your attitude and habits going forward. Today's markets utilize loyalty and reward programs to help shape customer attitudes and habits. If you are deeply engaged in a company's loyalty program, a negative experience may not be enough to have you exit their program. You are already heavily invested and it may be more painful to lose your reward points and tenured status by divesting from the company you have been patronizing. We need to remember this too.

Lotteries need to navigate through all this clutter and the dynamics of rational and mysterious irrational human behavior, attitudes and habits. We need to stay vigilant. Be loyal to our loyal customers. Reward our players. Provide fun, fair and entertaining gaming products. Try immensely to think like our consumers think. Make the purchase and prize redemption process seamless. Assist our retailers with the latest technology to make their jobs easier. Remember not to overthink and complicate our games so they are too confusing to the player (if your own employees can't even explain it, how can the consumer be expected to understand it!) We must never forget to uphold our responsibility to develop and maintain viable problem gambling programs within our own states and collectively as an industry. And lastly, it's always cheaper to retain your current customers than to recruit and obtain new ones.

Best of Luck!

Dennis Berg
Director, Ohio Lottery Commission
NASPL President

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