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The Casino Gaming Market is comprised of a number of competitors. Secret players control the industry separating the them into two categories: large-scale and little scale gambling establishments. All deal a variety of product or services including Keno, other income-hospitality services, gamin/poker makers and gambling establishment gaming tables.
Need stems from the localized market and the abroad premium players market. High earnings can be originated from the overseas market nevertheless dependant only on those losses suffered by players.
The industry has experienced sluggish growth for the previous 3 years due to ecological patterns.
Federal government guideline is high due to modifications in socio-economic conditions such as issue betting. It has seen a number of mergers and acquisitions take location to make up for absence of growth and in turn preserve market share.
The primary competitors include: Tabcorp who just recently combined with Jupiters Ltd and own an overall of five gambling establishments who are also essential gamers in the wagering and gaming market, PBL who owns Crown Gambling establishment and has a 15.
7 % stake in Burswood Casino, Sky City Entertainment group and Gambling establishments Austria International Limited who run a number of online casinos.
2.0 Industry Structure Analysis (” 5 Forces” Design).
2.1 Entry Barriers.
The level of barriers to entry is high.
2.1.1 Economies of Scale.
The justification of the gambling establishment market has actually allowed significant players to run given economies of scale. This has lead to some degree of deterrence for any brand-new entrant without gaming market proficiency, financial resources and/or access to distribution channels because they are otherwise forced to accept an expense disadvantage.
The main competitors consist of TabCorp Ltd., who now own 5 gambling establishments and are likewise involved in betting. The second significant competitor is PBL, who owns Melbourne’s Crown Gambling establishment and have a 15% shareholding in Burswood Gambling establishment (IBIS, 2004).
As such, these multiple and similar operations allow them to increase cost efficiencies while maintain a high level of service and quality product offering to meet market demands. For example, PBL has taken advantage of the digital technology used to produce the ‘ninemsn’ network (one of PBL’s core businesses), and televises 3 digital channels on the largest sports screen in the southern hemisphere 24 hours, 7 days week (Craigie, 2003).
2.1.2 Capital Requirements
The level of capital needed for investment in order to sustain a competitive position in the casino industry, is significantly high. New entrants should budget for a number of costs once positioning themselves in the industry. They include land costs related to property development, advertising and promotion expenses, labour costs, raw materials, operational equipment such as gaming tables and poker machines plus additional others. Labour costs in particular represent a large portion of overall costs, totaling 28.2% for wages alone in 2002 (IBIS, 2004).
Casino tax rates are another significant cost involved when operating in the industry. They differ from state to state starting at 8% in the Northern Territory to approximately 22% for larger scale casinos such as Crown Casino in Victoria and the Sydney casino (IBIS, 2004). These tax rates can vary depending on the state governments reliance on gaming profits as form of revenue. For example, the Victorian government expects to haul in almost $1.42 billion in gambling taxes in 2003-2004 (Dodd, Skulley and Strut, 2003).
There are also high costs associated with marketing/promotion in the industry. Competitors not only need to capture the localized market, but importantly create awareness and attract those ‘high rollers’ as this is where sizeable profits are derived. Therefore, extensive financial resources are necessary to gain entry and prolong a competitive position in the industry.
2.1.3 Government Policy
Legislation regulating the industry is high and rising. This is due to the increase of problem gamblers and actions to ban smoking in casinos. Smoking bans were introduced in September 2002 and has infact caused a downturn in gambling turnover (Dodd, Skulley and Strut, 2003).
Competitors also require gaming licenses to operate in the industry. Obtaining a license can create a barrier for entry due to legal and financial constraints. For example, the level of industry concentration can determine whether the government will actually grant a new license. Casinos such as Crown and Sydney are free from competition within certain proximity over their medium-term operations (IBIS, 2004).
New entrants are also subject to a number of ownership restrictions, comprehensive internal auditing and inspection procedures by State Casino Authorities making entry even more challenging (IBIS, 2004).
2.2 Determinants of Supplier Power
The bargaining of suppliers to the industry is medium to high.
The gaming suppliers industry is fairly uncompetitive in that only a handful of companies manufacture these goods. They enjoy high bargaining power over casinos because of their differentiated products. However, this trend seems to be taking a turn with suppliers operating on a more competitive scale. They are offering broader lines of products, new competitors are entering the market and gaming components are available at more reasonable prices (PR Newswire, 2004). Some suppliers however, offer products and services that are more unique and innovative in design, allowing them to dictate business deals on price, distribution and installation. Power such as this requires rivals to review their generic strategies in terms of cost leadership or differentiation and then search for efficient distribution channels and build long-term relationships with their suppliers.
The government also acts as a supplier. They have absolute control over decisions to grant gaming licenses. This is designed to limit their supply and in turn giving the government a high degree of power.
2.3 Availability of Substitutes
The threat of substitutes is low to medium.
Commercial gaming can be separated into three classes: lotteries (e.g. tattslotto), casinos and pari-mutuels (e.g. sports-betting). Lotteries and pari-mutuels act as substitutes to casino gambling as they can offer the same core benefit ‘the thrill of winning’. Although gamblers may alternate between classes, it is likely they have a preference for one. That is, although a gambler is likely to play a range of commercial gaming, they are still drawn to one class in particular because they believe the odds and returns appear more favourable to them (http://www.apsanet.org/~illinois/ipsr/gaming.htm, accessed 29th March). Therefore by leaning towards one type of gaming, gamblers perceive switching costs to be high in terms of time, money and effort spent if a loss is made on a substitute.
With the growth in the number of pokies machines in TAB venues, clubs and pubs, the threat of substitutes is higher as they are also a part of the core offerings in casinos.
2.4 Bargaining Power of Buyers
The bargaining power of buyers is low to medium.
2.4.1 Local Demand
Casinos mainly hold the buying power when it comes to the localized market. It is up to them to provide a range of services and products to best suit the customer needs whether it be a large scale casino with conference rooms, accommodation and premium player facilities or smaller type casinos with basic amenities.
2.4.2 Overseas Demand
Although in the case of ‘high-rollers’, there is a degree of bargaining leverage because some competitors rely on their gaming expenditure as a main source of revenue i.e. can be between 17 and 22 per cent of a casino’s expenditure (IBIS, 2004). Industry rivals who choose to target the overseas premium market, have superior product and service offerings to entice the high roller gambling at that establishment (IBIS, 2004).
2.5 The Intensity of Rivalry
Competition is at a medium level pushing towards a high in the near future.
This is evident in a number of industry conditions. Firstly, a slower growth rate since 1999-2000 (IBIS, 2004) has lead to only a few large-scale type casinos battling for market leader positioning and increases in market share. Between them, they have sought to rationalize operations and undergo financial restructuring which have had a considerable impact on smaller casinos as they do not have the resources to follow.
Cost-cutting and extensive marketing promotion also indicates a strong degree of intensity amongst competitors (Thomson, 2003).
The two major players in the Casino industry include: TabCorp operates as the market leader after their merger with Jupiters in March 2003, giving it an estimated 44 percent of industry revenue (IBIS, 2004). They have been able to sustain this position by rationalising costs due to its broad stake in both the wagering and gaming industry and ownership of major casinos across the country (Power, 2003). PBL is the other major player with 36.82% market share after utilizing their financial resources to obtain a stake holding in Perth’s Burswood Casino. They operate as the market challenger and maintain a strong rivaling position.
PBL’s Crown Casino in particular has enforced their position by differentiating their product offering and reinvented themselves as a brand with an image (Craigie, 2003). Rivalry is also at its peak with further bidding-wars to control and acquire as much market share in Australia as possible. PBL and Tabcorp are even considering investing in the recently deregulated UK gaming industry. (See Table 1)
Overall, competition takes the form of value added services, innovative gaming technology, design and ambience of the casino, experience of workforce and proximity to key markets.
Table 1: Kotlers Market Positioning
Competitor Market Position Market Share Customer Base Product/Services Offering
Tabcorp Ltd, Jupiters Ltd, Star City, Sky City Market Leader 44% Localised market, visitors and minimal overseas premium players. -Gaming entertainment- Casual Bars and restaurants- Hotel- Entertainment Venues
PBL – Crown Casino, – Burswood Casino Market Challenger 37% Localised market, specifically targeting overseas premium players and visitors -Loyalty programs- Other entertainment facilities- Nightclubs- Shopping and Dining- Dynamic Gaming areas- 2 Hotels
Casino Austria International Ltd. & other regional-based casinos Market Nicher and Followers 19% Mainly localised domestic market with minimal visitors. – Pokies machines- Bar and bistro- Online Gaming
Source: http://www.tabcorp.com.au/home/home.asp, http://www.crownltd.com.au/home.asp,
3.0 Environmental-Trends Analysis
3.1 Legal and Political
There is a high level of regulation overseen by the government and a number of self-regulation and industry bodies that develop standards for an industry code of practice.
A number of regulations include policies to stop problem gambling such as national caps on poker machines, bans on linked jackpots, new smoking laws, higher taxes on gaming machines and a reduction in the hours of operation (Wright, 2003). The combination of these factors has lead to a dramatic slowdown in industry growth and profits.
The government also reviewed and passed legislation regulating the use of internet casinos by Australian residents. There are however a number of Australian owned gaming sites accessible to overseas markets.
Economics conditions and trends can greatly impact on the industry in terms of economic slumps or booms and market competition because it has considerable effects on demand for casino gaming (IBIS, 2004).
The rise of problem gambling in society has been a major concern for both the government and local communities. The social costs are deemed to be far greater than the benefits provided by casinos. This trend has lead to an increase in regulation by the federal and state governments (http://www.gambling.vcga.vic.gov.au/, Accessed 3/4/2004).
The establishment of internet casino gaming sites has significantly increased competition for Australian owned land-casinos. Casino gaming on-line has lower operating costs and offers better odds on winning (IBIS, 2004). Overseas premium players can therefore gain access to casino gambling via a portal and has the potential raises concern for reduced competitive advantages.
The SARS outbreak, the Iraqi war, the Bali tragedy and September 11th have all impacted on the tourism numbers in Australia. The drop in overseas and domestic travel has significantly impacted on the casino industry because a substantial portion of the customer base comprise of visitors. The SARS epidemic that swept Asia late 2003, was evidently a major setback for the industry (http://www.casinoman.net/Content/casino_gambling_news/gambling_news_article.asp?artid=1765, Accessed 6/4/2004).
Rapid technological advancements deliver new product innovations that shorten the industry’s product life cycles. This has implications for operational effectiveness. New-high tech products are designed to enhance playing activity, improve spatial analysis of usage and machine profitability patterns and provide a secure video monitoring system of patrons and tables. Mega-style casinos have constantly updated to many of these new products and systems and greatly assisted in achieving objectives. However, the rate of advancement has been detrimental for smaller market niche casinos as they do not have available resources to constantly fund innovative equipment and reduces their level of competitiveness.
4.0 Generic Strategy
4.1 Crown Casino
PBL owns Crown Casino, the largest casino in Australia. The corporation has sought to pursue a differentiation strategy by offering a number of premium products and services conferring across broad markets. It has wide appeal in that Crown attracts domestic and high roller customers.
Crown’s strategy has been to develop new ways of enhancing the gambling experience making it more pleasurable. This has entailed newly built VIP rooms for premium players, updating to the latest high-tech gaming equipment, establishing a range of other entertainment facilities such as cinemas and nightclubs, and providing accommodation catering for premium clientele in the Crown Towers, and the broader domestic market with the newly built Crown Promenade. The casino has been able to target a wider market even though it charges at a premium because customers perceive that there is value in their offerings. Attracting a broad customer base is even reflected in their advertising slogan ‘Everyone’s a winner at Crown’.
Crown has also sustained a competitive advantage by marketing themselves as a ‘brand of entertainment’ rather than just a casino, and offering loyalty programs so as to increase customer patronage. This strategy has enabled them retain a large portion of their customers because by encouraging brand loyals, they have reduced the susceptibility to substitutes and competitors. The success of this strategy is evident in increasing annual revenues and an internationally known name worth millions of dollars.
In terms of the value chain, Crown has benefited from the synergies existing with PBL’s other core businesses. Raw materials go through a number of processes to add value and thus result in premium products and services (See Table 2).
Human ResourcesManagement – Consulting business and gaming analysts – Recruiting & training to acceptable gaming standards- gaming staff- security personnel – Recruiting – Recruiting Margin
Technology andDevelopment -Gaming manufacturer’s design and innovation of new products- Computerised purchasing system – Data Warehousing System-Tracking of customer expenditure and usage-Gaming floor design-Advanced security monitoring system- Digital broadcasting technology – Entertainment facilities- Bars, Restaurants- Casino design/décor -Information System development – Market research- Customer database- Technical Literature – Gaming manuals, standards and procedures
Procurement – Search- Purchase Order- Transportation- Services- Vendor control – Gaming supplies- Other entertainment supplies- Compugdium SeePower business intelligence solutions – Internal distribution channels – Loyalty programs- Premium packages -Basic amenities eg. Cleaning- Airport transportation- Concierge Margin
Installation/Set-upInspection -Testing-Maintenance -Advertising- Promotion- Public Relations – Excellent customer service
Inbound Logistics Operations Outbound Logistics Marketing & Sales Service
Table 2: This table reflects Crown Casino’s Value Chain
Source: (http://www.sybase.com/content/1011906/iq_ap_l01665-v2.pdf), (Craigie, 2003)
Tabcorp has a clear avenue for competitive advantage because of the vast array of gaming services they provide and the geographic spread of its casinos. It has given them the opportunity to operate on economies of scale leading to an increase in market share and dominating as the market leader. Although they have maintained a differentiation strategy, their products and services are not positioned at the superior end of the market (http://www.tabcorp.com.au/home/home.asp, Accessed 6/4/2004).
5.1 Alternatives to compete with On-Line Casinos/Rivals
The upcoming rise of online casinos poses a threat for large-scale casinos who rely heavily on the overseas market as a main source of revenue. Crown Casino and to a small degree, competitors such as Tabcorp will be most affected by this trend. Smaller casinos on the other hand are not at risk because they target the localized market and cater for those specific needs.
Until government restrictions are lifted, non-reliance on the high-roller market has its advantages for Tabcorp and smaller casinos because their success in catering for the local market customers insulates them from overseas patrons who will take up on-line gambling.
Crown Casino is therefore presented with opportunities to cater for a more localized market over a wider geographic spread. They already have a valued brand building advantage and if government licensing permits, could set up a national chain of ‘Crown’ Casinos which offer products and services for the average customer. A sufficient opportunity to enter a localized market is for PBL to use the Burswood Casino. Alternatively, they could redevelop their ‘GamesCasino’ originally established in Vanuatu but closed in May 2003 due to worldwide regulation (IBIS, 2004), and join the other hundred online gaming operators tapping into overseas markets. It is in Crowns or PBL’s best interests to widen their competitive scope and pursue production in large volumes attracting as many buyers as possible.
5.2 Corporate Restructuring
The slowing rate of growth in the gambling industry has seen competitors take on a number acquisition and mergers in order to sustain and increase market share. However as Tabcorp have thrived on this approach, PBL with Crown have chosen to respond by cutting costs in those seemingly unimportant areas. Often this is risky for organizations that base their reputation and success on offering a ‘world of premium entertainment’, yet Crown was able to withstand the environmental trends affecting the industry and experienced record earnings in the last financial year (Craigie, 2003) superseding all of its competitors. Continuous reviews of labour and operational structure will assist in maintaining Crown’s resilience to external influences as it promotes higher efficiency and produces effective results.
5.3 Brand Building
Crown has the distinct advantage of being the largest casino in the southern hemisphere. Close proximity to catchment areas situated in the city of Melbourne and premium product offerings have all contributed to Crowns highly competitive behaviour. Yet much of this can also be attributed to funds injected into the direct marketing department to promote and build Crown Casino as a brand (Craigie, 2003). They should take full advantage of this competitive weapon. This will provide protection from competition in the future and hold on to market share. The advantages of ‘Brand Building’ are
– Customer Loyalty
– Market Share
– Perceived Quality, and
Customers who perceive the Casino as a brand of entertainment offering quality products and services are more likely to visit and re-visit again due to a ‘fun’ and ‘exciting’ experience rather than recall it as purely a gambling establishment.
sp?artid=1765, Accessed 6/4/2004)
Crown Casino Ltd.
http://www.crownltd.com.au/home.asp, Accessed 3/4/2004)
Craigie, R., Crown Ltd. Annual Concise Report (2003), Melbourne 3001
Dodd, T., Skulley, M., & Strutt, S., (2003), “Hooked on Gambling”, Australian Financial Review, July 14th, pg. 53.
Furlong, E., “Riverboat Casino Gaming: a war between the states”,
(http://www.apsanet.org/~illinois/ipsr/gaming.htm, accessed 29th March)
IBISWorld Pty Ltd., (2004), P9322 – Casinos in Australia.
Power, B., (2003) ” Jupiters Puts $150m Price on Centrebet”, Australian Financial Review, 12th May, pg.12
(http://www.sybase.com/content/1011906/iq_ap_l01665-v2.pdf, 200), (Accessed 3/4/2004)
http://www.tabcorp.com.au/home/home.asp, Accessed 6/4/2004)
Victorian Casino and Gaming Authority
(http://www.gambling.vcga.vic.gov.au/, Accessed 3/4/2004)
Wright, L., (2003), “Bans, limits on jackpots and losses; National gambling plan to help pokie addicts”, Sunday Herald Sun, 2 November, Pg. 2
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