We investigate the gambling market and the effect of the new tax laws that HMRC has proposed for the gambling industry which come into force 1st December 2014.
With a new UK law change coming into effect in December this year, gambling operators serving UK customers will face a huge tax bill that will inevitably drive profitability down. Many well known operators have already adapted accordingly by closing high street betting shops all across the UK to ready themselves for the new 15% tax. With that in mind, many marketers in the gambling industry are wondering how the law change might affect their online marketing strategies.
In a blog post, Phil Fraser, owner of WhichBingo said, “POC could well have a negative effect on online bingo. POC is a tax on gross win (calculated after bonuses) meaning that profits in bingo companies will drop. An obvious way for online bingo sites to sustain their profit levels will be for them to reduce their costs, most obviously their advertising and marketing.”
Gambling is Hard to Market
As we covered in our article on the World Cup betting landscape, mobile would seem to be the new hope for the industry. With shops closing, the uptake in mobile gambling would seem to stem the loss of revenues from physical stores. However, as a recent article in MediaPost sagely noted, the reality is that it’s just plain hard to market gambling to people.
The reason being is that people tend to be either already gamblers by nature or not. To quote the article, “the biggest problem the industry has is people generally either gamble or they don’t.” Yes, everyone is game for a laugh or a “sporting bet” here or there, but the reality is that the average punter is not a huge source of profit for a gambling operator. Put another way, if first time customers don’t become regular gamblers they may not be really worth marketing to as they’re just not that profitable over the longer term.
And here’s the rub. Regular gamblers are regular gamblers. And these creatures of habit are the most profitable players for gambling operators. Winning those people over is essentially the most important challenge as Steve Hargrave from BetFred points out in his MediaPost article.
So, filling up the customer lead generation funnel with average punters who might place a bet once in a blue moon is not necessarily going to make up for the loss operators face with the point of consumption tax change. The profit for operators is found in customer retention rather than new business. Hargrave suspects that advertising budgets spent on above the line channels such as TV will prove to be the wrong bet for operators to make.
Furthermore, Betting on Digital’s report released by IgnitionOne completed a survey with 2000 British respondents, including over 600 active online gamblers and 11 senior marketers, and it showed that only 1 in 5 people think that advertising for online gambling targets the right audience.
Targeting Your Marketing
And this is a view shared by Joe Attard, editor of gaming information site, Right Casino. In a phone conversation, he told Adthena that operator profits tend to be driven by a handful of high rollers rather than a high volume of new customers. Sam Miranda, marketing manager for Right Casino also confirmed that mass marketing is not always the best bet, saying that whilst casinos and sports bookmakers may offer “free bets” as part of their marketing incentives, the conversion rate for these strategies can often be low despite the huge volume of internet traffic they generate.
This means that now whitelisted operators will have to use a new channel to market to new customers they are going to face two types of marketing ROI challenges. The first is how effectively they manage their marketing spend on these new channels and the second will be how they ensure profitability.
In regards to the PPC marketing channel, Attard suspects the worst. He expects whitelisted UK gambling operators to continue to be hit the hardest in what is already a low margin channel. Yet, he does concede that they may also face less competition as gambling affiliates fall out of the auction because their commission earnings are also squeezed by the new tax.
How to Win the Battle Against the POC Tax
Graham Brown, Marketing Manager for GoWin, echoes Attard’s sentiments, telling Adthena, “The introduction of the POC tax will be a tough one to swallow, even more so for whitelisted operators with their already limited margins, this will be a considerable chunk coming off the top.
From an acquisition perspective, it will be more essential that every click, referral or site visit is coming from a source you’re confident is sending quality. The days of lead generation and bringing in a huge volume of visitors in the hope of landing a big spender could be over for many brands, the focus will shift much more to quality and getting the maximum value from your traffic. In simple terms marketers will need to understand their traffic sources and at the same time likely scale back on areas with lower conversion with PPC being an area that can be incredibly difficult to get the value from.
In short many smaller white-label brands will really struggle, it’s those that truly understand their traffic, the role that each of their marketing channels are playing in the funnel and how to maximise the value from them that will come through the introduction of POC tax.”
A Deloitte report paints the same market picture with a rosier tint, suggesting that the tax changes are likely to cause market share consolidation as escalating costs force smaller players out of the market. Their report emphasises customer loyalty as a key to success over the next five years and, with the prospect of market consolidation firmly on the horizon, Deloitte suggests the larger operators increase marketing budgets to secure their place in the pantheon of the nations favourite betting companies. Whilst marketing costs may escalate in the short term, Deloitte expect these to taper out and decline over the longer term.
“The next six to 12 months will see increased levels of marketing spending as operators prepare for the introduction of the POC tax. After that marketing spending is expected to reduce as smaller operators cannot sustain it and bigger brands benefit from significant critical mass and economies of scale in relation to marketing.”
Improving Your Intelligence
As we have asserted here before, all PPC is a gamble and the successful players display an appetite for risk. Better business intelligence could be key to profitability here in the early stage of the marketing investment cycle. Marginal advertising costs over the longer term could be shaved with the kind of wide angle view of the market provided by competitive intelligence tools like Adthena.
Deloitte also takes some comfort from the loss of local betting shops suggesting that their profits were being cannibalised by mobile device betting anyway. They also project a healthy future of mobile devices as the vector for more impromptu participation among loyal customers.
“With smartphone penetration growing fastest among the C2DE socio-economic groups who make up the largest proportion of betting shop visitors, it is possible that in the next five years retail betting operators see more customers take up mobile betting.
“Currently, almost a third of betting and gaming consumers have used their smartphone and 16 per cent have used a tablet to gamble online…Existing players have embraced opportunities for more spontaneous gambling, especially in the evenings. They also value the use of such devices as second screens, particularly for in-play betting.”
So, the prospects gambling operators face to ensure their longevity is to get better at mobile marketing whilst innovating their online products to make them more social experiences, all designed to win customer loyalty and retain continual engagement.
Retaining Your Customers
Brown, from GoWin, elaborated on the importance of retention in his discussion with Adthena, “A focus on maximising player value through retention will become increasingly important but with that the types of both recruitment and retention offers utilised may have to change. Offering a 500% welcome bonus may no longer be a viable option, filling the site with bonus cash rather than real money. We’ve already seen a shift in the industry towards offering free tickets and free spins as an incentive to playing and engaging them in the product rather than throwing huge amounts of bonus money at them.”
Although earlier attempts at real money gambling on social networks have been stymied by the POC tax law change, the market agrees that the next focus will be strategic marketing campaigns around specific sporting events and mobile, as the most personal device, may yet prove to be the ideal platform to do that. Second screen may still be in its infancy but it does not seem too far fetched to imagine a real-time winner feed gracing our sports screens, generating ephemeral celebrities during the games. Or, if not that, then bloggers on their websites.
For inspiration as to how you might turn national sporting events into real time social marketing events, just look to PaddyPower’s We Hear You campaign. PaddyPower crowdsourced commentary from it’s social fanbase, transforming it into compelling content for both it’s TV and Twitter campaign. Literally putting it’s own customers at the heart of it’s campaign, they were able to win media coverage that was disproportionate to their investment.
Right Casino’s team anticipate renewed investment in content to compete in organic and social channels to find some breathing space against the tight margins of PPC. They’re optimistic that Google’s search results are resilient to the kind of “black hat tactics” that have plagued the industry before.
Sponsorship is also likely to play a role as companies like Bwin have already done, partnering with RealMadrid.
Will This Work to Maximise ROI?
Regardless, in the low margin business of PPC in the gambling market, the game for gambling operators in the UK will be to use new keyword bid opportunities, like national sporting events, to shave marketing acquisition costs during the biggest sporting events and forge the right partnerships to weather the tax law change. The game will be to win your customers via PPC but invest in retentions strategies to engage them over the long term, whether via social media or mobile device experiences.
But whatever you do, one thing is clear from the pundits – win wallets over hearts – churning first time customers will be a mug’s game. Efficient PPC spending on your power keywords will only be your first point of call within a wider customer retention strategy.
Main image source: Flickr/Adrian Sampson