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Strategic Industry

MGM Mirage. MGM Mirage, who is currently headquartered at Las Vegas Nevada, is an entertainment, hotel, and gaming company. It operates 12 casino properties. Its major brands in its portfolio of casinos include MGM Grand Hotel and Casino, New York Hotel and Casino, the Boardwalk Hotel and Casino, and a major shareholder of Monte Carlo. Hilton Group. Hilton Group plc, whose headquarters is in Watford, UK, is amongst the leaders in the leisure industry and has operations spanning from health clubs, hotel, and regulated betting and gaming services sector.

For the fiscal year ended December 2005, the group posted revenues of $ 4. 4 billion and a net income of $ 460 million. The group owns a range of world-famous brands including Hilton, the hotel chain, and Ladbrokes, the world’s biggest bookmaker. It employs more than 77,000 people across the world in more than 70 countries. Financial: Strong Harrah’s Entertainment with its acquisition of Caesar’s Entertainment has formed the largest hospitality entertainment company in the industry, followed by MGM Mirage with its merger with Mandalay Resort Group created the second largest hospitality entertainment company.

The two companies are the main competitors within the hospitality entertainment sector. Hilton Group plc and Marriott International

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are also competitors within the hospitality industry. However revenues from its entertainment and gaming business account for a smaller portion of its total revenues. Harrah’s revenues registered 10 percent higher as compared to MGM’s revenues in 2005. However, despite the Harrah’s higher revenues, MGM’s operating revenues is greater by 39 percent than Harrah’s. This suggests greater efficiency and control with MGM’s operating expenses in 2005.

Comparatively, MGM’s operating margin (21%) is higher by 7 percent than Harrah’s operating margin (14%). MGM’s net margin (7%) is also better by 4 percent than Harrah’s net margin (3%). Despite the squeeze in operating margin, Harrah’s Entertainment registered a higher earnings per share of 1. 57 as compared to MGM Mirage’s 1. 50 (Exhibit 12). In 2005, Harrah’s Entertainment return on revenues stands at 3. 7 percent. Despite the increase in revenues increased to $ 7. 11 billion, net income fell $ 263. 5 million.

Hence, return on revenues ratio declined by 3. 5 percent from 7. 2 percent last year. Return of average invested capital stands at 3. 9 percent also down with increased average invested capital in 2005. Return on Equity stands at 5. 7 percent. With the decline of net income and the increase of capital stocks to fund the acquisition of Caesar’s Entertainment, return on average equity declined by 13. 8 percent from last year’s 19. 5 percent (Exhibit 13). A large part of the success of Harrah’s Entertainment is its ability to develop close customer intimacy.

Its highly successful launch of Total Rewards campaign is the first loyalty program in gaming industry. Perhaps the high degree of interest in relationship marketing is owed to growing empirical evidence which links relationship marketing with profitability. Relationship marketing’s promise of lifetime value and increased profitability per customer provide substantial reason for organizations to keep taking note and continue their organizational learning, despite setbacks. Customer retention has been high correlated with profitability in service situations (Reichheld & Sasser, 1990).

Reichheld’s findings were dramatic: a five percent increase in customer retention resulted in increased profitability in the range of 20 percent to 125 percent. In a similar vein, Gupta and Lehmann (2003) estimated an “increase of 22% to 37% in a customer lifetime value for a 5 % increase in customer retention”. This close customer relationship coupled with superior service has created opportunities for Harrah’s Entertainment to establish itself as a premier gaming entertainment company in the United States.

Moreover, its three most widely recognized and respected names in casino entertainment continually earn consumers’ loyalty and confidence, which can bring Harrah’s Entertainment to exciting, unexpected new places around the globe. Chairman and CEO Gary Loveman notes: While offering customers more places to play lends to Harrah’s decisive advantage over our competition, giving those customers more and better reasons to consolidate their play with us is what set the stage for the remarkable growth we have undergone since the late 1990s.

By establishing our core Harrah’s, Caesars, and Horseshoe casino brands among the industry’s best-recognized and most-respected, and by supporting that branding effort with peerless customer service, we have created powerful incentives for customers to patronize our casino rather than others’, and to spend a greater percentage of their allotted gaming-entertainment budget at Harrah’s when they visit (Harrah’s Entertainment Annual Report, 2005). With regulation in gambling relaxing in several areas in the European and Asia-Pacific region, Harrah’s continually looks for opportunities to expand outside the United States.

With its globally recognized brands, Harrah’s Entertainment has a definitive strategic asset that can differentiate it from competitors and reduce its risks in operating outside. In fact, Chairman and CEO Gary W. Loveman reports: Even as we take on major capital projects with the potential to grow markets and increase Harrah’s market share, we are also seeking out attractive new development opportunities in domestic and international jurisdictions where policymakers appreciate the significant economic benefits our business generates.

(Harrah’s Entertainment Annual Report, 2005) Harrah’s Entertainment Strategic Initiatives In a continually changing business environment, companies craft strategies to profitably meet market demands and needs. A strategy can consist of many competitive efforts and business approaches to meet market demands and achieve organizational objectives. A strategy can be view as a management’s response to successfully compete in the market. That is, it determines whether a firm will concentrate on a single business or build a diversified group of business.

Thus, a firm’s strategy reflects the managerial choices among the different alternatives and market opportunities. It also signals organizational commitment to particular products, markets, competitive approaches, and ways of operating the enterprise (Thompson and Strickland, 2001). A critical part of crafting strategies is the setting of organizational objectives and goals. Objectives defines the end in which a company sets itself in the future. Along with the firm’s objectives, managers would create specific game plan in achieving these goals.

That is, it outlines hows of company strategy: (1) how to grow the business, (2) how to satisfy customers, (3) how to outcompete rivals, (4) how to respond to changing market conditions, and (5) how to manage each functional piece of business and develop the needed organizational capabilities. To put it more succinctly, it outlines how a firm will realize its strategic mission and vision (Thompson and Strickland, 2001). Harrah’s Entertainment defines its vision as follows: “Each of our brands will be the overwhelming first choice for casino entertainment of its targeted customers. “

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