What are some of the biggest challenges facing the lottery industry and how is your organization positioning itself to best deal with these challenges?
BS: Quite simply it is the matter of an eroding player base, and in this market it is made more challenging by the relatively small size of our player population. The heart of the issue is brand and delivery relevance. As an industry, we have not done a good job at appealing to younger adults with our offerings. We know that 19-35-year-olds are active gamers. To fulfill our mandate of providing safe and responsible games for those who choose to game, we must provide competitive games. We are working hard to upgrade our product roster and to expand our digital delivery of the same.
RA: Customer renewal certainly is a major issue. In 1990, about 70 per cent of young adults would imitate their parents and gradually start buying lottery tickets. These days, this figure has fallen to about 40 per cent. To diversify our game offer and transform our distribution network become absolute priorities. Keeping profits at the same level in the face of rising operating costs is another major challenge. Higher payout rates (instant tickets are in the 60-70 per cent range) play a factor in overall prizes awarded. This year, our lottery turnover was down $19 million, but we paid out an extra $16 million to our winners. Running a tight ship in all levels of our business is the only way to keep profits at roughly the same level… and it’s not easy.
GM: As customer interests have evolved and technology has advanced considerably, OLG is currently modernizing its lottery operations. About half the adult population of Ontario now plays the lottery on a regular basis and there are about 10,000 lottery terminals across the province. The current terminal technology limits where and how lottery tickets can be sold. That is why OLG’s technology and sales model is being improved to better reflect what our customers want. With OLG’s modernization, our overall objective is to grow the total business by continuing to innovate and focus on traditional lottery retailers, as well as expanding new lottery sales options. Expansion will include selling tickets over the Internet, multi-lane solutions for supermarket, drug stores, and big box retailers. We will also continue to build on the strengths of the convenience store channel.
KG: Technology and channel conveyance are challenges but also huge opportunities. Mobile devices are changing customers’ entertainment preferences and expectations. We need to evolve as the world and our players evolve. However, we need to take a measured approach and develop a clear understanding of the key opportunities, risks and implications we face as a regulated gambling provider. We must continue to focus on our customers and promoting gambling in a socially responsible manner. Multi-channel is a real and important trend; it’s here to stay and really comes down to one core concept: Our players want to play what they want, how they want, where they want and when they want. We’ve identified segments that we want to better understand such as the millennial generation – who are already considered gamers – but game in a different way. We need to look at aligning our products and amenities to suit their preferences. We’ve successfully rebranded our lottery products and logo (Lotto!); launched and expanded Lotto Express, (in-lane lotto sales from retailer pin pads); piloted and expanded our Lottery Signature Store concept; and continue to refresh our product line. Large jackpots for national games Lotto Max and Lotto 6/49 have helped boost sales too. In summer 2013, BCLC optimized the Lottery (Lotto 6/49 and Lotto MAX) and Sports Betting portions of PlayNow.com. Players can check winning numbers, purchase lottery tickets, bet on sporting events and access GameSense information using their mobile devices. They can also register new accounts and deposit/withdraw funds, all with the current security and protection of PlayNow.com.
Where do you see the greatest growth opportunities for lottery organizations in 2014 and beyond? What industry developments (including regulatory changes) are on the horizon and what needs to take place in the industry for these opportunities to be optimized or addressed?
BS: Currently, 70 per cent of adults play our games every year. Thirty per cent do not. That has to be considered Opportunity No. 1. Secondly, we have to compete where the players are playing. In this market, about $70 million is heading off-shore to illegal providers - not grey - illegal. We should be providing a regulated alternative for the safety of our players and to ensure that the proceeds from gaming stay in the region. Where we do compete, sports and iBingo as examples, Atlantic Canadians overwhelmingly choose our products over those from illegal offshore providers.
GM: In Canada, we still have a great opportunity to continue our year-over-year growth. While most provinces have, or soon will, start selling lottery over the Internet, including OLG, traditional bricks-and-mortar retail will deliver the lion’s share of our business for the foreseeable future. Updating our current offering throughout our distribution network will be crucial. We need to make our Big Lotto products easier to buy for new players, and we need to encourage our infrequent players to play more often by broadening the portfolio of products they play. New digital media platforms are ideal for broadening awareness and educating players. We need to get better at providing access to our products and product information.
ML: Growth opportunities exist in expanding channels to make lottery play more convenient for players. These include self-service channels, digital channels and refreshing the current bricks-and-mortar retail channel. Products which can capitalize on these new distribution channels must be developed. The key for WCLC in managing these challenges is to focus on strategic alliances and relationships.
KG: Growth in lottery in B.C. will come from the introduction of new products and enhancements, the opening of Lotto Signature Stores, the expansion of Lotto Express and the broad deployment of digital signage. As we assess how we can drive long-term growth and customer engagement in our lottery business, we are looking at changing demographics, new social media/consumer trends and the technology that is shaping the future of a customer’s retail experiences. We’re crafting our digital marketing and social media strategies. A big part of this will be looking at how responsible gambling fits into digital/social gambling. We truly have the opportunity to be pioneers in this regard and I would argue it is a critical aspect of any gaming jurisdiction’s venture in this area.
With a reported decline in lottery participation among younger Canadian adults, how must lottery organizations continue to evolve in order to address such challenges and meet the ever-changing needs and preferences of customers?
RA: Technologies completely revolutionize the daily life of everyone, particularly young adults. Our lottery offer has to evolve accordingly. Since 2012, Loto-Québec sells sports lotteries and its most popular lotteries on the Web, with modest but steadily increasing success ($16 million in 2013-2014, or just under one per cent of overall sales). Sales by mobile represent more than 15 per cent of that total. The key, we think, is designing lotteries with a higher entertainment value. This coming fall, through the Web, people will be offered group play and have the opportunity to create groups or join a group with friends or total strangers. We’ve also launched a series of daily lotteries where the customer plays a game on the terminal while buying a ticket; this type of game attracts more young adults than other “traditional” games. Products involving a mix of chance and skill may not be as far away as we think.
GM: We need to innovate the lottery offering – from the products we sell to the technology we use to deliver it. Mobile technology, wireless access, dynamic digital screens, digital payment options and low-cost hardware need to be leveraged to increase the relevance of lottery. As an example, in the past few years, OLG has developed a new “watch ’n win” category that has both an instant win component and a nightly draw which has resulted in approximately $200 million in revenue. This category did not previously exist before 2010 but represents how improved consumer research, an insightful business development team and a responsive, innovative corporate culture can drive business growth.
ML: While the player base is stable in our region, it is shifting towards an older demographic – younger players are entering the games later in their lives and baby boomers are continuing to participate longer than the previous generation. The desire to engage that 25–34 year old demographic, who are currently not playing our games at the levels previous generations have, requires significant investment in research and development. WCLC works collaboratively in strategic alliances, both within its region and with other Canadian lottery jurisdictions through the ILC, to share knowledge and costs, and minimize risks.
KG: Lotteries exist to raise money for priority programming of provincial governments across Canada; as such, it’s important that we keep these games relevant for years to come. Lottery games are consistently being enhanced and updated to suit customer preferences. For example, Lotto Max was created to generate buzz and excitement by offering the largest jackpots ever offered in Canada. The key ingredients for a successful lottery offering are relevant and exciting games that offer players an engaging experience while also offering the chance to dream about a better life. Like any product – we need to spend some effort on research and development to keep products relevant to the marketplace. Recently, the Interprovincial Lottery Corporation (of which BCLC is a member) issued a Request for Proposals for a consultant to research the motivations and barriers to play for the younger demographic and research new game concepts that appeal to adults 25-34.
What are lotteries doing today to engage new and current lottery players, create relationships with retail partners and integrate rewards and loyalty promotions using an interactive channel?
BS: Like most consumer industries, our business is becoming increasingly complex and customized. Never has our relationship with our retailers been more important requiring strong partnerships in building engaging player promotions. Never before has our relationship with the player been more direct, particularly online. Player insight is the difference between success and failure.
RA: Loto-Québec is focused on offering quicker-paced games with “immediate” results. More than ever, we add “second-chance” features to our instant games. In fact, people who register online with a non-winning Wheel of Fortune ticket stand a chance of actually spinning the wheel themselves. And we routinely get hundreds of thousands of inscriptions! Also, we’ve been thinking for a while about a provincial, season-long hockey pool; people can now bet on cultural events. As far as retailers, we are at the early stages of devising the “point of sale of the future” while installing a brand new kiosk for non-profit organizations who sell lottery tickets. Reward programs, gift cards might happen one day, who knows?
GM: OLG is focused on optimizing sales and efficiencies through engagement, education and the responsible play of affordable, fun and accessible lottery products at retail. We have defined the “look of success” by providing training for our retailers, and demonstrating the value of lottery to their overall business. A motivated retailer, who engages their customer, informs them of new products, educates them on how to play and asks if they wish to play, is one of our most valuable resources. Although, we do not have a loyalty program and our business is largely based on anonymous play, technology such as smart phones will provide opportunities for us to link purchases with players that will allow more promotional and relationship building opportunities.
ML: WCLC is a joint venture of the three Prairie provinces and three northern territories. Each of these partners has responsibility for the retailers within their own jurisdiction and employ a variety of incentives and relationship-building tactics and strategies. WCLC is an active participant in national social media efforts.
What kind of an impact will new technology, the Internet and social media/mobile technology continue to have on the growth and development of lotteries as a major force in the Canadian gaming sector?
BS: The question is not: “What impact will it have?”, but “What impact is it having?” Market research, game development, lottery marketing and retailing circa 2000 is already largely irrelevant in the new gaming environment. If we think and operate in that mindset, we will become increasingly less significant to our gamers and successful to our shareholders. Broader access to our products for those that choose to game, more entertaining and engaging products reflective of the aspirations of the new player and the development of one on one relationships with our players are all basics in our new world.
RA: Technologies have always played a significant role in Loto-Québec’s success (and its Canadian associates’). In the late 1970s, selling tickets through a computerized system was a risky gamble that paid out magnificently and brought forward national lotteries that, to this day, represent approximately 40 per cent of our turnover. Historically we’ve been able to make contact with the customer where he is; right now, he is regularly on his computer or mobile phone. It’s a different type of relationship that calls for a different approach. Our challenge is to meet their gaming expectations through a new distribution channel, but also as an opportunity to develop a new category of products with a better entertainment value.
ML: Our technological focus is to be nimble, with the ability to quickly modify existing functions and add or expand technology. The important consideration is that we must have infrastructure that enables, not constrains, our business.
KG: We are a fast moving society with information at our fingertips and we’re not slowing down. In fact, the more information we have, the more we want. Like all businesses, BCLC is grappling with what the speed of data and increase in mobile activity means for our business. We’re using strategies like analytics to harness the potential of data. It’s also essential we listen to our players and deliver products they want. As smartphones, the device of choice, increase in popularity, everyone has the ability to access and create data at their fingertips. One way BCLC is adapting to this progression is by optimizing Playnow.com for mobile and tablet access. We’ve designed an application that not only allows us to keep up to some of the European gaming companies, but fit in nicely beside them, offering comparable products in a regulated environment. Our first phase of optimization was for lottery, sports and GameSense responsible gambling information. We launched in June 2013 and our players adapted to the mobile functionality seamlessly. Currently 5-10 per cent of Playnow.com transactions are being made through mobile. We anticipated these numbers would come largely from our sports betters and we were correct. Mobile is a natural fit as sports betters like to bet on the go, from a pub, a friend’s couch or while at the game and they like to do it in real time. We strive to keep up while innovating in our own way and we do that by developing products and applications that reflect our values in responsible gambling, player safety and public trust. We have more analytical capabilities than ever before. We review every aspect of our business and make decisions based upon the numbers and research. These numbers indicate we must keep up with the changes or be left behind.