RESPONSIBILITY – COMPETITIVE EDGE FOR LOTTERIES?

I wrote this column for http://www.lotterydaily.com and they published it some days ago. This text is partly modified by Matthew Ramirez.

The background of lotteries is in almost all cases from states and quite often it is also linked to the organizations that care for charity issues like social welfare and sports. Consequently, lotteries have been regarded as different from normal commercial gambling enterprises. 

Lotteries try to collect money for good causes but haven’t always been able to use all possible tools to achieve that end. There is also the perception that lotteries are more responsible operators than those from the commercial gambling sector. 

But during the last few years the lottery environment has changed a lot and lotteries are no longer the homogenous group they were. As a result, it’s not obvious that lotteries are acting any more responsibly than their commercial gambling counterparts. But should that be the case?

I would say that we could section lotteries to three separate groups. The first group is lotteries which are owned by states and which are acting like state offices. The next group is lotteries which are running their business in a similar way to other gambling companies. The third group falls somewhere between those two first groups. They are trying to run business but are not willing or allowed to use all possible commercial tools to achieve that.

What kind of business could those ‘state office’ style companies have and how could they succeed against commercial competition? The owners of those companies are in all cases the states which try to control gambling business as much as they can. But it has become more difficult due to digitalization where customers have lots of other opportunities available. 

There are just two possibilities for those kinds of lotteries. One is to prevent all other gambling activities which, for me, is the ‘North Korean’ way to act. The second option is to change the business strategy of the company.

I’m not sure if we should call those business-oriented lotteries as lotteries at all. While they are still ostensibly running lottery businesses, they also have lots of other businesses. They have other gambling verticals like sports betting and in many cases also casino games in their product portfolio. They could also have business operations in other areas and in many countries. 

There are some lotteries which are privately owned and even listed on the stock exchange. It is easy to understand what the difference is between totally state controlled companies and publicly listed companies. I would say that the only reason why those companies are still considered a part of the ‘family’ of lotteries is that they operate monopoly-based lottery products (Lotto). 

The most challenging and, at the same time, interesting group are those lotteries which exist between those two first groups. This ‘middle group’ of lotteries is trying to achieve commercial business goals, but without the same tools that their business-oriented counterparts are using. 

Those lotteries could have some other gambling products like sports betting in their offering and they are in most cases serving their customers in retail and digital channels. Channeling is a good word to describe the ideology behind those kinds of lotteries. It means that they are trying to offer their customers legal alternatives to those games offered by private gambling companies. 

However, they are restricted to using lower payout percentages and are not allowed to offer bonuses etc. I’m not sure if that kind of operation would succeed in the long term without tight restrictions for other gambling companies. The ‘middle group’ will sooner or later face similar challenges and problems to those experienced by ‘state office’ lotteries if they don’t change their strategies.

For a company to succeed, it should understand what its customers are willing to have and what other options those customers have available to them. It sounds simple – know your customers and your competitors. The next step is to understand what your own strengths are. If you are not better than your competitors in any area, you will have big difficulties ahead! 

A successful company doesn’t have to be the best one in all areas – nowadays it is probably impossible. You should have a few (or at least one) areas where you are better than your competitors and you shouldn’t be worse than average in any areas. That’s incredibly good basics for a successful business!

So where should lotteries be looking to identify their competitive edge? Are those ‘middle group’ lotteries better than other gambling operators in any areas? The most common success factors for companies are strategy, people, finance, operations, and marketing. I don’t believe that lotteries could be stronger than other companies in management or leadership areas and the same problem is also with personnel/staff. 

The salary level in lotteries is so far away from top-class business companies that it’s impossible to attract the best people to lotteries. But I trust that it would be possible to get good enough directors and experts and avoid the risk to be worse than an average in those two areas.

How about finance? Could lotteries find their strength from that area? In principle it could be possible but not in practice. States have money but there are so many areas which need more resources that it’s unlikely that they would invest lots more resources in their lotteries. I would say that state-owned companies are not investing as much as the best companies are doing and states are in many cases careful owners – they are risk-averse. So, no competitive edge from that area.

We have two potential areas left. How about operations? Would it be possible to have better processes and/or way of working than other companies have, and would it really matter for lottery/gambling business? Of course it could be possible, but I don’t believe that operations would be the area where any companies could gain competitive edge for gambling operations.

Some lotteries seem to think that their perceived trustworthiness in relation to commercial gambling enterprises remains their strength, but I don’t believe in that. This could be area where a company could lose the game, not win it.

So, we have just one area remaining – marketing. I think that “marketing” is a limited way of describing that area. It involves among other things communication, brand, sales, and customer relationship. But there seems to be two areas which could offer a potential competitive edge for lotteries. 

All lotteries have strong retail sale channels and most lotteries nowadays have digital sale channels too. Those lotteries which have two strong sales channels or even one omni-channel solution could achieve a competitive advantage on commercial gambling operators which are serving their customers solely online. 

Unfortunately too many lotteries still face challenges with their own online sale channels. That’s why I don’t believe that omni-channel is currently the solution to winning the competition against private gambling companies. Maybe it could be possible in the coming years? 

Lotteries have enjoyed strong brand recognition and good reputations, at least in Western Europe where lottery operations have operated for tens of years and given millions or even billions to good causes. That ‘money for good causes’ could be seen as a potential strength for lotteries. 

But nowadays in many countries lottery profits are going to the state and not directly to beneficiaries. As a result, customers are no longer certain as to where those profits are actually going, to the point where it looks just like another form of taxation. 

My solution would be a combination of brand, communication, and customer relationship. Lotteries should communicate that they are acting in a more responsible way than the most of their commercial gambling counterparts. 

They should explain that they are subject to stricter limits on the gambling products they offer which is why they are different from those offered by commercial gambling firms. Lotteries should tell consumers that they take responsible gaming seriously and that they are operating frameworks where gambling is as responsible as possible. 

The purpose of those restrictions is to take care of customers and to prevent problems. I believe that lotteries could use responsibility as a way of gaining a competitive edge in gambling business. They should be saying: “We are offering the safest and most trustable environment for gaming!” But it won’t work if lotteries just say it, they must also run their businesses in a way that demonstrates that.

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