Engaging New Players: Focus on Usability

Cutting Through Maze

Written by: Danny Bogus, Principal Digital Consultant

It’s easy to forget that Google, a staple of modern day life, was not the first internet search engine.  WebCrawler, AskJeeves, and Lycos were founded earlier but did not reach a sustainable level of success.  At the core of their businesses, these sites were not significantly different.

So why did Google prevail over other established competitors?  One of the key reasons is that Google was simply easier to use.  The site loaded quickly and wasn’t cluttered with a variety of options, the search results weren’t plagued with advertisements, and the clean design made reading results tolerable.

Google understood the practice of usability and leveraged this as a competitive advantage.  Usability can be defined as the degree by which something can be easily used.  It’s also an ongoing practice that sits between the intersection of behavioral trends and technological advancements.  And it’s not just a digital thing – it can be applied to all types of products.

For those old enough to remember, cars were equipped with a standard hand-powered roll down window.  As technological advancements occurred, the usability practice shifted to a motor-powered window with a push button.  As technology advances and our behaviors change, perhaps the usability standard will become a voice activated control, and touch buttons will feel like relics of the past.

Poor usability can be a major deterrent for prospective customers.  Consider the obstacles in place for new players of non-scratch lottery games.  Many players are directed to read paper brochures, fill out play slips, and make complex choices in order to get into the game.  This is not the level of simplicity that is likely to engage new generations of players – and make no mistake, millennials are shopping at stores where lottery games are currently sold.

Usability is also important for engaging retailer staff.  Many clerks can attest to the fact that the lottery terminal is often the most complex piece of equipment in the store.  It’s also unforgiving – in many states, tickets cannot be cancelled after they are printed.  After a few negative experiences, many stores arrive at policies that require players to complete bet slips – putting the effort, and confusion, back on the player.

As for those already playing, most lotteries recognize that the vast majority of winning number results are checked online.  As a result, lotteries must constantly strive to improve the usability of their web and mobile sites.  This can be challenging in an ever-evolving market of device types, screen sizes, touch and click interfaces.

Competition also exists in the digital channel today, and this puts lotteries at risk for lost opportunities.  Winning number results are provided on a wide variety of sites and, as illustrated by the Google example, players will eventually gravitate to the superior user experience.  Maintaining an active digital audience will allow lotteries to convert traffic into revenues at retail and online.

Additionally, expectations of good website usability is being set by the likes of Google, Amazon, and Facebook.  On the plus side, lotteries can mimic design patterns that have already been established by these sites, and players will quickly interpret how to use the features.  However, not all business functions performed by lotteries can be related to other internet giants.

The good news is that usability can easily be measured, tested, and refined.  A starting point for lotteries to consider is conducting a player journey map.  This can be a helpful exercise, and reference tool, to understand all of the touchpoints associated with player segments’ experience with the lottery.

Once the touchpoints are well understood, lotteries should seek methods to begin benchmarking the usability of each.  This could include measuring the ease of use, and opportunities, associated with bet slips, self-service interfaces, retailer equipment, web and mobile sites.  It may be important to obtain sentiments from a variety of player or retailer segments, while also including non-players that may be part of a future target group.

At this stage, lotteries can begin to create and test prototypes in order to gauge what solutions may improve usability scores the most.  This is often an iterative process, driven by a feedback loop from the end-users that will result in a balance of simplicity and usefulness.

Lotteries must also avoid the status quo when usability improves.  Good usability, when it remains static over time, will quickly turn into poor usability as technology and behavioral trends evolve.  In the quest for new players, an ongoing investment into usability research and design initiatives can be an essential piece of a growth strategy.

Modernizing Retail: Closing the Consumer Data Gap

Bridge Over Gap

Written by: Danny Bogus, Principal Digital Consultant

Today’s world is dominated by organizations that collect and utilize an ocean of consumer data.  Companies like Netflix, Amazon, and Google have grown with unprecedented speed and scale by leveraging a data-driven strategy.  Even supermarkets and gas stations have evolved away from once-anonymous transactions, and into loyalty card transactions that drive sophisticated promotions and retention programs.

The first step in a data-driven strategy is always the same regardless of the company; capture consumer data with accuracy and abundance.  With the big data revolution underway, lotteries must implement data-capture initiatives in order to remain competitive and relevant in the new age of commerce.

Lottery transactions on the retail system remain anonymous in nearly all jurisdictions today.  As a result, insufficient information is available to determine basic insights such as an average shopping cart value.  Even a small data point like this can become a huge driver of future innovation.

For example, player shopping cart values offer vital information in determining the economics of key retail modernization initiatives such as cashless payment acceptance.  Cashless processing costs carry both fixed and variable costs, and small shopping cart values can result in exorbitant fees to lotteries and retailers.

Additionally, part of the business rationale to justify cashless acceptance is that existing consumers will increase spending.  But without a pre-existing basis being measured, there is little way to prove that an existing player switching to cashless results in more revenue.

As another example, advertising efficiency can improve with the direct measurement of player activities at retail.  Over time, purchase patterns will formulate for players and any deviations (intentionally driven by advertising) can be better observed.  Player-identified transactional data can go a step further by identifying if advertising campaigns resulted in new players or increased spend from existing players.

Many lotteries have installed second chance and loyalty programs that can collect some individual purchase data downstream.   This represents an important step forward in understanding players better.  However, ticket-entry data has drawbacks that must be considered when drawing conclusions from analysis activities.

For example, if a loyal customer doesn’t have time to manually submit tickets each day or week, then the data will falsely indicate that the player has less activity and value.  The collection of tickets over time before submission also distorts insights related to actual purchase frequency at retail.  Moreover, with a ticket entry program, there is always a risk that those entering tickets are not always the original purchasers.

So how can the industry embrace a data-driven strategy, given some of the current challenges and gaps in data collection?  First, lotteries must examine their current programs, systems, and opportunities in order to identify quick wins for expanded data capture.

As one possibility, some states currently require players to scan identification for age verification on self-service machines prior to the purchase of tickets.  It may be possible to simply log a unique player data element into the transaction logs.  Over time, this player-tagged data could generate a picture of player shopping cart values, frequency of visits, and monetary spend.

As an additional possibility, some states offer a ticket checking system on their website or mobile app.  Players can scan a ticket to find out if it is a winner.  If this feature was placed behind a player registration and login, then the scan data could be compiled per player.  Over time, this data can be analyzed to determine purchase patterns and game preferences.

A few states have experimented with a player loyalty card that activates at retail terminals.  Programs of a similar nature have found success in Europe and Australia in the past, however state lotteries have not yet discovered a model that results in widespread adoption.  This approach can lead to tremendous insights for the industry but requires long-term planning, execution, and resourcing.

It should be recognized that most consumer-packaged good companies do not have the ability to track consumer data within retail.  This is because the retailer’s system is handling the transactions and logging any player-identifiable elements via shopper’s card and loyalty programs.  Perhaps it is possible for lotteries to structure a partnership with retailers in order to share data in cases where lottery is being logged through the retailer’s point-of-sale equipment.

As seen in other industries, the ability to leverage data in order to drive growth and innovation is proven.  However, lotteries must first close the gap that exists in data collection today.  There are many opportunities available but more experimentation is required to discover the best way forward.

Grocery Wars: Implications for Lotteries

Person buying grocerties online

Written by: Danny Bogus, Principal Digital Consultant

In 1999, HomeGrocer.com raised more than $100 million in investments with ambitions to revolutionize the grocery industry.  However, the company quickly filed for bankruptcy in 2001 after an inability to control expenditures and turn profitability.  Supply chain complexities, high delivery costs, and slow internet speeds were all cited as contributing factors to the company’s demise.

For many years after, online grocery retailing was largely perceived as an unsustainable business model.  The complex challenges of logistics and the resulting cost model made it far from competitive to traditional retailers.  Further, consumer confidence in online shopping was not well established and online retailers with brand credibility had not yet emerged.  Mobile commerce didn’t even exist yet.

Fast forward sixteen years.  A proliferation of mobile devices has revolutionized modern society.  The use of big data has enabled companies to make shopping experiences more personalized and convenient for consumers.  Amazon surpassed Walmart as the largest retailer in the world and has built a reputation among consumers for simple, convenient, and fast online shopping.

Online grocers are aggressively competing to take market share while local delivery services are effectively taking the shopping experience out of the store.  Online grocery sales are nascent and already account for one percent of the overall market.  Consumers across all age segments are increasingly likely to try purchasing groceries online.

Traditional retailers are responding to these threats by increasing hybrid services such as curbside pickup to protect their existing business.  Even within the store experience, self-service checkouts are pervasive and in-store scan and pay apps are emerging.  Looking ahead, in-store shopping experiences are likely to increase convenience through digital technologies  in order to remain competitive.

These market forces pose questions about the future inclusion, or exclusion, of lottery sales within digitally-aided shopping experiences.  Lotteries should consider proactive measures and may need to act fast.  The grocery landscape may evolve as quickly as Uber disrupted the taxi industry based on the emergence of significant new trends.

An Emergence of New Trends

The transportation industry is under massive disruption from the sharing economy movement.  Companies like Uber are creating networks of drivers with unprecedented speed and scale while increasing availability and reducing costs to consumers.  Beyond ride-sharing services, Uber and Lyft are running pilot programs to deliver restaurant meals and groceries to households.

In a related movement, federal agencies have issued the first guidelines to support autonomous vehicles and drones.  Companies like Ford, Google, and Amazon are investing heavily into technologies that can utilize these new modes of cheap and efficient transportation.  As these transportation trends take shape, it will broaden access to fast distribution and provide advantages that online grocers did not have in the past.

As another trend, a variety of smarthome devices are beginning to penetrate consumer households.  Using products such as Amazon Dash Buttons, consumers can simply push a wireless button that will automatically order packaged foods, cleaning supplies and other non-perishable goods with fast two-day shipping.  Similarly, smarthome hubs like Amazon’s Echo can be voice-controlled by consumers to quickly reorder goods from the mega online retailer.

Many online retailers and consumer packaged goods companies are adding subscription services that offer “set it and forget it” conveniences for consumer’s regular purchases.  Companies like Door to Door Organics ship recurring orders of fresh organic produce to households each week while Honest Company applies the same model to diapers and baby supplies.  Many consumers, especially those with busy lifestyles, are likely to embrace subscription services for staple items that once drove regular visits to stores.

The convergence of these market trends will likely result in unprecedented affordability, availability, and convenience in the online grocery shopping experience for consumers.  This will reshape the face of grocery shopping, in both online and retail channels, in unprecedented ways.

Lottery balls

The Implications for Lotteries

Lotteries are still confronting challenges from the past.  The emergence of multi-lane checkout formats has relegated lottery sales into the customer service desks of larger retailers and away from broader consumer traffic flow in the store.  The dominance of big box stores, who are averse to lottery operational burdens, has resulted in retailer penetration gaps.

Additionally, the increase in cashless payments has inhibited growth within the lottery industry.  Many states prohibit the use of credit instruments for the sale of lottery products.  Even where permissible, retailers have varying policies in relation to the use of credit and debit on lottery products due to thin product margins and high transaction processing costs.  This has resulted in a detachment of lottery products from the overall consumer shopping experience.

Looking ahead, the adoption of digital technologies into grocery formats, such as curbside pickup, create an even more uncertain future for the placement and distribution of lottery products.  Many of these new shopping experiences rely entirely on cashless payments which may further push lottery into a segmented consumer flow.  Moreover, delivery and pickup services have no defined framework that can enable lottery sales.

Lotteries must begin taking actions to preserve their future within the new paradigms of grocery shopping.  The answer should not be exclusive to launching direct e-commerce sales for those jurisdictions that are authorized to sell online.  Instead, lotteries should actively seek out new ways to integrate product sales into existing retail distribution networks while widening the payments spectrum.

With so much unpredictability, one thing is certain: direct collaboration with retailers will be a key to future success.  Retailers and lotteries must solve the payments gap together in addition to testing new digital shopping experiences that can incorporate lottery products.  In the long run, the continued growth and sustainability of the lottery industry may depend upon creating innovative and fully integrated shopping experiences within retail.

Download the full Grocery Wars PDF publication here

Resourcing for Internet Lottery Distribution

Written by: Danny Bogus, Principal Digital Consultant

In many ways, internet lottery distribution (“iLottery”) has parity with the long-established channel of retail sales. iLottery players can purchase jackpot games online, and sometimes scratch or keno games, and then have opportunities to win life-changing prizes. But in the iLottery channel, there is a stark difference in the fact that the retailer generally does not participate in the operation. Instead, the lottery itself takes on the role of a conventional retailer.

In the retail environment, lotteries create games, conduct drawings, manage technology, rollout product placement, market to consumers, and perform other essential functions. On one hand, lotteries are providing a valuable service and benefit to the retailers. This is particularly noticeable during large jackpot runs, when long waiting lines of players can make headline news. Moreover, U.S. lotteries provide over $4 billion in commissions to retailers each year.

From a lottery perspective, the value that the retailers provide can sometimes be underestimated. However, retailers are providing vital resources that make the traditional lottery distribution model so successful. These resources, or the lack thereof, become much more obvious when a lottery enters the world of internet sales. As experience is now demonstrating, iLottery operators are faced with a myriad of new responsibilities that are generally, and often wholly, provided by retailers.

Retailers Drive Everyday Traffic
Lotteries utilize advertising and awareness tactics to support traffic into licensed retailers. However, retailers have long carried the heavier burden in this regard. Retailers made a significant investment into a piece of physical real estate that is in a convenient and high traffic location that can pull customers into their store. Moreover, retailers collectively spend heavily on advertising activities to drive consumers into their stores. Not least of all, they are also managing dozens to hundreds of other product categories, such as gas and groceries, that drive traffic and ancillary product sales.

For most lotteries, aside from a small core of regular players and a rare jackpot run, few consumers are thinking about going to a lottery site on any given day. And far less are thinking about going there to buy tickets. Visiting the lottery website, unlike the gas station, is not part of a daily or weekly routine for most consumers. This necessitates iLottery operators to invest heavily into traffic driving activities to their online properties. Without a steady stream of traffic, there is little hope to grow sales.

On the internet, Google, Facebook, and YouTube are the busy street corners. And you have to pay endlessly in order to get visibility on that virtual street corner, while also bidding against global giants such as Amazon plus anybody else in the world who sells something online. Now take that situation and multiply it across web, tablet, mobile and app channels that a consumer may be using as their window to the internet. Effectively driving traffic under these circumstances is a daunting effort for any company.

Retailers Manage the Customer Experience
Retailers are competing fiercely to deliver an exceptional shopping experience in-store. This can include making sure that the temperature in the store is right, the lighting is sufficient, the products are well organized, pricing is clear, and that the checkout lanes are flowing quickly. If a bottle of milk cracks on the floor, it doesn’t go unnoticed resulting in consumer frustration and anxiety. The retailer staff mops up the mess and ensures that the customer experience is restored to a high level of satisfaction.

For lotteries selling on the internet, they inherit the responsibility of maintaining an exceptional customer experience. It becomes critical to take care of each player-facing portal on a 24/7/365 basis. Constant attention is required to ensure that the pages are loading fast, the design is optimal, the navigation is well organized, and the site is rendering properly on different devices and browsers. Plus, the game is always changing. As new mobile phones are released, the digital storefront may require testing, verification and updates to maintain a consistent shopping experience.

Moreover, consumers shopping on the internet will judge their site experience based on the best e-commerce retailers in the world. Internet giants such as Amazon are setting new expectations each year regarding the ease of registration, payment, product browsing and customer service. Lotteries must strive to match that level of customer-centricity in order to attract and retain consumers beyond the occasional jackpot run.

Retailers Analyze and Optimize
Retailers of all sizes are analyzing the activities that drive traffic and revenues. Small and independent retailers may do this informally with simple trial and error testing. Larger retailers do this as a formal practice, evaluating massive amounts of data to better inform the business such as product velocity, pricing strategies, advertising effectiveness, promotion impacts, among many other factors. These efforts ensure that the business is constantly adapting to market conditions.

In the iLottery world, a similar level of analysis must be conducted by lottery staff in order to ensure that the digital storefront, products, advertising, promotions and other activities are performing optimally. Furthermore, in a digital environment, lotteries must utilize data in order to deliver a personalized and relevant shopping experience to each individual customer. It would be nearly impossible to grow an iLottery business effectively without a comprehensive analysis framework in place.

Retailers Manage the Customer Relationships
Customer relationship management began, and is still best done, in the smallest retailer stores. The owner and staff often know customers on an intimate level. Not only knowing about their purchase habits, but also their work, family, life experiences and more. Many customers are greeted on a first-name basis and meanwhile the owner knows exactly what they purchase and always makes sure it’s in stock.

As larger stores began to emerge, they have always attempted to emulate the envied customer relationships of small retailers. They have attempted to achieve this in a mass-customization approach that can sometimes feel more invasive than personalized. Large retailers have often resorted to loyalty programs in order to capture consumer identities and transactional data to encourage repeat visits while adding levels of personalization to the shopping experience.

For iLottery operators, the tremendous responsibility of building and maintaining consumer relationships becomes a primary focus of daily operations. Player data must be captured widely and cultivated into common groups of player segments. Segments must be added, deleted and modified regularly as the business, market and player compositions evolve over time. The data must be integrated with each potential touchpoint in the customer journey, such as on-site messages or emails, in order to provide a cohesive and relevant experience for players.

The New Paradigm: Direct to Consumer Distribution
Lotteries have long and successful histories operating in a business-to-business mode of product distribution. The structure necessary to run an iLottery program, which is a business-to-consumer model, is similar but also different in many respects. This requires lotteries to consider what systems, suppliers, staffing, marketing and financial investments are necessary to become more than just the product distributor – but also a direct retailer of goods.

With the retailer removed from the front lines, the lotteries must drive site traffic, manage the customer experience, analyze and react to data, and nurture player relationships. This requires staff that are well-versed in digital media, user experience, advanced data analysis techniques, and direct-to-consumer relationship marketing. These teams will also require dedicated investment in order to manage and evolve their programs and initiatives. After all, displacing the tremendous value that retailers provide in exchange for billions in annual commissions is no easy task.

Beyond the subjects already explored, retailers are also managing aspects of product security, payments, and front-line customer service within the physical world. These are additional considerations that any lottery, and its supplier partners, will need to consider before going online. Each of these facets of the business must be fully supported in order to deliver a world-class digital experience that will attract and retain consumers to the lottery’s digital sites.

Meanwhile, this new paradigm should not be contemplated without retailer involvement. In an iLottery mode of business, the retailer simply takes on a different role as does the lottery. Indeed, the retail network is one of the greatest assets that the lottery has within its business model. Any legal or illegal online gaming enterprise would be hard pressed to compete with an iLottery that is fully integrated into an expansive retail network. There are numerous methods in which this can be achieved.

Examples include prepaid programs where consumers can load funds at retail to be redeemed for online play. iTunes is one of the most successful digital business models in the world and a meaningful portion of its funding originates from prepaid products sold at retail. In a reverse approach, the retail channel can be utilized as a cash-out method for winnings received online. This is far more convenient than a bank transfer process that takes multiple days to complete.

As another example, affiliate programs can be deployed where retailers earn compensation for assisting to drive traffic to lottery online sites. Amazon, the largest retailer in the world since surpassing Walmart this past year, also happens to run one of the largest online affiliate programs. These types of programs, similar to the physical world, enable lotteries to pay for performance through a licensed partnership network.

With examples like the Michigan Lottery, which is on pace to capture $6.25 million in iLottery profit for the month of December 2016, the opportunity for online revenues is clear. As additional lotteries consider moving online, or expanding current iLottery operations, they must examine the former role of the retailer and structure their plans accordingly.

Download a PDF version of this article here

The iLottery Success Story from Michigan

Written by: Danny Bogus, Principal Digital Consultant

The Michigan Lottery is an exemplary case study to examine the impacts of online sales (“iLottery”) throughout an organization including its network of retailers. After beginning with an unadvertised beta launch in the summer of 2014, iLottery has quickly grown to surpass $8 million in weekly sales as of March of 2016. Meanwhile, the retail business has set all time records for sales, profits and retailer commissions.

The reality of player channel preference has been consistent with focus group results obtained prior to the launch of iLottery in Michigan. During those interviews, many existing retail players were opposed to the idea of registering online, didn’t like the requirement to provide banking information, didn’t always trust that iLottery games would be fair, and preferred the game play experience (i.e. scratching) of retail games over their digital counterparts.

Michigan Lottery Retail vs Online SalesClear evidence of player channel preference can be found when examining categorical sales comparisons. Specifically, keno and instants were the only two categories of games sold online during the first fiscal year. During that time, online instants accounted for two-thirds of iLottery sales, or roughly $98 million, while online keno contributed $49 million. In parallel, retail instants and retail keno reached all-time records and grew by more than $100 million and $30 million respectively.

Perhaps the most compelling indicator of player channel preference was observed in the Keno “To Go” product sold at retail. Players who purchase Keno “To Go” watch their drawings online after buying in-store, and are literally a few clicks away from playing a Keno game with improved prize returns, quicker play action and the supposed convenience of avoiding a trip to the store. Yet this product was unaffected by the launch of online keno and it drove the majority of growth within the retail keno category.

It is clear that retail channels have not been negatively affected since the launch of online sales. In fact, a better argument can be made in support of iLottery increasing overall player engagement and driving cross-channel sales. Programs such as the Online Game Card, purchased at retail and redeemed online, have helped to bridge the two channels while providing added traffic and commissions to retailers.

mi-ilottery-performanceThe first year has not been a fluke. At the midpoint of the second year, iLottery has experienced explosive growth and retail sales are yet again on pace to set all time record highs. The multi-state and in-state jackpot games launched online in February and were followed by the first mass media awareness campaign to promote iLottery. The results were spectacular, with iLottery sales surpassing $1 million per day (81 cents weekly per capita) and gross gaming profits reaching nearly $4 million during the month of February.

Performance has been tracking in line with the long-range goal of delivering $480 million in incremental profits from iLottery during the first eight years of operation. If Michigan stays the course, the iLottery program is projected to deliver roughly $120 million in supplemental profits during fiscal year 2021. Retailers are also expected to play an increased role in driving online sales and they stand to benefit from this new market as well.

The Michigan Lottery’s success story should be a page in the book of every lottery looking to convince its stakeholders of the value, certainty and complementary nature of this new sales channel. Multi-channel growth has been observed across the globe where iLottery is present and the industry is finally obtaining domestic evidence as well. Perhaps not too far ahead, as the trends continue to take shape, iLottery will be viewed universally as one of the safest bets to achieve incremental growth.