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October 1, 2014

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The economy:

Return of the tourist

They’re back. Now what?

Here is the scene at Spago in Caesars Palace on a rainy night in January 2008: A table full of guys, dressed expensively and badly. Although there wasn’t such a thing then as “Jersey Shore,” this crew would’ve been perfect for the genre. They had probably sold a pile of shoddy mortgages in Orange County for the infamous Countrywide Financial, or run a construction Ponzi scheme in Phoenix, or maybe they were derivatives traders for the one that destroyed us all, Lehman Bros.

Whatever the case, they began their meal — remember, this is Spago — with flowing vodka mixed with Red Bull. There were multiple trips to the restroom, where they seemed to be doing their part to help one side or the other in the Colombian civil war.

And then, this classic line: “Give us your most expensive bottle of red wine.”

Those were the days, weren’t they? We rode the wave of Alan Greenspan’s easy credit. Life was a never-ending night at the club: Borrow some more, get me in the door; if I spend some more, I’ll be a player.

“For most of the past couple decades, Vegas could be described as, ‘Throw caution to the wind,’ ” says Billy Vassiliadis, CEO of R&R Partners, the advertising firm charged with selling the Strip brand to the world.

“The notion of adult freedom and excitement was very motivating for consumers, and they were willing to spend a lot of money on it,” says Vassiliadis, whose firm gave us “What happens here, stays here.”

We were, as Vassiliadis puts it, the “No Worries Generation,” for whom “Everything was fine, and everything was going to be fine.” For some, this meant second homes and a new car every year, and, if the moment called for it, a last-minute trip to Las Vegas and the most expensive bottle of red wine at Spago that left a few grand in the coffers of our Strip operators, as well as cash in the pockets of our bellhops, bartenders, room attendants and strippers.

Bill Hornbuckle, MGM Resorts International chief marketing officer, recalls marketing messages from before the recession. “Everything in moderation? Yeah, right.” And, “Parents Gone Wild.”

But something seems to have changed. Although the picture isn’t entirely clear yet, there’s a growing recognition among consumer psychologists, economists and some of the Strip’s most important marketers that we’ve seen a fundamental shift in consumer behavior and attitudes among some of our most vital customers and, perhaps more important, potential customers.

“There’s a supposition that we’re in a new normal,” says Lee McPheters, director of the JPMorgan Chase Economic Outlook Center at the W.P. Carey School of Business at Arizona State University.

Consumers are concerned about unemployment and perceived instabilities in the economy. High gasoline prices brought on by chaos in the Middle East are just the latest catalyst for sales of Ambien.

All this anxiety has caused what marketers and economists call “risk aversion,” a hoarding instinct that could be preventing people from taking a weekend escape to, Las Vegas.

As McPheters notes, we’re suffering the opposite of the “wealth effect” — that’s when people tend to spend more freely when they think their net wealth is increasing. But with trillions of housing wealth down the drain, Americans have been feeling poorer for years, and thus, they’re less profligate in their spending.

The end result: After hitting a 2007 high of 39.2 million, visitor volume slipped 7 percent to 36.35 million in 2009, before climbing to 37.3 million in 2010.

For marginal operators, that was crippling enough, but the scarier number was “the spend,” the average amount customers spent per stay. For MGM Resorts, customers were spending as much as 30 percent less during the worst of the recession, both by buying steeply discounted rooms and then declining to let loose, Hornbuckle says. Even now, spending is still down 15 percent from pre-recession levels.

From the numbers, it’s clear: This hasn’t been a typical recession. And what’s problematic is that this may not be just garden variety belt-tightening. Instead, we may be seeing a shift that’s more fundamental, a new consciousness that has seeped into our brains.

Although no one would compare this recession to the Great Depression, it’s worth reminding ourselves of the indelible mark the decade of the 1930s left on the entire culture. It bred an obsession with saving and frugality, values that may have helped build the country, but are — let’s face it — not compatible with the kind of spending or attitude needed to keep Las Vegas afloat.

We’re clearly a long way from that. Still, Baba Shiv, an expert in consumer behavior at Stanford University’s Graduate School of Business, has noticed in his research subtle shifts in consumer psychology.

Shiv, who uses psychology, neuroscience (including brain scans) and economics to understand consumers’ idiosyncrasies, says he thinks people have rediscovered the long lost pleasure of saving. He cites surveys and other data, including the number of times consumers check their bank balances and 401(k)s. As the recession began, that obsession may have been a sign of anxiety, but now, as saving has increased and the stock market has rallied in the past two years, he hypothesizes that consumers are taking pleasure in watching their wealth grow.

Consumers are more likely to pay in cash or use a debit card now instead of using credit cards, Shiv says. Again, he says, this is another sign that Americans have rediscovered the primal pleasure of saving over borrowing.

This raises a key question for Las Vegas: If saving and frugality are now thick in the cultural and economic bloodstream, are we in trouble?

“The image of Las Vegas is more consistent with a consumerist mentality,” says Larry Compeau, a professor of consumer behavior at Clarkson University School of Business in Potsdam, N.Y. “It’s the freewheeling lifestyle and all the trappings of it, and one of those trappings is going to Vegas and dropping a significant amount of change. But a lot of that has gone by the wayside.”

The notion of a budget-conscious consumer no longer interested in the Vegas bacchanal sounds downright frightening. But the trend is more complex, and it actually offers our city opportunity.

On behalf of Las Vegas Convention and Visitors Authority, R&R Partners conducted extensive research, using focus groups and surveys and tagging along with tourists as they spent time here.

The conclusion: We’re still in the game, but we need to step it up. R&R found 45 million “persuadable” Americans, or 41 percent of the traveling public.

These are people who have a slice of the American dream — a stable job, a home, a family.

They have money to spend on a vacation.

And, they want value. Ouch.

It’s a cringe-inducing word I heard a few times in my interviews, and I have to say, it surprised me. When I think value, I think Wal-Mart or Costco, and everyone agrees that’s not what we want to be.

But that’s not quite what we’re talking about here.

“That’s the fine line,” says Cathy Tull, the authority’s senior vice president of marketing. “Value isn’t bottom line price. It’s about the experience.”

By value, Vassiliadis says, we mean that customers want to feel like they got what was promised, that they can come away from the experience with a tangible sense that it was worth the money spent.

“There’s a direct correlation, a more tangible correlation, between what I’m willing to pay for, and what I need to get for it,” Vassiliadis says.

Listen closely to the language of Lisa Marchese, senior vice president of brand marketing of high-priced Cosmopolitan, who says customers will receive a “meaningful and distinctive experience that they value and want to share with others.”

Shiv says, “We’re seeing this with high-end retailers, where consumers are willing to splurge, but they want quality.”

Kathryn LaTour, a marketing professor at UNLV’s Harrah College of Hotel Administration, says, “If we’re asking people to pay full price, we need to give them a full-price experience.”

Vassiliadis suggests these persuadable tourists have become more rigorous, more conscious, less emotional consumers.

This new consumer has been shaped by two trends that have walloped the marketplace: The first is the deep recession, which slashed demand, and thus prices, and gave willing consumers considerable leverage.

The second is the emergence of smartphones and other technology that give buyers real-time knowledge of pricing and quality measurements.

In Las Vegas, the consumer had still another advantage, a glut of 16,000 hotel rooms came on the scene during the recession, pushing down prices still further.

In short, consumers have become empowered, and with that empowerment, more demanding.

So, how do we attract these people and make them happy enough so they’ll keep coming back? In essence, now what?

Let’s boil it down, because it’s not that complicated: We have to make sure tourists have a great time.

Some of this is bread-and-butter customer service. Although the sheer volume of business on the Strip makes true customer service next to impossible for the average traveler, we can ramp up technology so that check-in, show tickets, spa and meal reservations are effortless.

Similarly, we’re moving toward the European trip model, where the tourist can see options and plan and pay for an itinerary before the trip so that the focus is on enjoying the experience rather than dealing with annoying logistics.

R&R’s research — backed by recent media reports — shows customers don’t want infuriating hidden charges, which might remind consumers of insidious fees used by banks to pad their profits.

Indeed: Perhaps we shouldn’t model our customer service after institutions the public views with considerable contempt. (Related: Crack down on long-hauling among cabdrivers.)

Another truth-in-marketing issue: If a restaurant is a globe-trotting celebrity chef establishment, it should approximate the quality of his restaurant in his home city — no phoning it in. Our famous Frenchmen seem to live up to this ideal; others, not as much.

But all that stuff is relatively easy. It’s simply a matter of recognizing consumers are more discriminating and won’t get hassled or hustled anymore, and that if we take $100 from someone, we have to return $100 worth of experience, minus our reasonable cut.

What’s harder is giving the consumer something extra, a special experience, the one he won’t have in San Francisco or Miami or New York or wherever else adults go for fun.

Tiffany Barnett White, an expert in marketing and consumer psychology at the University of Illinois, puts it this way: “Their expectations have to be exceeded. You want them to be delighted.”

Despite all there is to do in Las Vegas, there needs to be more, and the offerings need to continue to evolve.

“There needs to be innovation,” Vassiliadis says. “A constant focus on offering new, one-time, exclusive experiences that can only be had here and really adds to my notion of getting my money’s worth.”

Hornbuckle says that during the past decade, with the evolution of resorts that added great restaurants and electric nightclub scenes and then pool debauchery, Las Vegas became the party capital of the world. But he acknowledged there has to be something new.

“What’s the next thing? We don’t know the answer yet,” Hornbuckle says.

LaTour sounds downcast about our prospects. She fears that the ongoing price war has had a damaging effect on consumers’ perceptions of their Vegas experience; evidence, including recent work by Shiv, suggests people derive more pleasure from an experience if it costs more, which, in their minds, convinces them it is worth more.

And there’s the rub for us: We have to offer value, without seeming cheap. Target, not Wal-Mart.

LaTour invokes the unappealing image of the down-market young men dragging their beer coolers through high-end hotels. And, she fears we no longer have the “wow factor” attraction, like what the volcano, the Eiffel Tower and glass pyramid were for us in the not so distant past.

“We need an over-the-top, you’ve got-to-come-here-to-see-this attraction,” she says. She seems to be only half-joking when she says CityCenter should have been built with an indoor ski hill à la Dubai.

Caesars Entertainment will spend several hundred million dollars on what it internally calls “Project Linq,” a walkable outdoor area of bars, shops and restaurants between Flamingo and O’Sheas. That would give the Strip a dense party zone, akin to what’s found in New Orleans and countless college towns, but is mostly lacking on the Strip because our priority is ushering tourists into the casinos.

The plaza will end at a giant Ferris wheel. And another developer plans yet another giant Ferris wheel a bit farther south.

Humans are simple, and who knows? Perhaps giant, slowly moving wheels will captivate them.

This story appears in the current issue of VEGAS INC, a sister publication of the Sun, and can be found at VEGASINC.com.

This story appears in the current issue of VEGAS INC, a sister publication of the Sun, and can be found at VEGASINC.com.

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  1. This is what happens when corporate mentality takes over and the raw party mentality was pushed out in the 90's. The people that started this town knew what to do but corporate 'Dollarists' have lost sight of what the actual attraction of Las Vegas was. No one gives a crap about Ferris wheels and mob museums. They have a real neat one over the Santa Monica pier/ocean but I would never go there just to ride it.
    We have destroyed what Las Vegas was. Intimate stages with live music and free drinks are gone. Replaced by cartoon video games that just take your money, on 25 lines with 50 coins per line. Drinks are rarely free anymore and have been replaced by 200 dollar bottles of Vodka and 500 dollar table fees and there isn't even a chair to sit on.
    I keep hearing that we need new innovations here. We have more than 110,000 square miles of space here and we focus on Las Vegas only.
    People have slowed down coming here because they are smart. Gaming is everywhere now. Drinks are much cheaper in just about every single corner of the globe and Vegas is hot and expensive.
    We have to pull our heads out of the clouds and diversify. We need a real reason to come here. The same kind of reason that brought people here 'Back in the day'. When you came to Vegas you felt like you were getting away with something...headed out to the desert to get drunk see a show and some nudity. We are not unique anymore, not by a long shot. We need to be a leader in something that majority of the world does not have.
    Everybody is thinking it but very few are saying it out loud. What if we legalized the recreational use of Marijuana here in Nevada? It is a multi-trillion dollar business that would literally change the state and the experience here. We have tons of land for growing and supplying the hemp and medicinal trades, we could open shops everywhere in casinos etc... Where else would anyone go for this experience? Want to attract Euro-travelers? This would do it by the hundreds of thousands. The tax income alone would put us back in the black, the direct income from sales and farms would create thousands and thousands of jobs. The experience of everything would be enhanced ten fold because it is a naturally occurring safe herb that makes everything more fun, more vibrant and the traveler would already be booking their trip for next month before the sheets have been changed in their room.
    Take this seriously as it truly can be a redesign of Las Vegas and Nevada. You couldn't stop people from coming here. It will be legalized somewhere and soon. But if someone like California does, we're cooked. We would have lost another first to short sightedness and ignorance of what people really want, they want to party! Gary Sauer