Vip System Facing Challenge

(Graphics not included) In casino marketing practice, sometimes it is not easy to distinguish which measure should

be regarded as lowering price and which measure should be regarded as increasing cost. For

example, when a casino provides comps to its customers, is it a pricing measure or a costing

measure? Of course it is not important for casino managers or accountants to clarify such

conceptual differences. However, it is very important for economists because the theoretical

instruments that economists can handily use are almost all derived from other ordinary industries

where price is something that is related to consumers’ demand and cost is something that is

related to an enterprise’s profitability. Therefore, in order to be able to clearly draw a marginal

revenue curve and a marginal cost curve for the casino industry so as to clearly know where

the equilibrium is, we have to make a clear definition: all marketing measures a casino adopts

are increasing its cost except for those directly lowering down its house advantage. Just by

this definition, the marginal revenue curve of the VIP sector in this model exhibits a flat line

in parallel with the X axis, which implies, within the VIP-room contractual system, that the

casino never uses house advantage as a marketing tool. Instead, all the marketing measures it

takes are not actually marketing the customers, but marketing the customer recruiters, so it is

only related to cost.

In terms of marginal cost curve, there are also some meaningful figural differences between

the two casino sectors. The marginal cost curve of the walk-in sector shows a “U-turn” figure.

This can be explained by this fact: Macao is not an ideal tourist destination. The number of

walk-in customers is basically an exogenous variable. v Once the walk-in customers are fully

employed, in order to draw more walk-in customers, the marginal cost will go up drastically

and suddenly unless the external market situation has a significant improvement, and unless

Macao, as a tourist destination, improves significantly. By contrast, the marginal cost curve

of the VIP sector is much flatter although it is also increasing, which reflects such a reality:

to some extent, the VIP market is unlimited and recruiters can go anywhere in the world to

recruit customers. However, the longer their action radius is, the more the casino has to pay

for additional customers. This is truly happening within Macao’s VIP-room system. SJM has

some “marginal” VIP rooms. The casino pays higher dead chip commission to and/or requires

lower deposit from the VIP-room contractors because their target markets or major customer