The problem
State lotteries are challenged every year to responsibly grow their profits to good causes, such as educational funding. As the lottery industry has matured in the 2000’s and 2010’s, many lotteries saw significant growth in topline sales by introducing higher price-point games with higher prize payouts. The introduction of a new price point is often a “silver bullet” that will help a lottery achieve that year’s sales goal.
Once a new price point debuts, such as a $20 ticket, subsequent game launches typically do not perform as well as the first game. Over time players from lower price points migrate up the ladder to $5, then $10, and $20 games as they realize the prize payout percentage is higher.
How can a state lottery continue to responsibly grow its profits long-term?
How might we find and invite new players to play our games, without losing market share with existing players?
Results
The product line was expanded to offer new “extended play” games at the $3, $5, and $10 price points. Sales for this category grew significantly from $15M to over $100M annually.
Game design and prize structures emphasized deep gameplay that offered compelling odds and a variety of prize levels, while overall offering a lower percentage prize payout than traditional games at the same price point.
At the retail point of sale, rather than have these new games simply replace traditional games, the product development team led the partnership with the sales team and retailers to find solutions. Leveraging existing vendor contracts, additional retailer dispensers were provided to the lottery to merchandise the new game category at retail.
Custom planograms were created to advise retailers how to best merchandise their new products without detracting from the core products.
Overall, topline product sales increased. The success of the new product category was an eye-opener, and this lottery continues to innovate and expand playership with new products.
Research Process
Extensive research was conducted to identify opportunities within the product line for future long-term growth.
The product team analyzed the game portfolios at peer lotteries as well as the best-performing lotteries in terms of per-capita profitability and topline sales.
Extended play instant scratch-off tickets, such as crossword games, appeal to a niche demographic of consumers. In a sense, a majority of these crossword game players only buy this one type of game, and they would not purchase lottery products if crossword games were not offered.
Extended play games (bingo, crossword, and other games that take a few minutes to play) were identified as an underperforming product in our state. Conversations with peers at other lotteries helped to identify best practices and pitfalls to avoid when expanding the extended play category.
Physical ticket samples, as well as sales data, were gathered to prepare a presentation to the leadership team.
Building stakeholder consensus
After a fact-packed, persuasive presentation, the leadership team was on board with investing in consumer research to validate the idea.
The product team leveraged existing research engagements like the quarterly retailer advisory board, in-person field research conversations with players and retailers, and quantitative research projects for testing new game concepts.
Qualitative and quantitative evidence supported the product team’s recommendation to create new extended play game products.
Armed with the research results, strategic planning with stakeholders in advertising, finance, marketing, sales, and with vendor partners helped formulate the strategy we executed.
Getting creative with game creation
For higher price point crossword games, best practices in game creation were studied.
Getting into the weeds, the product team mapped out not just one game, but a two-year roadmap of game launches. Consideration was given to compelling designs, themes, and game features.
Digging into the numbers, prize structures were built with dozens of prize levels, more than twice that of a typical lottery game.
Ticket quantities and prize quantities were designed so that the games could be reordered in a variety of ticket quantities, so that excess inventory would not sit in the lottery warehouse and go unsold.
Retail strategy and execution
Leveraging vendor contracts, additional instant ticket dispensers were ordered and delivered in advance of the product launches.
Working with the sales team, strategic placement of additional dispensers at top-tier retailers made sure that the additional game facings were carried by the right retailers.
Planograms were customized for retailers to give them guidance on how to properly merchandise their game portfolio.
Final Thoughts
Championing a new product category requires leadership. In business, the executives and sales teams will push back, because human nature is to do what we know has worked before. Innovation is difficult. After all, it might not work.
Build a wide-ranging perspective, gather competitor and market research, and go to the extra step mentally and physically. Ask yourself the tough questions about your idea, because you will get tough questions from your stakeholders. Get out of your office and talk to customers in-person.
At the end of the day, don’t take it personally if your innovative idea is rebuffed.
Consider the adversity a challenge (think to yourself “bring it on”) and maintain a healthy perspective.
Remember, it’s hard to see the picture when you’re inside the frame.
