Marketing is the ticket for Mass. state lottery
Research aims to maximize sales
If you play the lottery - and most Massachusetts residents do - the state knows a lot about you.
It knows what kind of salty snacks you like (Tostitos, if you're under 24, Lays, if you're over 65). It knows where you are likely to do your shopping (
Most important, internal marketing documents obtained by the Globe show, the state understands why you buy scratch tickets in the first place and how to get you to buy more of them. Its grasp of the psychology and demographics of lottery players is why Massachusetts has the most successful lottery in the country: In fiscal 2006, residents spent almost $500 per person on scratch tickets alone, more than twice as much as people in any other state.
The documents also show, however, that the lottery is grappling with long-term threats that could jeopardize its ability to keep growing. Last year, sales dropped for only the second time in 20 years, rattling officials whose communities depend on more than $900 million a year in lottery profits to pay for everything from library books to fire trucks.
Under pressure to keep profits high, lottery officials are using marketing research compiled by consultants and vendors and considering an array of strategies to drive up sales: pricier scratch tickets, like the $20 Red Sox ticket rolled out this week; Spanish-language advertising; even tracking chatter about the Massachusetts Lottery on social networking sites such as MySpace and Facebook.
If it seems surprising that the state government is involved in such aggressive corporate-style marketing, lottery analysts say it shouldn't be. The lottery is under extreme political pressure to maintain the profits of a huge business that did $4.5 billion in sales last year, $1 billion more than
"Lotteries, even though they are government-operated, are just like Coke or Pepsi," said David Gale, executive director of the North American Association of State and Provincial Lotteries. "They have a product to sell in a competitive marketplace."
The Massachusetts Lottery bases its approach on this principle of behavioral psychology. "Frequent, random reinforcement" is the best way to encourage a behavior, according to a 2004 analysis of the Massachusetts Lottery by one of its consultants.
The lottery sends 71 percent of its sales back to players in prizes, compared with a national average of about 57 percent, the analysis showed. Most players do not win much, but the experience of winning even a few bucks is enough to keep them playing. Winning also generates chatter - lotteryspeak for people telling their friends about their win - which helps broaden the appeal of scratch tickets. People feel less guilty about playing when they know their friends are, too.
By letting more people win, and offering better odds, Massachusetts has become "the Wal-Mart of state lotteries," according to the analysis, because its high volume makes it hugely profitable despite low margins.
The sales model is so potent, the analysis said, that when the Legislature phased out the lottery's advertising budget for several years in the 1990s, sales still grew three times as fast as the average state lottery. Today, its advertising budget is the second-smallest, in relation to its total sales, of any other US lottery.
"To a greater or lesser extent, everyone's tried to emulate them," said Ernie Passailaigue, head of the South Carolina lottery and president of the North American Association of State and Provincial Lotteries. He said his state has refrained from some of the Bay State's tactics, such as issuing a $20 scratch ticket, because some feel they lead to problem gambling, but he added that he was not criticizing Massachusetts.
Massachusetts Lottery officials are unapologetic about their approach, even though their strategy is based on encouraging residents to lay their money down repeatedly.
"Our mission is to raise revenue for the cities and towns," said Mark Cavanagh, the Lottery's executive director. "All of our profit goes to the cities and towns. . . . There's nobody behind the curtain. There's no casino owner taking the profits out of state. So if the players are entertained and they're playing responsibly and we have a responsible product line, we think it's our job to try to increase revenues, but do it in a responsible manner."
But as successful as Massachusetts' model has been, lottery officials worry about the future. Scratch tickets are usually spontaneous purchases made in convenience stores. But these days most people do the bulk of their shopping at big-box stores such as Wal-Mart and Shaw's. And, because people increasingly pay for their gas at the pump, fewer drivers wander into gas stations, another place to buy. The lottery's research also shows that younger people are much less likely to play; they view the lottery as their parents' game. Competition from other gambling venues has also cut into profits.
The lottery is undertaking a variety of strategies to counter these trends.
Among them, the lottery is installing vending machines in grocery stores, previously a difficult spot for ticket sales because the tickets need to be guarded and the only protected space in a grocery store is at customer service.
The lottery is also investing heavily in niche products. In 2006, Massachusetts became the first state to offer a Major League Baseball scratch ticket; the strategy proved so successful that now 27 of the 30 MLB franchises appear on scratch tickets across the country. Other recent lottery tickets have featured
"When you have a mature business, and the lottery is mature, you've got to look for new ways to grow your business," said Steven M. Saferin, president of
The lottery's research has also suggested that the way to sustain the growth of scratch ticket sales is to offer ever-more expensive tickets with bigger prizes and better odds.
Last fall, the lottery offered its first $20 instant scratch ticket, the Billion Dollar Blockbuster, with a grand prize of $10 million and odds of winning better than 3 to 1. The game has already brought in $500 million, putting the lottery on track to its best year ever.
Other lotteries across the country have taken this approach even farther: Texas has a $50 scratch ticket. (Cavanagh said the lottery has no plans to go higher than $20 because it could encourage people to gamble irresponsibly.) Design helps sell scratch tickets, too. The lottery uses market research and focus group testing to determine graphics and colors. The designer's motto: "Gaudy is good!"
The lottery is also trying to reach Massachusetts' growing Hispanic population with Spanish-language ads in Hispanic newspapers, radio, and websites.
Elusive younger players are also a target. Building a better Internet presence is critical.
SocialSphere Strategies, one of the lottery's marketing consultants, has suggested allowing players to create Facebook-style member profiles on the lottery's website, where they could post photos and profiles of themselves and interact with other players. The firm also suggested monitoring conversations about the lottery on blogs and social networking sites to draw inspiration for new marketing initiatives.
Cavanagh played down the idea of member profiles, though, saying the most important task was to make the site more interactive and allow the lottery to reach players through e-mail, with their permission.
He said the lottery cannot consider selling tickets over the Internet yet. Federal laws prohibiting interstate gaming, and the inability to prevent children under 18 from playing make that an obstacle. But he suggested that could change in the future.
"We're not there now," Cavanagh said. "I think all lotteries probably will get there."
Lisa Wangsness can be reached at lwangsness@globe.com. 