Comment 85933

By Sticky Eyes (anonymous) | Posted February 06, 2013 at 19:53:47 in reply to Comment 85928

Player Participation and Customer Segmentation

OLG conducts regular tracking of customer behaviour through surveys. Customers are segmented into the following categories:

• “core” players who play any lottery at least once a week;
• “regular” players who play any lottery at least once over a 2 month period; and
• “infrequent” players who have played any lottery in the past year but not in the past 2 months.

Retailers in Ontario are paid a 5% commission on Lottery Revenue from terminal-based products and 8% on Lottery Revenue from Instant Products, plus a redemption commission of 2% and 3% on terminal-based and Instant Products, respectively. OLG also pays a bonus commission to retailers who sell major or secondary winning tickets which generally ranges from $100 to $1,500. Relative to other jurisdictions, OLG’s retail network density of one terminal for every 1,337 Ontarians presents an opportunity to optimize the number of retail points of sale for lottery products.

The number of adult regular players in Ontario has remained about the same over the past ten years. However, over the same time period, the adult population in Ontario has increased by 11%.

On average, regular players tend to be 35-54 years old, with men and women playing equally, and with higher rates of employment and slightly higher household income than non-players.

Opportunity exists to attract a greater number of new Ontarians to lottery play through more innovative products and more convenient ways and places for customers to purchase these products. In particular, OLG believes that:

• infrequent players represent significant opportunity for responsible growth;
• Lottery Revenue from core 18-44 year old players is significantly under-developed (38% of Lottery Revenue versus 47% of adult population);
• Lottery Revenue among core female players is also under-developed (42% versus 51% of the population); and
• Lottery Revenue is under-developed in urban areas, including metropolitan areas like
Toronto and Ottawa.

Lottery Opportunity Highlights

OLG is looking to enter into a Lottery Services Integrator Agreement with a Service Provider to efficiently operate and grow the lottery business in Ontario for a period of 10 years, plus possible extensions. The Service Provider will be responsible for day-to-day operations, process and cost optimization, developing products and marketing plans and recommending strategies to maximize the growth and success of the lottery business. The Service Provider will receive a combination of a fixed payment and a percentage of the Net Win above an annual threshold as compensation. This compensation is intended to provide a reasonable financial return to the Service Provider. The fixed payment will be approximately $100 million (to be finalized as part of the RFP Process) and is intended to compensate the Service Provider for the cost of operating the lottery business in its current state. Both the variable percentage of Net Win and the Net Win threshold will be bid by the Prequalified Respondents as part of the RFP Process. The compensation structure is intended to provide the Service Provider with an opportunity to capture a share of the additional revenue it succeeds in driving. This model will allow the Service Provider to be fairly compensated for the role it is playing in driving growth in the
lottery business. OLG believes that this opportunity is particularly attractive to potential private sector service providers for a number of reasons which have been summarized below.

1. Large and successful lottery business with opportunity to increase sales per capita

OLG Lottery Revenue of $3.2 billion in Fiscal 2012 represents a $611 million increase or a 4% CAGR over the past five years. Lottery Revenue and Lottery NPP are strong and stable, as the business has historically seen consistent growth and stability despite turbulence in the external economic environment. OLG operates the largest lottery business in Canada and is the 8th largest by Lottery Revenue among all North American jurisdictions. The lottery business in Ontario exceeds its share of national game Lottery Revenue (42%) versus its population size (38%) but is ranked second in Lottery Revenue per capita in Canada (US$244 versus Atlantic Canada at US$264). Compared to North American lotteries, OLG is 10th in Lottery Revenue per capita and 13th internationally, which indicates an opportunity for continued growth.

2. Engaged core player base with strong support for lotteries in the Province and
potential to increase frequency of play

Two million adults in Ontario play lottery games weekly. Lotteries have strong acceptance in Ontario with over 85% of adults supporting the existence of lotteries in the Province. While the Ontario adult population has grown by 11% over the past 10 years, the number of Ontarians playing lottery games on a regular basis has remained static. Over the long term, with healthy population and economic growth expected to continue in Ontario, an opportunity exists to develop more regular and core players among the 3 million adult Ontarians who currently only play lotteries infrequently.

3. Significant growth opportunities

OLG has identified several growth opportunities to attract new and infrequent players, increase Lottery Revenue per capita, and Lottery NPP. These initiatives include expansion into new channels such as digital (internet and mobile), optimizing the convenience of how lottery products are sold in under-developed channels, such as multi lane, increasing the retail points of sale, and continued product innovation. Capitalizing on these opportunities will require investing in technology, creating flexible open systems to improve back end efficiency and unlocking new opportunities in the way lottery products are sold. The Service Provider will likely be able to expand on the following initiatives/opportunities:

Digital Channels: In 2013, OLG will be launching its internet gaming (iGaming) site where the National Lotto and Spiel (add-on) games will be sold digitally for the first time. The Service Provider will have the option of leveraging the OLG iGaming site and/or introducing its own internet and mobile sites or software.

Multi-lane Channels: Around 90% of adult Ontarians shop monthly at grocery and drug stores yet only 9% and 7%, respectively, of OLG Lottery Revenue is generated through these channels. An opportunity exists to develop new ways to leverage technology and software solutions to change the way lottery products are sold and redeemed in these channels to capitalize on the impulse nature of lottery purchases by offering in-lane sales.

Product Innovation: As new channels and technologies emerge, opportunities are created to meet customer needs for a more entertaining and engaging lottery playing experience with products designed to meet different customer needs.

Optimizing the Retail Base: An opportunity exists to increase the number of retailers to capture unmet demand in the Province given the ratio of population to retailers as compared to other jurisdictions. A recent expansion of 350 terminals has resulted in incremental Lottery Revenue with minimal cannibalization of surrounding retailers.

http://www.olg.ca/assets/documents/media/RFPQ-1213-073-Modernizing-Lottery-in-Ontario.pdf


Nations Fresh will already be on the OLG's radar.

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