Costco an Costco and T d The he Lot Lotter tery y Value P - - PowerPoint PPT Presentation

Costco an Costco and T d The he Lot Lotter tery y Value P alue Pricin ricing g Par aradigm adigm

Ariz Arizona Lo

• na Lotte

ttery y Costc Costco Pilot

• Pilot

12% 16% 35% 14% 23% 6% 13% 39% 19% 24% 46 80 111 139 104 20 40 60 80 100 120 140 160 0% 10% 20% 30% 40% 50%

18-24 25-35 35-54 55-65 65+

Costco Shoppers (Past 7 Days) Costco Shoppers who bought any lottery ticket (Past 30 days) Index 9% 24% 17% 25% 25% 7% 19% 20% 24% 30% 79 79 117 96 120 20 40 60 80 100 120 140 0% 10% 20% 30% 40%

below $25K $25K - $50K $50K - $75K $75K - $100K $100K+

Costco Shoppers (Past 7 Days) Costco Shoppers who bought any lottery ticket (Past 30 days) Index

• More likely to be ages 35+
• Have higher household incomes
• 22% more likely to do MOST grocery shopping at Costco (Index 122)
• 149% more likely to have purchased draw games in the past 30 days (Index 249)
• Bigger grocery basket spenders with average baskets of $154.46 (vs. $150.81)
• 28% more likely to have children ages 17 or under in the household

Source: Nielsen Prime Lingo. Market/Release: Phoenix, AZ 2018 Release 2 Total (Aug 2017 - Jul 2018)

The Costco Member

• Front end employee compensation
• Member perception of Lottery
• Lottery footprint
• Discount requirement

Pain Points Positive Points

• Top line sales increase
• Community impact

Costco’s Perspective

Sales numbers

Holiday Countdown Triple Red 7s

Consistent growth in sales across the 17 Costco locations

Total Sales (3 Month Total) $505,100 Average Sales Per Location $29,712 Total Sales (3 Month Total) $614,600 Average Sales Per Location $36,153 Average Increase Per Location $6,441 (22%).

Lott Lotter ery y Value Pr alue Pricing icing Par aradigm adigm

Pricing Paradigm

$10 Ticket $20 Ticket $30 Ticket

22% GGR 25% GGR 27% GGR 78% Payout 75% Payout 73% Payout

$100 Ticket

34% GGR 66% Payout

With increasing ticket prices, Gross Gaming Revenue (%) declines What if… While delivering value to players and retailers

Pricing Paradigm

How do we increase revenues, without reducing Beneficiary Transfers?

Prize Expense % Ticket Price

Instant Games Draw Games

Ticket Price

Revenue Distribution

100% Payout 100% Payout

Prize Expense %

Other Industry Solutions Value Pricing Bundle and Save

Value Pricing for the Lottery

Prize Expense % Ticket Price

Payout Structures

Instant Games Bundle Option Draw Games

Create basket options with a fixed number of Draw Games and a variety of Instant Games (selected by the player) to hold the Gross Gaming Revenues (GGR) constant Basket Structure Offer discounts at targeted, virtual price points designed to drive consumers to the higher price points (with our value offering) Pricing Strategy Work with our Vendors to make the bundle options available in every vending machine Distribution Strategy

Game Selection Game Information

Draw Games

Price: $50 Payout: 50%

Fast Play

Price: $20 Payout: 67%

Scratchers

Price: $30 Payout: 77%

Creating the Basket

Value Pricing Basket Price: $90 ($100 Value) Payout: 66% (34% GGR)

Super Size?

Expected Benefits Overview

Increasing Revenues, Transfers, and Commissions Rewarding Our Frequent Players Cross Selling Opportunities New Virtual Price Points at $0 Additional Cost

By driving the players to higher price points, we anticipate an increase in revenue and stable Beneficiary Transfers We are targeting our frequent players with this

• bundle. These players will receive a savings from

the bundle, and a diversified playing experience. Requires the player to experience a variety of games in order to achieve the value with savings By creating a new virtual price point for our players, we create a new way to engage with them while leveraging our already-existing products

Once enacted, we expect that the Value Pricing Paradigm will bring significant benefits to both the Lottery, and our players.

Costco an Costco and T d The he Lot Lotter tery y Value P alue Pricin ricing g Par aradigm adigm