Rosewood Hotels and Resorts Harvard Case Solution & Analysis

1.     Will the move to corporate branding maximize customer lifetime value?

Customer lifetime value (CLTV) model provides the present value of the stream of future profits expected to occur over the customer’s lifetime spending.

As per the analysis of customer lifetime value (CLTV), results show that implementing the corporate branding strategy will significantly increase the overall profitability. As per Appendix-A, Rosewood corporate branding will increase per customer CLTV by $82.60/-. Detailed calculations of CLTV are performed in excel spread sheet.

However it should be noted that above customer lifetime valuation is based on some estimates and expectations of management.

Number of multi-property guest stay is expected to increase by 5%, raising the average customer visit from 1.2 to 1.3 per year. Because of the corporate brand awareness spending, increase in marketing expenses of $1 million is also based on estimation. Revenues are estimated to grow at annual rate of 6% and marketing expenses are expected to grow at 3% annually.

Conclusion

Based on above discussion, Rosewood is recommended to continue with the corporate branding strategy in a subtle way, where the “Sense of Space” philosophy is not completely destroyed and the strategy should work towards unifying the factors and experiences that the customer is bound to enjoy and assured of at each of the Rosewood facilities. The central reservation system should be used to identify the customer profile and offer experience as per their preferences. It is suggested that as part of the corporate branding, individual hotels should carry a caption underneath its individual brands as “A Rosewood Group” instead of adding Rosewood before each individual brand.

Rosewood hotels and resorts case study solution

 

Appendix-A
Customer Lifetime Valuation Calculation With Corporate Brand strategy
Years

2003

2004

2005

2006

2007

2008

2009

Revenue per Customer

2,067

2,191

2,322

2,462

2,610

2,766

Gross profit per guest

-

661

701

743

788

835

885

Acquisition expense per new guest

150

Marketing expense per guest

134

138

142

146

151

155

Additional Marketing expense per guest

9

9

10

10

10

10

Net Profit per Guest

(150)

519

554

592

632

674

720

Retention factor

22%

22%

22%

22%

22%

22%

Survival Rate

100%

100%

22%

5%

1%

0%

0%

Net Cash Flow expected from guest

(150)

518.58

120.04

27.78

6.43

1.49

0.34

Discount factor 8%

1

0.9259

0.8573

0.7938

0.7350

0.6806

0.6302

Net Present Value of Cash flow expected from Guests

(150)

480.17

102.92

22.05

4.72

1.01

0.22

Customer Lifetime Value With Corporate Brand strategy

 461

 

Customer Lifetime Valuation Calculation With Individual Brand strategy
Years

2003

2004

2005

2006

2007

2008

2009

Revenue per Customer

1,908

2,022

2,144

2,272

2,409

2,553

Gross profit per guest

611

647

686

727

771

817

Acquisition expense per new guest

150

Marketing expense per guest

134

138

142

146

151

155

Net Profit per Guest

(150)

477

509

544

581

620

662

Retention factor

0.17

0.17

0.17

0.17

0.17

0.17

Survival Rate

100%

100%

17%

3%

0%

0%

0%

Net Cash Flow expected from guest

(150)

476.66

84.89

15.11

2.69

0.48

0.09

Discount factor 8%

1

0.9259

0.8573

0.7938

0.7350

0.6806

0.6302

Net Present Value of Cash flow expected from Guests

(150)

441.35

72.78

12.00

1.98

0.33

0.05

Customer Lifetime Value With Individual Brand strategy

378

Description

Amount

Per Customer Increase in CLTV as a result of Rosewood Corporate Branding

83

Expected total increase on Rosewood profits

9,499,480

Expected total sales revenue using 32% profit margin

29,685,875

 

 

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