Rosewood Hotels & Resorts: Branding toIncrease Customer Profitability and

Lifetime Value

Harvard Business School Case Study

-Kartik Prakash Joshi NIT Trichy

Introduction

• Rosewood Hotels & Resorts (Rosewood) is a private hotel management company, sought to build a global reputation with many iconic luxury hotels.

• In 2004, to boost the company’s growth, Rosewood’s new president cum CEO, and the VP- Sales and Marketing, were considering a new brand strategy.

• They wanted to incorporate the ‘Rosewood’ brand name into each of the iconic properties they possessed. It was to serve as a platform to encourage customers to stay at their other hotels, so as to bring about brand awareness and loyalty.

SITUATION

Current Situation: • A 25 year old global hotel management chain- Rosewood Hotels and Resorts, is

contemplating a major Brand awareness and positioning exercise to counter low recognition of its brand. They believe the brand name to be an untapped asset.

• Preliminary cases have been made by several stakeholders for the case. Its bigger competitors like Ritz- Carlton, Marriot etc. have been able to reap benefits of brand loyalty by standing apart as symbols of uniformity and luxury in the minds of travelers.

• Surveys were taken to assess the current brand awareness and brand equity of the Rosewood brand. Results were as expected. The alternatives to the branding exercise are also suggested, like a customer reward program

• A customer lifetime value model is to be found out on the basis of Net Present Value- NPV method- to assess the overall feasibility of the costly marketing and branding exercise.

Ultra-luxury Hospitality: An overview

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OBJECTIVES

Objectives of Case study • To determine the viability of a major brand promotion exercise, via

customer life time value - CLV determination, via the Net Present Value method (NPV) calculation.

Objectives • To fully comprehend the impact of the branding exercise

on the customer loyalty. The estimate the customer loyalty and retention gains that the company resorts will have after the Branding exercise.

Insights from the Surveys undertaken

by customers

• Most customers and travel agents don’t have any knowledge of the Rosewood brand. They feel indifferent about the brand name.

• Travel agents were naturally more aware of the brand and remarked that the brand recognition is low, and also that the customers don’t come asking for Rosewood properties, usually request only their hotels by individual names.• Rosewood employees felt the same, they said Rosewood is a collection of brands,

and not a brand in itself. Not many customers know about the Rosewood brand.

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What is CLV and NPV ? Customer lifetime value (CLV or often CLTV), lifetime

customer value (LCV), or life-time value (LTV) is a prediction

of the net profit attributed to the entire future relationship with a

customer. The prediction model can have varying levels of

sophistication and accuracy, ranging from a crude heuristic to

the use of complex predictive analytics techniques.

Net present value (NPV) or net present worth (NPW) is a measurement of the profitability of an undertaking that is calculated by subtracting the present values(PV) of cash outflows (including initial cost) from the present values of cash inflows over a period of time. Incoming and outgoing cash flows can also be described as benefit and cost cash flows, respectively

Proof of action• We use the concepts of NPV and RevPAR and ABD to determine the

‘TBD’ values of the table earlier.• Cost of marketing communication with a Rosewood corporate brand:

(Total number of guests * Average cost of marketing per guest in 2003) + $1,000,000] / Total number of guests.

= [(130*115000) + 1000000]/115000 = 138.696

Discount rate = c =8pc per year

Avg. revenue return rate= 6pc per year

Multi-property stay guests = 10pc of total

we need to find the NPV values for both the branding and non branding strategies, and compare the final answers. This is how we determine which policy is to be implemented.

• END RESULT?

• Since the new branding strategy has a higher NPV than the old strategy of no branding, the company would be better off by implementing the new strategy.