Rosewood Hotels & Resorts Customer Lifetime Value Analysis

Rosewood Hotels & Resorts: Customer Lifetime Value Analysis Rosewood Hotels & Resorts, L.L.C, was founded in 1979 by the Caroline Rose Hotel Trust Estate. Their headquarters are stationed in Dallas, Texas. Caroline Rose Hunt, the daughter of oil tycoon H.L. Hunt, transformed an old mansion in Dallas destined for demolition into the first Rosewood hotel and restaurant. After this success, it grew into a private luxury hotel management firm of 12 individually branded resorts and hotels with locations all around the globe. Rosewood has always stood as a sub-brand allowing each individual hotel and resort to express its uniqueness through its own brand. With new management leaders on their team, Rosewood was curious on how it could maximize customer loyalty and retention from its 115,000 guests. Rosewood executives were discussing if they should make Rosewood a corporate brand, giving more attention to the identity of the corporation itself. However, the main problem these executives face is determining whether the $1,000,000 marketing cost to apply the new corporate branding strategy compensates the potential benefit of increased customer retention. There are several advantages and disadvantages associated with either branding strategy. The individual brand/collection strategy that Rosewood has been implementing separates it from its competitions’ chain-like approach. Rosewood’s creativity and flexibility allows it to cater to each individual resort’s design to its location. However, Rosewood’s strong focus on brand equity on the property itself presents disadvantages that have been noticed by the new executives. The Rosewood brand had low recognition amongst guest and making Rosewood a corporate brand could be a powerful asset to the company. Guests of the hotel were not recognizing the brand name Rosewood while they could easily identify with other strong hotel brands such as Four Seasons. With competition in the luxury hotel niche becoming more and more intense, management has found it difficult to place Rosewood properties in the crowd of other luxury hotel operators. Serving only a small target audience of people who value the exclusive unique hotel limits the market from the majority of people who seem to prefer corporate-branded luxury hotels. Given the potential rewards that come with the corporate branding strategy, management is faced with two options. The first option is to set up a frequent stay program and the second option is to implement the corporate branding strategy. The advantages of the first option is that the number of guests enrolled in these types of programs were growing and it appeared that these guest would double return business. However, research has concluded that the main thing that keeps customer loyalty wasn’t the frequent-stay or reward programs, but the ability to offer the guests more benefits such as room upgrades or the choice of selecting a specific room. The advantages of the corporate branding option are that it would stimulate multiproperty guest stay. The disadvantage of this option is that the marketing expense would be high and before Rosewood could justify its cost, it would have to test its hypothesis. According to the calculations in the attached spreadsheet, it is safe to say that spending the $1,000,000 on marketing expenses will lead to a great return for Rosewood. There was an increase of customer lifetime value of $83 thus making an increase of profit from the corporate branding strategy of $9,545,000. This increase in profit will cover the original marketing expense and lead to potential benefits many times over. Therefore, I recommend implementing the corporate branding strategy. Not only has it shown that it increased profit, but it also increased customer lifetime value as well. This assumes that there will be an increase in guess retention and loyalty. These are crucial matters when trying to succeed in the competitive luxury hotel market today. The advantages of implementing the strategy clearly outweigh the disadvantages of the marketing expenses and operating costs that are required to succeed with this plan. To ensure this plan, Rosewood needs to provide perfect product and service performance across its different hotels and resorts. It also needs to make the major marketing investment of $1,000,000 to get its brand name recognizable to the customers. Given all of the positives of implementing the corporate branding strategy, there are few things that could go wrong with this strategy. The calculations were based off assumptions and they can alter in the real world. However, these given estimates are still an excellent indicator that no matter what the assumptions be, implementing the strategy still provides Rosewood with a greater payoff. Also, this plan will affect the long-term strategic change of direction with the company itself. Given the increased profit per guest, however, implementing this strategy will seem beneficial to Rosewood as it will increase guess retention as well.