Rosewood Hotels and Resorts: Branding to increase Customer Profitability and Lifetime Value
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Transcript of Rosewood Hotels and Resorts: Branding to increase Customer Profitability and Lifetime Value
Rosewood Hotels and
Resorts
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• T h r o u g h t h e 1 9 9 0 s , Rosewood’s advertising was property-specific.
• T h e R o s e w o o d l o g o remained secondary to the hotel logo.
• Rosewood’s management believed that the individual property brand was a powerful tool to differentiate Rosewood properties from competitors.
“ “The Rosewood branding was soft and meant to be complementary,
not intrusive” Robert Boulogne,
vice president of sales and marketing Rosewood Hotels and Resorts
§ I n d i v i d u a l b r a n d pos i t ion ing l im i ts target market.
§ Results in very low cross property usage rate.
§ Intense competition in t h e l u x u r y h o t e l segment.
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“ “I want to emulate the AmanResorts model and develop ‘Rosewood junkies’ who will
seek out Rosewood properties exclusively.” John Scott,
President and CEO Rosewood Hotels and Resorts
▪ Increasing cross property usage from
5 to 10%.
▪ Creating “Rosewood Junkies.”
▪ Increasing Brand Awareness.
▪ Increasing Brand Equity. ▪ Increasing the customer lifetime value
so as to increase the profit per guest.
How can
corpora
te brand
ing help?
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Better brand positioning
and Competitive edge
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Greater Brand Awareness
& Loyalty
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A 2003 report from Strategic Marketing Solutions commissioned by Rosewood showed that a majority of consumers did not know the brand—and the few who did had learned the name Rosewood from their travel agents.
“
“Very low awareness, less than 5%. It’s a secret club.” A Rosewood Employee
“Perhaps 25% of clients know the name Rosewood. They know the hotel name better”
A Travel Agent
“No, I really do not know the name Rosewood, even after staying at the property. ”
A Guest
Such brand audits again emphasize the need for corporate branding to develop consistent brand-wide performance standards while preserving the uniqueness and individuality of Rosewood properties.
Better Customer Lifetime
Value
HOW
CLV (Customer Lifetime Value) is a prediction of all the value a business will derive from their entire relationship with a customer.
A Few Assumptions
• Average number of visits per year per guest will inflate from 1.2 to 1.3.
• A marketing and operations investment of $1 million per year would be necessary to implement the corporate branding strategy.
• Double occupancy is treated as one guest.
Total number of unique guests 115,000 115,000
Average Daily Spend 15 10
Number of Days Average Guest Stays 2 2
Average gross margin per room 32% 32%
Average number of visits per year per guest 1.2 1.3
Average marketing expense per guest $130 ($130x115000+$1 million)/115000 =
$138.70
Average new guest acquisition expense $150 $150
Total number of multi-property stay guests 19169 (19169-5750)+10% of 115000=24919
Total number of multi-property stay guests 5750 10% of 115000=11500
TO FIND 1. Average Guest Retention Rate 2. Average Gross Profit per Guest 3. Net Present Value
Guest retention rate: the probability that a guest comes back to a Rosewood hotel the following year (number of repeat guests/total number of guests).
Average Gross Profit per Guest = (Gross Profit Margin)x(No. of days avg guest stays)x(Avg no. of visits per year per guest )
Few other assumptions Discount Rate-8% Marketing Cost increases at 3% every year Sales Revenue increases at 6% every year
Average Guest Retention Rate 19169/115000=16.67% 24919/115000=21.67%
Average Gross Profit per Guest 750x2x1.2=$576 750x2x1.3=$624
How to find Net Present Value?
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Year 2003 2004 2005 2006 2007 2008 2009
Revenue per Customer (increases by 6% every year)
$1800 $1908 $2022.48 $2143.83 $2272.46 $2408.81 $2553.33
Gross Profit per Guest $576 $610.56 $647.19 $686.03 $727.19 $770.82 $817.07
Acquisition Expense per guest $150 - - - - - -
Marketing Expense per Guest (increases by 6% every year)
($130) ($133.90) ($137.92) ($142.05) ($146.32) ($150.71) ($155.23)
Net profit per guest $296 $476.66 $509.28 $543.97 $580.87 $620.11 $661.84
Retention Factor (rate=16.67%) 1 0.167 0.028 0.0047 0.0007 0.0001 0.00002
Discount Factor(rate=8%) 1 1.08 1.166 1.260 1.360 1.469 1.587
Net Present Value(NPV) $296 $73.70 $12.23 $2.02 $0.298 $0.042 $0.008
NPV of Customer Lifetime Value $384.298
Without Corporate Branding
Year 2003 2004 2005 2006 2007 2008 2009
Revenue per Customer (increases by 6% every year) $1950 $2067 $2191.02 $2322.48 $2461.83 $2609.54 $2766.11
Gross Profit per Guest $624 $661.44 $701.13 $743.19 $787.79 $835.05 $885.16
Acquisition Expense per guest $150 - - - - - -
Marketing Expense per Guest (increases by 6% every year) ($130)
($142.86 +$8.96)
($147.14 +$9.23)
($151.56 +$9.50)
($156.10 +$9.79)
($160.79 +$10.08)
($165.61 +$10.38)
Net profit per guest $335.30 $509.63 $544.76 $582.14 $621.90 $664.19 $709.16
Retention Factor (rate=21.67%) 1 0.227 0.051 0.012 0.0027 0.0006 0.00001
Discount Factor(rate=8%) 1 1.08 1.166 1.260 1.360 1.469 1.587
Net Present Value(NPV) $335.30 $107.11 $23.82 $5.54 $1.23 $0.27 $0.0061
NPV of Customer Lifetime Value $473.282
With Corporate Branding
$88.98 Increase in CLTV per customer from the new brand strategy
$31,978,625 annually
$10,233,160 annually Multiplied by # of Customers to obtain increase in PROFIT of Rosewood
Divided by 32% gross margin to obtain increase in REVENUE
$31,978,625 Whoa! That’s a big number!!!
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BUT there are RISKS As always!
• Prominently imposing the Rosewood brand might alienate guests at
well-established properties.
• Many hotel managers feel threatened in their autonomy.
• Ensuring product/service quality will be more important than ever to
keep up to the new brand promise.
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• Greater Brand Equity. • Better Customer Lifetime Value. • Enhanced cross property usage. • Higher PROFIT.
• Higher Marketing Investment. • Alienation of guests. • Emotional attachment might cause
resistances.
Corporate Branding
However, the PROS clearly outweigh the CONS.
Corporate Branding is therefore the way forward!
▪ Standardise product/service quality across all properties.
▪ Set reward programmes for frequent customers.
▪ Undertaking social corporate initiatives.
▪ Establish a strong digital presence.
Disclaimer
This presentation is created by Pallabh Bhura of Jadavpur University during a marketing internship under Prof. Sameer Mathur, IIM Lucknow.
Prof. Sameer Mathur Pallabh Bhura
Thank You!