Rosewood

...

of 1 million dollars every year over the next six years(2004- 2009), there is an increase in the CLV per customer of $ 82.60, resulting an increase in total CLV of approx. 9.5 million dollars and increase in revenue of approx. 29.7 million dollars. It is also seen that the NPV of Expected Cash Flow from Retained Customer (Discounted to 2013) is higher for all the years if the corporate branding strategy is implemented (Refer to Figure 2).The assumptions used for this model are as follows: 1) The acquisition expense per new guest is a one-time cost in 2003 2) The marketing expense is $130 as of 2003, but is used as of 2004, growing at 3% per year 3) Probability of being retained uses the survival probability methodology starting with 1 in 2004(the first year) 4) Average guest retention rate is 16.67% for “without branding” strategy and 21.67% for “with Rosewood branding strategy” 5) The additional cost of marketing per guest is 1 million dollars divided by the number of guests(115,000) growing at 3% as of 2004.

Based on this analysis, it is evident that the difference with vs. without the Rosewood brand is quite significant - the CLV with corporate branding is 21.8% higher, even taking account for the additional marketing expense. Therefore, the significant economic benefits suggest that it’s definitely worthwhile to pursue the corporate branding strategy.

Q.4) Would you implement a corporate branding strategy? Why or why not?

Yes, I would implement a corporate branding strategy, but make sure that it is done without undercutting the distinctiveness of each hotel. My suggestion is based on the following considerations: Qualitative analysis (Refer to Figure 4) considering the pros and cons of each branding strategy, and Quantitative analysis (Refer to Figure 1) estimating the impact of Rosewood’s corporate branding strategy on customer lifetime value (CLTV).

Looking at the qualitative analysis, it is seen that there are some advantages and disadvantages if the new strategy is implemented. However, from an economic point of view, significant growth opportunities lay in retention rate, total revenue, customer lifetime value, and repeat guest numbers with the corporate branding strategy. Therefore, taking into account the CLTV model, it is recommended that Rosewood implement a corporate branding strategy. If executed properly, this has the potential to not only increase revenues but also brand awareness, recognition and word of mouth referrals.

That being said, it is imperative that Rosewood keeps the name of some of its emblematic hotels in order to maintain customer loyalty by subtly adding the name Rosewood to communicate with the customers that the hotels belong to the chain. For example, it is recommended that for these emblematic hotels, something like “Carlyle Hotel, a Rose property” would be better than changing the name to “Rosewood Carlyle Hotel, as this will associate the properties with the Rosewood name without detracting from the brand equity already built within the current naming framework.

At the same time, guests want to see one unique brand, same quality and service at every hotel that they stay under one corporate brand name. It is expected that the corporate branding strategy will help Rosewood standardize some of their services and thus increase retention rate, make multi-cross selling and have loyal repeat customers. Guests also tend to tie the brand of hotels that they choose with a corporate brand that they are familiar with. If Rosewood continues to operate with individual branding, the aforementioned issue signals that current trend in the hotel industry is a threat for Rosewood`s future growth and profitability, and may result in loss of market share. This, however, can be turned to an opportunity if Rosewood can shape its future strategy towards operating under corporate branding.