Week 11: Rosewood Case

“A company’s value is the sum of discounted cash contribution of its current and future customers”

 www.managementconsultingnews.com/interviews/peppers_rogers_interview.php

Rosewood business is going well but it lacks a cohesive brand image to optimize the customer profitability and lifetime value. The majority of Rosewood customers do not know that they are staying at a Rosewood hotel or even recognize the Rosewood brand.  To increase the company’s value, Rosewood needs to increase the profitability of the current and future customers. It needs to develop a way to enable consumers to get more knowledge on the fact that they can enjoy “A Sense of Place” Rosewood type of experience in different parts of the world.

Creating Rosewood brand awareness would provide a platform for encouraging Rosewood customers who stay at one of Rosewood property to stay at some of the others. It would not only increase cross property use and attract new customers, but also increase joint marketing activities and ability to build new properties and grow. Nevertheless, corporate branding undercuts the distinctiveness of each individual branded hotel and potentially decreases the property value.

Evaluating the customer lifetime value (CLTV) for six years, I find that the new marketing plan with corporate branding strategy would increase CLTV per customer by $82.60. This leads to an increase in profit of Rosewood from new brand strategy of about $9.5M (or increase in Rosewood revenue of $29.68M).

Thus, I recommend the management of Rosewood to adopt the corporate branding strategy. Even though it proceeds with the new brand strategy, Rosewood should still emphasize on the uniqueness of each property and their “Sense of Place” strategy to keep its distinctiveness from other hotel chains.

CLTV Calculation With No Changes to Brand Strategy
Year	2003	2004	2005	2006	2007	2008	2009
Number of Nights per Stay		2.0	2.0	2.0	2.0	2.0	2.0
Number of Stays per guest (assuming they are retained)		1.2	1.2	1.2	1.2	1.2	1.2
Revenue Per Night		$795.00	$842.70	$893.26	$946.86	$1,003.67	$1,063.89
Revenue per Customer		$1,908.00	$2,022.48	$2,143.83	$2,272.46	$2,408.81	$2,553.33
Gross Profit per Customer		$610.56	$647.19	$686.03	$727.19	$770.82	$817.07
Less Cost to Acquire Customer	($150.00)
Less Annual Marketing Cost per Customer		($133.90)	($137.92)	($142.05)	($146.32)	($150.71)	($155.23)
Cash Flow from Customer if Retained	($150.00)	$476.66	$509.28	$543.97	$580.87	$620.11	$661.84
Probability of Being Retained	1.00	1.00	0.17	0.03	0.00	0.00	0.00
Expected Cash Flow from Customer	($150.00)	$476.66	$84.90	$15.12	$2.69	$0.48	$0.09
Discount Factor	1.000	1.080	1.166	1.260	1.360	1.469	1.587
NPV of Expected Cash Flow from Customer	($150.00)	$441.35	$72.78	$12.00	$1.98	$0.33	$0.05
Total NPV of CLTV	$378.49

CLTV Calculation With New Brand Strategy
Year	2003	2004	2005	2006	2007	2008	2009
Number of Nights per Stay		2.0	2.0	2.0	2.0	2.0	2.0
Number of Stays per guest (assuming they are retained)		1.3	1.3	1.3	1.3	1.3	1.3
Revenue Per Night		$795.00	$842.70	$893.26	$946.86	$1,003.67	$1,063.89
Revenue per Customer		$2,067.00	$2,191.02	$2,322.48	$2,461.83	$2,609.54	$2,766.11
Gross Profit per Customer		$661.44	$701.13	$743.19	$787.79	$835.05	$885.16
Less Cost to Acquire Customer	($150.00)
Less Annual Marketing Cost per Customer		($133.90)	($137.92)	($142.05)	($146.32)	($150.71)	($155.23)
Less Additional Marketing Cost per Customerb		($8.96)	($9.23)	($9.50)	($9.79)	($10.08)	($10.38)
Cash Flow from Customer if Retained	($150.00)	$518.58	$553.98	$591.64	$631.68	$674.27	$719.55
Probability of Being Retained	1.00	1.00	0.22	0.05	0.01	0.00	0.00
Expected Cash Flow from Customer	($150.00)	$518.58	$120.04	$27.78	$6.43	$1.49	$0.34
Discount Factor	1.000	1.080	1.166	1.260	1.360	1.469	1.587
NPV of Expected Cash Flow from Customer	($150.00)	$480.17	$102.92	$22.05	$4.72	$1.01	$0.22
Total NPV of CLTV	$461.09