Rosewood Hotels and Resorts Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

1. Will the move to corporate branding maximize customer lifetime value?

Customer lifetime value (CLTV) model provides the present value of the stream of future profits expected to occur over the customer’s lifetime spending.

As per the analysis of customer lifetime value (CLTV), results show that implementing the corporate branding strategy will significantly increase the overall profitability. As per Appendix-A, Rosewood corporate branding will increase per customer CLTV by $82.60/-. Detailed calculations of CLTV are performed in excel spread sheet.

However it should be noted that above customer lifetime valuation is based on some estimates and expectations of management.

Number of multi-property guest stay is expected to increase by 5%, raising the average customer visit from 1.2 to 1.3 per year. Because of the corporate brand awareness spending, increase in marketing expenses of $1 million is also based on estimation. Revenues are estimated to grow at annual rate of 6% and marketing expenses are expected to grow at 3% annually.

Conclusion

Based on above discussion, Rosewood is recommended to continue with the corporate branding strategy in a subtle way, where the “Sense of Space” philosophy is not completely destroyed and the strategy should work towards unifying the factors and experiences that the customer is bound to enjoy and assured of at each of the Rosewood facilities. The central reservation system should be used to identify the customer profile and offer experience as per their preferences. It is suggested that as part of the corporate branding, individual hotels should carry a caption underneath its individual brands as “A Rosewood Group” instead of adding Rosewood before each individual brand.

Rosewood hotels and resorts case study solution

Appendix-A
Customer Lifetime Valuation Calculation With Corporate Brand strategy
Years	2003	2004	2005	2006	2007	2008	2009
Revenue per Customer		2,067	2,191	2,322	2,462	2,610	2,766
Gross profit per guest	-	661	701	743	788	835	885
Acquisition expense per new guest	150
Marketing expense per guest		134	138	142	146	151	155
Additional Marketing expense per guest		9	9	10	10	10	10
Net Profit per Guest	(150)	519	554	592	632	674	720

Retention factor		22%	22%	22%	22%	22%	22%
Survival Rate	100%	100%	22%	5%	1%	0%	0%

Net Cash Flow expected from guest	(150)	518.58	120.04	27.78	6.43	1.49	0.34
Discount factor 8%	1	0.9259	0.8573	0.7938	0.7350	0.6806	0.6302
Net Present Value of Cash flow expected from Guests	(150)	480.17	102.92	22.05	4.72	1.01	0.22
Customer Lifetime Value With Corporate Brand strategy							461

Customer Lifetime Valuation Calculation With Individual Brand strategy
Years	2003	2004	2005	2006	2007	2008	2009
Revenue per Customer		1,908	2,022	2,144	2,272	2,409	2,553
Gross profit per guest		611	647	686	727	771	817
Acquisition expense per new guest	150
Marketing expense per guest		134	138	142	146	151	155
Net Profit per Guest	(150)	477	509	544	581	620	662

Retention factor		0.17	0.17	0.17	0.17	0.17	0.17
Survival Rate	100%	100%	17%	3%	0%	0%	0%

Net Cash Flow expected from guest	(150)	476.66	84.89	15.11	2.69	0.48	0.09
Discount factor 8%	1	0.9259	0.8573	0.7938	0.7350	0.6806	0.6302
Net Present Value of Cash flow expected from Guests	(150)	441.35	72.78	12.00	1.98	0.33	0.05
Customer Lifetime Value With Individual Brand strategy							378

Description	Amount
Per Customer Increase in CLTV as a result of Rosewood Corporate Branding	83
Expected total increase on Rosewood profits	9,499,480
Expected total sales revenue using 32% profit margin	29,685,875