Rosewood Case

Kenan-Flagler Business School Marketing 741

SWETHA VASU SECTION 1

Executive Summary Rosewood is battling with a „brand identity‟ crisis. While it has maintained a low-key brand image till date (by adopting the individual brand strategy), the potential of a „corporate brand recognition‟ in a long run seems alluring. Based on the customer life time value analysis, customer perception analysis, and after analyzing customer needs, we recommend the following: 1. Rosewood should adopt the corporate brand strategy through a „smooth transition‟- start slow, and expand if met with positive response 2. The corporate branding should focus on the motto: “A sense of place” or a “Perfect Holiday destination”, rather than on factors such as say, “Luxury at a never seen before price”, “Impress your clients at Rosewood resorts”, “Perfect for businesses” etc. However, before making this transition, Rosewood should fully understand its future target markets, and analyze the potential impact of this branding on its future ventures. Understanding a Rosewood Customer Rosewood‟s customers are typically classified as shown in Exhibit 1. It may be safe to assume that individually owned brands like Rosewood may attract the „vacation‟ customers more than the corporate brands that typically attract the „business travelers‟. This is because, a business traveler may not be too concerned about a „unique‟ experience while on a business trip, while this factor may be an important one for the „vacation customer‟. Also, corporate brands may have mutually beneficial ties with the large corporates that have geographically distributed business activities, owing to their wider geographic presence (compared with the individually owned resorts). Now, knowing that a Rosewood customer values the “A sense of place” feeling, and the unique experience that Rosewood provides, it becomes very important for Rosewood to keep this customer preference in mind if and while rebranding its image. The centralized reservation system should enable Rosewood to keep a track of customer preferences, based on geographic or demographic segments. Using data collected from this central system, Rosewood should continue to provide customer oriented services (independent of the rebranding decision). This suggestion stems from the idea that re-branding needn‟t always be accompanied by a drastic turnaround in strategy; rebranding is more about bringing better awareness while retaining the best practices. Market Assessment (Competition) Now, let‟s analyze the attractiveness of the Luxury hotel segment using the 5-force framework in Exhibit 2(b). This industry isn‟t an easy one to penetrate, given the high bargaining power of consumers, availability of substitutes, and industry rivalry. Rosewood‟s position in this industry is as shown in the perception map in Exhibit 2(a) - it thrives on its „unique sense of place‟ identity, an image that the corporate brands aren‟t generally associated with. While Rosewood thrives on its uniqueness, it loses out on its obvious advantages of a corporate brand:  Brand recognition, and consequently brand loyalty. This in turn will lead to a long term customer who‟ll contribute to a steady stream of revenue (greater CLTV- Exhibit)  Reduced marketing expenses in a long run. Once the brand image is established, lesser money needs to be spent on branding- one ad will bring visibility to the group of hotels

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under the Corporate brand, unlike in individual owned brands in which separate advertisements will be required Our aim here is to achieve a high brand awareness while also retaining the uniqueness and the perception of the customers. Rosewood‟s branding strategy should hence be targeted at promoting the brand while associating it with the „feel‟ factor. In doing so, Rosewood could start with adding the „Rosewood brand‟ to a select few resorts or to the newly inaugurated resorts and wait for customer‟s reaction to this branding before scaling the branding program to all its resorts. However, by shifting to corporate branding, Rosewood is entering into a market with many more players when compared with the individual branding segment. It hence becomes important for Rosewood to differentiate itself from the existing players in order to subsist in the competition, which brings us to the feel factor branding. For instance, in India, the Club Mahindra group of resorts focusses on this strategy- while they offer great customer satisfaction in terms of the „sense of place‟, they have never competed with the Taj group of hotels in their identity. Both Club Mahindra and Taj offer luxury services, and both have a strong brand recognition- while one thrives on its image of a “family holiday” destination, the other thrives on the “business customer” model. Impact on the Bottom Line (Company) Since we propose a brand recognition strategy that aims at bringing collective awareness of the brand while not depriving the customers of their unique experience, this move may not have an impact on the employees perspective- they may continue doing what they were. However, this branding might affect those resorts that are collectively owned. Individual owners who want a sense of unique identity might not respond well to this move. In this situation, we recommend that Rosewood adopt branding after achieving positive results in other locations (start with other resorts that are not strongly opposed and then target the collectively owned ones). When success is achieved in branding, the initially resistant ones might be more willing to give in and adopt this strategy. Financial Considerations The 3C analysis and the CLV analysis are presented in Exhibit 4 and 3 respectively. It seems like the maximum that Rosewood can spend on a customer in a year is limited to about $460/customer (if it adopts corporate branding), beyond which it may become an overhead. In a long run, this will be a good investment if these customers maintain a long term relationship. By opting for a membership program in future, we believe that Rosewood might be able to recoup the cost through 2-part pricing strategy. Recommendation: Both from financial and strategic perspective it seems prudent for Rosewood to adopt a corporate branding first in slow steps, and based on response, extend it further. Also, in order to sustain in a competitive corporate branding segment, Rosewood should differentiate its service through the “sense of place” motto, while targeting a customer segment such as the „family vacationers‟

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APPENDIX Exhibit 1: Types of Rosewood customers- before rebranding

Exhibit 2 2(a): Perception Map for Rosewood and corporate branding hotels

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Exhibit 2(b): 5-force analysis of the luxury resort segment

Threat of new entrants LOW

Threat of substitutes MODERATE-HIGH

Bargaining power of suppliers LOW

Bargaining power of Buyers HIGH

Industry Rivalry HIGH

This is a capital intensive investment that requires hotel management expertise. Given the unique skills required for entering this industry , and the fact that it is already dominated by corporate and individual players, the threat of new entrants is ‘Low’

Within the luxury hotel industry, the corporate branded hotels are a substitute for the individual owned brands, and vice versa. We do not recognize the cost-effective/ lower end resorts as substitutes for a luxury brand given the fact that the target segments are people belonging to different income groups, or those with different needs. A bigger threat might be a luxury hotel that works on the cost-leadership model. Nevertheless, since customers have the choice to choose between resorts nless thay have a strong preferance for one type, the threat is moderate-high

In a way, ‘travel agents’ constitute suppliers- they supply customers to these resorts. They also form an important link in educating the customers about a hotel/resort. A travel agent with reputation has the power to make or break a brand and consequently demand certain services in exchange for customer awareness. For a resort that provides quality services , this should not be a great concern. Other suppliers include service providers and manufacturing business owners who have little bargaining power. Consequently, we shall consider this - LOW

The buyers here are the end customers who use the resort’s services. These customers have a unique need that in turn defines their decision to choose and re-choose a resort in a long run. With several corporate brands and individually owned brands that provide services within a difference of a $100, the bargaining power of the buyers seems high, unless the resort’s service cannot be reproduced by any competitor, or if the customers' needs are exclusive

With several players competing in this segment, the industry rivalry seems to be on the higher side. This is accentuated by the fact that the target segments of these players are more or less the same- ‘customers who value the luxury resort experience’. However, it needs to be noted that corporate branded hotels might attract the ‘Corporate travelers’ while the individual brands might target a vacation crowd.

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Exhibit 3: CLV analysis Reference

B

2

3 4 5 6 7

8 9

10

11 12

13 14 15 16

C

D

Without Rosewood Branding Total number of unique Guests Average daily Spend

115,000.00

With Rosewood Corporate Branding 115,000.00

$750

$750

Number of days average guest per stay Average gross margin per room Average number of visits per year per guest

2

2

32%

32%

1.2

1.3

Average Marketing expense per guest (system-wide) Average new guest acquisition (system wide) Total number of repeat guests (s) of which: Total number of multiproperty stay guests Discount Rate

$130

$138.70

$150

$150

19,169

24,919

C11+(D12-C12)

5750

11500

2*C12

8%

8%

Average Guest Retention Rate (f) Marketing costs Increase Average gross Profit Guest increase

16.67%

21.67%

3.00%

3.00%

6%

6%

CLV- without

0

1

(D3*C9+1000000)/D3

D11/D3

17

18

3

2

5

4

5

6

22

Corporate Brand strategy Cost to acquire customer Time spent during 1 stay Number of stays (repeated) Average daily spend

23

Revenue/ Customer

$1,908

$2,022

$2,144

$2,272

$2,409

$2,553

24

$610.56

$647.19

$686.03

$727.19

$770.82

$817.07

$133.90

$137.92

$142.05

$146.32

$150.71

$155.23

$476.66

$509.28

$543.97

$580.87

$620.11

$661.84

27

Gross Profit / customer Marketing cost per customer Cash flow retained customer Retention factor

1

0.1667

0.02778889

0.004632408

0.000772222

0.000128729

28

Discount factor

0.925925926

0.85733882

0.79383224

0.73502985

0.6805832

0.63016963

29

NPV of cash flow

($150)

$441.35

$72.78

$12.00

$1.98

$0.33

$0.05

30

NPV of customer life time value (multiplying by retention rate)

$378.49

19 20 21

25 26

$150

0

2

2

2

2

2

2

2

1.2

1.2

1.2

1.2

1.2

1.2

1.2

$750

$795

$843

$893

$947

$1,004

$1,064

Increases by 6% =Time spent during 1 stay*Number of stays (repeated)*Average daily spend =Revenue*Average gross margin Increases by 3%

$130

1

=sumof values in row 29

31 32

1

2

3

4

5

6

33

CLV Calculation With Corporate Brand strategy # of Nights per stay

2

2

2

2

2

2

34

# of Stays per guest

1.3

1.3

1.3

1.3

1.3

1.3

35

Revenue per Night

$795

$843

$893

$947

$1,004

$1,064

$750

=Gross profitMarketing cost =Retention rate*previous year's retention rate =(1/(1+discount rate)^year)) =B26*B27*B28

6

36

39

Revenue per Customer Gross Profit per customer Marketing cost per customer Cash Flow

40

Retention factor

41

Discount factor

42

NPV of cash flow

($150)

43

NPV of customer life time value (multiplying by retention rate)

$461.09

37 38

$138.70

1

$2,067

$2,191

$2,322

$2,462

$2,610

$2,766

$661.44

$701.13

$743.19

$787.79

$835.05

$885.16

$142.86

$147.14

$151.56

$156.10

$160.79

$165.61

$518.58

$553.98

$591.64

$631.68

$674.27

$719.55

1

0.216686957

0.046953237

0.010174154

0.002204606

0.000477709

0.925925926

0.85733882

0.79383224

0.73502985

0.6805832

0.63016963

$480.17

$102.92

$22.05

$4.72

$1.01

$0.22

*All discount rate and growth rate assumptions are based on assumption data given in the case study Exhibit 4: 3C‟s analysis Customers

Individual Branding (IB) Customers care about the unique experience at Rosewood resorts- the “sense of place” feeling

Company/Employee From a CLTV perspective, the individual branding seems to generate lesser value. A shift will require employees to adjust to common standards that‟ll be difficult if their services are unique Fewer in the Individual branding segment. Competition A shift to the corporate segment will lead to bigger competition for Rosewood. The key would be to build a brand that is different from that of the existing players by focusing on the target segment- untargeted primarily by existing players- viz Vacation customer

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Corporate Branding (CB) Luxurious stay; Brand recognition leads to repeat visits From a CLTV perspective, the corporate branding seems to generate better value for company

Fairly bigger players in this segment.