Rosewood Hotels & Resorts : Branding to Increase Customer Profitability and Lifetime Value

Havard Business School Case Study

Why study the case?

To devise a model to increase the customer

profitability by increasing the re-visits per customer

and to increase the lifetime value of Rosewood

How Rosewood startedMrs. Caroline Rose Hunt opened The Mansion on Turtle Creek, the first Rosewood hotel, by transforming an old Dallas mansion in peril of being

demolished into a world-class hotel, in the year 1980.

Expansion Strategy of Rosewood

Rosewood expanded their business by following ways:

Buying existing properties and then turning them into world-

class high valued hotelsExample :- Little Dix Bay, The

Turtle etc Building new hotels from the

scratchExample :- The Lanesborough, Las

Ventanas etc

The individual brand/collection strategy

Rosewood operated a collection of unique properties, each with its own name and brand.

Each hotel and resort featured architectural details, interiors, and culinary concepts that reflected local character and culture and defined Rosewood’s “Sense of Place”

philosophy.

From the carefully crafted menu to how a guest is greeted, “A sense of place” philosophy was employed.

All the properties of Rosewood

(as of 2003)

Competitors of Rosewood

Brand visibility of Rosewood

The Rosewood branding was soft and meant to be complementary, and not intrusive.

The rosewood logo appeared discreetly on low-profile amenities such as clothes hangers or stationery.

Higher profile amenities, such as bathrobes and towels bore the logo of hotel.

Hotel greeting also did not mention the Rosewood name.

In 2000s, Rosewood’s advertising began to feature a list of all Rosewod properties, but the Rosewood logo remained secondary to the hotel logo.

This was ensured to give their hotels “A sense of Place” and not intrude with their individual identities.

While guests were seeking a unique Rosewood property experience and product, they were not making the connection between Rosewood properties

and were increasingly identifying with other strong hotel brands.

While some properties of Rosewood enjoyed return of 40% of guests, only 5% of the total guests had stayed in more than one of Rosewood’s properties.

While repeat guests in a ‘collection’ based Hotels ranged from 5 to 10%, the corporate based hotels enjoy 10 to 15% customers choosing more than one of

their properties.

Rosewood was at the low end (at 5%) and they had to change the way things were done.

How to encourage customers to visit more than one of Rosewood’s

hotels

Two ways to encourage customers were identified Set-up of frequent stay programs Employing corporate based model

After jolting down pros and cons of both the approaches, the setting up of frequent stay program was rejected

Thus, it was decided that Rosewood would employ corporate based model

Problems with changing to corporate based model

Apart from having a great brand which only needs subtle exposure, the change to corporate model also brings certain risks on the platter.

Prominently imposing the Rosewood brand might alienate some of their guests at well-established properties such as the Carlyle or The Mansion on

Turtle Creek

Many of the hotel managers had mixed feeling about spreading the Rosewood corporate brand in their properties. They were more inclined to promote just their own individual hotel brands, particularly if they had a

strong brand.

They also ran on the risk to devastate the suite owners at specific hotels like The Carlyle where 179 were purchased by private owner and they were not keen to have the brand ‘Rosewood’ add infront of the name of the hotel

Data obtained from spreadsheet model that

projected Rosewood’s brand-wide customer life time value

(CLTV)

Calculation of profits taking both the cases of branding with Rosewood and not-branding with

Rosewood

Without Rosewood brandingOf the total number of Unique guests (115,000), total number of repeat guests are

19,169.Using the average daily spending as $750 and the average time a guest spend is 2

days.

Considering 32% margin and considering 130$ as marketing expense and 150$ as guest acquisition expense, the total profit generated comes out to be

Profits = $32.201120 Million

With rosewood brandingAfter branding, the guest retention rate increased to 30% but at the expense of 1

Million $ as extra marketing expense.

So the total profits after calculations and using all the data boils down to,

Profits = $38.560650 MillionSo the net extra profits gained after branding, thus comes to,

Net profit =$6.35953 Million

ConclusionThe decision to add the name ‘Rosewood’ indeed ensured increased profits for the firm because of the reason that now customers can connect one hotel with another and this prompted them to visit

another hotel of the same branding as the percentage of repeated guests increased from 5% to 10%, thus earning the company extra

$6.35 Million dollars after the marketing costs

DISCLAIMER

Created by , Aditya Patni,

Under-graduate student, IIT(ISM) Dhanbad Intern under Prof. Sameer Mathur

Prof. SAMEER MATHUR IIM Lucknow

Marketing professor (2013-Present)

McGill University Marketing professor (2009-2013)