According to the Rosewood case study, moving to a corporate brand from an individual brand is expected to improve customer lifetime value (CLV). Use the Rosewood excel file Rosewood_students V3.xlsx ( also available in files menu) to calculate the impact of the new brand strategy on customer lifetime value.

Please note that there are items in the spreadsheet to be included in the analysis that are not mentioned in the case study that will impact lifetime value. The assumed of 115,000 guests has been increased to 125,000 guests as a result of an inflight adverting campaign with business class customers of Delta airlines.

After determining the increase in CLV resulting from the changes, use it to estimate the additional sales to be targeted (see lower left of the spreadsheet).

Please submit your spread sheet with the analysis (in Excel format) along with a word file (single-spaced not more then 1/2 page):

(a)explaining your analysis, and

(b) suggesting some possible reasons for the reduction in customer acquisition cost from $150 to $125 with the new brand strategy.

*Note: You only need to make changes to row 37 downwards of the spreadsheet. No changes are needed above row 37.

Rosewood Hotels & Resorts: Branding to Increase Customer Profitability and Lifetime Value 1 2087 Exhibit 8 Rosewood's Brand-wide Customer Lifetime Value Spreadsheet Model Without Rosewood Branding (2003) 115,000 $750 With Rosewood Corporate Branding 115,000 $750 32% Total number of unique guests a Average daily spend Number of days average guest stays Average gross margin per room Average number of visits per year per guest Average marketing expense per guest (systemwide) Average new guest acquisition expense (systemwide) Total number of repeat guests e Of which: Total number of multiproperty stay guests 1.2 32% 1.3 To be calculated $130 $150 19,169 $150 To be calculated To be calculated 5,750 Average Guest Retention Rate Average Gross Profit per Guest 16.67% To be calculated To be calculated To be calculated 0 1 2 3 4 5 6 Years Gross profit per guest Acquisition expense per new guest Marketing expense per guest Net Profit per Guest Retention factor Discount factor Net Present Value (NPV) 8 Source: Rosewood Hotels & Resorts. All numbers are approximate and have been disguised to preserve confidentiality Note: The company used an 8% discount rate and assumed marketing costs increased at a rate of 3% per year and guest revenues at a rate of 6% per year. a For the purpose of this analysis, Rosewood treats double occupancy (i.e., John Doe and Jane Doe staying in the same room) as one guest. The average daily spend is the total expenditure per guest per day on room, food, beverage, and other services. Twice more multi-property guests, inflating the overall number of repeat guests, 1.3 stays per guest per year, and $1,000,000 marketing expenses. d Cost of marketing communication with a Rosewood corporate brand: [(total number of guests * average cost of marketing per guest in 2003) + $1,000,000] / total number of guests. e Repeat guests were guests who, after staying once in a Rosewood hotel, returned to a Rosewood property the year after (the same one or a different one). Repeat guests included multiproperly guests. Guest retention rate: the probability that a guest comes back to a Rosewood hotel the following year (number of repeat guests/total number of guests). 8 Net Present Value (NPV): the future stream of benefits and costs converted into equivalent values today, by discounting future benefits and costs using an appropriate discount rate. Sourcce With Rosewood Corporate Branding 115,000 $750.00 growing at 2.0 32% 1 ROSEWOOD HOTELS & RESORTS: CUSTOMER LIFETIME VALUE (CLTV) ANALYSIS 2 Inputs Without Rosewood Branding (2003) 4 Total Number of Unique Guests 115,000 5 Average Daily Spend $750.00 6 Number of Days Average Guest Stays per Stay 2.0 7 Average Gross Margin per Room 32% 8 Average Number of Visits per Year per Guest 1.2 9 Average Marketing Expense per Guest (system-wide) $130.00 10 Average New Guest Acquisition Expense (system-wide) $150.00 11 Total Number of Repeat Guests 19.169 12 of which: Total Number of Multi-property Stay Guests 5,750 13 Additional Costs Required per annum 14 Discount Rate 8% 15 Average Guest Retention Rate 16.67% 16 Exhibit 8 6% Exhibit 8 Exhibit 8 Exhibit 8 Exhibit 8 3% Exhibit 8 Exhibit 8 1.3 growing at to be calc $125.00 24,919 to be calc to be calc 8% to be calc Page 5 Exhibit 8 17 2003 2005 2.0 2006 2.0 1.2 1.2 18 CLTV Calculation With No Changes to Brand Strategy 19 Year 20 Number of Nights per Stay 21 Number of Stays per guest (assuming they are retained) 22 Revenue Per Night 23 Revenue per Customer 24 Gross Profit per Customer 25 Less Cost to Acquire Customer 26 Less Annual Marketing Cost per Customer 27 Cash Flow from Customer if Retained 2004 2.0 1.2 $795.00 $1,908.00 S610.56 2007 2.0 1.2 $946.86 $2,272.46 S727.19 2008 2.0 1.2 $1,003.67 $2.408.81 $770.82 2009 2.0 1.2 $1,063.89 $2,553.33 $817.07 $842.70 $2,022.48 S647.19 $893.26 $2,143.83 S686.03 ($150.00) ($133.90) S476.66 ($137.92) S509.28 ($142.05) $543.97 ($146.32) $580.87 ($150.71) S620.11 ($155.23) 9661.84 (S150.00) 29 Probability of Being Retained 30 Expected Cash Flow from Customer 1.00 ($150.00) 1.00 $476.66 0.17 $84.90 0.03 $15.12 0.00 $2.69 0.00 $0.48 0.00 $0.09 31 32 Discount Factor 1.000 1.080 1.166 1.260 1.360 1.469 1.587 33 (5150.00 S441.35 S72.78 $441.35 $72.78 $12.00 34 NPV of Expected Cash Flow from Customer 35 Total NPV of CLTV $12.00 $1.98 ($150.00) $378.49 $1.98 S0.33 $0.33 S0.05 0.05 36 2003 2005 2006 2004 2.0 2007 2.0 2009 2.0 2.0 2008 2.0 2.0 to be cale: 37 CLTV Calculation With New Brand Strategy 38 Year 39 Number of Nights per Stay 40 Number of Stays per guest (assuming they are retained) 41 Revenue Per Night 42 Revenue per Customer 43 Gross Profit per Customer 44 Less Cost to Acquire Customer 45 Less Annual Marketing Cost per Customer 46 Less Additional Marketing Cost per Customer 47 Less data management and analytics fee per customer 48 Co-Branding payment to airline for advertsing fee of $5.00 (flat) per per customer 49 Cash Flow from Customer if Retained $795.00 $0.00 $661.44 $842.70 $0.00 $701.13 $893.26 $0.00 $743.19 50.00 $946.86 $0.00 $787.79 $1,003.67 $0.00 $835.05 $1,063.89 $0.00 s885.16 ($125.00) calc calc calc calc ($125.00) 50 51 Probability of Being Retained 52 Expected Cash Flow from Customer 1.00 ($125.00) 1.00 #VALUE! 0.22 #VALUE! 0.05 #VALUE! 0.01 #VALUE! 0.00 #VALUE! 0.00 #VALUE! 53 54 Discount Factor 1.000 1.080 1.166 1.260 1.360 1.469 1.587 ($125.00' #VALUE!' #VALUE! '#VALUE! '#VALUE! #VALUE! #VALUE!' #VALUE! 56 NPV of Expected Cash Flow from Customer 57 Total NPV of CLTV 58 59 Increase in CLTV per customer of new Marketing Plan 60 Multiplied by # of Customers to obtain increase in profit of Rosewood from new brand strategy 61 Divided by 32% gross margin to obtain increase in Revenue of Rosewood from new brand stra 63 64 $1 million growing at 3% per year allocated to 115,000 + 10,000 guests 65 'Each custmer costs a $9 data managemt fee increasing and 4% per year 66 Management later realized that customer acquisition would actually be $125 instead of $150 67 * Rosewood launched a a cobranded inflight advertsing campaign with Delta Air costing $5 per customer Rosewood Hotels & Resorts: Branding to Increase Customer Profitability and Lifetime Value 1 2087 Exhibit 8 Rosewood's Brand-wide Customer Lifetime Value Spreadsheet Model Without Rosewood Branding (2003) 115,000 $750 With Rosewood Corporate Branding 115,000 $750 32% Total number of unique guests a Average daily spend Number of days average guest stays Average gross margin per room Average number of visits per year per guest Average marketing expense per guest (systemwide) Average new guest acquisition expense (systemwide) Total number of repeat guests e Of which: Total number of multiproperty stay guests 1.2 32% 1.3 To be calculated $130 $150 19,169 $150 To be calculated To be calculated 5,750 Average Guest Retention Rate Average Gross Profit per Guest 16.67% To be calculated To be calculated To be calculated 0 1 2 3 4 5 6 Years Gross profit per guest Acquisition expense per new guest Marketing expense per guest Net Profit per Guest Retention factor Discount factor Net Present Value (NPV) 8 Source: Rosewood Hotels & Resorts. All numbers are approximate and have been disguised to preserve confidentiality Note: The company used an 8% discount rate and assumed marketing costs increased at a rate of 3% per year and guest revenues at a rate of 6% per year. a For the purpose of this analysis, Rosewood treats double occupancy (i.e., John Doe and Jane Doe staying in the same room) as one guest. The average daily spend is the total expenditure per guest per day on room, food, beverage, and other services. Twice more multi-property guests, inflating the overall number of repeat guests, 1.3 stays per guest per year, and $1,000,000 marketing expenses. d Cost of marketing communication with a Rosewood corporate brand: [(total number of guests * average cost of marketing per guest in 2003) + $1,000,000] / total number of guests. e Repeat guests were guests who, after staying once in a Rosewood hotel, returned to a Rosewood property the year after (the same one or a different one). Repeat guests included multiproperly guests. Guest retention rate: the probability that a guest comes back to a Rosewood hotel the following year (number of repeat guests/total number of guests). 8 Net Present Value (NPV): the future stream of benefits and costs converted into equivalent values today, by discounting future benefits and costs using an appropriate discount rate. Sourcce With Rosewood Corporate Branding 115,000 $750.00 growing at 2.0 32% 1 ROSEWOOD HOTELS & RESORTS: CUSTOMER LIFETIME VALUE (CLTV) ANALYSIS 2 Inputs Without Rosewood Branding (2003) 4 Total Number of Unique Guests 115,000 5 Average Daily Spend $750.00 6 Number of Days Average Guest Stays per Stay 2.0 7 Average Gross Margin per Room 32% 8 Average Number of Visits per Year per Guest 1.2 9 Average Marketing Expense per Guest (system-wide) $130.00 10 Average New Guest Acquisition Expense (system-wide) $150.00 11 Total Number of Repeat Guests 19.169 12 of which: Total Number of Multi-property Stay Guests 5,750 13 Additional Costs Required per annum 14 Discount Rate 8% 15 Average Guest Retention Rate 16.67% 16 Exhibit 8 6% Exhibit 8 Exhibit 8 Exhibit 8 Exhibit 8 3% Exhibit 8 Exhibit 8 1.3 growing at to be calc $125.00 24,919 to be calc to be calc 8% to be calc Page 5 Exhibit 8 17 2003 2005 2.0 2006 2.0 1.2 1.2 18 CLTV Calculation With No Changes to Brand Strategy 19 Year 20 Number of Nights per Stay 21 Number of Stays per guest (assuming they are retained) 22 Revenue Per Night 23 Revenue per Customer 24 Gross Profit per Customer 25 Less Cost to Acquire Customer 26 Less Annual Marketing Cost per Customer 27 Cash Flow from Customer if Retained 2004 2.0 1.2 $795.00 $1,908.00 S610.56 2007 2.0 1.2 $946.86 $2,272.46 S727.19 2008 2.0 1.2 $1,003.67 $2.408.81 $770.82 2009 2.0 1.2 $1,063.89 $2,553.33 $817.07 $842.70 $2,022.48 S647.19 $893.26 $2,143.83 S686.03 ($150.00) ($133.90) S476.66 ($137.92) S509.28 ($142.05) $543.97 ($146.32) $580.87 ($150.71) S620.11 ($155.23) 9661.84 (S150.00) 29 Probability of Being Retained 30 Expected Cash Flow from Customer 1.00 ($150.00) 1.00 $476.66 0.17 $84.90 0.03 $15.12 0.00 $2.69 0.00 $0.48 0.00 $0.09 31 32 Discount Factor 1.000 1.080 1.166 1.260 1.360 1.469 1.587 33 (5150.00 S441.35 S72.78 $441.35 $72.78 $12.00 34 NPV of Expected Cash Flow from Customer 35 Total NPV of CLTV $12.00 $1.98 ($150.00) $378.49 $1.98 S0.33 $0.33 S0.05 0.05 36 2003 2005 2006 2004 2.0 2007 2.0 2009 2.0 2.0 2008 2.0 2.0 to be cale: 37 CLTV Calculation With New Brand Strategy 38 Year 39 Number of Nights per Stay 40 Number of Stays per guest (assuming they are retained) 41 Revenue Per Night 42 Revenue per Customer 43 Gross Profit per Customer 44 Less Cost to Acquire Customer 45 Less Annual Marketing Cost per Customer 46 Less Additional Marketing Cost per Customer 47 Less data management and analytics fee per customer 48 Co-Branding payment to airline for advertsing fee of $5.00 (flat) per per customer 49 Cash Flow from Customer if Retained $795.00 $0.00 $661.44 $842.70 $0.00 $701.13 $893.26 $0.00 $743.19 50.00 $946.86 $0.00 $787.79 $1,003.67 $0.00 $835.05 $1,063.89 $0.00 s885.16 ($125.00) calc calc calc calc ($125.00) 50 51 Probability of Being Retained 52 Expected Cash Flow from Customer 1.00 ($125.00) 1.00 #VALUE! 0.22 #VALUE! 0.05 #VALUE! 0.01 #VALUE! 0.00 #VALUE! 0.00 #VALUE! 53 54 Discount Factor 1.000 1.080 1.166 1.260 1.360 1.469 1.587 ($125.00' #VALUE!' #VALUE! '#VALUE! '#VALUE! #VALUE! #VALUE!' #VALUE! 56 NPV of Expected Cash Flow from Customer 57 Total NPV of CLTV 58 59 Increase in CLTV per customer of new Marketing Plan 60 Multiplied by # of Customers to obtain increase in profit of Rosewood from new brand strategy 61 Divided by 32% gross margin to obtain increase in Revenue of Rosewood from new brand stra 63 64 $1 million growing at 3% per year allocated to 115,000 + 10,000 guests 65 'Each custmer costs a $9 data managemt fee increasing and 4% per year 66 Management later realized that customer acquisition would actually be $125 instead of $150 67 * Rosewood launched a a cobranded inflight advertsing campaign with Delta Air costing $5 per customer