In the early 2000s, Rosewood Hotels and Resorts was a privately held company that owned 12 hotels worldwide, each marketed under a unique name. Rosewoods key competence was to create unique, one of a kind properties in the ultra-luxury residential style that differentiated it from other chain like luxury competitors (e.g., Four Seasons, etc). By 2006, the ultra-luxury hotel market was getting increasingly competitive. Customer did not make a connection between Rosewood properties and were increasingly identifying with other strong hotel brands such as Four Seasons, Ritz Carlton, among others. Marketing research suggested that although there is a niche of very sophisticated customer who value distinctiveness, the majority of customers are attracted to the corporate branded version of luxury.

The marketing team was considering a corporate branding campaign which would have the objective of connecting all 12 hotel properties with the brand Rosewood Hotel and Resorts. Marketing research had indicated that such corporate brand campaign would increase annual retention rates from 55% to 65%. However, the corporate branding campaign would cost approximately $5M annually.

Based on the company data provided below, will the increased customer retention outweigh the $5M annual investment for the corporate brand strategy?

Assume that the campaign will NOT influence the number of unique visitors (customer acquisition) and will only increase retention rate.

To answer this question, estimate the following:

• CLV without corporate branding strategy campaign:

• CLV with corporate branding strategy campaign:

• Incremental benefit of branding campaign in terms of individual CLV:

• Incremental benefit of branding campaign at the aggregate level for the company:

\begin{tabular}{|l|l|} \hline Number of unique customers per year (system-wide) & 115,000 \\ \hline Average number of days customer stays per year (total number across properties) & 4 \\ \hline Average daily customer revenue (room rate + other guest expenditures) & $750 \\ \hline Margin per customer & 35% \\ \hline Newcorporatebrandingcampaignannualcostspercustomer(iftheygoaheadwithnewcampaign) & $5Mdividedby115,000customers=$43.5 \\ \hline Averageacquisitioncostspercustomer(system-wide)RetentionRate(beforenewbrandingcampaign) & $200 \\ \hline Discount rate & 55% \\ \hline \end{tabular}