hbs rosewood case

Rosewood Hotels and Resorts is considering a new brand strategy in an attempt to increase their multi property guest stays, revenues and cross selling rates. However, the company needs to do so without the expense of possibly diminishing the powerful brand image and strategy of their existing properties. Rosewood has built a customer value proposition on a core set of philosophies, as well as, strategic and marketing plans designed to create their unique competitive advantage through differentiation.

Adding a corporate branding strategy would diminish previous efforts and be detrimental to Rosewoods’ intended objectives and goals of increasing profitability and customer lifetime value. Introducing a corporate branding strategy would significantly conflict with Rosewood’s existing strategic plan and current philosophy of “Sense of Place. ”(Rosewood) The Sense of Place philosophy is reflective of the company’s mission statement and strategic plan.

The Rosewood mission statement, as stated on the company website is, “To be recognized and respected as the consummate operator of ultra-luxury hotels in desirable destinations throughout the world. ”(Rosewood) This philosophy has enabled Rosewood to grow for 25 years and has allowed the company to build a highly regarded, global reputation with its line of iconic luxury hotels. The company’s purpose of creating and operating luxury hotels and resorts unlike any other in the world, is designed in such a way to create value for its customers through a commitment to “unique, one-of-a-kind, luxury properties. (Rosewood) The individual brand collection strategy currently employed is what spurred and created the competitive advantage that distinguishes and differentiates Rosewood from its corporate, cookie-cutter, competition, including Four Seasons and the Ritz-Carlton. The iconic hotels are “Trophy properties so distinctive, each could thrive on its own name, without any corporate identification. ”(Dev,Stroock) The guests of Rosewood properties enjoy the uniqueness each of the individual properties offer, as well as the lack of corporate visibility and involvement at the resorts.

In the past twenty five years, Rosewood customers have developed strong emotional connections and they expect a certain experience unique to the location and property. By capturing the culture and history of each unique location and reflecting that in the architecture, design, food and service, Rosewood has developed a unique, authentic character and customer value proposition that is unattainable in the corporate brand setting.

To incorporate the Rosewood brand name into already highly regarded, successful and distinguished properties at this point would cheapen the experience created by the individual brand collection strategy and “Sense of Place” philosophy. In their attempt to increase customer lifetime value, new CEO John Scott, and vice president of marketing and sales, John Boulogne, analyzed Rosewood’s competitive environment. Competitively, Rosewood had low brand recognition and low overall brand-wide usage among its guests.

They realized that their “Customers were not making the connection between individually branded Rosewood properties while increasingly identifying with other luxury hotel brands. ”(Dev,Stroock) According to an analysis to estimate and determine the potential impact of a corporate branding strategy, Scott and Boulogne determine that the multi-property cross selling rate would increase from the industry standard for individually branded hotels of 5%, to a 10-15% rate for corporate branded hotels. This increase would raise the average number of visits per year, per guest from 1. to 1. 3, inflating the total number of repeat guests by 11,500 annually. An increase in 11,500 repeat guests multiplied by the mean daily room rate of $343 would potentially increase revenue by $3,944,500 gross annually. A marketing and operations investment of $1 million per year necessary to implement the corporate branding strategy would net just shy of an extra $3 million in profit annually. However, to make a decision that would signify a long-term, strategic change of direction simply based on those numbers alone would be a prudent business decision for Rosewood executives.

To find their answer to increasing customer lifetime value, the statistics in exhibit 5 of the article provide a few clues. To compare Rosewood to corporate branded luxury hotels Four Seasons and Ritz-Carlton takes Rosewood out of its comfort zone and niche market where the company has experienced and achieved success. Rosewood’s 12 properties are nowhere near the 58 properties Four Seasons owns, nor the 52 the Ritz-Carlton owns. Rosewood is not necessarily even in the same ballpark compared with the two luxury hotel, corporate giants.

The operating statistics however, paint an entirely different financial outlook of the three competitors. Over the three year period spanning from 2001 to 2003, Rosewood has a mean daily room rate that averages $52 and $105 more than Four Seasons and Ritz-Carlton respectively. Occupancy rates of Rosewood average 60%, which similarly compares to Four Seasons 64% and Ritz-Carlton’s 66%, however Rosewood averaged significantly higher RevPAR than both the other two corporate luxury hotels.

Rosewood is charging significantly higher rates while selling similar occupancy and therefore experiencing higher revenue rates per guest. The most telling statistic over the three year period is that Rosewood increased their occupancy rate while downsizing the amount of rooms available. Over that time period, Rosewood was able to increase occupancy 5% while decreasing the number of rooms by 346. Four Seasons added 1128 rooms but lost 3% of their occupancy, while Ritz-Carlton added 3521 rooms and had a percent decrease in occupancy.

Chairman of the Board at Rosewood, Philip Maritz, believes that the company is “Underestimating the power of corporate brands as status symbols, and that the majority of the luxury market seems to value the corporate-branded version of luxury. ”(Dev,Stroock) This area is specifically where Rosewood executives are wrong. The individual branding strategy at Rosewood is not a limitation to their market. They exist and thrive in a niche market, where the uniqueness of each property and individual branding has developed and bred the concept of “Rosewood Junkies, who will seek out Rosewood properties exclusively. (Dev,Stroock) Further pursuit and development of this concept is the company’s key to increasing profitability and customer lifetime value. The company should pursue a frequent-stay, loyalty program. According to Market Metrix, “The number of guests enrolled in frequent-stay programs grew by nearly 12% in 2003, and such programs were believed to double repeat business. ”(Dev,Stroock) This would create even more of a competitive advantage due to the fact that neither Four Seasons nor Ritz-Carlton have loyalty programs in place.

A loyalty program would also significantly assist in creating a comprehensive guest profile database that would improve Rosewood’s guest recognition abilities and help promote cross property usage, all of which could be accomplished at a fraction of the cost of a corporate branding strategy. In order to continue to increase profitability and customer lifetime value, Rosewood must continue to use its individual brand strategy as a powerful differentiation tool. Employing a different marketing approach than their corporate chain competitors, Four Seasons and Ritz-Carlton, is what has allowed rosewood to enjoy success.

A corporate brand strategy would dangerously undermine the distinctiveness of each Rosewood property while alienating its specific target market. The company must continue a strong marketing and advertising push featuring lists of all Rosewood properties as a campaign to increase awareness among its prospective and current guests, while maintaining and enhancing the Sense of Place philosophy and strongly pursuing the Rosewood Junkie concept and loyalty program.

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