Rosewood Hotels and Resorts (Rosewood) is an organization that owns and manages a number of boutique and high end properties. However, each location is not tied to the Rosewood name in any way and is currently perceived and marketed as not being part of a “chain” but closely tied with its locale. Now, senior management is considering a new branding strategy that would link all current and future properties to the Rosewood name for brand recognition. The intent is to increase the number of times a guest returns as well as the number of properties that guests visit. Market research that has been conducted shows that if a new corporate branding were to be used, guest’s average number of visits per year would increase from 1.2 to 1.3 and the guest retention rate would increase to 21.67% from the current 16.67%. Additionally, 10% of guests may also stay at other locations which is a 100% increase from the current 5%. As there are risks associated with the proposed new branding, the organization must now determine if the increase in profit will outweigh these risks.
While it is true that the proposed new corporate branding would increase brand awareness, sales revenue, the number of properties visited by each guest and cross-selling potential, the risks must also be examined. For example, the marketing costs would increase, the uniqueness and boutique feel may be lost, employees and customers may be resistant to change, the established cultures would need to be modified and Rosewood would be competing with other well established high-end hotel chains that use corporate branding. Given the above risks, it is imperative that if the new strategy proves to be financially beneficial and is implemented, that the same level of guest service and customer experience be preserved.
Though the marketing expense would increase by $9 per guest, thereby reducing gross profit per guest by $9, the increase in retention rate and number of visits per year would more than make up for this additional expense. Table 1 shows that the corporate branding would actually increase gross profit, based on the number of repeat guests, by $2,602,500. As table 2 shows, the new branding strategy would increase the net profit attributed to the entire future relationship with each customer, or Customer Lifetime Value, by $83 over 6 years.
Once multiplied by the 115,000 customers that Rosewood has each year, it becomes evident that the new corporate branding strategy would equate to an additional $9,498,542 of profit for Rosewood over 6 years. To determine the overall impact of the corporate branding proposal on revenue for Rosewood, the cost of sales must be reincorporated. Therefore, by dividing the $9,498,542 by Rosewood’s profit margin of 32%, Rosewood could expect to see a organization wide revenue gain of $29,682,943.75 over 6 years.