Rosewood Hotels & Resorts: Customer Lifetime Value Analysis

Harvard Business School Publishing Brief Case Teaching Note 2088

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 ROSEWOOD HOTELS & RESORTS: CUSTOMER LIFETIM

Inputs

Total Number of Unique Guests

Average Daily Spend
Number of Days Average Guest Stays per Stay
Average Gross Margin per Room
Average Number of Visits per Year per Guest
Average Marketing Expense per Guest (system-wide)
Average New Guest Acquisition Expense (system-wide)
Total Number of Repeat Guests
of which: Total Number of Multi-property Stay Guests
Additional Costs Required per annum
Discount Rate
Average Guest Retention Rate

Increase in revenue per year (%)

Increase in marketing costs per year (%)

CLTV Calculation With No Change

Year
Number of Nights per Stay
Number of Stays per guest (assuming they are retained)
Revenue Per Night
Revenue per Customer
Gross Profit per Customer = Revenue per customer * Gross Margin
Less Cost to Acquire Customer
Less Annual Marketing Cost per Customer
Cash Flow from Customer if Retained

Probability of Being Retained

Expected Cash Flow from Customer

Discount Factor

NPV of Expected Cash Flow from Customer

Total NPV of CLTV

CLTV Calculation With New B

 Year
Number of Nights per Stay
Number of Stays per guest (assuming they are retained)
Revenue Per Night
Revenue per Customer
Gross Profit per Customer
Less Cost to Acquire Customer
Less Annual Marketing Cost per Customer
Less Additional Marketing Cost per Customerb
Cash Flow from Customer if Retained

Probability of Being Retained

Expected Cash Flow from Customer

Discount Factor

NPV of Expected Cash Flow from Customer

Total NPV of CLTV

Increase in CLTV per customer of new Marketing Plan

Multiplied by # of Customers to obtain increase in profit of Rosewood from new brand strategy
Divided by 32% gross margin to obtain increase in Revenue of Rosewood from new brand strategy
b
$1 million growing at 3% per year allocated to 115,000 guests
USTOMER LIFETIME VALUE (CLTV) ANALYSIS
Without With
Rosewood Rosewood
Branding (2003) Corporate Source
Branding

115,000 115,000
$750.00 $750.00
2.0 2.0
32% 32%
1.2 1.3
$130.00 $138.70
$150.00 $150.00
19,169 24,919
5,750 11500 5% without branding and 10% (double of 5% ) with branding

8% 8% exhibit 8 footnote a
16.67% 21.67%

6%
3%

n With No Changes to Brand Strategy

2003 2004 2005 2006 2007 2008
2.0 2.0 2.0 2.0 2.0
1.2 1.2 1.2 1.2 1.2
$795.00 $842.70 $893.26 $946.86 $1,003.67
$1,908.00 $2,022.48 $2,143.83 $2,272.46 $2,408.81
$610.56 $647.19 $686.03 $727.19 $770.82
$150.00 $0.00 $0.00 $0.00 $0.00 $0.00
$133.90 $137.92 $142.05 $146.32 $150.71
($150.00) $476.66 $509.28 $543.97 $580.87 $620.11

1.00 1.00 0.17 0.03 0.00 0.00

($150.00) $476.66 $84.90 $15.12 $2.69 $0.48

1.000 0.926 0.857 0.794 0.735 0.681

($150.00) $441.35 $72.78 $12.00 $1.98 $0.33

$378.49

lation With New Brand Strategy

 2003 2004 2005 2006 2007 2008
2.0 2.0 2.0 2.0 2.0
1.3 1.3 1.3 1.3 1.3
$795.00 $842.70 $893.26 $946.86 $1,003.67
$2,067.00 $2,191.02 $2,322.48 $2,461.83 $2,609.54
$661.44 $701.13 $743.19 $787.79 $835.05
$150.00
$133.90 $137.92 $142.05 $146.32 $150.71
$8.96 $9.23 $9.50 $9.79 $10.08
($150.00) $518.58 $553.98 $591.64 $631.68 $674.27

1.00 1.00 0.22 0.05 0.01 0.00

($150.00) $518.58 $120.04 $27.78 $6.43 $1.49

1.000 0.926 0.857 0.794 0.735 0.681

($150.00) $480.17 $102.92 $22.05 $4.72 $1.01

$461.09

$82.60
$9,498,542
$29,682,943
 2009
2.0 (assuming to be constant )
1.2
$1,063.89
$2,553.33
$817.07
$0.00
$155.23 (for repeat customers)
$661.84

0.00
$0.09

0.630

$0.05
 2009
2.0
1.3
$1,063.89
$2,766.11
$885.16

$155.23
$10.38
$719.55

0.00
$0.34

0.630

$0.22