Rosewood Hotels
CONTENTS I. EXECUTIVE SUMMARY1 II. SITUATION ANALYSIS2 a)Economic Environment & Industry Trends2 b)Organizational & Political Environment3 c)SWOT analysis for Rosewood5 III. PROBLEMS FOUND IN SITUATION ANALYSIS6 IV. STRATEGIC ALTERNATIVES9 a)Corporate Branding9 b)Individual Branding11 c)Selective Corporate Branding12 PROPOSED BRANDING STRATEGY – SELECTIVE CORPORATE BRANDING STRATEGY13 SUMMARY15 APPENDICES16 I. EXECUTIVE SUMMARY Rosewood Hotels & Resorts (Rosewood), known for managing distinctive luxury hotels is considering a new brand strategy.
Rosewood’s concept for each property has always been “Sense of Place”, emphasizing the individual character of each property. In an effort to increase multi-property guest across its 12 hotels worldwide, a new corporate branding strategy is being considered. The new strategy should also not undercut the distinctiveness of each individually branded hotel. In the analysis, Rosewood’s ADR and RevPAR were superior to the corporate-branded groups namely Four Seasons Hotels and Ritz-Carlton (Marriott International). Rosewood also fared better than Orient-Express Hotels, another individual-branded hotel group.
The results make the argument for corporate branding difficult to justify as the current individual-branded strategy places Rosewood ahead of their current competition. The Customer Lifetime Value (CLV) was calculated to assess if the targeted incremental spending by multi-property guests was sufficient to justify corporate branding strategy – with its increased marketing, operational cost and efforts. Analysis showed that the corporate branding strategy yielded higher customer lifetime value of $1,047. 32 compared to $862. 50 for individually-branded strategy.
Considering the probable loss of customer profitability from the iconic hotels after corporate branding and its brand reputation, it is recommended that Rosewood adopt corporate branding strategy to their hotels selectively. Highly profitable hotels should retain their individuality while the less profitable ones can be clustered together and branded corporately. It is also recommended that Rosewood should conduct qualitative surveys to better understand their customers and spending behaviours/patterns. II. SITUATION ANALYSIS
Rosewood Hotels & Resorts (Rosewood) was a privately held hotel management company established in 1979 by the Caroline Rose Hunt Trust Estate. Since its inception, Rosewood prided itself as an ultra-luxury collection of classical hotels each with its own individual personality and positioning. a) Economic Environment & Industry Trends The ultra-luxury hotel segment’s penetrated market demand was valued at $525 billion in 2003. This segment was fronted by corporate branded status symbols like the Four Seasons, Ritz-Carlton and the Fairmont hotel groups.
The potential of this market segment can be deduced from the number of properties owned by corporate branded groups plying in this segment and their corresponding growth in the number of properties from 1996 to 2003. The average growth was 11 properties during the eight year period. On the contrary, the individually branded category that was fronted by the Orient Express and Rosewood hotels only grew by an average of six properties in the same period. The former’s domination in the luxury segment pointed to a higher Customer Lifetime Value (CLV) for corporate branded hotels.
However, it also meant a clear limited penetration rate for new entrants due to established consumer behaviours and the existing monopoly. In addition, the multi-property cross-selling rates for corporate branded hotels were 10% to 15%. That was against the rate of 5% to 10% for individual branded hotels such as the Orient-Express Hotels in 2002. An established brand like Four Seasons saw a 9% cross-selling rate in 2000 already. The multi-property cross-selling rates of the corporate branded hotels provided an added market impetus to invest in such a consolidated marketing strategy.
However, the higher number of properties managed by the corporate branded hotels could have provided a larger base and more similar-styled options for multi-property stays by guests compared to the lower base of those in the individually branded categories like Rosewood. The distinct personalities of each Rosewood property may ironically limit multi-property stays due to each property’s own merits. Thus, Rosewood’s data of 5% guests who had stayed in more than one of its properties may not necessarily be an inferior indicator in relation to that of Four Seasons’ 9% rate.
The corporate branded hotels’ market penetration was also supported by the loyalty programme machinery. The frequent-stay programme grew by 12% in guest enrolment in 2003 according to a research conducted by the Market Matrix. Such programmes could potentially double the rate of returning guests. Even though not all major brands adopted this approach, its existence made it tougher to change consumer behaviours and prevent any new market entrants to present themselves as reasonable viable product substitutes for a major part of the penetrated market share.
Coincidentally, a group with a larger number of properties would also provide a bigger option pool and accessibility for guests to maximise their returns through such programmes. Although John Scott deemed such an initiative as irrelevant to Rosewood’s course, this marketing strategy would still present itself as another level of limiting factor to Rosewood’s entry into the corporate branding arena. b) Organizational & Political Environment Rosewood’s long history of ownership and management of a collection of properties with their own unique personalities was a good reputational foundation on its own.
This was a reputation that was consistent with its brand positioning since its inception in 1979. This made even a deliberate transition into a consolidated corporate branding strategy harder. Rosewood’s growth trend from 2001 to 2003, through its average daily room rate (ADR) from $344 to $351, and RevPAR from $197 to $217 respectively, provided positive financial trend as a track record. This was supported by a similar growth trend experienced by the Orient-Express Hotels during the same period with a similar brand strategy.
Contrastingly, Four Seasons and Ritz-Carlton hotels saw their ADRs stagnating and RevPARs declining respectively in the same period (see Annex 1). Therefore, based on these operating performances, Rosewood’s long established reputation and original organizational brand strategy could continue to be its own growth mechanism without a need for any major shift. John Scott and Robert Boulogne may not have analysed these proven elements sufficiently, and instead focussed too much on the forward business projections like the CLV, which were derived from their own assumptions generally.
Incidentally, Rosewood’s organizational and political dimensions were also reinforced by guests with specific inclinations towards its selective unique brands. The formation of a cooperative by the private owners of The Carlyle in New York for example, further reinforced the consumer behaviours of Rosewood’s original market segment. They believed in the prestige of The Carlyle brand as opposed to a centralised brand which could vastly diminish the status of the property. Any switch from its original branding could lead to the loss of such a market segment.
With Rosewood commanding nightly rates of $120 from one of its properties in Saudi Arabia to that of $9,000 for a Canadian lodge, it may be too simplistic to ignore the value of individual branding for each of its properties across the spectrum. A brand consolidation may lead to an averaging effect on its value, which would have a significant impact on its operating returns. The argument for a corporate branding supported by “Rosewood Junkies” is therefore weak, and has many inherent risks. Finally, the employees of Rosewood had been used to operating under their respective unique brands for numerous years.
This was exemplified by Boulogne’s own admission that the hotel managers had mixed feelings about Rosewood’s brand consolidation. A corporate brand would mean a loss of autonomy in the way the distinct properties were managed, and a limitation in specialized promotional activities. To switch to a corporate brand would therefore imply a fundamental overhaul of Rosewood’s existing operating model. Employees would have to be re-inducted to align to the new brand and there would also be logistical and cost implications on the daily operations of the respective properties too.
With 12 properties in 2003, an annual investment of $1 million may hence be insufficient to execute the brand shift as such. The organizational structure of Rosewood in itself was a constraint to a corporate branding strategy. c) SWOT analysis for Rosewood The following SWOT table summarizes the key elements from Rosewood and its market environmental in relation to John Scott and Robert Boulogne’s vision of a corporate brand. III. PROBLEMS IDENTIFIED IN SITUATION ANALYSIS Item |Primary Problem |Secondary Problems | | | | | |Total # of unique guests |115,000 |115,000 | |Ave Daily Spend |$750 |$750 | |# of days average guest stays |2 |2 | |Ave gross margin per room |32% |32% | |Ave number of visit per year per guest |1. 2 |1. | |Ave marketing expense per guest |$130 |$139 | |Ave new guest acquisition expense |$150 |$150 | |Total # of repeat guest |19,169 |24,919 | | Of which: total # of multiproperty stay guest |5,750 |11,500 | |Revenue |207,000,000 |224,250,000 | | | | | |Ave guest Retention Rate |16. 67% |21. 67% | |Ave Gross Profit per guest |$944. 00 |$1,037. 30 | |Year | |Without Corporate Branding |1 | With Corporate Branding |1 |2 |3 |4 |5 |6 | |Number of Customers |115,000 |24,921 |5,400 |1,170 |254 |55 | |Ave spend per year per customer |1,950 |2,067 |2,191 |2,322 |2,462 |2,610 | |Total Revenue |$224,250,000. 00 |$51,510,673. 50 |$11,832,104. 72 |$2,717,858. 12 |$624,297. 45 |$143,402. 37 | | | | | | | | | |Ave margin for room |$71,760,000. 00 |$16,483,415. 52 |$3,786,273. 51 |$869,714. 60 |$199,775. 18 |$45,888. 76 | |Acquisition expense |$17,250,000. 00 | | | | | | |Marketing expense |$15,985,000. 00 |$3,567,867. 99 |$796,351. 70 |$177,746. 50 |$39,673. 0 |$8,855. 10 | |Total Variable Cost |$104,995,000. 00 |$20,051,283. 51 |$4,582,625. 21 |$1,047,461. 09 |$239,448. 38 |$54,743. 86 | | | | | | | | | |Gross Profit |$119,255,000. 00 |$31,459,390. 00 |$7,249,479. 51 |$1,670,397. 02 |$384,849. 07 |$88,658. 52 | |Discount Rate (8%) |1. 00 |1. 08 |1. 17 |1. 26 |1. 36 |1. 47 | |NPV (Gross Profit) |$119,255,000. 00 |$29,129,064. 81 |$6,215,260. 21 |$1,326,015. 01 |$282,875. 55 |$60,339. 50 | |Accumulate NPV (Gross Profit) |$119,255,000. 00 |$148,384,064. 81 |$154,599,325. 02 |$155,925,340. 03 |$156,208,215. 58 |$156,268,555. 08 | | | | | | | | | |CLV |$1,037. 00 |$1,290. 30 |$1,344. 34 |$1,355. 7 |$1,358. 33 |$1,358. 86 | | Annex 3 ———————– Fig 9. Example of corporate branding Fig 7. Customer Lifetime Value without Rosewood corporate branding Fig 8. Customer Lifetime Value with Rosewood corporate branding Figure 3. Comparison of CLV with/without corporate branding A Rosewood Hotel Fig 10. Example of individually branded hotel 6 9 Table 2. Problems identified in Situational Analysis Figure 1. SWOT Analysis Figure 4. Comparison of Rev PAR of Rosewood and select competitors Figure 5. Comparison of Rev PAR and number of rooms of Rosewood and select competitors Figure 6. Calculation of retention rate and gross profit 16 18 20
