Rosewood Hotels Resorts Customer Lifetime Value Analysis Harvard Business School Publishing Brief Case Teaching Note 2088 Teaching Note Software Copyright 2007 Harvard Business School Publishing To order copies or request permission to reproduce materials call 1 800 545 7685 write Harvard Business School Publishing Boston MA 02163 or go to http www hbsp harvard edu No part of this publication may be reproduced stored in a retrieval system used in a spreadsheet or transmitted in any form or by any means electronic mechanical photocopying recording or otherwise without the permission of Harvard Business School Publishing ROSEWOOD HOTELS RESORTS CUSTOMER LIFETIME VALUE CLTV ANALYSIS 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 CLTV Calculation With No Changes to Brand Strategy 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 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 Brand Strategy 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 31 gross margin to obtain increase in Revenue of Rosewood from new brand strategy b 1 million growing at 3 per year allocated to 125 000 guests ROSEWOOD SHOULD BRAND Without Rosewood Branding 2003 growing at With Rosewood Corporate Branding 125 000 750 00 2 0 31 1 3 138 00 150 00 25 919 12500 1 000 000 growing at growing at 8 20 74 125 000 750 00 2 0 31 1 2 130 00 150 00 19 169 5 750 8 15 34 Sourcce Exhibit 8 6 Exhibit 8 Exhibit 8 Exhibit 8 Exhibit 8 3 Exhibit 8 Exhibit 8 3 Page 5 Exhibit 8 2003 150 00 150 00 1 00 150 00 2003 150 00 150 00 2004 2 0 1 2 795 00 1 908 00 591 48 133 90 457 58 1 00 457 58 2004 2 0 1 3 795 00 2 067 00 640 77 142 14 8 24 490 39 1 000 1 080 150 00 349 48 423 69 2005 2 0 1 2 842 70 2 022 48 626 97 2006 2 0 1 2 893 26 2 143 83 664 59 2007 2 0 1 2 946 86 2 272 46 704 46 137 92 489 05 142 05 522 53 146 32 558 15 0 15 75 00 1 166 64 30 0 02 12 29 1 260 9 75 0 00 2 01 1 360 1 48 2005 2 0 1 3 842 70 2 191 02 679 22 146 40 8 49 524 32 2006 2 0 1 3 893 26 2 322 48 719 97 2007 2 0 1 3 946 86 2 461 83 763 17 150 80 8 74 560 43 155 32 9 00 598 84 2008 2 0 1 2 1 003 67 2 408 81 746 73 150 71 596 02 0 00 0 33 1 469 0 22 2008 2 0 1 3 1 003 67 2 609 54 808 96 159 98 9 27 639 70 1 00 1 00 0 21 0 04 0 01 0 00 CLTV Calculation With New Brand Strategy 150 00 490 39 108 72 24 10 1 000 1 080 1 166 1 260 454 06 93 21 19 13 5 34 1 360 3 92 1 18 1 469 0 80 150 00 421 30 71 82 8 977 570 28 959 902 61 2009 2 0 1 2 1 063 89 2 553 33 791 53 155 23 636 31 0 00 0 05 1 587 0 03 2009 2 0 1 3 1 063 89 2 766 11 857 49 164 78 9 55 683 16 0 00 0 26 1 587 0 17
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