The transformation from an individual brand to a corporate brand increases the value of Rosewood. This will reduce the risk associated with individual branding.
“To understand the concept of customer lifetime value (CLTV) and the importance of maximizing a customer’s lifetime value for the firm; learn the components of customer lifetime value and how each component can be estimated; calculate customer lifetime value based on a combination of financial and non-financial data, and explore risks and opportunities associated with corporate branding vs. the branding of individual products.”
Here, the component used is the total number of unique guests, average daily spend, number of days average guests spend, average gross margin per room, average number of visits per year per guest, average marketing expense per guest, average new guest, acquisition guest, the total number of repeat guests and the total number of multi-property stay guest.
Customer life time value of the individual brands of Rosewood is calculated as follows.
Customer lifetime value = m[r/(1+i-r)]
- m is the average gross margin = 32
- i is the discount rate = 8
- r is the customer retention rate = 16.67
CLV = 32 [16.67/(1+8-16.67)] = – 69.54
Average marketing expense per guest = [(total number of guests *average cost of marketing /guest at 2003) + $1000000]/total number of guest
= [(115000 * $130) + $1000000]/115000 = 1495.13
Total number of repeat guests = 5750
Guest retention rate =number of repeat guest/total number of guests
= 5750/11500 = 0.5
Therefore, customer life time value of corporate brand of Rosewood is calculated by using the formula
Customer lifetime value = m[r/(1+i-r)]
- m is the average gross margin = 32
- i is the discount rate = 8
- r is the customer retention rate = 0.5
CLV = 32 [0.5/(1 + 8 – 0.5)] = 1.882
From the above calculation, it is clear that the lifetime value of the corporate brand is greater compared to the individual brand. So, the move to corporate branding adds value to the firm.