Branding of Rosewood Hotels & Resorts : Report

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2087J U N E 1 5 , 2 0 0 7CHEKITAN S. DEVLAURE MOUGEOT S TROOCKRosewood Hotels & Resorts: Branding toIncrease Customer Profitability and Lifetime ValueIntroductionFor nearly 25 years, Rosewood Hotels & Resorts (Rosewood), a private hotel management company, soughtto build a global reputation with iconic luxury hotels such as The Mansion on Turtle Creek in Dallas and TheCarlyle in New York—trophy properties so distinctive, each could thrive on its own name, without any“corporate” identification (seeExhibit 1for brand history). TheRosewoodbrand was muted, unmentioned inadvertising, and known mainly to hotel professionals.However, in early 2004, to boost the company’s growth, John Scott, Rosewood’s new president and CEO,and Robert Boulogne, vice president of sales and marketing, were considering a new brand strategy. AsBoulogne recalled:We thought the time was right to establishRosewoodas a true brand incorporated into the name ofeach hotel and prominently displayed in all communications for and at our properties. This would helpprovide us with a platform for encouraging guests who stay at one of our properties to stay at some ofthe others.But, they wondered how far they could push this branding strategy without undercutting the distinctivenessof each individually branded hotel.Company Profile and BackgroundHeadquartered in Dallas, Texas, Rosewood Hotels & Resorts, L.L.C, was a privately held company,established in 1979 by the Caroline Rose Hunt Trust Estate (seeExhibit 2for biographies of key figures). Thefirst hotel Rosewood managed was The Mansion on Turtle Creek, opened in 1980. This hotel was an oldmansion in Dallas rescued from demolition by Mrs. Hunt, the daughter of Texas oil tycoon H.L. Hunt.Rosewood worked with Hunt to transform the property into a worldclass hotel and restaurant. After successfulconversions of existing hotels (The Mansion on Turtle Creek and Little Dix Bay in the British Virgin Islands),and new builds (The Lanesborough in London________________________________________________________________________________________________________________Chekitan S. Dev and Laure Mougeot Stroock prepared this case solely as a basis for class discussion and not as an endorsement, a source of primary data, or anillustration of effective or ineffective management. Chekitan S. Dev is Associate Professor of Marketing and Brand Management at Cornell University’s Schoolof Hotel Administration. Laure Mougeot Stroock is an independent business research analyst and casewriter working for the School of Hotel Administrationand Cornell’s Johnson Graduate School of Management.This case, though based on real events, is fictionalized, and any resemblance to actual persons or entities is coincidental. There are occasional references toactual companies in the narration.
2087 | Rosewood Hotels & Resorts: Branding to Increase Customer Profitability and Lifetime ValueCopyright © 2007 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545-7685, write HarvardBusiness Publishing, Boston, MA 02163, or go to http://www.hbsp.harvard.edu. This publication may not be digitized, photocopied, or otherwise reproduced,posted, or transmitted, without the permission of Harvard Business School.and Las Ventanas Al Paraiso in Mexico), the company became known for its ability to enhance a property’svalue by creating unique, one-of-a-kind properties with a small ultra-luxury residential style that differentiated itfrom other chain-like luxury competitors.1As of 2003, Rosewood had 12 hotels worldwide, with a total capacityof 1,513 rooms, for which the nightly rate ranged from a low of $120 for one of the Saudi Arabian properties to$9,000 for a Canadian lodge. In the previous year, 115,000 unique guests2had stayed at Rosewood hotels (seeExhibit 3for operating profile).Rosewood competed with two groups of luxury hotels: the corporate branded Ritz-Carlton, Four Seasons, St.Regis, One&Only, and Mandarin Oriental hotels, and the “collections” of individually branded unique hotels,such as Auberge, RockResorts, and Orient-Express (Exhibits 4and5).The Individual Brand/Collection StrategyUnlike the corporate brand model, in which luxury tended to follow (as Scott dubbed it) a “canned andcookie cutter” approach across properties, Rosewood operated a “collection” of unique properties, each with itsown name or brand (seeExhibit 6, Rosewood Properties and Signed Agreements). Each hotel and resortfeatured architectural details, interiors, and culinary concepts that reflected local character and culture anddefined Rosewood’s “Sense of Place” philosophy. Scott explained:What makes Rosewood different is its commitment to unique, one-of-a-kind, luxury properties. Ourbrand compass has always been built on our concept of “A Sense of Place®” which, at its core, meansthat each of our properties seeks to capture what is unique about the given location. From design toservice to programming, we try and tailor each property experience to what is special about a givenlocation, architecture, history, and culture. To this end, our Rosewood design and service standards aremeant to be flexible enough to adapt to local conditions. Our local teams are expected to have somedegree of flexibility and creativity to reflect “A Sense of Place®” from menu design to how a guest isgreeted. This is a very different approach from our chain-like competitors.In the 1990s, Rosewood’s management believed that the individual property brand or collection strategy wasa powerful tool to differentiate Rosewood properties from competitors with a corporate brand. Scott explained:Our original collection growth strategy was two-fold. We sought to convert existing iconic, luxuryhotels with strong brand equity which needed to be re-positioned and re-launched with professionalmanagement (i.e., The Carlyle and Little Dix Bay). We also sought to help developers conceive andcreate the next generation of luxury hotels and resorts around the world, and in doing so create brandequity in the property itself (i.e., The Mansion on Turtle Creek and Las Ventanas al Paraiso).Under the individual brand or collection strategy, the Rosewood hotel marketed itself under its own brandname in addition to participating in Rosewood-related advertising. “The Rosewood branding was soft andmeant to be complementary, not intrusive,” remarked Boulogne. The Rosewood logo appeared discreetly onlow-profile amenities such as clothes hangers or stationery. Higher-profile amenities, such as bathrobes andtowels (which also provided a profitable souvenir business), bore the logo of the hotel. Hotel phone greetingsdid not mention the Rosewood name.21In December 2002, Las Ventanas Al Paraiso’s RevPAR index was 3.62 (the index measures the Revenue per Available Room ofa hotel compared to the ones of its competitors in the same market). The Lanesborough’s was 1.5, the Mansion on Turtle Creek’s was1.96 and Little Dix Bay’s was 1.25.2For example, a couple or family staying in the same hotel room counted as one unique guest.BRIEFCASES| HARVARD BUSINESS SCHOOL
Rosewood Hotels & Resorts: Branding to Increase Customer Profitability and Lifetime Value|2087Through the 1990s, Rosewood’s advertising was property-specific: the property name appeared first, thenthe location. In the early 2000s, Rosewood’s advertising began to feature a list of all Rosewood properties, butthe Rosewood logo remained secondary to the hotel logo.The Limitations of Individual BrandingIn April 2003, John Scott, who was the director of acquisitions and asset management at a private real estateinvestment group and a Rosewood board member, was asked by the Board to become CEO and help chart anew direction for Rosewood. He recognized that the Rosewood brand had low recognition and brand-wideusage among guests and was an untapped asset.Scott and Boulogne concluded:Our emphasis on individual property brands was not working from a number of fronts. While guestswere seeking a unique Rosewood property experience and product, they were not making the connectionbetween Rosewood properties and were increasingly identifying with other strong hotel brands.Competition in the luxury hotel segment is intense and it was becoming difficult to position Rosewood’scollection of properties in an increasingly crowded field of luxury operators.Philip Maritz, chairman of the board, went further in questioning Rosewood’s individual brandingpositioning: “I think we are underestimating the power of corporate brands, such as Four Seasons, as statussymbols. At this time, we are after only a subset of the luxury market—the sophisticated customers who valuethe distinctive, exclusive ‘collection’ hotel—when in fact the vast majority of the luxury market seem to valuethe corporate-branded version of luxury. Our current brand positioning substantially limits our market.”The Case for Corporate BrandingRosewood Hotels & Resorts had very low brand awareness with its guests. A 2003 report from StrategicMarketing Solutions commissioned by Rosewood showed that a majority of consumers did not know the brand—and the few who did had learned the nameRosewoodfrom their travel agents (seeExhibit 7, SelectedQuotes).In spite of this, Scott had high hopes for Rosewood: “I want to emulate the AmanResorts model and develop‘Rosewood junkies’ who will seek out Rosewood properties exclusively.” AmanResorts was a luxury resorthotel management company with corporate-branded properties located in remote natural settings. Its corefollowers, nicknamed “Aman Junkies,” prided themselves on collecting Aman experiences and generallyrejected the other luxury corporate brands. Aman resorts sold the promise of pure, unadulterated quiet. Itoffered a consistent service formula with healthful, uncomplicated food; Asian-themed spa treatments; and anuncannily attentive staff. Although Aman had only around 500 rooms across 15 resorts in 2003, it countedmore than 100,000 repeat guests.3Inspired by Aman, Scott and Boulogne thought Rosewood could do better.Toward this end, Scott and Boulogne were taking steps to learn more about Rosewood guests’ habits andprofile in order to improve Rosewood’s guest recognition capabilities and promote crossproperty usage. Thecompany, which had been manually collecting guest data from its 12 separate hotel management systems, hadjust switched to automated data-gathering through its central reservation system (CRS), and was creating oneglobal, flexible data warehouse for all its hotels. Boulogne explained:Our traditional guest-recognition service was to provide a guest with, for example, a specific type ofpillow upon arrival. Now we are also able to track the repeat factor for that guest and how much theyspent on room, food and beverages, and activities for stays across all Rosewood properties. In the not-so-distant future, we will combine this data with specific guest preferences provided by the guest into acomprehensive guest profile to be housed in our global data warehouse. With this, we will have theability to expand our customer preference program across the entire brand.43Jonathan Gregson, “Loyal Beyond Reason,”Financial Times, June 11, 2004.4Ultra-Luxury Segment Stays Strong in $525 Billion Travel Industry. Rosewood Hotels & Resorts Consolidates Global Guest History to Target10% Increase in Repeat Business from World’s Traveling Elite,” www.hotel-online.com. September 30, 2003.HARVARD BUSINESS SCHOOL |BRIEFCASES3
2087 | Rosewood Hotels & Resorts: Branding to Increase Customer Profitability and Lifetime ValuePreliminary results from an analysis of consolidated guest data revealed that, although some propertiesenjoyed return visits of up to 40% of guests, only 5% of Rosewood guests had stayed in more than one ofRosewood’s properties. Such low percentages were typical of the luxury hotel segment, where the expense pervisit was high, loyalty was typically property-specific, and therefore the number of visits per year was usuallyonly one or two. While the proportion of repeat guests at a single property could reach 40%,5the individualbrand or collection hotel brands typically had 5% to 10% multiproperty cross-selling rates6while corporate-branded hotels enjoyed 10% to 15% crossproperty usage rates.7Rosewood was at the low end of the scale andmanagement felt there was an opportunity for increasing cross-property usage.To encourage guests to use more than one Rosewood hotel, two possible approaches were considered. Onepossibility to boost Rosewood’s customer multiproperty visits was to set up a frequent-stay program.8According to Market Metrix—a provider of market research services for the hospitality industry—the numberof guests enrolled in frequent-stay programs (mostly point-based) grew by nearly 12% in 2003, and suchprograms were believed to double repeat business.9But while such programs had proved successful for largemultiple-segment operators with broad geographic distribution, where guests could easily redeem their reward(such as Marriott, Starwood, and Hilton), few luxury hotels had adopted them. Neither Four Seasons nor Ritz-Carlton had point-based loyalty programs, although members of Marriott Rewards could redeem their points forstays at RitzCarlton. In March 2003, Leading Hotels10was the first luxury hotelier to offer its frequentcustomers5A 40% return visit rate meant that if 10,000 guests stayed at a “Hotel X” in a given year, 4,000 of those guests had stayed in Hotel X within theprevious year.6A 5% multiproperty return visit rate for a hotel brand which has 100,000 guests in a given year meant that 5,000 of those guests were guestsreturning to the same hotel brand, but to a property different from the one they visited the previous year.7Cross selling rates for Orient-Express Hotels, for example, was 5% to 10% in 2002. See Francis X. Frei, “Orient-ExpressHotels,” HBS Case 603-024 (Boston: Harvard Business School Publishing, 2002), p.5. Cross selling rates for Four Seasons Hotelswas 9% in 2000. See Roger Hallowell, “Four Seasons Hotels and Resorts,” HBS Case 800-385 (Boston: Harvard Business SchoolPublishing, 2000).8Loyalty programs in the hotel industry were either based on points (guests earned points, based on spending or stays, whichcould be exchanged for rooms or other benefits) or on guest recognition (guests’ preferences were captured, retained, andcommunicated throughout the brand and utilized to enhance future visits).9“Market Metrix Announces Fourth Quarter 2003 Hospitality Index Results: Membership in Frequent-Stay Programs DoubleRepeat Business,” Hospitality.net, Industry News, February 3, 2004.http://www.hospitalitynet.org/news/4018442.html, accessed on04/22/2007.10Leading Hotels of the World was a hospitality organization that provided sales, marketing, and other services to luxury hotelsand resorts. Besides Rosewood, Leading handled reservations for over 400 hotels worldwide, including the Mandarin Oriental and thePeninsula hotel brands.BRIEFCASES| HARVARD BUSINESS SCHOOL
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