Pros and cons of Rosewood Hotels consolidating individual brands

Rosewood Hotels

In today's globalized economy, is it better to brand oneself as differentiated from the corporate world, or are there benefits to attaching yourself to a global brand? Many businesses favor a strategy that keeps them separate and different, in order to keep up a more artisan appeal. However, this too has its limitations. This was exactly the problem Rosewood Hotels found itself in when it was deciding whether or not to adopt a more centralized corporate brand strategy. The company had long believed in a more separatist approach, but research was clearly showing this was hindering the organization's success. Thus, the company finally decided to adopt a more centralized branding structure.

There were a number of clear benefits this move had in terms of increasing overall customer retention rates. Being a part of a globally known and respected brand image often helps increase consumer confidence in the brand. It ties other locations to the idea of luxury that is represented in some of Rosewood's more affluent locations. Moreover, such a strategy increases the likelihood that a guest that stays at one location will stay at another Rosewood Hotel. Previously, the guests were "not making the connection between Rosewood properties and increasingly identifying with other strong hotel brands," (Dev & Stroock 2007 p 3). In fact, the year 2002 saw only 5% of customers staying at multiple properties under the organization's control (Dev & Stroock 2007). Changing the brand strategy had proven a successful move by other competing hotel chains, and thus it seemed a positive and progressive step in the right direction.

Yet, the plan was not without some cons. There were also a number of negative ramifications that would impact Rosewood Hotels as well. In the previous strategy, having each hotel carry its own name led to the creation of a very distinct and unique reputation for each location; they were each "trophy properties so distinctive, each could thrive on its own name, without any 'corporate' identification," (Dev & Stroock 2007 p 1). By rebranding these locations, they did loose some of their more intimate, artisan-like appeal, which may lead some guests to look elsewhere in the future. Additionally, there were also increased overall costs associated with changing the branding strategy is also a huge con in this particular situation. The new plan came with a vastly increased marketing budget, needing $1 million annually (Dev & Stroock 2007). There were increased operating costs as well.

By using the Customer Lifetime Value Calculator, one can see the potential benefits for Rosewood Hotels by changing their branding strategy. Previous strategies had led to an unacceptable rate of customer retention. The research showed an average guest retention rate before Rosewood branding was only at 16.67% in 2003 (Dev & Stroock 2007). That same year, guests were spending an average of $351 a night on a room, with 1,513 rooms available (Dev & Stroock 2007). This was with only a 62% average occupancy and operations cost of $217 (Dev & Stroock 2007). Using the Customer Lifetime Value Calculator, one can see that at this rate, the hotel chain was loosing chances to gain more long-term customers. The cumulative retention rate would have decreased significantly over the next six years if Rosewood Hotels had done nothing (Harvard Business School 2007). Five years of the same issues would have left Rosewood Hotels with a 0.1% cumulative retention rate (Harvard Business School 2007). It was clear that Rosewood had to make a decision that would change their overall marketing strategy. Other hotels, which held a more corporate and centered style branding methodology often, seemed to stick in consumer's minds more often with a positive allure. For example, 60% of Rosewood guests held a positive connotation for the Four Seasons (Dev & Stroock 2007). Due to the change, "The number of multiproperty guest stays was anticipated to double to 10% from the 5% rate the company expected during the previous year," (Dev & Stroock 2007 p 6).