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Branding Strategy - Case Study

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Video 1

The case that we are going to discuss is on Redwood. It is a hotel channel ─ a hotel chainand how they have used customer lifetime value calculation in their decision making is something that we will be discussing. So, what is so, actually it should be Rosewood sorry. So, what is Rosewood? Rosewood
is an international hotel and resort management company which is there in the market for last 25 years. It is privately held and the number of key executives, so, there will be lots of CEOs and CFOs key executives are there who are handling in multiple part of the company. Small numbers of properties are there. So only 12 properties are there and 1513 rooms are there.So, this is a company if you have gone to a place called let’s say, Taj Palaces if you have gone to any one of the Taj Palaces or let’s say, in Bangalore if you have seen Leela Palace, so this particular company is something like that. What they generally do is to acquire old and heritage sites, heritage buildings. They acquire those buildings even Great Eastern in Calcutta if you have known that, that will be an example of like this. So,
these guys acquire heritage buildings, transform them to hotels and then they actually try to attract the customers. Now, the difference is that the hotels are very, very much ─ if you have acquired let’s say, Great Eastern if I am talking about Great Eastern in Calcutta. Great Eastern is very much associated with the colonial history of Calcutta. So, how British came in and how they have established, what kind of the food in that thing is: Bengali or colonial or western or the all the architecture is English architecture, the interior design is English interior design. So, it has their colonial, I would say a colonial shadow on it. On the other hand if I talk about let’s say, Taj Palace which is based out of, based out of Rajasthan which might have a Rajput history. So, or every there will be lots of swords probably spears and
shields and then there will be big big pictures of some Rajput kings. And there will be pictures of wars going on between Rajputs and Mughals and Rajputs and somebody else. So, all of this grandeur will be there, grandeur which is related to the kingliness rather than related to the colonial history. So, when you go in Great Eastern and when you go in Taj Palace which is based out of ─ any Taj Palace which is based out of Rajasthan. The expectation that you will have in your mind will be very different. Now, when this particular company has acquired such 12 properties, each property will have around 100 odd rooms. So, that gives around 100-120 rooms. So, that gives around 515-113 rooms, but majorly these properties were focusing on the luxury segment. So, luxury segment means people who are willing to pay a lot for this kind of an experience. And the properties were heterogeneous. That is the thing that we are going to discuss together. Every property were different the history were different, the service expectation in that particular property were different, the employees were also trained differently.Because if I have an employee who is well known about the Rajput Gharana and he
comes to Calcutta and gives a, and I he is put in this great eastern and I ask him that you have to serve English food or you have to serve this food that food. And you have or you have to treat the guests as if they are in the colonial time and they are having that kind of an experience. Then there will be a clash in the mind because this person is trained in a different way. There can be some people who are trained in hotel management, but not every people will be trained in hotel management in such a depth that they will have the cultural flavours also. Certain cultural flavours are very much specific towards that particular place and you cannot pick up a person who is culturally associated with that place and put in another place and then ask him that even here you have to be culturally associated that is not possible always. So, that heterogeneity of the properties were there and because the properties were heterogeneous; their management was also different; the management also were dealing with this properties differently. They did not want to come together and bring in a similar kind of procedure in all the properties that they did not want. So, if I just talk about hotels there are corporate chains and there are individually branded hotels. So, what are corporate chains? For example, one classic example will be like, individually branded hotels is like Leela Palace. You will not get Leela Palace inmultiple places Leela Palace is there in Bangalore. So, like great eastern is also there in Calcutta. So, these are basically individually branded hotels. But you will get, let’s say, Taj Vivanta or let’s say, some park hotel that these kinds of hotels you will get in multiple cities. So, the now Marriott let’s say, Marriott is something that will get in multiple cities. So, Marriott, Taj, Vivanta these cities were hotel chains where the average daily rate is low, low means it is lower than individually branded hotels. So, the individually branded hotel will be around let’s say, 15,000, 20,000 rupees per night, these guys will be around 10,000 rupees per night. And the occupancy rate is, that is why because the rates were lower the occupancy rates were also higher. There are multiple reasons of this high occupancy rate of corporate chain and relatively low occupancy rate of individually branded hotels. And as we come slowly I will be discussing about why this was happening, why the two different kind of hotel chains or hotel and resorts industries ─ two different kind of business models have different occupancy rate. So, to give a picture about what was the case: If you see carefully that the blue line, this one is Rosewood whose ADR was highest; so up to a rate of around 350 up around 370dollar per night. So, 370 dollar per night means in India’s currency it will be around 25K something like that. So, that was something that was Rosewood’s case. On the other hand if I check the Ritz Caltron. Ritz Caltron is around how much ─ 220, 220, 225. So, 220 will be around 15 k in India’s price so that was a difference if you can understand. That was a difference between two; so obviously, that will impact the occupancy rate. And if I just talk about the occupancy rate, Rosewood’s occupancy rate was lower, but
still it was growing. So, in 2001 when this particular, so in 2004 onwards this particular case was written. 2001 it was around 55% it went up to 62% and then probably 63% something like that. On the other hand Orient hotels; Orient Express hotel occupancy came down from here to here to here it came down slowly. Though this particular this Orient hotel actually it came down because they have increased the price. So, if you see here it was around 220 to they have increased it to or two from 250 or they have increased it to around 350. So, that’s what they did actually and that is why the occupancy rate also went down. And the other middle one more or less remains same. So, these did not change much this two probably a little drop for four seasons, but it did not change much. So, there is this is the current situation that you can see that though they were keeping out the similar kind of price. Though this Rosewood has not changed the price the average daily rate was more or less same their occupancy rate was going up. So, then
where is the problem then if your occupancy rate is going up then it is happy, we should be happy where is the problem. This is the revenue per arrival I think. So, you can have a look, but let us come up to the problem.

Video 2

So, what was the problem? So, before I come into the problem let us talk about the Rosewood’s branding strategy. So, as I told that each of these it has 15 properties or 12 properties and each property were individually branded. Individually branded means that is where I was talking about, what I was talking about in the last class. So, in the last class if you remember I talked about umbrella branding here. And I told that there are certain brands which are under umbrella brand. But which does not require the help of the mother brand and these are, this is the Nestle is the mother brand and these are the sub brand. And sub brands itself are very strong enough they don’t need the help of the mother brand. But here in case of Tata this is the mother brand this is the sub brands, but other than Titan and Tanishq probably all other guys like TCS and Tata motors and Tata steel will require the help of the mother brand while or let’s say, Tata Power or let’s say, any TataProjects all of them will require the help of the mother brand when they are doing
branding. Now what kind of branding strategy is right for which kind of company is something that we will be going trying to discuss now. So, just think about this thing that if you have checked in Nestle Maggi’s case: this is
how it is written Nestle and then Maggi this is how the packet looks like or even in KITKAT you will say Nestle and then KitKat something like that will be written. So, here this is called this kind of branding strategy is called individual branding strategy where the mother brand is not giving getting prominence and the individual brands are getting prominence On the other hand if I say that, if I show a Tata’s this thing or Tata’s logo something like
that I forgot and then if I write Tata Steel that is I am trying to focusing on this Tata part not the steel part or Tata Power I am focusing on the Tata part on the power part Tata Metallic’s I am focusing on the Tata Power Tata part not the metallic part. So, all of these branding strategies when we do this kind of a thing is basically a strategy where we are not doing individual branding we are doing umbrella branding. We are actually focusing on the umbrella we are giving importance to the umbrella we are not giving importance to the….So, initially what this company had this Rosewood had had was something like this. Let’s say, I have if I write Taj Palace Rajputana and let’s say, Taj Palace let’s say, Shivalika or something like that let’s say, anything related to Shivaji I am not…. So, this will be this will related to Maharashtra, this will be related to the Rajput history and the historical facts based on these two groups will be different. And the prominence, the things that you will give more importance to are different because the cultures are
different. And if the cultures are different then you want them to be different brands. So, that a person goes to the Taj Palace Rajputana will get the flavour of Rajput history, a person goes to Shivalika or I could not create a name, but you can create a name like that there we will get a Marathi history or Shivaji’s history we will come to know and those kind of a experience you will get. So, similar thing were done by this Rosewood it used an individual branding strategy for unique properties. So, each property had it is own personnel branding strategy that’s why the ads were also property-specific. That is why there was no countrywide ad very localized ads were there.
Soft branding of Rosewood name, that the soft branding means the one that I have just showed the Rajputana or the Nestle name is small and the other name is big so that is soft branding. So, the Rosewood name was soft branded there was a sense of place. Sense of place means whatever this place is talking about you can go in and actually feel that particular
thing that you can feel that this place is talking about everything about Rajput history or this place is talking about everything about colonial history of Calcutta so that sense of place was there. Flexible service and product standards: so each and each any each hotel was given flexibility in terms of what kind of service and products will be given and at what standard what price and margin was pretty high. So, they were actually targeting only
those customers who will love that experience.So, if they love that historical heritage experience only then they will be coming to these things. So, that’s why, the margin that they could keep was pretty high and still they were getting pretty good occupancy rate. What was the result? The result was they had a very small niche market. So, small means, the total customer size was 115000, and these were majorly wealthy section, they could spend 750 dollars average daily means ADR is 350 dollar if you remember 350
was average daily rate of the room. Outside the room also they can spend another 400 dollars every day that was the condition. And average revenue per guest that is why they used to stay 2 days at least when they in an average when they used to visit. So, the average daily rate is 1500, but the problem here was that the customers were not very loyal. So, how many times will you go to, go to this Taj Palace Raputana? If I already have that experience once you might not want to go back to that experience again. Because often times we want to just have, we are let’s say, if I am a history lover I will go here and a wealthy history lover then I will go here and then next time I will go to some other place where the history is there. So, it becomes like a tick in my travel folder that I have gone to Rajasthan. So, that’s why that retention rate or the repeat customer was very low only 17 %. And multi property customers were further low 5%; that means, a person who is who likes the Rajputana history might not be interested in the Shivalika history or the Colonial history.There will be very few people who is actually history lover and might go to multiple properties to have the sense of history in the multiple properties. So, that was a major problem. So, if your repeat customers are low, if your multi property customers are low then every
time you have to do new acquisition there is no customer lifetime. Because every, nobody stays nobody gets connected with your overall chain and practically frankly speaking. If you come to know unaware of Rosewood brand nobody even know your name they know the properties name, but they don’t know your name they don’t know that Taj Palace Rajputana and Taj Palace Shivalika is both are Taj Palace. If you soft brand Taj Palace in this case if you soft brand Rosewood very low and majorly focus on the ─ which actually Taj Palace is not doing they are focusing on Taj Palace and not on the; not on the Rajputana or Shivalika part which is good. But Rosewood did wrong, is that if you focus on the individual brands too much and if you
don’t focus on the mother brand then nobody will know that these two properties are coming under the same property managing or same resort chain. And I can actually expect certain kind of historical thing here also and if that is not known customers becomes very much loyal to the individual brands and that loyalty also is 17 %. But multi-property customers becomes much, much lower only 5% and Rosewood brand awareness was only post through travel agent nobody nowhere else because the ads were property specific as it was told in the second line. The majorly the ads were focusing oneach property rather than the Rosewood brand. So, there was no, for example, let’s say, what is let’s say,; let’s say, have you seen that the Kerala tourism gives an ad which is like Gods Own Country. So, when they give an ad on ‘Gods Own Country’ or Gujarat gives an ad on ‘Kabhi to Aao, Padharo Mere Desh’ [FL]. These kinds of as I am not talking about a particular
location like Munnar or Alleppey or somewhere else they are not focusing on a particular location they are working on a overall brand called Gujarat or overall brand called Kerala.So, rather than that, if people only focus on small, small brands which are individual brands like in West Bengal we focus on Darjeeling. So, we do not focus on West Bengal as a brand that which becomes, oftentimes detrimental. People think that okay, what to,
if you ask somebody from outside majority will do a survey majority will say that in Bengal, we will go to Darjeeling. So, Darjeeling is the only place which is known for Bengal for it is travel which attracts lots of people and obviously, the Calcutta because that is the central. But outside Calcutta and Darjeeling there are so many travel places people from outside will not know because that umbrella branding has not been done which Kerala and Gujarat has done pretty well. So, that kind of a thing was also happening here that the umbrella branding was not available. So, that was the business problem. Now, question comes is how to solve it with how to solve it. So, one way of solving it is to do the umbrella branding to do this corporate branding. Somewhat there are certain pros and cons of this individual and corporate branding also. The pros of individual branding is obviously, you can differentiate from luxury brands, you can differentiate from Ritz-Carlton, Orient express and say that we are a special kind of brand. And individual branding provides higher ADR you can charge more as you told the margin is high. So, you can charge high price still occupancy rate will be high and the brands are already well established you don’t want to kill the brands. But what are the cons? Obviously, as just told deter multi-property cross selling ─ cross selling does not happen. And brand positioning is very narrow you don’t create an overall brand positioning your brand positioning is too much focused on that particular location. On the other hand, if you do corporate branding whatever is the cons of individual branding goes to the pros of corporate branding and whatever is the pros to the individual branding comes to the cons of the corporate branding. Just see that encourage cross sell operation economies of scale can be achieved because lots of people come you can get multi property customers now and marketing cost willreduce. So, you don’t have to acquire customer every day one customer will stay for your multiple properties. But the problem is it needs consistency which is a nightmare if each of your hotels are different hav,e different culture, different kind of organizational culture also. So, to break them everything and bring into a same standardized way becomes very difficult. So, it needs consistency. Dilemma with uniqueness and individuality there is always there will be a fight between the uniqueness of one property and individuality of that property and with the corporate branding. Corporate branding may deter some customers and managers because those customers were majorly focused on that particular history or the managers were majorly focused on that particular organizational culture. While it was more focused on the history of that particular or unique aspects of that particular property those people will not be happy and there will require significant investments. So, this is the last point, which is most important point ─ that what is the cost if I want to still bring in the consistency if I want to still bring in uniqueness and individuality and blah blah blah. What will be the cost of this corporate branding and whether after doing that whether it will be worth to do that or not. So, that kind of a problem was coming in. So, this problem that I was I am discussing till now can be solved using something called CLV calculation which we have done in the last class. And in the next video I will be coming up with the CLV calculation of this particular problem.

Video 3

So, this particular thing has been taken from a case where different ─ the information’s were collected from the different exhibits of the case. And the information were like that, if you have without branding, if you do not do branding this much was; this much was the number of unique guests and if you do branding by then this is the number of unique guest also.But what happens is, the average daily spend is 750, it was there and it is growing at a
pace of 6% ; the number of days average the stay is 2, average gross margin per room is 32, because that’s what it has been told there. But what happens is that average number of visits per year per guest goes up slowly when you do corporate branding. Because they come back, there is a repeat customer
that comes up that is something, so which is not very high 1.2 to 1.3. And average marketing expense per guest here is 130 and here is you can see the
calculation; it is basically, basically this extra 1000000 will be the cost of corporate branding. So, 1000000, if it is the total cost of corporate branding and I have 115000 customers; so the extra cost on marketing is 8.7 rupees or dollars per customer. So, that gets added and that is growing at a 3% rate; because you have to keep on doing, as I told in a corporate branding strategy; if you have to keep on doing the branding, the marketing expenditure will go on and happening. An average new visit is same, total number of repeat customer these goes up. So, the repeat customer ─ so not only the stay of the customer goes up, average number of visits of one customer goes up,but the number of repeat customers also goes up; how much? 5750 additional multi-property guests from corporate branding adds up to this.So, that is how it changes. So, what is the total number of multi-property guests? In this
case, it was 5750, these becomes 10% . So additional is how much, another 5750. And discounting rate we have assumed to be 8% and average retention rate also goes up by 5%. So, in initially, it was 16.67, it was 21.267. So, this is a con that your marketing expenditure is going up. But the pros, is the average visit is going up, the multi-property guests are going up and your retention rate is going up. Let’s see after doing this whether we will be in a positive position or in the negative position. So, the first thing is we will calculate the customer lifetime value for when there is no corporate branding. So, when I take these things as my result. So, how many number of
stays? So, in the first year you acquired the customer ─ in year 0 you acquire the customer and you don’t do anything. So, what is the cost of acquisition? The cost of new guest acquisition is 150, so I will write 150. Next year onwards you do not acquire the customer anymore, because it is already there with you and I assume that the customers lifetime is 6 years; this is an assumption that I am making based on my idea, you can reduce or increase as a the customer lifetime. Then what is the annual marketing cost? The annual marketing cost if you see here, it is written 130 and growing at a pace of 3%.So, here the first year there is no marketing cost, in year 1 there is 130 is the marketing cost and that goes on increasing at a rate of 1.03, okay. So, this is the cost. Now, come let’s come on the benefit part, how much? So, first year I am acquiring the customer, so it is 0, no nothing here. The second year, the number of stays number of nights per stay is 1.2 and number of
stays per guest ─ no actually 2. This is 2 and this is 1.2. And what is the revenue per night? It is 750. So, what is the revenue per customer? That is basically this into this into this that’s the revenue. And what is the gross profit then? The gross profit is basically 32% margin is there; so, this comma 0.32 that is my gross profit. Now, the nights, number of nights per stay is it
going up? No, it is not going up, nothing is written here; so I will keep it 2 for
everybody. Next question is, guests visit is also remaining same; this 750 is growing up at a rate of 6 % , so that becomes 1.06. And I get this revenue; so what? So, these things will be same, this is basically the multiplication of these three terms; this is basically the multiplication of these three terms and so on and each will have a 32% margin, I don’t think the margin also changes, it is remain same, so 32% margin.So, this is the, so this is the net money that I generate from his stay and this is the acquisition cost and I am at this moment I think that the referral and up sell and down sell will be same for both the third type of customers. So, what will be the cash flow if
retained? So, first year you are making a loss, second year onward you are making some profit, right? So, what is the probability of getting retained, retention rate? So, first year I in, I actually incurred these acquisition costs; so this is 1. And then I second year 1 actually, year 0 I incurred the acquisition cost, year 1 they all stay with me, because that is how I will calculate, the second year is also 1. But then third year onwards only 16.67 customers
stays with me, yes. So, this multiplied by 1667 and then I drag it. So, then what is the expected cash flow? Expectation is the number of cash flow into the probability. So, this is the expected cash flow; this becomes 0, because the probability that this guy will stay after 5th or 6th year is very low. So, practically, I can remove these two columns, anyways, I will keep it for now. So, what is the discount factor? The discounting factor means, what will its 8 % . So, what I will do is? I will do this is 1.08. No this year it is 1, second year it is this into 1.08 and so on; and this value 1.08, 1.082 , 1.083 and so on, this value will be divided. So, the net NPV is basically a sum of all these NPV. So, net present value for one customer, when we do not do this calculation is 345 dollars. So, that’s how we get it in this condition. Now, I have to do the same comparison. Now, if you remember, we are not talking about
multi-property guests; this multi-property guest is going up because of this thing, this 1.3 is coming from there actually. Because, there this multi-property guest initially is how much? 5750 was the number of multi-property guests, these has gone up by 10 % . So, total number of repeat customers is this, but these two values are not being taken into account currently in the calculation purpose. See there was never I took this 5750; but and 169 ─ 19169, these two is not taken into account. Even after that, even not taken into account whether that helps is something that I will be trying to check. So, here how much is the acquisition cost? Same 150 and what will be the marketing cost? Okay. So, I will put it here, the marketing cost is, if I am not wrong it is 138.7 growing at 3% , so 138.7 and that grows at a 3% rate. And what will be the cost here? First nine nothing, second nine onwards 2 comma 1.3 so, I will just copy this, let’s. So, copy and paste. And this will be 1.3, instead of 1.2 and 750 is the expenditure; yes 750 is the expenditure. So, the rest of the things will remain same; that is, from the things will remain same. So, this is my expenditure, this is my gross income and this is my marketing expenditure. So, what is the retention? So, if I just copy this values and paste it here; just to, so that this is ─ these are the values, basically, this is nothing but 6204 minus 0 minus 139, this is nothing but 661 minus 0 minus 143. These values are here rounded up and this is not rounded up; that is why it is coming like this, but actually the values are I got. And what is the probability of getting retained? Instead of 61.67, this should be 21.67 % . So, that improved. So, this is 21.672, this is 21.673 and so on. So, that gave me these values. So, which is nothing, but cash flow into the probability, cash flow into the probability and so on an the discounting factor remains same. So, this is my total NPV and if I just calculate it; if I calculate the sum, yes sum comes up to be 422.