Rosewood

Customer Life-Time Value

MKTG 661
Sam Min
CUSTOMER LIFETIME VALUE (CLV)
The present value of future cash flows from a
customer relationship

The CLV calculation requires this information:
Revenue per customer
Variable cost per customer (or retention cost per
customer)
Acquisition cost per customer (AC)
Retention rate (r)
Interest rate (i)


CUSTOMER LIFETIME VALUE:
Rosewood Case
Exhibit 8 Rosewoods Brand-wide Customer Lifetime Value
Without Rosewood Branding (2003)
Total number of unique guests 115,000
Average daily spend $750
Number of days average guest stays 2
Average gross margin per room 32%
Average number of visits per year per guest 1.2
Average marketing expense per guest $130
Average new guest acquisition expense $150
Total number of repeat guests 19,169
Total number of multi-property stay guests 5,750
Average Guest Retention Rate 16.67%

Without Rosewood Branding
t 0 1 2 3 4 5
Rev. per night 795 842.7 893.3 946.9 1003.7
Rev. per guest 1908.0 2022.5 2143.8 2272.5 2408.8
Gross profit per guest 610.6 647.2 686.0 727.2 770.8
Acquisition cost 150
Marketing cost per guest 133.9 137.9 142.1 146.3 150.7
Cash Flow if retained -150 476.7 509.3 544.0 580.9 620.1
Prob. of being retained 1.00 0.167 0.028 0.005 0.001
Expected Cash Flow -150 476.7 84.9 15.1 2.7 0.5
Discount factor 1 1.08 1.17 1.26 1.36 1.47
NPV of Expected CF -150 441.4 72.8 12.0 2.0 0.3
Total NPV 378.4
CUSTOMER LIFETIME VALUE:
Rosewood Case
Exhibit 8 Rosewoods Brand-wide Customer Lifetime Value
With Rosewood Corporate Branding
Total number of unique guests 115,000
Average daily spend $750
Number of days average guest stays 2
Average gross margin per room 32%
Average number of visits per year per guest 1.3
Average marketing expense per guest To be calculated
Average new guest acquisition expense $150
Total number of repeat guests To be calculated
Total number of multi-property stay guests To be calculated
Average Guest Retention Rate To be calculated

CUSTOMER LIFETIME VALUE:
Rosewood Case
Exhibit 8 Rosewoods Brand-wide Customer Lifetime Value
With Rosewood Corporate Branding
Total number of unique guests 115,000
Average daily spend $750
Number of days average guest stays 2
Average gross margin per room 32%
Average number of visits per year per guest 1.3 (c)
Average marketing expense per guest $138.70 (c,d)
Average new guest acquisition expense $150
Total number of repeat guests 19,169+5,750 (c,e)
Total number of multi-property stay guests 11,500 (c)
Average Guest Retention Rate 22% (f)

With Rosewood Corp. Branding
t 0 1 2 3 4 5
Rev. per night 795 842.7 893.3 946.9 1003.7
Rev. per guest 2067.0 2191.0 2322.5 2461.8 2609.5
Gross profit per guest 661.4 701.1 743.2 787.8 835.1
Acquisition cost 150
Marketing cost per guest 142.9 147.1 151.6 156.1 160.8
Cash Flow if retained -150 518.6 554.0 591.6 631.7 674.3
Prob. of being retained 1.00 0.220 0.048 0.011 0.002
Expected Cash Flow -150 518.6 121.9 28.6 6.7 1.6
Discount factor 1 1.08 1.17 1.26 1.36 1.47
NPV of Expected CF -150 480.2 104.5 22.7 4.9 1.1
Total NPV 463.4