The case can be found in your course pack.

1. Before tackling the Rosewood case, this initial question tests your ability to
compute the CLTV metric and then apply it in a simple breakeven analysis. The data
below show the results of a Starbucks segmentation study. Each column shows the
values for a typical customer in each class (constant over the lifetime of the
customer). The annual retention probability applies only after the first year. That is,
no one defects until after a full year of patronizing Starbucks.

Silver

Gold Platinum

VISITS/MONTH

3.9

4.3

REVENUE PER VISIT

$3.88

$4.06

ANNUAL RETENTION PROBABILITY

0.30

0.50

7.2
$4.42
0.70

a. Assume that Starbucks gross margin is 50% and that its (one-time) customer
acquisition cost is $50. Further assume that Starbucks uses a discount rate of 8%.
What is the 5-year individual customer CLTV for each class of customer? Show your
work on an Excel spreadsheet.
b. Suppose Starbucks is considering an investment of $40 million in their 3500
company-owned North American stores to improve service quality, and thereby,
customer retention. How many customers per store would have to be converted
from Gold to Platinum for the investment to achieve breakeven after five years? (For
simplicity, assume all customer conversions occur in the first year and apply
throughout the entire five-year period.) Show your work on an Excel spreadsheet.
2. Carefully consider Pine and Gilmores article and indicate where you would place
Rosewood on the continuum ranging from commodity to experience. Support your
selection, using both the article and the case. (150-word maximum)
3. Compute the customer lifetime value (CLTV) for a Rosewood patron. Your
customer lifetime value analysis should use the Excel workbookPreview the
documentView in a new window with your assumptions and financial figures from
the case entered into the yellow boxes. Note the two boxes in red at the bottom for
which you will have to create formulas. (Note: do not use the numbers in Exhibit 8
of the case for average number of visits per year per guestthey are inaccurate.)
4. Would you recommend Rosewood Hotels and Resorts proceed with the corporate
branding initiative? Include a brief summary (bullet points are fine) of the pros and
cons. Do not limit your analysis to financial aspects. (250-word maximum)
NOTE: ANSWER QUESTIONS 2 AND 4 IN ONE DOUBLE-SPACED WORD DOCUMENT.
SUBMIT ONE EXCEL WORKBOOK WITH YOUR ANSWERS TO QUESTIONS 1 AND 3. BE
SURE TO PLACE YOUR NAME AT THE TOP OF THE WORD DOCUMENT AND AT THE
TOP OF EACH EXCEL SHEET.