MKT 502

Cabo San Viejo Case

Saad Ayub Bhatti

Problem Identification:
The main problem faced by Cabo San Viejo is whether or not to implement a loyalty
rewards program where returning guests are offered premium services and care; maintaining
their brand image and surviving against fierce competition along with all the other internal and
external factors currently affecting them.

Problem Analysis:
Currently, Cabo San Viejo faces several issues, both internal and external. Some of the external
threats include a very diverse set of competitors, whereas internally, it is facing certain financial
constraints, issues tied to the unique set of services they provide, problems with their marketing
and sales strategy, as well as creating a balanced customer perception of the high-end health
resort.
Cabo San Viejo has been around for around 40 years now and has a total of 5 properties
including 1 resort at Palm Springs, CA and 4 Day Spas. Cabo San Viejo prides itself on
providing a healthy vacation and therefore must compete with a vast set of businesses. It is
competing with local day spas, vacation resorts, health clubs and vacation cruises all at the same
time, however, this is also remains the differentiating feature for them, as they are the only entity
providing all these services under one roof.
As for the sales and marketing strategies, Cabo San Viejo is yet to find an effective one.
Most of the guests that Cabo San Viejo attracts are affluent, and belong to an elder age group of
the society with over 90% of their clientele being over 35 years old, and this fact does not seem
to be changing anytime soon, since Cabo San Viejo does not market directly to their customers.
Even though 99% of their guests leave positive comments regarding their stay at Cabo San
Viejo, they only get 3500 new customers per year, roughly equal to 10 new customers per day.
Given their capacity of housing 270 guests, this is a mere 3.7%, and with their existing customer
base ageing, they need to dig further into the younger market.
Furthermore, internally some managers think that Cabo San Viejo should not go ahead
with the loyalty program as they want every guest to be treated the same way regardless of the
time they have spent at the resort. They add to their argument by stating that there is insufficient
data available for previous guests and the computer system is outdated, which might lead to
complications in the implementation of such a program.

Strengths: Opportunities:
First movers Possible expansion
Specialized staff Make customers more loyal
Specialized facilities Younger generation
Variety of services offered
Weaknesses: Threats:
Capacity Strong competition
Marketing / Sales strategies Customers expect more and more
Unreliable customer data every time
Outdated system Lower price alternatives available
Alternative Solutions:
Given the problems Cabo San Viejo is facing, one possible solution would be to build a
loyalty rewards program based on a comprehensive database of customers. As a great majority of
their customer base is returning customers, this system can help them keep track of the guests
visits and offer them rewards based on the time spent at Cabo San Viejo, with different points
based on the nature of the activities performed by the guests during their stay. They can also
include the provision of redeeming these rewards at any of the CaboDaySpas which will
encourage their guests to try out other Cabo locations. Adding intangible services like
personalized thank you notes and greetings to show their gratitude along with the tangible
rewards will also help them retain certain customers looking for that extra care. On the other
hand, this program will be costly to implement and might make it impossible for Cabo San Viejo
to extend the same nature of service to all guests and also eliminate the element of surprise from
their special service.
An alternate solution to the problem at hand would be to scrap the idea of a loyalty
program and focus more on the branding of the whole Cabo San Viejo Experience, making it
more attractive to potential customers; at the same time, saving up on their finances from
building a database and extending the same service to every guest visiting their resort. This
would possibly require engaging a new creative team, which would in turn require more funding
to get their ideas across and dig into the not so aware potential customers. This option might not
work well with some guests who expect to be treated in a special manner and are used to the
loyalty programs practiced by the competitors of Cabo, proof of this is already evident in the
case.

Proposed Solution
As they are already in process of upgrading their computer system, and because most of their
customers are returning customers who greatly value loyalty programs, it would be better to
introduce a loyalty rewards program using unique rewards cards. This system would help
identify their top customers, who can then be categorized based on different demographics such
as age, gender, income level etc. This categorization would help Cabo San Viejo to extend
special services to specific guests and manage their expenditures at the same time. The loyalty
program would also force Cabo San Viejo to keep their records straight so that no guest feels
unwanted or less important when they visit their favorite resort. Segmentation of their target
audience would make their marketing and sales work easier too e.g. they can attract millennials
through an effective social media presence or maintain their older customers using personalized
greetings, thank you notes and relevant offers based on their past experiences at the resort.
The program would also result in creating customer equity in a smooth and systematic way
which can be tracked at any time to see if their rewards program members are being treated as
well as they need to be.