General Information
Cabo San Viejo (CSV) is a health resort located in Palm Springs. It consists of one large resort and four smaller day-spas. CSV was established in 1992, which was considered revolutionary at the time. The number of stays at the Palm Springs resort has continued to rise over the years (see Exhibit 7). An impressive 96% of guests highly rate their experience at CSV, with 62% even exceeding their expectations. Interestingly, word-of-mouth plays a significant role in introducing customers to CSV, accounting for 67% (Exhibit 6). Among those who return after their initial visit, 32% come back within 5-6 years, and out of those returning customers, another 62% revisit within the following 5-6 years (Exhibit 6). It’s important to consider branch-specific data when evaluating these figures.
One concerning factor is the aging demographic within the customer database. Although initially seen as positive, the average age of customers has steadily increased from 47 in the past twelve years to 57 in2004 (Exhibit7). If this trend continues, it could lead to a significant decline in clientele.
In a hypothetical situation, the company may eventually lose all its customers. Therefore, it is crucial to rejuvenate the consumer base. However, a challenge in rejuvenating the customer database is that younger consumers are likely to have less wealth compared to older consumers (As seen in Exhibit 6, during the summer period, the percentage of customers with an average household income over 150K drops from 82% to 59%, while the average age decreases by 4 years). This, coupled with CSV’s focus on a specific price segment, may explain why the average age of consumers continues to rise.
The cost of CSV resort vacations is too high for young people.
Customers are Becoming More Heterogeneous
The increasing heterogeneity of customers is making it more difficult for CSV to serve them effectively. The current customer database of CSV is incomplete, making it challenging to address the diverse needs and preferences of customers. To effectively cater to different customers, a reliable CRM system is essential.
A good CRM system is necessary for implementing a customer loyalty program. The CRM system should provide information on clients so important decisions can be made regarding which customers should be rewarded and how. Next to the CSV resort, there are four day-spas that offer different treatments and health programs. Customer research shows that many day-spa customers enjoy going to the CSV resort for a complete health vacation. However, there are not many customers who go from the day-spas to the CSV resort, indicating a need for improvement in cross-selling. There have also been complaints and remarks about the lack of a loyalty reward program.Returning customers at CSV believe that they deserve to be acknowledged and rewarded for their loyalty. They desire to feel valued and appreciated for their continuous support. According to one customer, loyal patrons like themselves believe that being a returning customer at CSV is not solely about monetary benefits or tangible rewards.
Returning customers are requesting a reward program or similar initiative to make them feel valued and distinguished, yearning for that wow-factor that establishes them as CSV’s top customer. The prevalence of reward programs among CSV’s competitors further reinforces the customers’ anticipation for CSV to adopt a similar approach.
Conclusion
To summarize, CSV should be concerned about the current trend of their customer database. There is significant room for improvement in cross-selling, but the most critical issue is the aging of the customers.
This could potentially result in CSV becoming unprofitable if it loses too many customers. One solution to address this issue is for CSV to implement a rewards program. By analyzing the customer base (chapter 1), it becomes evident that there are numerous challenges that could be resolved. The key priority for customers is to have a delightful and unexpected experience during and/or after their stay. If customers have an extraordinary experience that surpasses their expectations, it will pleasantly surprise them and they will be inclined to come back. Thus, enhancing customer retention can serve as a strategic goal.
If a CRM-system is implemented by CSV, they will be able to collect a considerable amount of customer information. This will provide valuable insights into their needs and enable CSV to approach individuals in a more personalized manner (which is currently challenging due to the heterogeneous nature of their customers).
Stimulating Retention
The issue of an aging customer base at CSV can be resolved by attracting younger individuals to visit. Exhibit 6 illustrates that younger people have less disposable income. Additionally, the primary factor preventing guests from returning is the cost.
Therefore, CSV should offer a discount to customers on their second visit. This will remove the financial barrier that may prevent them from returning to CSV and also provides CSV with another chance to create an emotional connection with the customers. This strategy can be particularly appealing to younger individuals who have limited spending power. Additionally, having a customer visit CSV twice increases the likelihood of developing an emotional bond, which ultimately leads to higher customer retention rates. This trend can be observed in exhibit 6, where the rate of return for “returned visitors” is almost double that of “first-time guests”.
Cross-Selling
Next to the CSV resort, there are four day-spas that are highly popular among customers mentioned in chapter 1. These customers have shown a strong inclination to also visit the CSV resort. CSV can take advantage of this opportunity by implementing a cross-selling strategy. One way to do so is by introducing a points system for customers of the day-spas, where they can accumulate points for free activities at the CSV resort. Every time a customer visits a day-spa for a massage, they earn points. In order to understand the rewards associated with these points, customers can refer to the CSV website or brochure. For instance, if a customer enjoys getting massages, they can earn points towards a complimentary massage at the CSV resort.
This system aims to enhance cross-selling, ultimately resulting in a higher influx of customers at CSV.
Connect Personally
A large portion of customers believe that they should receive recognition for choosing CSV as their destination. They desire a sense of significance and importance. CSV has the ability to alleviate any feelings of being undervalued by implementing small gestures such as presenting flowers upon a customer’s arrival, extending personalized greetings using their name, and providing small gifts throughout their visit. To effectively accomplish these actions, a reliable CRM system is crucial. By collecting and storing customer information, CSV can enhance their ability to cater to the wants and needs of each individual. This will also allow for the establishment of a comprehensive rewards program.
The strategy takes a segmented approach to reward programs, targeting specific customer groups. The programs include a cross-selling program, a program for the relatively young “middle aged” customers, and an enhancement to the existing loyalty reward program.
Cross-Selling Program
The company operates in multiple branches, and they stand to benefit from this through a cross-selling reward program. Customers at CaboDaySpas can take advantage of the fact that they are already visitors to the wellness centers of Cabo San Viejo.
For customers interested in wellness, transitioning to a full-service overnight destination resort is a small step. To incentivize these customers, a point system should be implemented. Upon entrance, customers will receive 1 point as a reward for their visit. If the customer purchases a ‘regular’ activity (with a low/average cost), they will also receive 1 point. Similarly, if they purchase a luxurious activity (with a high cost), they will receive 2 points on their card. Over time, customers can redeem these points for a free activity or a discount at the full-service resort of Cabo San Viejo.
By doing so, the company will be able to attract customers from smaller properties to the more profitable resort.
Program for Young ‘Middle-Aged’’ Customers
In order to address the issue of having a customer base in Cabo San Viejo that lacks younger customers (under 50 years old), a program can be implemented. The company can make the resort more appealing to young individuals and revitalize the customer base by offering a discount to customers under 40 during their second visit. These relatively younger customers may not have the same financial resources as older ones, so providing a discount would make it more affordable for them as well.
Attracting and binding these young people at this stage is wise, as they will be the new 50ers in approximately 10-15 years!
Overall Loyalty Reward Program
The loyal customer expresses discontent with the absence of a loyalty rewards program. Cabo San Viejo must enhance the loyalty rewards program for assistance. It is crucial to prioritize a reliable CRM system. By obtaining accurate customer data, the company can personalize its approach towards both loyal and significant clients.
Cabo San Viejo aims to show their appreciation for customers by sending them gifts on special occasions such as birthdays, 3rd visits, wedding anniversaries, or Valentine’s Day. This initiative highlights the value Cabo San Viejo places on their customers. The cost of these gifts will be determined based on the customer’s spending level. To manage this process effectively, Cabo San Viejo will enlist a specialized company that will handle both the gifts and transportation. The necessary customer information will be obtained from the upgraded CRM system. Furthermore, it is crucial for all staff members (both front and back-office) to adopt a customer-centric approach, treating customers like family and learning from their experiences.
Customers who have visited CSV multiple times can receive a birthday card with a beautiful bouquet. Those who have visited CSV a few times should be rewarded with candles, a health package, or something similar. The program should have three levels, with more valuable gifts for the most loyal customers who have visited CSV more than three times. However, the monetary value of the gifts is not important to most customers, so it is crucial to consider their personal interests when sending a small gift.
By implementing this program, CSV can exceed customer expectations and demonstrate that they are valued and cared for. This will help CSV foster a strong bond with their customers and cultivate a loyal customer base that is more likely to make repeat purchases and have a positive attitude towards the brand (slides class 4, P13, A combined approach to loyalty). Consequently, higher customer commitment will lead to an increased retention rate (currently 32% for first time customers and 62% for second time customers, but aiming for 40% and 70% respectively in 5-6 years). This will ultimately result in higher long-term profits for CSV. Additionally, improving the overall loyalty reward program by personalizing the customer experience with a personalized welcome message on the TV screen upon arrival at the overnight destination.
One way to solve this problem is by linking the reservation system with the resort’s TV network. This simple solution would greatly improve the customer experience, making them feel special and unique. It demonstrates surpassing expectations in a small but impactful way. However, it is important to be careful not to set unrealistic standards that customers may expect in the future. Therefore, we have chosen straightforward yet effective improvements.
