Cabo San Viejo: Rewarding Loyalty

1. Cabo San Viejo: Rewarding Loyalty Meagan Ayers Mike Hoffman Ashley Barnes Dineshkumar C. Jason Graven Chris Bomer

2. Issue Cabo Can Viejo is now faced with deciding on whether or not to implement a rewards/loyalty program and if so, how to go about making this change.

3. Background • Founded in 1977 in Palm Springs as one of the first wellness centers in the United States • Founder was inspired by his own life changes • Mission Statement – Cabo San Viejo seeks to help people unlock their hidden potential so they can become healthy, happy, and fully self-actualized individuals. • Wellness • Body, Mind, Soul, Relaxation, Weight Loss, Fitness

4. Offerings Cabo San Viejo • Overnight destination resort • Gymnasium, weight training, sports, meditation, skin care, massages, sauna, aquatics, golf, etc… • Wellness lectures; Workshops for stress management, disease prevention, and weight loss; cooking classes, nutritional consultations, and alternative medicine awareness CaboDaySpas • Different business • Focus primarily on pampering, not overnight

5. Customers • 288 maximum, goal occupancy is 270 • Minimum 4 night stay, average $455/day on accommodations and $165/day in services • 3,500 new guests per year, mostly from western California • 75% female • 67% heard of by word of mouth • Relaxation, being healthy, spa treatments, and fitness • 96% rate stay highly • 32% of first timers return in 5-6 years • 62% of repeat customers return in another 5-6 years • Summer is most challenging; reduce rates by 35% and different crowd

6. Marketing and Sales • $2.76 million/year on marketing • $1.32 million/year on advertising • $1.92 million/year on sales • Pricing and promotions, goal of meeting revenue and occupancy targets • Marketing – “Evoke the right emotions so people are reminded that they want to feel good” • Brand awareness (online, print, radio)

7. Competition • New trend in wellness has sparked fierce competition • Day-Spas, Beauty Salons, High End Health Clubs, Cruise Ships, Vacation Resorts • “Competing against everybody because a lot of people only take one vacation a year”

8. Strengths • Very prestigious, one of the best destination resorts in the world • Clientele from all over the world • Staff (personal trainers, guest services, etc.) are all very friendly and well trained • Strong repeat business • Extremely high customer satisfaction ratings • Management capacity and employee dedication

9. Weaknesses • No loyalty program currently • Customer service seemed hit or miss • Extremely expensive • Lower prices in summer attract a less affluent crowd • Company lacks cross-functional promoting • Doesn’t attract the male audience (70-80% of guests are female)

10. Opportunities • Untapped market segments in male and younger demographics • Increase in demand with an increase in health awareness

11. Threats • Heavy increase in competition • High increase in customer expectations

12. Situation • Faced with the decision of whether or not to implement a rewards/loyalty program • Reasons for implementing this system: • Staying competitive • Increase sales • Attract new customers • Increase customer satisfaction and encourage repeat visits • Hope to achieve: • Enhanced customer recognition • Tangible benefits to encourage repeat visits • Privileges for repeat customers to make them feel valued • Acknowledgment of customer loyalty

13. Issues • Must remain highly competitive and offer similar rewards as competitors • A few problems: • Customers are not concerned with monetary rewards, they are interested in recognition and preferential treatment • Cabo San Viejo strives to make every customer feel like the most important customer so giving any kind of preferential treatment is a concern • Customers have high incomes and tastes, rewards must match those tastes

14. Issues Continued • Outdated and incomplete CRM system • CRM systems are not linked between Cabo San Viejo and the CaboDaySpas • Aging customer base, need to attract a younger crowd who now expect rewards systems

15. Barriers • Grandfathering - Outdated CRM system does not have current customers’ complete information, obtaining this information from current loyal customers might be offensive • New CRM system is costly (hours, training, hardware, etc…)

16. Lack of Action • Cabo San Viejo will not remain competitive with competitors who already offer such programs • Attracting a younger customer base will be difficult • Encouraging repeat visits will be difficult

17. Option 1 • Consists of 2 parts: • Implementation of a rewards program for repeat customers at the Cabo Day Spas • Implementation of a customer recognition program at all Cabo San Viejo locationsand would include installation of new CRM system to keep track of customer information and preferences

18. Option 1 – Rewards Program • Would allow customers to receive a 10% discount at the Cabo San Viejo overnight resort in Palm Springs after 5 visits to any Cabo Day Spa • Objective is to get the more price-sensitive customers at the day spas to try the Cabo San Viejo overnight resort • Repeat customers who only visit the Cabo San Viejo overnight resort would not be eligible for discounts (potential negative outcome)

19. Option1 – Recognition Program • Objective is to recognize repeat customers, making them feel valued and part of the Cabo San Viejo family • New CRM system would be implemented that would track customer activity and service preferences • All locations would have access to CRM system and upon arrival at any Cabo San Viejo location, repeat customers would be greeted by name and receive list of recommended activities based on activities they participated in on previous visits

20. Option1 – Recognition Program (Continued) • Repeat customers at Cabo San Viejo overnight resort would receive a fruit basket, flowers and a greeting card addressed to them by name at check-in • Repeat customers would not receive any type of preferential treatment when scheduling activities or services (potential negative outcome) which prevents first-time customers from feeling alienated or in a lower tier than repeat customers

21. Option 2 - Memberships Membership program • Helps to alleviate the 35% price drop during summer months • Helps to provide cross-functional marketing • Takes advantage of first time customers overall satisfaction • Allows company to track which facilities are being used by which customers which allows for Cabo to tailor visits more specifically to the needs of frequent customers

22. Option 2 Reasoning • An extended membership payment plan would guarantee revenue throughout the summer months giving Cabo the ability to lower rates less than the current 35% for first time visitors • By providing a membership that can be used at all locations, some customers may be more willing to visit the resort or one of the day spas providing cross-functional marketing • First time customers may be so pleased with the experience that they sign up for the membership expecting to visit often when realistically they may not, providing revenue not currently present • Allows Cabo to track which customers use which facilities making CRM easier • Provides the ability to tailor visits for the most frequent customers and provide benefits such as fruit baskets because we know exactly how often customers are visiting

23. Option 2-Cons • Membership program • Possibility of a decrease in revenue if customers visit more frequently than the memberships account for • If a customer visits even one time more frequent than their tiered membership, do you charge for the entire next tier? • If a higher tiered member visits less do we refund the money? • Do they charge more for those who visit both the day spas and resort even if those customers visit less than someone who only visits one? • How to “grandfather in” past loyal customers?

24. Option 2-Cons • Referrals • Continuing motivation after rewards have been paid out • Fraud

25. Final Recommendation • Option 1 (rewards program & customer recognition program) is the most cost effective way to increase perceived value • Increases at least 3 of 6 dimensions of value (functional price value, emotional value, social value) of the FandosRoig et al. model • Increases in perceived value lead to increased satisfaction and ultimately increased customer loyalty

26. Functional value installations Functional value personnel Functional value service Satisfaction Intentional loyalty Behavioral loyalty Functional value price Emotional value Social value FandosRoig et al. model

27. Questions/Comments