So the first question is: What is Cabo San Viejo’s long term vision? Was the company directing its activities in overall achievement of this vision? The vision of the company was to help people live healthier lives. Initially there was a gap between the operational objectives of making people lose weight by way of low calorie diet and the vision of getting people to live healthier lives by inculcating sustainable lifestyle ways. However, this gap had been bridged but the positioning gap remained. Who were Cabo San Viejo’s targeted customers? Was there any gap between targeted and actual customers?
If we go by the vision statement, anybody wanting to live a better and healthier life was Cabo San Viejo’s targeted customers. These could include smokers, obese men and women, even obese children, stressed couples or singles, workaholic professionals, over worked top executives and managers etc. However, Cabo San Viejo was attracting mostly females (70%-80% of the guests) with an increasing average age over the years, the last average being 57 in the year 2004. Thus, mostly older females were visiting the resort who wanted to indulge themselves and feel better about their body and themselves.
Also, their household income was high. Comparing this with the summer guests, the latter group had less income and was also comparatively younger in population. Thus, we can link the age, income level and affordability. Usually younger people are less wealthy and thus find such vacations expensive. Not only this, the perception of Cabo San Viejo first as a fat camp and then as a boot camp was discouraging people to come there. Also, 67% of guests came through word of mouth indicating that the above line marketing was performing poorly.
Campaigns targeting specific groups of people showing indulgence in activities of their interest like hiking for young crowd, spa treatment for women, consultation for couples etc would be likely to bring out the varied health solutions offered by Cabo San Viejo. What were the needs of the guests at Cabo San Viejo? Was there any gap in meeting the needs or their expectations? The individual needs of the customers varied quite a lot. To understand and cater to the needs of the customers, the company had efficiently trained its reservation staff who helped customers choose the appropriate package as according to their goals and objectives.
The very fact that 95% of the customers rated their experience as either very good or outstanding shows that Cabo San Viejo was operating efficiently. However, if Cabo San Viejo was to target a more demanding and younger customer base in future, it would have to exceed is current delivery promise. The needs have been met but the expectations of repeat customers have not been satisfied some of whom have expressed their resentment for not being rewarded for their continued patronization. Therefore we have recognized: Perception of Cabo San Viejo as a boot camp needed to be changed. •Young customers needed to be attracted. As they had higher expectations and smaller pockets, loyalty program needed to focus on value proposition by means of discounts etc. •Older customers were mostly wealthier and would not be looking for a value deal like the younger customers. We need to firs consider the present loyalty situation in order to determine where Cabo San Viejo stands and how it may gain by implement a loyalty program. What was the loyalty situation?
Cabo San Viejo had around 5000 repeat customers each year which a healthy figure is making up about 60% of the total arrival figure. Around 3500 new guests arrive each year of which 32% revisited within 5-6 years and 62% of repeat visitors returned again within 5-6 years. The primary reason for not returning was the high costs. Here we reiterate that to attract more repeat customers, value must be offered. In order to measure the impact, we first need to understand the reasons for implementing a loyalty program.
Why does Cabo San Viejo need a customer loyalty program? •Retention: One of the primary reasons for most loyalty programs is o retain the loyal customers by appreciating them and the business they generate for the company by making them feel special and good about their association with the company. •Offer enhanced value proposition: A loyalty program which offers a value deal to its customers who need it will get Cabo San Viejo more patronization. However, it is to be understood that not all customers need or expect value deals. Enhanced Satisfaction: Recognition by way of loyalty program makes a customer feel good and thus enhances satisfaction which in turn leads to more positive word of mouth. •Positive Word of Mouth: Around 60% of Cabo San Viejo’s customers called in for inquiry based on word of mouth. •Enhance image as a responsive company: Cabo San Viejo explicitly encourages customers to complain if unsatisfied. It is through such feedbacks that Cabo San Viejo has got to know that customers expect such a program implementation. Whenever a company asks for and receives complaints, it is best to respond or may lead to customer resentment. Counter Competition: If not rewarded for loyalty, customers may switch to other competitors. How much is the desired/expected impact? Having analyzed this, we now estimate the impact. The impact of a loyalty program is usually incremental and observed over a period of time. The expected increase in retention is say, 10%1 over a period of say, 5 years2. Also, people coming from reference is expected to increase over the years enabling the company to cut marketing costs elsewhere. 1The expected retention percentage is found either based on internal company data or industry expert advice.
Here, in the absence of both, we make a rough estimate. 25 years has been estimated as the minimum period to measure impact since most customers make repeat visits within a span of 4-5 years from their last visit. Since our customer segment mainly consists of: •Highly affluent older people (mostly women) with focus on being appreciated by made to feel special as a treat for loyalty •Not so affluent younger people with focus on reducing per visit costs as a treat for loyalty, we would be having different approach to meet the different expectations of the customers.
For this, we propose a tiered reward structure. Before we propose the design, the few things we kept in mind were Quality Offerings (the offering is kept in line with quality perception of services at Cabo San Viejo), Cash Value( to be determined as a percentage of what customer spends on earning the reward), relevance(the reward must be relevant for the customer segment in question), redemption choice, convenience( ability to easily redeem the points) and communication( all participants must be kept well informed) THE PROGRAM A loyalty club card is to be issued to all customers including new customers.
The club cards are to be of three variety depending on the cash amount spent by the card holder. Minimum Cash SpentRewards offeredExplanation $3588(4 Night stay) if loyalty card was sought at Palm Springs or $500(services) if loyalty card sought at Day Spas(since these would represent the profitable customers for a loyalty program)A silver club card is to be issued. In Palm Springs, for every $100 spent on room charges, customer earns 1 point and for every $50 spent on other services (massage, physiotherapy etc. ), the customer gets 4 points. This card will also earn points at Cabo Day Spas where each $50 spent will earn 4 points.
No other frisbies would be offered. Self redeemable only. •$50 chosen as minimum money to be spent as all services of Cabo is higher than $50. •More points earned on usage of other services meant to encourage guests to use varied services. •Cabo Day Spas and Palm Springs program integrated for convenience and for more frequent touch points with the company $5,832(7 Night Stay) if loyalty card was sought at Palm Springs or $1000(services) if loyalty card sought at Day Spas(since these would represent the profitable customers for a loyalty program)A gold club card is to be issued.
In Palm Springs, for every $100 spent on room charges, customer earns 1 point and for every $50 spent on other services (massage, physiotherapy etc. ), the customer gets 5 points. This card will also earn points at Cabo Day Spas where each $50 spent will earn 5 points. Cocktail/Mock tail to be offered as complementary drink on arrival to Palm Springs or A complimentary pedicure/manicure (or such other low cost service) offered redeemable within 3 months at Day Spa only if total spent amount in the last month was $1000 or above. Redeemable by listed family members. It is to be understood that the gold card segment is more profitable than the silver card segment. So it is offered better deal. •Also, the complimentary treatment at Day Spa redeemable under 3 months will ensure a repeat visit. $7788(7 Night Stay) if loyalty card was sought at Palm Springs or $1500(services) if loyalty card sought at Day Spas(since these would represent the profitable customers for a loyalty program)
A platinum club card is to be issued. In Palm Springs, for every $100 spent on room charges, customer earns 1 point and for every $50 spent on other services (massage, physiotherapy etc. , the customer gets 5 points. This card will also earn points at Cabo Day Spas where each $50 spent will earn 5 points. Cocktail/Mock tail and flowers to be offered as complementary drink on arrival to Palm Springs or A complimentary service in the range of $80 offered redeemable within 3 months at Day Spa only if total spent amount in the last month was $1000 or above. Redeemable by listed family members. Besides, a formal program, it is very important that a high degree of personalization is involved in case of platinum and gold card holders which are the most valuable segment.