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In 2005, Cabo San Viejo, a top-notch physical fitness health spa resort situated in Palm Springs, California, is discussing whether or not to introduce a person Rewards Program. This case study describes the client management challenges the firm is facing and outlines the different ways that a rewards program may be structured to assist address individuals challenges.
Youngme Moon; Seth Schulman; Gail McGovern
Harvard Business Review (506060-PDF-ENG)
March 10, 2006
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Case answers for Cabo San Viejo: Rewarding Loyalty
Problem Statement – Cabo San Viejo: Rewarding Loyalty Case Study
The management team at Cabo San Viejo (CSV), an elite health and fitness resort in Palm Springs, California, is considering the implementation of a formal rewards program to its business. CSV must first determine if a loyalty program will align with its overall strategy, add value to its current business model, and achieve additional customer satisfaction. If a loyalty program is deemed appropriate, CSV must decide on a reward structure. The following case analysis will provide a situation analysis, determine major strategic alternatives, provide uniform decision criteria, analyze possible alternatives, and, lastly, recommend a solution.
Situation Analysis of Cabo San Viejo
CSV currently serves two primary groups of customers: an aging, core clientele, and a younger, more price-sensitive summertime clientele. Internal customer surveys have indicated a desire for loyalty program initiation. This also aligns with outside evidence that younger customers, in general, find appeal with these offerings.
The high return rate and management opinion point to the fact that CSV already has a group of loyal core clientele. However, company data shows that the year-over-year growth stays plummeted after the year 2000, and overall stays have not recovered to year-2000 levels (Exhibit 1). At the same time, the industry has become saturated with direct and close competitors, some of which have established loyalty programs. Management is currently divided on how to respond to the aforementioned customer trends and competitive environment while at the same time not diminishing the primary value offering.
The aforementioned circumstances along with a decision-specific SWOT analysis indicate that management must find a way to address new customer expectations and respond to potentially harmful trends in order to remain competitive (Exhibit 2). Cabo San Viejo may be able to leverage its reputation and existing customer base to adequately maintain customer loyalty without the addition of a formal program.
Conversely, successful adaptation may require new methods. Thus, CSV must decide if their current method of attracting, retaining, and satisfying customers will remain untouched or should migrate towards matching that of the competition.
Major Strategic Alternatives
Management has decided to further analyze the implications of adopting a formal loyalty program. Before moving to a more rigorous analysis, management developed a list of pros and cons for the status quo alternative as well as loyalty programs with different reward structures (Exhibit 3).
Decide against a loyalty program. The first alternative is to decide against the loyalty program and maintain the status quo. In doing so, Cabo San Viejo will…
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