Cabo San Viejo: Rewarding Loyalty - Case Solution

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 for 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

Cabo San Viejo 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 in 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 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 its 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…