Cabo San Viejo

Rewarding Loyalty
Critical Questions
What are the characteristics of Cabo San Viejos customer base? How
healthy is this customer base?
Should Cabo San Viejo adopt a rewards program?
If the firm were to adopt a rewards program, what should its strategic
objective be? What problem should the firm be trying to solve? What is
the biggest problem facing this firm (in terms of customer management)?
If the firm were to adopt a rewards program, how should it be structured?
On what basis should points be awarded? What types of rewards should
the firm offer?
Objective
To understand the strategic rationale for a
Customer Rewards program
To examine how the structure of a Rewards
Program can affect customer satisfaction/loyalty
dynamics, either positively or negatively (or both)
To develop guidelines for avoiding the counter-
productive customer relationship dynamics that
can result from a poorly-conceived Rewards
Program.
Mutual investment Cycle












































Strategic Rationale - CRM
Enticement for new Customers
By creating a positive incentive to re-purchase
By creating a negative incentive (a switching
barrier) against defection
By creating a sense of emotional affiliation
toward the firm
By capturing information about customers
Rewards Pgm enriched Mutual
Investment Cycle
Types of Reward Programs
Intrinsic Direct Benefits Add value to the
firms core product offering
Eg: Discount card that lowers future purchase cost
Extrinsic Indirect Benefits offering rewards
external to the firms core offering
Eg: Toaster as gift with Bank account opening
Hard Benefits : Tangible, Concrete, Value can
be translated to actual money
Soft Benefits: Less Tangible, More Experiential,
Socio-emotional like Special Privelages, status,
recognition, memberships,
Types of Reward Programs
Correlation of Benefits
How Rewards Programs Backfire
A poorly-designed rewards program can induce
customers to change their consumption
behavior in a counter-productive direction
EG: Airlines Reward Pgm.

It can reduce the profitability of a firms top-
level customers
Eg: New Rule Cheating
Increase in the amount of resentment
customers feel toward each other
Eg: Creation of a Caste system

It can attract the wrong kinds of customers via
immediate hard benefits.
Eg: Price Sensitive buyers on a lookout for a best
deal.
How Rewards Programs Backfire
Customer Rewards Program
Identifying Warning Signs
When the fairness of the program is not
transparent to all customers.
When the rewards program is overly-dependent
on extrinsic benefits
Eg: Do not promote the firms core offering
When the rewards program neglects to make
customers feel personally rewarded
Eg: Rewarding by way of core offering-Hilton Hotels
Pros & Cons of Different Benefits
What are the characteristics of Cabo San
Viejos customer base?

How healthy is this customer base?
Customer Base
Customer retention
Return Visitors: 60%
Core Contingent First timers dont return
Customer Acquisition Age 47 to 57
Synergies across properties
Customer database

Should Cabo San Viejo adopt a rewards program?
If the firm were to adopt a rewards program, what
should its design?
Design Reward Pgm
How to award points?
Single 20 night visit vs 5-four night visits
Are both equally valuable ? Which customer to
have?
What negative customer dynamics are
associated with reward types?
Objective of the reward program ?
Step Outside the case
Own Experience :
What do you dislike about such pgms?
Which Pgm do you dislike the most ? Why ?
How does it effect your attitude towards the firm ?
Which Pgms do you like ? Why ?

Design an Ideal reward Pgm .??

If the firm were to adopt a rewards program,
how should it be structured? On what basis
should points be awarded? What types of
rewards should the firm offer?

Disconnect between Customer want and Firm
wants !
Create a Reward Program that creates a Win-
Win situation for both the firm and the
customer !
SHOULD CABO SAN VIEJO adopt a REWARD
PGM ???? What ?