Cabo San Viejo: Rewarding Loyalty

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  • Topic: Loyalty program, Cabo San Lucas, Cabo San Lucas International Airport
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9-506-060
MARCH 10, 2006

YOUNGME MOON
GAIL J. MCGOVERN

Cabo San Viejo: Rewarding Loyalty
Cabo San Viejo seeks to help people unlock their hidden potential so they become healthy, happy, fully selfactualized individuals. — The Cabo San Viejo Mission Statement

It was early February 2005, and Tina Reynolds, VP of Sales at Cabo San Viejo Health Resort, was strolling the grounds of the company’s flagship Palm Springs, California location. Everywhere she went, she saw happy customers heading to tennis matches, returning from spa treatments, enjoying gourmet meals, and sunning themselves by the pool. Since its inception in 1977, Cabo San Viejo had grown into one of the nation’s first and leading health and wellness brands, operating high-end destination health resorts and branded day-spas. However, the company was now facing mounting competition from an array of new players, including day-spas, health clubs, and resort hotels. To meet the competition and increase sales, Reynolds was considering whether to adopt a loyalty rewards program. Internal reaction to the idea was mixed. Some managers supported the idea, while others were philosophically opposed to designating certain guests for special treatment. If the company did adopt a rewards program, structuring it would prove complex. What sorts of rewards should the firm offer? Who should qualify? What sorts of partnerships should Cabo San Viejo form? Pondering these questions, Reynolds couldn’t help but reflect on a curious irony: The very company that had helped pioneer the health and wellness industry now had its own financial health to attend to.

Company Background
Cabo San Viejo was founded in 1977 by Dave and Florence Blumenthal on the site of a former peach orchard in Palm Springs, California. Inspired by Dave’s success in changing his unhealthy lifestyle, the Blumenthals sought to create a place where smokers, overweight people, and others could go to feel better and learn how to live healthier lives. Business was slow at first, as the national craze for fitness had not yet caught on. In 1982, however, a leading magazine journalist wrote a piece on Cabo San Viejo, billing it as the nation’s "premier total vacation/fitness resort,” and bookings took ________________________________________________________________________________________________________________ Professor Youngme Moon, Professor Gail J. McGovern, and Research Associate Seth Schulman prepared this case. HBS cases are developed solely as the basis for class discussion. The company mentioned in the case is fictional. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management. Copyright © 2006 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545-7685, write Harvard Business School Publishing, Boston, MA 02163, or go to http://www.hbsp.harvard.edu. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of Harvard Business School.

This document is authorized for use only in EMBA 542 A/B by Aaron Munoz from December 2009 to March 2010.

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Cabo San Viejo: Rewarding Loyalty

off. In the late 1990s and early 2000s the company opened several smaller, branded CaboDaySpa sites that offered spa services without the overnight facilities.
At its founding, Cabo San Viejo was essentially a “fat farm,” offering low-calorie diets and exercise regimens to a primarily female clientele. Realizing that this format was not achieving their ultimate vision of helping people live healthier lives, the Blumenthals worked consistently over the years to add comprehensive, state-of-the-art health and spa services. As Reynolds explains, “In the early years, we thought the appropriate thing to do was feed...
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