That's because it can't match b*w to w^2 but:
In[1]:= (a + (a/b)^2) /. a -> b*w /. w -> a/b Out[1]= a + a^2/b^2
If you have
In[275]:= (a + (a/b)^2) /. a -> b*w Out[275]= b w + w^2
But if you add another /. b*w -> a
In[267]:= (a + (a/b)^2) /. a -> b*w /. b*w -> a Out[267]= a + w^2
Eric
In[1]:= (3 + a/b) /. a -> b*w Out[1]= 3 + w
