Cruise industry is fraught with many challenges like any other industry but since a cruise trip is hard to explain and can only be experienced, the challenge of selling cruise vacations becomes even more gigantic. For this reason and some others cruise industry is effectively divided into three classes namely Luxury, Mass and Premium. This classification helps customers get an idea of the kind of experience they would have on board and what should they be expecting. Celebrity cruises Inc. falls in the premium class which has some of the amenities of the more luxurious cruises while retaining some mass features like offering low-cost facilities that could make experience look and feel more luxurious. Dietmar Wertanzl is the vice president of operations at Celebrity Cruises Inc. And he wants to expand customer base and improve profit margins and thus wonders if he should move the operations to mass market or if he should simply offer better customer service with more offers to expand the customer base and hence improve profit margins. While it is the mass and premium sectors that typically have the highest market share, the gap in share is enormous (Ref. table 1) which may prompt a cruise company to enter the mass segment.
The Cruise industry is growing rapidly with more players and better services entering the industry. This means tougher competition which has pushed each cruise company to find ways it can become unique and hence customer's preferred liner for cruise trips (Plowman, 2006). CC thus joined hands with Royal Caribbean in 1997 and this led to higher profits and a bigger fleet. CC was all about spirit while RC was all about adventure and hence the two liners maintained separate identities. However despite the merger working well, CC saw decline in net income from 1999 to 2001 which could be accounted to many factors including rising costs and lower differentiation.
With competition getter fiercer in the cruise industry, Celebrity cruises needs to decide if it will stay in the premium sector or move to mass market where profit margins are broader. CC also needs to find other ways of improving profits if it chose to stay in the premium sector. ANALYSIS
Cruise industry is not what it used to be when Celebrity cruises Inc. started its operations back in 1989. Things were much different then since there were few players in the market and people had just been warming up to the idea of a cruise vacation. Celebrity chose to find a niche for itself by positioning itself carefully between the luxury and the mass sectors. It found that they could be luxurious while at the same time maintain some mass market features to make operations more cost effective and open to a wider customer base. (Ward, 2006)
All this worked fine until the turn of the century when things began heating up in the cruise industry and it appeared that one had to compete real hard to stay ahead of the competition by offering more value for money along with great customer service. The growth in demand for cruise trips has also forced cruise ship companies to look for ways to improve and upgrade thus cashing in on the growing interest in cruise vacations. (Ref. Table 2)
Celebrity Cruises Inc. achieved this by consistently improving cruise experience through variety of measures including 150 offerings of food and wine, offering all fresh food, adding some low cost valye enhancing features like star gazing etc. All this has been appreciated but the VP knows that profits could be significantly improved if the company moved to mass market since then they could save more on costs and did not have to worry about maintain a certain guest-staff ratio.
But if that option was ignored, VP wondered what others measures could be taken to gain more loyal customers who would choose Celebrity each time they planned a cruise trip and how the whole experience could be made better for each customer without raising the costs too much.
Celebrity already had a loyalty program in place that offered repeat customers additional benefits like access to parties, vouchers and some wine seminars. All this seemed to work as more and more people were joining the loyalty program. The company had also planned to introduce Concierge class that would offer some additional services like higher quality soaps and fluffy towels at nominal additional price. However the firm was still not sure if they would really work and if people would pay additional $50 for better quality soaps and towels since no changes in the physical layout were possible.
While on the surface CC has seen improvement in revenues on a steady basis, the net profits had decreased somewhat each year making the decision to change sectors or introduce something new became even more pressing now.
The solution to declining profits can only be found in the reasons for decline. If the decline is due to shrinking customer base, then decision would be different but if it is due to rising costs of maintaining and operating a premium cruise line then another decision might be needed.
However the VP needs to keep the bigger picture of the entire industry in view. According to research, there had been a significant gap between supply and demand growths during past few years which can also be held responsible for decline in profits. This means that there had been more growth in number of cruise ship players compared to customer base. This must have affected profits even if the service and cost efficiency were the same. (Ref Graph 1)
The VP first needs to figure out the root cause of declining net income. Even though the customer base appears to be growing through the use of loyalty program this is not an effective indicator of actual increase in customer base because while many people may be joining the Captains Club, they may not still be using this cruise line each time they planned a trip. There is a great possibility that for some of their trips, they are still using other mass market cruise liners like Royal and Carnival.
Secondly even if there is a way to measure how the customer base is growing, the company still needs to find a niche and offer some other value enhancing options that would tempt people to choose this cruise liner each and every time they plan to take a trip through sea.
Since every industry has faced cost hikes, it is only wise to do something in that area to widen the profit margin and to improve net income each year. Moving to the mass market may not be the best option since competition would be even stiffer in that category. However by staying in the premium class, CC is only treading very risky path since it is a vague in-between category that is neither all out luxurious nor all out mass. It was somewhere in between and it is not easy to explain what a premium cruise is all about and how it is different from Luxury or mass sectors. For this reason, CC needs to find other ways of differentiating itself from both sectors and hence finding a niche becomes more important now than ever before.
The first step that CC needs to take is to decide how it will position itself in the customer's mind. Why would a customer who can pay for luxury not choose luxury cruise liners and instead opt for premium one? "The potential growth is high in this industry among the companies that already exist. The competitors will probably become stronger through marketing and innovation. Brand image will become a vital issue as each competitor begins to offer the same services. Other substitutes in the vacation industry can make the cruise industry less attractive to the consumer. For example, the increase in theme parks and resorts makes it that much easier for the consumer to choose not to take a cruise." (Kamery, 2004)
The customer needs to identify CC with one thing that no one else can offer at the price- it can be something like mind and body rejuvenation services, some high-class workshops related to occupation of the majority or simply something additional for children on board but it must be something that people can quickly identify with. When CC is mentioned what comes to mind? That is the question that VP needs to ask and then come up with a great and unique positioning strategy.
The second step they need to take is to focus on reduction of costs. How can the company lower its costs without compromising on quality of services offered? The VP needs to look for better and more cost effective way of offering some of the most preferred services on board. For example if customers like fresh food available on aboard, then the firm needs to find suppliers that would offer better prices for fresh produce.