Cayamo cruise line's music-focused differentiation strategy

Strategic Management

In any competitive industry, companies are required to continually innovate their product and reposition themselves in order to remain competitive. This is perhaps particularly so in the cruise ship industry, where competition is increasing to provide customers with the most memorable, interesting experience possible. The cruise ship company Cayamo has done this successfully by providing a cruise that includes song writers and their music. By including a popular segment of entertainment on the cruise, the company has ensured customer loyalty, and its market position, for years to come. When competition from other, similar service providers is considered, it is clear that a significant market exists for the industry to provide targeted audiences with experiences that they would be interested in.

The Market for Cayamo

Cayamo operates in the cruise ship industry, and as such, several market factors need to be taken into account if an analysis of its position is to be made. In the UK market at the time of the Mintel Report on UK Cruise Ships (2007), the cruise sector has begun to enjoy increasing popularity among the public. The main reasons cited for this is the increase of expenditures on holidays and short breaks among consumers. Indeed, cruise holidays have generated about ?1.75 billion in the UK in 2006, according to the Mintel report. Furthermore, cruise holidays are particularly popular among the British, who are reported to have taken more ocean cruises than any other nationality in Europe. The market is therefore rich, not only for new entrants, but also for existing competitors to create excellence in their products and services. Based on this history, the report estimated an increase in demand and supply for cruise ships across the industry over the years following the report.

Another interesting element is that the cruise ship industry tends to be based upon destination in its marketing endeavours. Hence, popular destinations away from the UK include northern destinations such as the Baltic and the fjords. When looking towards 2012, the report estimated a growth of 51% at the prices that were current at the time, with the equal of 28% of real-market increase. A per annum growth rate of 8.5% was estimated.

Ocean cruises at the time had the largest market share, at 90%, which was projected to remain the same for subsequent years. Steady and sustained growth were projected for the future.

According to the Segment Performance section of the report, cruise holidays have enjoyed their exponential growth partly due to the decline of other types of holidays, such as beach excursions, which had seen a decline over the years prior to 2007, as opposed to a 63% growth for cruises. Indeed, cruises saw a popularity level similar to other high-level tourist endeavours, including city breaks and coach tours.

Cruise holidays are also ideal for multi-destination holidays, which were also on the increase. Providers in this holiday sector also had the opportunity to capitalise upon the package offering, which was shown to be preferred by customers booking holidays that were out of the ordinary. Importantly, cruise providers have the opportunity to capitalise upon specialised items, such as the music cruise offered by Cayamo. Because the industry is increasingly popular as a holiday choice, it is important to offer a unique choice to potential customers. Another possibility for positioning is to offer a stress free means of transport to a specific holiday destination.

According to the Market Share section of the report, there has been a marked increase in cruise holidays away from the UK. Cruising from UK ports has for example increased 100% at the time of the report. This is despite the withdrawal of Airtours Sun Cruises in 2005, which negatively impacted the number of flycruises taken during this year. Cruising within the UK was driven by larger ships, such as those offered by Thomson Cruises from Newcastle. Destinations such as Greenland, Iceland and the arctic also saw high increases during 2004 and 2005. Flycruises tended to have their greatest success in the exotic location market, including Australia, the South Pacific, the Indian Ocean, and the Red Sea.

An interesting aspect in this section is high end cruises, which offer ultimate luxury to their passengers. Examples of providers in this market include Crystal Cruises, Regent Seven Seas Cruises, and Windstar. Although ultra-luxury cruises only compose 1.8% of the total cruise market, their total revenues amount to 6% of the share as a result of the high prices.

Perhaps exemplary of the success that is possible in the cruise market is the Carnival Corporation, featuring under the Companies and Products section of the report. The corporation includes 12 leading cruise brands, including Carnival Cruise Lines, Princess Cruises, Cunard Line, and Swan Hellenic. It operates cruises in the United States, United Kingdom, Germany, Southern Europe and Australia, with destinations across the world. The corporation's revenues for 2006 amounted to $11.8 billion.

Some of these cruise companies offer services to specific market niches in order to attract passengers who would not normally take cruise holidays. Ocean Village, for example, has positioned itself as "the cruise for people who don't do cruises." The target market for this effort included people who had never taken a cruise, whether these are singles, couples, or families. This addressed a specific gap in the cruise market. Ocean Village 2 went a step further to provide 3-berth cabins specifically for single-parent families.

The target age group for Ocean Village was also somewhat younger than the traditional, older market who are perceived as the ideal market for cruising. Persons between 30 and 50 were offered a combination of relaxation and adventure, which focused on informality, activity, and value for money. The report mentions several surveys indicating the perception that cruises are generally meant for older people, such as those over 50 or 60. To attract their target market, the company signed a contract with Neil Morrissey to handle the voiceovers for the company's advertisements. This is an indication of an increasing awareness among cruise providers that a certain image is required to target a younger market.

Other efforts at market positioning to increase the cruise customer base include Ventura's ship specifically designed for families, and Princess Cruises that offered an informal, American-style atmosphere for its cruises. Swan Hellenic, on the other hand, provided a focus on cultural cruising, with educational content provided by guest speakers such as diplomats, historians and botanists. This type of specialisation has become an increasing trend among cruise companies. Some position themselves according to the entertainment provided on board, while others provide a specific type of atmosphere to attract a specific target market. Others simply capitalize on size or luxury, such as Celebrity Cruises, whose aim was to set a new standard for cruising across the globe.

Others, such as Star Cruises plc, offer not only specialised destinations, but also food and decor to match. Star Cruises for example has the unique position of being the only line that offers cruises to the Far East throughout the year, while Asian food and decor are offered on board.

One of the most important considerations when determining a company's market position is the requirements and demographic of the consumer. Because many in the older age group are unlikely to go on cruises again once they have taken such holidays once, it is primarily important to the industry to target the younger and singles market. According to the report, there is a vast untapped market of potential cruisers in the UK; a third of the population would consider taking such a holiday. Once this sector of the population has been convinced to take a cruise once, they are likely to do so again. Those who remain unconvinced are limited by cost, the limited space on board, and the perception of boredom on ships.

Demographically, those who are most likely to take a cruise remain the older generation, whose children are no longer in the house. Indeed, over a fifth of the general customer base for cruises come from this age group, and is reported to be likely to grow. This is something that Cayamo might keep in mind when considering its market position and future strategy. Another important factor in this age group is marital status. Those who are widowed, separated, or divorced, for example, are reported to be less likely to go on cruises than their married counterparts.

Here it is important to maintain a relationship with customers who have shared the cruising experience by means of regular communications and events. This can have the added function of forging friendships that can encourage single cruisers to partake in the experience with friends.

There is an untapped cruise market, focusing on young people. Here both Cayamo and other cruise providers can consider their positioning effort. Those between 16 and 19, for example, as well as families with pre-school children offer a good resource of potential customers. These are sectors that Cayamo should keep in mind to plan for its future strategy. Family-friendly cruises are often dependent upon school holidays for their peak seasons. These cruises can easily also appeal to families with pre-school children or young people who have left school and want to take a break before entering colleges, universities, or the workplace.

Some barriers to including these sectors in the cruise market are the perception that cruise holidays are generally not for children, that they are unaffordable, and that they are boring. In marketing, these attitudes towards cruises should be combated.

Competitor Entry

As mentioned above, the cruise industry is growing at a significant rate, which makes it highly conducive to entry by new competitors. In addition to new cruise companies providing services to the public, there is also a continually increasing focus on specialty products and services, such as the one offered by Cayamo. The market has, however, not been dominated by any single theme or company. Hence, the conditions for new entry are favourable. Indeed, it appears that many cruise companies are well-positioned to enter the music niche, should they choose to do so. It is important for Cayamo to keep this in mind when creating its strategy for the future.

One such potential entrant is Carnival Cruises (Novak, 2011). The strengths of this company is its size. It is one of the largest cruise operators in the world and operates 11 cruise brand names. Its niche markets include several different sectors, including the budget traveller and those requiring luxury cruises. Because of its size, its cost advantages over its competitors is also significant. Its average net income is almost three times that of the industry standard.

Should it choose to enter the music market, the company would use aggressive and effective tactics to invest in media messages for their promotions. These would target the lifestyles of the groups the company is aiming to reach. It is a well-known brand with 47% of the market share in the UK. Carnival's main weakness is its over-dependence upon the U.S. market. This makes it vulnerable to changes in the U.S. economy. However, this vulnerability is unlikely to influence a decision to enter the music market, should the company decide to do so. Indeed, its overall strength and size are most likely sufficient to handle any American economic fluctuations without having to terminate new ventures.

Another strong competitor in the cruise market is the World of ResidenSea (Fielding, 2009). This vessel provides a quite unique niche service, in that it provides a type of residence for long-term passengers. The main strength of the company is its unique edge within the market. It also caters to a very select clientele, and is unlikely to appeal to a mass market. Because its appeal is so exclusive, it is unlikely to be a competitor in the niche currently served by Cayamo. Its competitive edge is that it provides round the globe travel to a very exclusive, prosperous market. What Cayamo can learn from ResidenSea is its unique edge. No other ship offers its specific level of service. Hence, this unique edge is the main source of its revenue.

Royal Caribbean Cruises Ltd. also operates on a worldwide scale, with 35 ships and about 71,200 berths. It serves 380 locations globally, and provides pre- and post-cruise hotel packages. This company's edge is provided by its service that includes escorted premium land packages together with its cruise vacations. It also includes five cruise brands catering to all levels of luxury and income segments.

This company's focus remains primarily upon making the travel experience as pleasant and rewarding as possible, rather than upon specifically-themed cruises. However, should it make the decision to enter the music market, it is likely to offer some stiff competition to Cayamo. It should also not have any difficulty entering the market, as its market position in the cruise industry is quite strong in terms of both revenue and size.

In general, the cruise industry has a number of factors that can make it difficult for completely new entrants. The above-mentioned companies are already well-established in the cruise industry, which would make it easy for them to simply enter a new niche market or to add an extra element to their cruise experience for customers. However, when it comes to new entrants to the cruise market, the situation is somewhat different. The initial funding to start such a company is, for example, quite high. The cost of a ship, its maintenance, and its crew alone are already significant. If the company would therefore offer any competition to existing companies, further funding would be required for creating a unique edge, providing a sufficient sense of luxury, entertainment, and the like. It is therefore unlikely that complete newcomers would enter the cruise market.

Most entrants to the market are significantly-sized companies that are already established in the tourist industry. Examples of these include Disney Cruises, TUI, and First Choice (Petrick and Li, 2006). However, the threat of such entrants is also sufficient to encourage existing companies to behave competitively. Hence, it is important for Cayamo to maintain its attention on future strategies for even further differentiation in the market. The more market sectors it could also appeal to, the better for its financial and business health.

Petrick and Li (2006, p. 63) suggest that the cruise market is showing tendencies of becoming an oligopoly, with a few large companies building ever-larger ships to prevent the entry of new competitive forces. However, the increasing size of these ships hardly offer passengers anything beyond what they can experience on any other cruise ship. In other words, there is little differentiation between luxury and even greater luxury on a cruise ship.

However, with creative and innovative ideas such as that displayed by Cayamo, the cruise ship industry might yet see a revival in terms of competition. Not all cruise companies have the means to compete with luxury or ship size. However, if a niche market can be established, passengers receive more choice regarding their cruise experience.

Conclusions

In the light of the current climate within the cruise industry, it is therefore recommended that Cayamo not only strengthen its current music niche, but also develop and expand it to other genres. It is recommended that these genres be offered not only to regular cruise goers, but also to untapped markets such as young people and families with preschool children.

In the long-term future, it is recommended that Cayamo investigate what is currently done in terms of niche markets. The company can then use this information to expand beyond the music niche to create further unique offerings to its passengers. This can take the form of either a modified version of an existing idea or a completely new idea not tried elsewhere.

Providing passengers with innovative products and ideas can maintain a sense of healthy competition across the industry. It will also attract passengers who would not otherwise have been interested in taking cruises. Furthermore, addressing specialty niche markets by means of including elements such as music disprove preconceived ideas, such as that cruises are boring, or that they are simply a means to a destination.

Most importantly, an open channel of communication should be maintained with passengers. Competitions can even be held for the purpose of brainstorming ideas for future specialty items on board Cayamo's decks.

In general, the cruise industry can only benefit from new products and services such as that offered by Cayamo. Clearly, passengers and service providers alike found the event very meaningful and enjoyable. Indeed, one might even say that the industry itself can benefit from increased competition should other cruise companies also choose to offer musical variations to their themed excursions. This is why Cayamo's current position should improve and grow with time to remain competitive.