An analysis of Marketing Strategy at Royal Caribbean Cruises

 

  1. Introduction

 

The cruise line industry is a part of the entire vacation industry. Like the travel industry, the demand of the cruise line industry was affected by the seasonal variability and economic condition. Thus the demand of cruise line industry is very elastic. Royal Caribbean Cruises are the world’s second largest cruise vacation company. They have approximately 40 ships in services, providing around 79000 berths around the world. (Royal Caribbean Cruises, 2008) There is no doubt Royal Caribbean Cruises provide the excellent services to the customers and design the amazing holiday package for the customers. However, the economic crisis happen from 2008 has a bad impact on the cruise line industry. The Royal Caribbean Cruises were also affected by the financial crisis because the industry was determined by the customer’s demand. Therefore, it is important to analyze the current Royal Caribbean Cruise market strategy under the economic downturn. By defining the current strategies adopted by the Royal Caribbean Cruises (RCC), it will give out the suggestion about the alternative strategic actions in order to increase profitability and create long term sustainability in the time of global recession.

 

  1. Literature Review:

 

Keegan (1989) summarized that the strategic concept of marketing has shifted from the customer or the products to the firm’s external environment. To succeed, marketers must know the customer in a context which includes the competition, government policy and regulation, and the broader economic, social, and political macro forces that shape the evolution of markets. Kotler (1991) defined that marketing is a social and managerial process by which individuals and groups obtain what they need and want through creating and exchanging products and value with others. Jain (1999) suggested that marketing represents the boundary between the marketplace and the company, and knowledge of current and emerging happenings in the marketplace is extremely important in any strategic planning exercises. Williams (2006) pointed out that the marketing of tourism and hospitality products has become very complex and the majority of the marketing efforts are focusing not on the customers, but on the destination or outlet, with strategies related to the product offered, commonly using conventional images as a way to attract consumer preferences.

 

Jain (1999) defined that market strategy deals with essentially with three forces known as the customer, the competition, and the corporation. A good marketing strategy should be characterized by a clear market definition, a good match between corporate strength and the needs of the market, and superior performance, relative to the competition, in the key success factors of the business. According to Weaver (2008), RCC has refashioned itself as a large-scale cruise line that offers customers activity-intensive and exciting holidays.

 

 

  1. Economic Downturn’s impact on the industry and RCC

 

Cruise industry is featured with its exceptional value proposition, low market penetration levels, wide appeal, high customer satisfaction rates and favorable supply-demand imbalance. Kworthnik (2006) termed that a cruise was an expensive, formal, and relatively lengthy vacation- seven to fourteen days on average. He also stated that cruising was dominated by brands that served the “contemporary” segments, a clear label used by cruise marketer to describe the mass market. These cruise lines featured ever-larger ships that accommodated 2000 to 3400 guests who paid fares ranging from $150 to $300 per person per day. The cruise industry was relative a young industry emerged at 1980s. The North America is the main market in the cruise industry, following by Europe, and Asia market. In this context, the cruise industry is still at growth stage with ever growing capacity, because the larger ships were on board. As this industry was included in the tourism industry, it is highly dependent on customer demand. While, the supply capacity is fixed due to the ship’s fixed capacity. The financial crisis happened in 2008 has a strike on the cruise industry as well. Gibson et al (2011) suggested that capacity is growing since more ships, corresponding to more additional berths, will be launched until 2012. Due to a time lag, the impacts of financial crisis will manifest in a decline of additional capacity after 2012. The financial crisis has led to a number of new ship order cancellations. Lloyds (2011) found that recovery in the cruise market appears to be following the path of the wider economy, with steady but cautious growth. But it is robust enough to give cruise lines sufficient confidence to have started ordering new ships, even through the pace of deliveries of new capacity in future is likely to be slower than in recent years.

 

According to RCC’s annual report (2010), RCC’s current strategy is to attract an array of vacationing consumers by providing a wide range of itineraries and cruises lengths with multiple innovative options for onboard dinning, entertainment and other onboard activities. Turconi (2008) pointed out that RCC management constantly updated and upgraded the company berth capacity to accelerate earnings growth and exploit efficiencies made possible by increased volume and a younger, more efficient fleet. Lloyds (2011) concluded that RCC reported a net profit of $547.5 million, a significant improvement on the $162.4 million a year earlier. This improvement was partly due to a large fleet capacity, including the full year effect of its 5400 passenger capacity Oasis of the Seas delivered in late 2009. The last year delivery of Allure of the seas will give a further boost this year. RCC expects a further improvement in financial performance with more bookings and higher prices. Therefore, RCC current marketing strategy is designed to emphasize its high quality and excellent-value cruise vacations. RCC uses social media and internet, and traditional media channels targeting adults and families who have interested in exploring new destination and seeking new experience. (RCC annual report, 2010)

 

Although the financial crisis has resulted in the decrease in demand, the time lag effect proved that the cruise industry was not influenced by the financial crisis seriously. On the one hand, RCC put great emphasis on the retaining the existing customers by providing the excellent quality services and different destinations. On the other hand, RCC also made effort to expand its capacity to attract the new customers. The above mentioned the Oasis of the sea and Allure of the sea offered the new customer multiple choices through a wide array of itineraries, accommodations, and dining options. Moreover, RCC placed a strong focus on the product innovation by introducing new concepts on the new ships and continuously improvement to the existing fleet in a cost effective manner even during the financial crisis time. (RCC annual report, 2010) The innovation of products reflected the RCC’s continuous effort on the capacity expanding and product innovation. Especially, the Oasis of the Seas introduced the neighborhood concepts which offer the customer unique experience in the RCC. These innovation and concepts make customer feel very different from the traditional tourism experience, which is luxury feeling, neighborhood feeling, and satisfaction feeling. The customer will think the price they paid is deserved the quality services and good experience. Once the customer is satisfied with these services and innovation products, it will in turn retain the customer to choose RCC once again. In this context, current marketing strategy of RCC is reinforcing the brand awareness and expanding into new markets and itineraries. RCC has its most famous brand Royal Caribbean International (CCI), which is targeted as the international cruise brand. The continuous new ships reflected RCC would like to capture the new market or the new customers. The cruise industry has the high potential different from the traditional tourism was just sightseeing. Instead, the quality services, good accommodation, and innovation vacation products attracted the existing customers experience over and over. The new itineraries offered the existing customer the opportunity to the different destination where they never have been to. This in turn helps the RCC to expand the new market as well.

 

To sum up in this section, the economic downturn did have some negative impact on the cruise industry such as the demand decreasing, and ships order cancellation. The time lag effect will be expected in 2012. However, RCC’s still had the revenue increase compared with 2009. This is because its marketing strategy was very effective. Firstly, the quality services and various destinations attracted the existing customers continuing choosing RCC as their first cruise tourism operator. Secondly, the new ships expanded the RCC’s capacity. This in turn increases the company’s revenue by satisfying the customer’s demand in cruise industry.  Thirdly, the product innovation such as the neighborhood concepts in the theme they providing not only attracted the existing customers, but also draw the new customer’s attention. Fourthly, the new itineraries help the RCC to penetrate the different market besides the traditional North America market, such as the Europe and Asia market. All these efforts reinforce the RCC’s brand awareness and increase its revenue even in the financial crisis time.

 

Before going to the next section, a SWOT analysis is helpful to identify strength and weakness of their marketing strategy, and is also useful to suggest the alternative actions in order to increase the profitability and create long term sustainability during the global recession.

 

Strength

Weakness

  • Quality Services
  • Excellent-value Cruise Vacation
  • Large capacity
  • Various destinations around the world
  • High maintenance cost
  • Higher prices compared with the competitor such as Carnival Cruise
  • Usually long term vacation duration
  • Relative short cruise season
  • Insufficient promotion of destination goods and services onboard visiting cruise ships
 

Opportunities

Treats

  • Besides the US main market, Europe and Asia become ever important
  • Bigger capacity means bigger business opportunity
  • Search for the new destinations
  • Development of fly-cruise packages
  • Decline in the new ships ordering
  • Increasing cost of fuel
  • Strong competition
  • Economic recession
  • Environmental impacts
  • Public opinion favoring eco tourism
 

Table 1: SWOT Analysis of RCC

 

  1. Suggestions of alternative strategic actions:

 

As above mentioned, the RCC put great emphasis on the RCI brand building by promoting explorer concepts, which is focusing on active and adventurous dimensions of the experience. (Kwortnik, 2006) Once people recalled RCI, they regarded RCI is a quality brand of cruise industry with quality services and luxury feelings. However, RCC still faced the fierce competition in the cruise industry and the pressure from the economic recession. To achieve the sustainable development in the long term, RCC has to make some improvements such as cost saving, brand management, promotion to maximize the profit.

 

There is no doubt the cruise industry is a high potential industry because currently the revenue mainly from the existing customers who have experienced the cruise tourism. The industry is featured with high satisfaction of customer. This means if it can enroll more new customers, the industry will make more profit, so is the cruise company. However, it is hard for the new customer understand how amazing a cruise trip is. If the promotion of RCC could address this point, it will earn more new customers. Dickenson and Vladimir (2008) also found that the industry may lose the focus on the new customers and secondary new customers who are induced to try the product. The brochure as the direct advertising tool passes the useful message to the new customers. The author noticed that the brochure provided by RCC at RCC UK website is all-in-one type and specific region. Mancini (2010) suggested that other type brochure such as specific ship brochure, seasonal brochure, and target brochure is also powerful sales tools. For RCC, it could create the brochure of Oasis of the Seas or Allure of the Seas to introduce the different character of its ships. It is easy for the customers to pick up the specific ship type they want or it is easy for them to make the comparison among the different types of ships within RCC. In addition, the all in one brochure targeted the families by emphasizing on the family fun on the cruise. Therefore, RCC could launch the target brochure which targets the young working people. Young working people has the stable income and the enthusiasm. They are willing to explore the new destination and experience the new adventure. In other words, their buying power is very strong to RCC. If the brochure targets specifically the young working people, it may attract more potential new customers enrolling the cruise trip. Furthermore, the cruise industry is also influenced by the seasonal factors. The seasonal offer brochure may attract the families, whose children have the summer or winter holidays. Through the different brochure, it could target the different customers, and different geographical market. This in turn will help the RCC to earn the new customers and make the new profit. As the cruise industry is featured by the high customer retention, thus it is meaningful to explore the new customers by launching the new customized brochures. Once the new customers successfully experienced the cruise trip, they will loyal to RCC for the next trip.

 

The SWOT analysis suggested that besides the American market, European and Asia market has become more and more important. Currently, European market becomes the emerging market for RCC. However, the Asia market could not be neglected because the buying power of Asia market has grown dramatically in the international market. Lloyd’s (2011) reported that RCC has already entered into the Chinese market, which is the most prospective market in Asia. But the competitor Costa dominated the Chinese market in recent years. As Shanghai has set up the infrastructure to support the cruise industry, RCC could design more favorable cruise package to attract the Chinese customers. For example, it could deploy the relative medium size ships offering three to four nights cruises from China’s main ports. This ship is mainly served at Chinese domestic market along the coastline. Moreover, RCC could create the customized food that favors the Chinese customer’s needs. In China, the young working people and families are the key target customers for RCC, who can afford the cruise trip. If RCC want to expand their Chinese market, it has to offer more customized services compared with its competitor Costa. Besides currently quality services and good accommodations, RCC could employ some local employee who can speak Chinese. This in turn will offer better services to the Chinese customers. In addition, despite the economic downturn happened worldwide, China still stood out for its strong economic growth power. This means the Asia market especially the Chinese market has the great potential if RCC could catch the market and attract the Chinese customers. If so, RCC will make huge profit in this emerging market. It will also help RCC to increase the market share in the Chinese market or the Asia market.

 

A business if wants to achieve the long-term sustainability, it cannot leave without good corporate social responsibility (CSR) practice. CSR’s central is stakeholders. Stakeholder theory underlines that organization survival and success hinges on the organization’s ability to generate sufficient wealth, value, or satisfaction for its primary stakeholders. (Clarkson, 1988) Awareness of CSR policies and practices has a positive influence on consumers’ evaluations of product attributes. (Brown and Dacin, 1997) Especially, the cruise industry is a part of tourism industry, the good CSR practice is very important for RCC in the long-run. The cruise industry is dependent on the environmental resource, which directly is the sea resource. The ever growing fuel costs call for less fuel consumption and air emissions. Chon and Maier (2010) suggested that the advanced technologies could be used in the cruise industry to decrease the negative impacts on the environment. Although RCC made great effort on environmental protection such as strict rules, sophisticated systems of waste disposal, and professional staff, it still has the space to implements its CSR practices. For example, RCC could order the ships with sophisticated systems to decrease the water waste or hazardous waste, and with the emerging saving device to reduce the fuel consumption. Such ships not only could protect the environment, but also could protect the customers on the ships. Once the customers recognize the effort that RCC made at CSR aspects, they will perceive RCC is a company caring about the customers, and environment. This in turn will help the RCC to retain and attract the new customers who prefers the eco tourism. Moreover, the ships ordered by RCC with high standard of environmental awareness will help the company save the waste disposal cost in the long-run. This in turn will increase the profit by attracting the customers with environmental sense and decreasing the waste disposal cost by the advanced technology on the ships.

 

  1. Conclusion:

 

The cruise industry is a relative young industry with rapid growth in the capacity. Meanwhile, this industry was featured with the high customer loyalty once they experienced the cruise trip. However, the economic downturn has a negative impact on the cruise industry. Many new ship bookings have been cancelled due to the financial crisis. But there is a time lag between the financial crisis and the cruise industry. Therefore, the cruise industry still makes the profit even in the recession time. This report analyzed the RCC in the cruise industry, which is the second leader in this industry. The existing brand strategy was quite successfully in RCC by which it created the RCI brand featured with quality services and luxury feeling. Moreover, RCI introduced the explorer concepts to attract the customers who would like to take the adventures during the whole trip. However, RCC still has the space to improve itself and make more profit. The author used the SWOT analysis to develop the strategic suggestions about RCC’s future operation. The North American is current main market to RCC. The European and Asia market has the great potential. If RCC could make more effort on the expanding European and Asia market, it will gain more new customers and make great potential profit other than the North America market. The expanding European and Asia market also means that RCC will earn the greater market share compared with its main competitor Carnival Cruises. The current marketing communication is mainly through the social media and internet. The brochure as the direct advertising tool reflected that RCC still needs to enrich the brochure types. It suggested that RCC could launch the targeted brochure or specific ship brochure or seasonal brochure to draw the different customer’s attention. Through these brochures, the customers will easily find the holiday products and compare the products. The long term sustainability suggested that RCC has to implement and improve its current CSR strategy by considering the related stakeholders. This will in turn help RCC retain and attract the customers with environmental sense.

 

Reference:

 

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