Presentation on theme: "T HE C RUISE L INE I NDUSTRY By The Strategic Pricers: Davis Austin Ty Bostain Nick Baccile Daniel Weisen."— Presentation transcript:
T HE C RUISE L INE I NDUSTRY By The Strategic Pricers: Davis Austin Ty Bostain Nick Baccile Daniel Weisen
G AME P LAN Introduction Industry Overview Demographics Pricing Strategies Recommendations
Introduction Why did we choose the cruise line industry? – Personal Interests and experience in the industry. – Lots of current news events. – Unique and interesting pricing strategies. – Few number of large players.
Cruise Industry Overview Projected $36.2 billion dollar industry for 2013 Projected 20.9 million passengers for 2013 Highly concentrated market High barriers of entry mostly due to the sunk costs it takes to build a cruise ship
Barriers to Entry Cost of ships – RCL just built $1.4 B Oasis of the Seas Access to ports Large crew – willing to travel away from families Government Regulations/Traveling Internationally
Recent News Stories Concordia operated by Costa Cruises a subsidiary of Carnival wrecked of the cost of Italy in January of 2012. 30 people killed
Cruise Industry Functions Transportation Rooming accommodations Dining Guest Entertainment – Shows – Teen/Children activities – Casino (not always but common) On-shore activities (Excursions)
Market Share by Number of Passengers HHI = 48^2+23^2+8^2+7^2+3^2=2,955
Carnival Cruise Lines Founded- 1972 Headquarters- Doral, Florida World’s largest cruise operator 2012 Full Year Net Income- $1.3 billion Own 11 different cruise line brands including Holland America & Princess Cruises 100 cruise ships in fleet – 86,800 employees
Royal Caribbean Founded- 1997 Headquarters- Miami, Florida World’s second largest cruise operator 2012 Full Year Net Income- $432 million Royal Caribbean owns five cruise lines including Celebrity Cruises 41 cruise ships – 60,300 employees
Result North American 40 + years old Income $100-$200k White
Pricing Strategies Second Degree Price Discrimination Third Degree Price Discrimination Temporal Pricing – Seasonality – Overbooking Max Capacity
Willingness to Pay The Cruise Experience – Tourist’s perception of cruising as safe, social, service- oriented, and customer friendly. – Some travelers perceive cruising as expensive, claustrophobic, elitist, seasickness-inducing, and reserved for older couples only. Branding – Cruise brands take great care when it comes to their reputations because it implies a certain standard. – Branding is essential for garnering new business, encouraging repeat customers, creating brand recognition and defining the company’s approach to operations and marketing.
The Product Cruises have three different economic features: – Inelasticity - a cruise ship is “perishable” because it can’t be stored – Heterogeneity - the product consists of a variety of components that make the cruise experience different for each customer – Complementary - the cruise is not one single experience but a host of elements that combine to form the cruise experience
Second Degree Price Discrimination Two-tier pricing system First purchase-ticket to get on the boat Additional purchases during the vacation – Cruise Line Excursions – Alcoholic/Soft Drink Beverage Packages Classic Beverage Package (beers, wines and soft drinks) $45 Premium Beverage Package (addition of premium alcoholic cocktails) $55
On-Board Sales Top 3 most profitable areas – Casino & Bar – 53% – Shore Excursions – 19% – Spa – 10%
Ticket and On-Board Revenue Ticket $1,311 Onboard Spending $417 Casino & Bar$222 Shore Excursions$81 Spa$41 All other onboard spending $73 Total Spending $1,728
Third Degree Price Discrimination Allows consumers to self-select into their desired price range – Different classes of boats within a cruise liner Larger/Newer the ship, more “luxurious” – Different classes of room choice Interior, Ocean View, Balcony, Suite
Inter-Temporal Pricing As cruise approaches, consumer demand becomes increasingly more inelastic, allowing cruise lines to raise prices. However, immediately before the departure date, cruise lines attempt to maximize capacity, leading to last-minute price decreases. Brochures are carefully designed to encourage advance booking, through such strategies as making off-season prices look dramatically lower than their on-season counterparts and promising discounts for booking early.
Overbooking Strategy Customers can’t leave once on the vacation The more crowded the ship, the seemingly more enjoyable the environment/ambiance Repeat customers No business travelers Long booking periods with large amounts of third party bookers (expedia, travel agents)
Recommendations Considerations? – Atmosphere? – Amenities? – Brand? – Room Class? – Season? When to book your next cruise? – Take the risk! Closer to departure date