1. T HE C RUISE L INE I NDUSTRY By The Strategic Pricers: Davis Austin Ty Bostain Nick Baccile Daniel Weisen

2. G AME P LAN Introduction Industry Overview Demographics Pricing Strategies Recommendations

3. 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.

4. 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

5. 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

6. 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

7. Actual Industry Growth

8. Estimated Growth of Passengers by Continent

9. Cruise Passengers by Continent

10. Cruise Industry Functions Transportation Rooming accommodations Dining Guest Entertainment – Shows – Teen/Children activities – Casino (not always but common) On-shore activities (Excursions)

11. Market Share by Number of Passengers HHI = 48^2+23^2+8^2+7^2+3^2=2,955

12. 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

13. Stock Chart

14. 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

15. Stock Chart

16. Star Cruises Founded- 1993 Headquarters- Hong Kong, Asia Full year Net Income 2011- $185 million Dominates market share in the Asia-Pacific destinations 18 ships – 18,000 employees

17. MSC Cruises Founded- 1987 Headquarters- Geneva, Switzerland 12 ships – 12,000 employees Big presence in Mediterranean cruise market

18. Disney Cruises Founded- 1996 Headquarters- Celebration, FL & London, U.K. 4 boats (Dream, Fantasy, Magic, Wonder) Subsidiary of The Walt Disney Company

19. Perceptual Map Expensive Inexpensive Luxurious Family

20. Age Demographic of Passengers

21. Income Demographics

22. Race Demographic

23. Result North American 40 + years old Income $100-$200k White

24. Pricing Strategies Second Degree Price Discrimination Third Degree Price Discrimination Temporal Pricing – Seasonality – Overbooking Max Capacity

25. 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.

26. 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

27. 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

28. On-Board Sales Top 3 most profitable areas – Casino & Bar – 53% – Shore Excursions – 19% – Spa – 10%

29. 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

30. 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

31. Room Class Price Discrimination

32. Temporal Pricing Seasonality – Pricing jumps in the summer months and Christmas week – Vacation time – Travel during warmer summer months and colder winter months

33. Seasonality

34. 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.

35. Inter-Temporal Pricing Between Ships

36. Inter-Temporal Pricing Between Rooms

37. 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)

38. Recommendations Considerations? – Atmosphere? – Amenities? – Brand? – Room Class? – Season? When to book your next cruise? – Take the risk! Closer to departure date

39. The End Questions?