April 26, 2011 at 4:32 pm | Blog
According to a recent article in the Wall Street Journal (“The Return of the Class System”), several cruise lines have been making an effort to hold on to some of their biggest-spending customers and getting them to spend more – by revamping some aspects of a traditional cruise and offering a more exclusive experience. Cruise lines are offering an upgraded “suite” accommodation with VIP perks and amenities including luxury pool decks, 24-hour butler service, priority bookings for spa treatments, higher quality meals and complimentary cocktails.
Cruise fares have stayed relatively flat for the past 25 years due to expanding competition – as anyone who’s seen a Carnival cruise TV ad or the many print ads for cruise lines can attest; it seems like there are a multitude of cruise ships setting sail every day. Travelers have more choices than ever if they want to book a cruise, which helps keep down the cost of fares.
So how can cruise lines keep from becoming a commodity? It’s never good to compete solely on price. Cruise lines understandably are trying to bulk up their profits by offering a unique customer experience to capture more revenue from those passengers who are willing to spend more for the privilege.
According to customer research, many cruise lines found that their suite passengers – the ones paying top dollar for the most lavish rooms – were not as satisfied with some aspects of the cruise experience – the crowds, the lines, and the quality of amenities throughout the ship.
As a result, many cruise lines are creating “ships within a ship” to give these big-spending customers a truly exclusive experience. The price difference can be substantial – according to the article, some suite passengers spend five times as much for their cruise tickets ($2,500) compared to a standard stateroom (approx. $450).
Is it unfair of cruise ships to offer these special benefits? Is creating a “ship within a ship” somehow devaluing the experience of the many other paying customers?
While some people might miss the old-style egalitarianism of a cruise, where big spenders and budget-conscious travelers all shared the same shuffleboard tables, in general this is a smart business move for the cruise lines. If cruise lines can make more profit from their biggest-spending customers, they have every right (and obligation) to do so – in fact, these more expensive suites and luxury amenities are helping to hold down costs for other travelers.
What are some lessons that your business can learn from the new “class system” of the cruise industry?
- Do your market research. The cruise lines first discovered the opportunity to create premium-priced “ships within a ship” because they responded to customer surveys and followed it up with market research and focus groups. They heard that some of their biggest-spending customers wanted a more premium experience, and were willing to pay for it.
- Treat different customers differently. One of the best ways to maximize profits is to offer more relevant services and products to specific customers. When customers are willing to pay more for faster service, better product features, or a premium customer experience, pull out all the stops to meet their needs. This doesn’t mean you have to neglect your lower-paying customers, but you need to find a way to give your best customers what they want. Be relevant to the lower paying customers as well. They may want lower price over amenities.
- Avoid the low-cost trap. Even though they’re in a tight competition for fares, these cruise lines are avoiding becoming a commodity by offering a higher-priced premium customer experience and finding opportunities to charge more for meals, drinks and value-added services. Too often, when faced with declining revenues or heightened competition, companies panic and cut their prices. Cutting prices might lead to a short-term increase in sales, but it will undermine your business in the long run (or even the not-so-long run). Rather than cut prices, it’s better to focus on your sustainable competitive advantage and constantly find ways to add more value.
What can your business offer that is equivalent to a high-priced suite on a cruise ship? Who are your best customers and how can you sell more to them, at higher prices and profit margins?