Marketing Management: Norwegian Cruise Line Company - Case Study Example

Marketing Management Contents Contents 2 Introduction 3 Research, analysis and evaluation of the dynamics and trends within the marketing environmentof Norwegian Cruise Lines 4 PESTEL analysis 5 Porter’s five forces model 7 Value Chain Model 8 Importance of market research, marketing mix and service innovation for Norwegian Cruise Lines 9 SWOT analysis 9 Marketing mix and price strategy 11 Recommendations to increase competitiveness and sustainability of Norwegian Cruise Lines 13 Conclusion 15 References 16 Appendix 19 Appendix 1: 19 Appendix 2: 19 Introduction Norwegian Cruise Line Company is headquartered in Florida, which is operating on cruise ships. The company had started off its operations in the year 1966 under the brand name of Norwegian Caribbean Line. Norwegian cruise line is best known for an innovative concept it follows which is known as the freestyle cruising concept. In this concept there are no such seating arrangements or set times for meal, and neither there is any formal outfit required. Norwegian cruise line is a private company which has captured almost 8% of the total market allocation of the cruise market. The present CEO of the company is Kevin Sheehan. When the company was initially founded by Ted Arison and Knut Kloster it operated with 830 ton cruise ship named Sunward which gained a competitive advantage in the market by offering the Caribbean cruises at the lowest cost. The second ship under the banner was Starward which offered the capacity to carry automobiles. The company has been well known for many innovative ideas in the cruise market which is now a standard feature in the cruise industry. The company has expanded its operations in Europe, Alaska, Hawaii, and Bermuda. The Norwegian cruise line ships is divided into various classes such as Sun class, Leo class, Dawn class, Jewel class, Norwegian epic, Breakaway class, and NCL America. The Sun class comprise of cruises such as Norwegian Sky and Norwegian Sun. The Leo class comprises of Norwegian spirit which was built in the year 1998 and has a capacity of 75, 338 tons. The dawn class comprises of cruises such as Norwegian Dawn and Norwegian Star with an average capacity of 92,000 tons. The Norwegian Jewel, Norwegian Jade, Norwegian Pearl, and Norwegian Jade are the cruise which comes under the Jewel class of the Norwegian Cruise Lines. The Norwegian Epic after Royal Caribbean’s Oasis is the third largest cruise ship in the world. The Norwegian Breakaway of the Breakaway class is the largest ship built in 2013 out of New York City. The Pride of America under NCL America built in the year 2005 is the newly built and large US flagged cruise ship in the time period of 50 years, and it sails in Hawaii. The future ships of the company would be Norwegian Escape, and Norwegian which would be designed as such to be bigger in size compared to breakaway class. The company has been adopting various innovative techniques to sustain in the market. The assignment deals with the macro and micro environment analysis of the company, the service innovation and marketing mix followed by the company, further recommendation for obtaining competitive advantage and sustainability in accordance with the demographics and changing economic scenario. Research, analysis and evaluation of the dynamics and trends within the marketing environment of Norwegian Cruise Lines Norwegian Cruise Line is the global cruise line operator that operates across 140 ports around the world. The company provides its cruise itineraries for locations such as North America (including Alaska and Hawaii), Bahamas, Caribbean, Bermuda, Central and South America, New England, Mexico, Europe, Scandinavia, and North Africa. The cruise industry though it is a profitable business but incorporates various micro and macro environmental factors that needs a thorough analysis before starting the venture. The macro marketing environment of the Norwegian Cruise Line can be analyzed with the help of PESTEL analysis tool, whereas the micro environment can be analyzed through Porter’s five forces model to clearly distinguish between the suppliers, competitors, buyers, new entrants etc (Armstrong, Kotler, Harker and Brennan, 2009, pp. 45-46). Cruise Liners provide luxurious travel to the passengers. It focuses more on offering comfort and luxury to its passengers and the amenities of the ship forms a part of the experience. Cruise Liners has become a most vital element of the tourism industry with almost an average of millions of passengers who travel via cruises. The major business of this industry is from the European and North American markets. PESTEL analysis The PEST analysis comprise of political, economical, social, and technological factors. The political factors comprise of a great threat from terrorism that the company has to face while operating through cruise ships. The cruise liners take a major risk while entering into the hostile waters as there is threat of terrorists getting on board. The company has to invest huge amount in order to incorporate high tech security systems so as to avoid the major threat of terrorism. There is a greater degree of influences from the US and UK market. It requires a lot of political constraints to be overcome for obtaining working visas and tourist visas. There is even political entry barrier to Cuba. The world political unrest leads to major decline of profit levels for the cruise liners as it was in Somalia. The cruise market is estimated to be 36.2 billion worldwide. Cruise liners accounts for a large number of employment (Claycomb, Germain and Droge, 2000, pp. 54-55). It not only provides various employment opportunities for the people who are working in the cruise liners but even for the tour operators, tourist attractions, restaurants, and travel guides. In 2008 according to statistics cruising industry accounted for 49,000 jobs in UK. The industry contributes towards indirect employment. The industry is high affected by the economic downturn (Baines, Fill and Page, 2010, p.101). It’s a luxury voyage and a high end service. So the disposal income of the people should be high in order to afford such a luxurious travel. When there is other option in hand such as aircrafts it becomes increasing difficult for the cruise liner to attract all the income level customers. A major economic recession can affect the operations of the cruise liners, where the people would not possess enough disposal income to spend for a leisure cruise. When the fuel prices rise it would directly affect the profit margins of the cruise liners, as the company would increase the fare so as to cover up their operating costs. On the other hand cheaper airfares would attract more passengers towards opting for airlines than such cruise liners. The increase and decrease in technology that affects the lifestyle of the people, and the changing preferences and taste would trigger more of expectation from the cruise liners. The major demographic target segment of the industry is between 55 to 64 years of age (Ferrell and Hartline, 2011, pp. 49-51). The average age of consumers decrease by 5 years so the number within this particular group is expected to change. The social factors are concerned with the target market of elderly people who spend on such cruises for leisure. People opt for value for money by taking such services, and the most important factor is to spend quality time with family and to understand the importance of holidays (Cheverton, 2005, pp. 129-130). The cruise liners should develop strategies so as to attract the younger generation who has high income but less time for such leisure. This would in turn give rise to more customer expenditures and short stay cruises. Technology is a very vital factor as all the amenities of such luxury voyage is based on technology. This factor has helped in development of large vessels with more of carrying capacity. It has also made it more convenient for the customers to book online than to rely on any travel agents. The environmental factor is a major area of concern as the cruise liners are highly responsible for disposable of huge wastage. They pollute the water due their operation and strict environmental laws and regulation will initiate more of restrictions for the cruise liners and even impose a new cost (Doyle and Stern, 2006, pp. 39-41). The legal factors comprise of the laws and regulations of the country in which such cruise liners operate. The cruise liner has even registered their ships in areas such as Bahamas, Liberia, and Netherlands which offers a reduced tax rate. When the countries experience a great decrease in the overall tax revenue it may impose added tariffs to the ship fares which might affect the profit margins of cruise liners with decreased passengers opting for such cruises. Porter’s five forces model This model helps in analyzing the internal micro marketing environment of the company. The Porter’s five forces model comprises of the following elements as stated in Appendix 1. According to this model the threat of new entrants is low mainly because of high cost and product differentiation. The Norwegian Cruise liners is well known for its freestyle cruising, and even having a wide range of cruises with all the luxurious amenities. It is difficult for a new entrant to match the capability of this cruise liner. Even if the entrant creates a product differentiation through various promotions and advertisement, the capital investment is the major barrier for the new entrants. The investment in a ship is large and that of a cruise is higher. There exists a high rivalry between the existing farms (Hastings, 2013, pp. 150-151). The two main competitors of Norwegian Cruise Liner are Carnival Corporation, and Royal Caribbean International. According to the Cruisemarketwatch.com the Carnival Corporation occupies 50% of the US market share, and Royal Caribbean captures 27%. Thus Norwegian Cruise liners face a tough competition from these two competitors. The bargaining power of buyers is very high as the cruise is purchased through travel agents which give them a lot of influencing power on purchasing. If they are banned together they could even demand for a very high commission, and they even possess control on whatever they recommend. Due to this buyers the cruise industry as played very well even at the time of economic downturn (Dibb, Simkin and Ferrell, 2012, pp. 201-203). There is a high threat of substitutes in the form of many other forms of vacations for the Norwegian Cruise Lines. People can go to a land resort or go to a desired location via plane rather than opt for a cruise. Beaches land resort offers a holiday package which is much more economical compared to that of Norwegian Cruise Lines. The beach land resort includes in its package snorkelling and kayaking but it requires additional charges to be paid in the cruise lines for opting for such activities. The bargaining power of suppliers is moderate for Norwegian Cruise Lines. The suppliers include furniture supplier, ship builder, ship maintenance, amenities suppliers, food and alcohol suppliers, etc (Pahl and Richter, 2009, pp. 69-70). There are very few options for the company in terms of ship builders which makes the bargaining power of suppliers moderate as the suppliers would not be interested to stop manufacturing and use the ship themselves. The other stakeholders of the company comprise of the shareholders and the employees. The shareholder’s were not very satisfied with the lower profit margins during economic recession but the stock prices are likely to rise now (Fifield, 2007, pp. 145-147). The employees are paid fairly but there are other options in the form of strong competitors of Norwegian Cruise Lines available to the employees. Value Chain Model The value chain model was designed by Michael Porter. The model comprises of a chain of activities that a firm belonging to a specific industry performs so as to deliver the best of services or products to the consumers. The way the value chain activities are performed determines the cost of the firm and even helps to determine the profit level of the firm. The major activities that the model encompasses are stated in Appendix 2. NCL can accomplish several tasks on the basis of the value chain model. For the inbound logistic activities the company must categorize and prioritize its ticket purchases so that they are able to maintain the operations in order for their customers. In this phase the company must do processing of ticket purchases and design itineraries for their customers for the voyage (Hollensen, 2003, pp. 31-33). The customers receive the itineraries and the services to be delivered to the customers are scheduled at the outbound logistic activity phase. Marketing and sales activities are mainly carried out through online ads and occasional TV commercials. The customer service activities are finally accomplished when the customers board the ship. This forms the most crucial stage as it is this phase when the high quality services promised by NCL is delivered and the needs and wants of the consumers are satisfies. As the cruise industry generates high revenue but is very competitive so it requires well designed customer service to retain the existing customer base and acquire more business from these existing customers (Hooley, Piercy and Nicoulaud, 2012, pp. 66-68). Importance of market research, marketing mix and service innovation for Norwegian Cruise Lines There is a great importance of marketing mix, service innovation and market research for Norwegian Cruise Lines. The main reason behind this is the increased competition in the cruise industry. The importance can be well justified with the help of SWOT analysis of Norwegian Cruise Lines. SWOT analysis The strength of this company is that it has a wide range of cruise ships such as Ventura, Carnival Destiny, Star Princess, Queen Mary 2, and Caribbean ships, some of which is known as the largest ship of Britain, and some are having an outdoor movie theatre and even a high storage capacity which other cruise liners do not possess. This cruise line has got many options and choices, it has got a vast product range and each of them has a unique feature. There are approximately six cruising experiences that are operating across the North American belt and each of them has a unique style and ambiance. It is a global company which operates with approximately 80,000 employees and even includes about 65,000 employees shipboard. As the company has different brands headquartered in different countries there is a diverse work culture, which gives the Norwegian Cruise lines the strength of professional crews and better amenities (Gelder and Woodcock, 2003, pp. 82-85). The weakness of the company is of over capacity. It has got seven different cruise brands which offer unique vacation products which resulted into 92 cruise ships in total with around 12 to 13 ships ordered for delivery. The company extended product line imposes large operating cost and lesser profit margins during inflation. It faces a lot of competition from Royal Caribbean, Carnival, Star cruises, TUI etc. The economic recession is the factor that has led to decline in demand for the cruise. The safety of the passengers is a major issue and even weakness for the cruise as it had been reported that 87 passengers of Norwegian Cruise Lines have fallen overboard since 2000. The opportunities for the company are new cruise destinations. The destinations include that of Asia, Canada, Indian Ocean, Brazil, Middle East, Arctic regions including Greenland and Newfoundland. Other opportunity for this cruise line is to design kids and family friendly cruises. This would help the company to have more specific customer segments by targeting different demographics groups and offering various kinds of entertainment options. There is even an opportunity for the Norwegian Cruise Line in the form of emerging ports around the world such as in Abu Dhabi, Dubai, Mumbai (India), and the Arabian Gulf. There exist even an opportunity to design innovative shipboard activities such as full scale seagoing aqua parks, casinos, skating rinks, luxury spas etc (Richter, 2012, pp.56-57). The company can even opt for co-branding opportunities, and even link their cruises with some fitness products such as spa so as to enhance more branding of their cruise ships. The common threats for the company is terrorism and unstable political conditions that affects the operations of such cruises. The high energy cost of these cruise liners leads to reduction in the profit margins (Schnaars, 1998, pp. 92-93). The overcapacity of Norwegian cruise liners is the major threat as it restrains growth and poses great pressure on the company to remain profitable for all the ships. The global economic slowdown would not let people to spend money on such luxury voyage. The cruise lines causes high environmental impact which imposes more cost on the company to adopt measures to avoid environmental damage and are even bounded by some restrictions as per the environmental laws. There can be even major tax challenges for the company having its operations in different countries (Smith, 2011, p. 50). Marketing mix and price strategy This marketing tool is very important in order to formulate the business strategy. It comprises of 4Ps such as Product, Price, Place, and Promotion. The product is the most vital element as the success of any business depends on how good or bad the product is, price is the amount that the target market would be willing to pay, place is the location where the product would be offered, and promotion would be advertising or marketing medium through which the product would be delivered from the business to the customers (The American Marketing Association, 2013). The marketing mix for the Norwegian Cruise line is as follows – Product is the luxurious cruise ships with the best amenities, the company has got a wide range of ships where all of them possess unique features and difference in ambience. It comprises of 3-17 day all inclusive cruises which includes meal, accommodation, and entertainment. The price that the Norwegian cruise line is offered is between medium to low prices (Batey, 2012, pp.32-33). The pricing strategy of the Norwegian Cruise Lines is penetration pricing strategy. This strategy involves placing the products at a lower cost compared to its competitors. The company has various categories of cruise ships on the basis of which the prices are offered. Such as Norwegian epic, Jewel class, Breakaway class, and NCL America have pries that range from premium pricing to medium pricing for its specific target market. Whereas Sun class, Leo class, and Dawn class are those cruise ships under the common brand which are low-priced compared to that of its competitors. So it has different prices for different target market customers. The cruise travels to various destinations such as Alaska, England, North America, Europe etc. The company has opted various innovative promotional medium. The company has updated and expanded its online website. The company has even entered into a contract with CruiseView to showcase their videos such as tours of their deck, cabins, ships, and other amenities (Tielmann, 2010, pp. 49-50). The online marketing efforts have made the company to reach out to a large number of passengers. The company even aims at TV advertisements with a total investment of $16.5 million in promotional activities. As an approach towards promotion the company even performs co-branding with Mastercard, Amtrak, Mandara Spa, and Cooking Lite Magazine (Cateora, Gilly and Graham, 2010, pp. 67-69). Norwegian cruise liners focus on its major element for its product differentiation that is Freestyle cruising. The freestyle approach encloses five components such as dinning, attire, disembarkation, gratuity, and service. There are no restrictions on this cruises and the company now focus on relating this freestyle approach with that of emotional benefits such as greater flexibility, more relaxation, and more of a personalized vacation (Vance, 2008, pp. 111-112). The company mainly focuses on the target segment between 31 to 40 years of age. Its reliable website focuses on 55-75 years of age group. The company positioned its cruise lines to offer resort style vacations and are trying to connect the freestyle concept with such positioning (Kahn, 2011, pp. 21-25). The SWOT analysis and the innovative marketing mix clearly reflect that the Norwegian Cruise Lines has to perform extensive market research. The market research enables a company to analyze the changing marketing trends and even helps to establish business strategy according to the changing marketing scenario. NCL has already been carrying out market research survey to understand the taste and preferences of the consumers, the result of which is the online service that the cruise offers. The company has to maintain constant innovation in its product line so as to sustain in the highly competitive market with major competition from the Carnival, and Royal Caribbean (Vemon, 2000, p. 139). The strong competition is the major threat of the company. The importance of service innovation is that it would create a difference in the positioning of the services that is offered by its cruise ships and such an innovation is already observed in its product line through the freestyle approach. The importance of such approaches is as the economic downturn has imposed a value for money concept in the mindset of the passengers (The Advertising Educational Foundation, 2013). Such luxury voyage is not a basic need for the people and the cheaper airfares has posed a great threat for the cruise industry. Since the service offered by all the cruise lines is homogeneous, it requires constant service innovation, constant market research to analyze the market demand and the position of their competitors, and a proper marketing mix in order to capture more of market share and attained a competitive advantage in terms of product differentiation, best of services at a competitive price (Walker, 2008, pp. 104-105). Recommendations to increase competitiveness and sustainability of Norwegian Cruise Lines The Norwegian Cruise Lines has achieved growth due to its product differentiation by freestyle cruising which gives the passengers the comfort to enjoy their vacation in the same way as they would do if they were on a land resort. The cruise line however has got very low brand awareness. There are several approaches that the company can adopt in order to improve their marketing situation. The company faces a major challenge to convince the target audience to spend their holiday on their cruise or take the safety risk for going on the cruise. The Norwegian cruise lines can opt for increasing their relationship with the travel agents (Moschis, 1994, pp. 107-108). The company must make sure that the travel agents are well aware of their target market. Norwegian Cruise Line can even let some individuals of these agencies to travel on their cruise ships so that they are able to communicate well to the people the kind of high quality services that these cruise lines offer (Dibb and Ferrell, 2011, pp. 72-73). The other recommended area to be strengthened is the European travel of this cruise liner. As per the statistics the youth generation are expected to travel more in Europe in the future, and thus Europe can be very lucrative for the operations of Norwegian cruise liners. The awareness of this cruise liner is very low so it is recommended that the company opts for mass media advertising. Big cable networks are the ideal medium for this kind of mass media advertising. The target market could be attracted through airing commercials on primetime television and family channels (Peng, 2009, pp. 133-135). The company is even recommended to sponsor some reality shows. All the major competitors of Norwegian cruise lines have mass media approaches and this would give them more of a competitive advantage in relation to its competitors (Brand Republic, 2013, pp. 29-31). Other recommended approach for the company is to offer more of demographic specific cruise services. This could be done by focusing more on families and kids. The company is already known for its freestyle cruising and in order to achieve an edge over it the company can aim for developing more of family friendly cruises and even kids friendly cruises this would help Norwegian Cruise Lines to capture more of market share by offering something unique for each of the demographic group. NCL can even attempt to implement casinos and aqua park activities on the ships this would give more of a competitive advantage (Direct Marketing Association, 2013). The cruise liner has already developed the first open movie theatre on its cruises. These recommended approaches can be adopted by Norwegian Cruise Liners to achieve sustainability in the highly competitive market place of the cruise industry and even attain a competitive edge amongst its competitors. Conclusion Norwegian Cruise Line is a very good example of the cruise industry which has a poor marketing strategy but excellent services. Freestyle cruising is such an innovative idea that many passengers desire for in their choice of cruise but the company has failed to inform or rather spread awareness of their differentiated services to the travel agents and even the potential consumers because of their low budget for promotional activities. The recommendations that I personally feel can be adopted by this company is improving the distribution channel especially the travel agents, running a television commercial to spread more awareness amongst the potential consumers, sponsor any reality show, exploit the opportunity of more of youth travelling to Europe, even launch demographic specific cruises and design casinos and much such facilities to provide more of innovative entertainment to the passengers at a price range lower than that of the competitors of Norwegian Cruise Liners. The company offers the best of service with greater quality, the only area that the company needs to focus on is designing better marketing traits so that it is able to create awareness amongst the potential consumers and generate more of profit margins. References Armstrong, G., Kotler, P., Harker, M., and Brennan, R. 2009. Marketing: an Introduction Pearson Education Limited: Essex. Baines P., Fill C., and Page K. 2010. Marketing. UK: Oxford University Press. Batey, M. 2012. Brand Meaning. USA: Psychology Press. Brand Republic. 2013. Advertising, Marketing, Media and PR Portal. [online]. Available at: www.brandrepublic.com [Accessed on 31st March 2014]. Cateora, P., Gilly, M., and Graham, J. 2010. International Marketing. New York: McGraw-Hill Cheverton, P. 2005. Key Marketing Skills: Strategies, Tools and Techniques for Marketing Success. Great Britain: Kogan Page Publishers Claycomb, C., Germain, R., and Droge, C. 2000. 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