Business Monday

Maximizing Revenues: Cruise lines catch the wave by adding value

Adam Snitzer is president of Peak Revenue Performance.
Adam Snitzer is president of Peak Revenue Performance.

Cruising is big business in South Florida.

PortMiami and Port Everglades are the world’s No. 1 and No. 2 busiest cruise ports. The three largest publicly traded cruise companies are all headquartered in Miami: Carnival Corporation, Royal Caribbean International and Norwegian Cruise Line Holdings.

Together these three companies carry more than 15 million guests every year. So they have a thing or two to teach us about pricing and promotions.

Especially now, while the cruise industry is in the middle of its annual “Wave” season, which is the 2 1/2-month booking period in January, February and March.

Why is Wave season so busy? Three reasons:

First, we all like to daydream about our next vacation. So the most popular time to plan a vacation is as soon as we return home from our last one. With so many of us having vacationed over the Christmas and New Year’s holidays, there’s a lot of vacation planning and daydreaming going on.

Second, most of us have to put in for vacation time at work, and the earlier we reserve the better.

Third, cold winter weather leads our Northern brethren to make plans for getting warm.

As a result, cruise lines book close to 40 percent of their reservations for the year in just over 10 weeks. Wave season for cruise lines is like retailers’ Black Friday, Cyber-Monday and holiday shopping season all rolled into one. In fact, Carnival Cruise Line has dubbed Wave season “Carnivalidays,” which is both cute and quite fun to say.

With so much riding on the Wave, cruise lines offer strong promotions to drive demand and grab share.

But this year they’re taking a nontraditional approach. Instead of lowering their prices, the major cruise lines are all offering value-added promotions.

With value-added promotions, companies maintain their prices but improve the perceived value of their offers by including appealing features.

Cruise lines are offering an enticing mix of value-added inducements. Celebrity Cruises is running a “Pick Your Perk” promotion that offers complimentary drink packages, prepaid tips, unlimited Internet access and onboard spending credits.

Royal Caribbean’s “BoGo Further” campaign is similar, but also includes reduced deposits and discounts for third and fourth guests in a cabin.

NCL’s “Free at Sea” promotion includes drinks and WiFi and also includes dining in specialty restaurants and credits toward shore excursions.

Carnival Cruise Line is having the most fun with its Wave promotions. Their “Choose ’N Cruise” deals invite customers to play “Eenie Meenie Minie Deal” and select either cabin upgrades or onboard credits, or both.

Value-added offers are smart because they trade hard dollar discounts for amenities that have high perceived worth but very little actual cost.

If the cruise lines discounted by another $100, they’d be out the full $100 in hard money. But given the huge markup on alcohol at all bars and restaurants — a $100 drinks packages costs the cruise line less than 20 bucks, so they come out $80 ahead of a standard $100 price cut.

Other amenities, like free WiFi and specialty dining fees have no incremental cost, just the lost revenue from guests who would have otherwise paid for those services.

And some amenities, such as cabin upgrades and reduced deposits have no real hard dollar cost and no real opportunity cost either. So using them to increase customers’ perceived value is especially good news for cruise ticket revenue.

So if value-added promotions can help Miami’s cruise lines fill their 3,000-plus passenger cruise ships every week while preserving much more of their sales revenues, think about how value-added promotions would help drive sales for your business.

Adam Snitzer is a revenue strategy expert and president of Peak Revenue Performance, a consulting firm that specializes in designing and executing innovative pricing strategies. He can be reached at adam@peakrevenueperformance.com, or via the company’s website at PeakRevenuePerformance.com.

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