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Business Strategy
(Semester II)
PRESENTED TO:
Module Tutor:
Dianne Willis
Jane Young
PRESENTED BY:
Yasir Yasin Kayani
MSc Information Systems
33099193
Date: 08-05-07
1INTRODUCTION TO
ROYAL CARIBBEAN CRUISE LINE (RCCL)
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This report is written in context to analyze and evaluate the current competitive and
strategic position of RCCL in the cruise industry. Reflecting this we have generated and
proposed strategic options for RCCL in globally competing environment for the future.
Royal Caribbean Cruise Ltd (RCCL) is the world’s second largest cruise company behind
Carnival Cruises, operating 34 cruise ships with 67,550 berths and around 310
destinations was established in 1968 SEC (2006), RCCL (2006). Cruising is fastest
growing industry (Appendix A) in the world. RCCL as a major player of the industry is
now well established and acknowledged operates three cruise brands on a variety of
itineraries. Royal Caribbean International RCI, serves contemporary and premium segments
of the cruise vacation industry, Celebrity Cruises CC, serves the premium segment of the
cruise vacation industry and Pullmantur Cruises PC acquired in 2006 serves modern
Europeans and Latin American vocation cruise industry. In addition to this in 2000
RCCL formed a joint venture with First Choice Holidays PLC, one of the largest tour
operators in the United Kingdom. This alliance operates a cruise brand name Island
Cruises IC, offering range of itineraries intended to catch the fancy of passengers from
the United Kingdom and Brazil. Contemporary section is served by cruises that are seven
nights or shorter and characterized as casual cruising in the industry (Stevenson, 2004).
The premium division is served by cruises that are usually seven to 14 nights and
indulgence to the more affluent and experienced customers. RCCL claims that they serve
on the basis of large number of quality ships, service, price and itineraries
As per the given case (Stevenson, 2004), RCCL have practiced diverse strategies in
between 2004 to 2007. RCCL have been engaged in capital expansion program by
building new and large size ships. Aggressive fleet and capital expansion program
resulted in huge capacity is slowing down by 17 % from 2004. SOLSTICE for Celebrity
and Freedom Class III for Royal Caribbean are supposed to be delivered in 2008 (CLIA,
2006). TBA ship is due in 2007 with the cost of US$ 720m in 2007 part of its expansion
program (Mintel, 2004). RCCL have worked on market development and added new
itineraries departing from major US ports to meet the demand in 2003. RCCL has
expanded its market in 2000 to catch European customers operating through European
itineraries with their strategic alliance First Choice Holidays PLC Island Cruises, and
Pullmantur Cruises (PC) acquired in 2006 (SEC, 2006) offering the best cruising
experience to its customers on the basis of quality of ships, quality of service, variety of
itineraries and competitive price. RCCL have developed its new products by introducing
new innovative packages, which includes wireless internet, mobile and computing
technologies, rock climbing, basket ball courts, gamming, onboard dinning, entertainment
and shopping. RCCL have managed to control the operating costs and optimize revenue
per berth through the integration of sophisticated information processing systems to
manage computerized transmission of customer information, administration, marketing,
inventory and decision making. RCCL’s current strategies are to overcome competitive
circumstances and turn potentials into profits by product development, market
development, product differentiation on Celebrity Cruise (CC), and aggressive
advertising and media campaign “Get Out There” started in 2000. Sophisticated
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management systems are deployed to enhance revenue from demand of quality service,
product and low fairs (RCCL, 2000). Further more improvements are made by
introducing new technological capabilities to maintain a strong relationship with travel
agencies, shipyard fabricators and other industry distribution channels, and offering
customers direct access through interactive websites. These web sites include all feature
related to customer reservations and transportation, including arranging hotel reservation,
air and road transportation. RCCL has launched an online passenger loyalty program;
“Crown & Anchor Society” has over 4.1 million registered members. This membership
provides customers a dedicated section in the www.royalcaribbean.com with special
cruise offers, vocation packages and onboard services. RCCL became able to produce
huge revenue to take up on marketing, selling and administrating expenses.
Strategic
Analysis
Internal External
Analysis Analysis
Strategic
Position
Strategy
definition
Strategy
Implementati
STRATEGY ANALYSIS on
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SWOT ANALYSIS
To analyze the internal and external environment of the RCCL and examine the current
state of the business SWOT Humphrey (1970) analysis is used to find out strengths,
weaknesses, opportunities and threats. A SWOT analysis provides a framework to
evaluate internal and external elements of an organization and depicts a picture of the
current position in the market Thompson, Martin (2005).
Here we have used SWOT for internal and external audit of RCCL.
Strengths Weaknesses
Opportunities Threats
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Strengths are those or capabilities of RCCL which can be used for competitive
advantages.
Strengths
1. Second largest cruise company with three brand names, owns voyager class
world’s largest ships, highest percentage of its fleet (80%) serving in the US
(Ebersold, 2004).
2. 310 worldwide destinations in the Caribbean, North America, South America and
Europe and Australia (SEC).
3. Fleet of 34 ships and 65,550 berths capacity driving revenue growth (Mintel,
2004)
4. Strong revenue in 2004, 2005, 2006.
5. RCCL have direct relationship with 30 thousands agencies and provided direct
access to its computers, various online booking applications and facilities has
been provided to the agencies
6. Use of Internet, latest IT software’s to manage daily operations, business
information processing, decision making and marketing.
7. Strategic alliance with one of the dominant tour operator First Choice Holidays
PLC UK and establishment of new brand name of ISLAND Cruises
8. RCCL have youngest average age of ships Celebrity cruise 5.6 and 5.8 for RCC
Mintel (2004).
Unavailable resources or capabilities can be considered as weakness of RCCL.
Weaknesses
1. Lower operation margins due to high fuel prices, operating and marketing cost.
2. Debit equity ratio i.e. 1.31 is higher than average industry ratio 0.69.
3. Commission based agencies have direct influence on customer and can
manipulates their choice.
4. Less capital access due to low market share 33 % in 2004, that is lower than main
competitor.
5. Poor standards of waste management and sewage water etc.
6. Heavily rely on distribution channels.
External audit of the environment can expose new opportunities for RCCL.
Opportunities
1. Only 17 % population in US have tried cruise experience leaving great
opportunities for market growth in US (CLIA, 2006).
2. Air lines ticket prices are high and aviondance of air travel in Europe and
America.
3. Opportunities of addition of new itineraries locally and world wide. New market
being created e.g. Africa and after ASEAN freed trade and cooperation
agreement, Hong Kong, China, Japan, and Taiwan could be the potential target
market. Europe, Australia, New Zealand and Arabian seasonal markets are very
attractive for customer from winter affected countries.
4. Approximately 41% of the UK population are interested in going on a cruise in
the future, 49 % USA population is encouraging for the by 2050. (Mintel, 2004)
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External threats are always there for any firm in the environment which must be analyzed
to be competitive.
Threats
1. Failure of the economy to make a full recovery and unemployment in US
continues to hold 6% which can affect the cruise industry, home land cruising in
US is getting popular it can affect international market
2. High fuel cost rose at 60 % in the past years 2002, 2003 and continues to increase
which had a negative effect on operating cost.
3. Euro-Dollars exchange rate has a significant affect on cruising industry, Euro has
raised in recent years
4. National and international GDP trends US, Europe, Canada, Australia and in
South Asian Countries etc.
5. Delays in ships construction and poor quality from supplier and bargaining power.
6. Cancellation due to technical or mechanical problems, unplanned repairing can
impact customer contentment.
7. Strict environmental policies in US and other countries, OCEANA campaign
against poor sewage standards can change customer perception.
8. Other competing forces e.g. Carnival’s larger market shares that is 52 %.
9. Health and safety issues, viral out breaks, terrorist threats are danger for
vacationers and RCCL operations.
10. Customer’s misperception about cruising, life style and changing behaviour.
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Bargainin
g power of Existing Bargainin
Suppliers Rivalry g power of
Buyers
Bargainin
g power of
Suppliers
Threats of Substitutes
1. Housing colonies on the sea resorts, hotels and there is possibility of floating hotels
with small boats for cursing can be introduced in the industry. Palm Tree in UAE is
example of another sea resort entertainment.
have potential to influence the business and strategic position of the RCCL. This analysis
is based on Afuah, Tucci (2000) 5Cs model and E-commerce value grid Appendix B. We
will focus on properties of 5Cs model that depends on information exchange and could
have an impact on the electronic transactions of the RCCL and its performance.
Internet properties
Mediating Technology
Universality Business Models
Network externalities Coordination
Distribution channel Commerce
Time moderator Community
Information asymmetry Performance
Content
shrinker Communication
Infinite virtual capacity
Low cost standard
Creative Destroyer Environment
Transaction-cost reducer
Here we will try to analyze that how internet and e-commerce has been or not playing a
strategic and competitive role in RCCL operations. We will use 5Cs matrix to analyze the
role of e-commerce and values internet has provided to RCCL in competing and strategic
environment. Afuah, Tucci (2000) have defined ten internet properties, have a contact
Coordination: Use of internet and partial e-commerce activities has reduced the cost of
information exchange with customers, suppliers and in management operations e.g. with
how a company (RCCL) carries out its activities and what is the influence of the internet
properties is on the RCCL business. RCCL management coordinates with different
departments electronically; customer receives electronic tickets and confirmation without
shipping and posting. It has improves service and quality and reduced cost.
Commerce: RCCL is taking advantage of internet in obtaining and selling services and
goods e.g. in B2C electronic booking system, B2B procurement, industrial relations,
information processing, web transactions, B2G online taxation, C2B customers contact
feedback etc.
Community: RCCL community is much bigger than before using internet they have 4.7
million “Anchor society” members on royalcaribbean.com SEC (2006). User groups with
similar needs and feedback, chat rooms for views exchange, entertainment etc. These
groups are potential customers of RCCL.
Content: Number of information and entertainment contents are available on RCCL
ships, applications, variety of ways of communication, use of different technologies to
entertain customers, internet, music, gamming etc.
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MARKET SEGMENTATION
“Market Segmentation is about identification of different groups’ with in a target market
in order to develop different offerings (Chaffey, 2004 p 335). According to the given case
in 2000 RCCL have been targeting specific customers who are “explorers” and
adventurous travellers. RCCL have targeted active adults and vocation enthusiastic
families by launching “Get Out There” marketing campaign in Alaska in 2000. Cruising
is the fastest growing sector in North American curies market, with annual rate of more
than 9% since 1980 by 2002 Miller, Grazer (2002). However the problem exists for the
RCCL with bigger ships and enormous fleet capacity. The most challenging thing is that
where these customers come from, how and whom RCCL can attract more. Market
segmentation methodologies suggest us that knowledge of consumer behaviour,
economics psychology, demography’s, travel pattern, decision making service packages
and customer satisfaction are the key threads Hu C (1996).
VALUE CREATION
Value Creation is the process of creating demand of a product or service by focussing on
buyer whether it is individual, society or an organization Lepak D et al (2007). Business
strategy formulation spins around concepts of value creation and value capturing which is
improvement in service, quality, profitability or earning other benefits. In other way we
can create value by changing practices or strategies, by traditional approach of Porter’s
generic strategies
FOCUS STRATEGY
Porter (1985) focus strategy based on the choice of competitive scope within the
industry attempts to target a particular segment of the industry RCCL can capture high
degree of customers focusing on the particular segment presented below and turn into
potential profit.
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Demographics
As forecasted by FCCA (2007), a record number of 12.6 million passengers are expected
to cruise with 4.1% increase, with 10.6 million passengers originating in North America.
According to Mintel Reports (2004), demographic picture for the USA population is
encouraging especially for the cruise industry and particularly for the RCCL as it shows a
49% increase by 2050. Mintel (2004) consumer research report showed that about 41% of
the UK population are fascinated in going on a cruise in the near future, and one in five
Canadians are interested to have a cruise vocation in next five years. European
destination market is gaining popularity as cruise market. It is assured that European
market will grow from 70 to 80 % which represents 14 % of the total cruise market.
There are currently six customer segments in the North American and Caribbean cruise
market Miller, Grazer (2002).
Withdrawal
Product
Present Consolidation
development
Market
Penetration
Market
Market Diversification
development (B&C)
New
• New diverse marketing strategy must be developed to attract all type of customers
instead explorers.
• New segmentation and marketing measures must be adopted both offline and
online. 13 % customers’ books online and 88 % cruisers use travel agents when
booking a cruise Mintel (2004).
• New packages, products, gamming, gambling, music concerts can be advertised
with different fares, and seasonal needs. One week packages are most popular
among customers Mintel (2004).
• South East Asia especially Middle East and Australia is a potential market.
(Market Development)
• Alternatives transport systems can be incorporated in cruise packages e.g. Royal
Caribbean Trains in US.
• RCCL have opportunity to operate chain of shopping malls and Royal Caribbean
Hotels on sea resorts. (Diversification)
• RCCL can diversify its services as a large market share holder; can invest to
create partnership with domestic and international air lines rail networks and tours
operators. (Related Diversification)
• Backward integration, forward integration in food, services, and ticketing can be
adopted instead suppliers with Royal Caribbean Brand name. (Product related
development)
• RCCL credit cards and loyalty cards are another way to catch customers with
promotional rates and loyalty discounts for card holders. (Diversification)
• Promotional packages for large size companies to arrange business meetings and
conferences and Celebrity functions.
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During the previous strategic phase from 2000 to 2004 RCCL has been working on
market penetration (Pullmantur acquisition operating in Europe), capital expansion
(introducing new ships e.g. Liberty of the sea and many more), product development
(introducing new packages e.g. more on board entertainment, shopping, ice skating etc)
and innovation (implementation of new technology in ships) internet e-commerce etc.
These activities have generated total revenue up to $5229.584 6.7% increased in 2006 as
compare to 4555.375 in 2004 and net income $3.01 in 2006 from $2.39 in 2004. To
compete and increase large market shares RCCL have to take steps in new direction.
New strategies are based on:
HORIZONTAL INTEGRATION
Acquisition
On the basis of SO option 6 RCCL can work on (acquisition) strategic alliance with Star
Cruises market share 9.3, Holland America 7.0 in 2003 both are large market share
holders after RCCL. Firstly, this action will increase market share under RCCCL brand
with out buying new ships, secondly, this step fulfils generated SO option 6 and
automatically fulfils ST option 1 the main threat to RCCL can be removed.
INNOVATION
Innovation is liked with two above strategies, giving significant change to existing
patterns of offering by new technology. Replacement of existing package with
completely new trends
The Balanced Scorecard is a strategic approach developed by Kaplan and Norton (1993),
provides a comprehensive framework that translates a company’s strategic objectives into
a coherent set of performance measures and management system, which enables to
translate a company’s vision and strategy into implementation from four different
perspectives. These perspectives are Financial Perspective, Customers Perspective,
Internal Business Process Perspective, Learning and Growth Perspective.
VISION
World class Provider of cruising and vocation pleasure.
Reputation of RCCL and its brand names
Innovative and strong partnership with alliances
GOALS
Fully customer satisfaction, RCCL promise to deliver best cruising services, high quality
results in term of revenue.
Each perspective presented above contains unique objectives. Objectives are the means
whereby RCCL will achieve its strategic goals. RCCL should use Scorecard to monitor
its performance and actions.
CONCLUSION
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In the presence of inflation in economies, security threats, viral out breaks and on the top
intense competing environment and changes in travel pattern can affect any industry and
specially vocation industry. Though, in depth analysis of research literature on the cruise
industry suggest that market is growing very rapidly and there are minimum signs of
market crash. For RCCL it is very essential to obtain the large part of market shares,
instead disposable capital like berths capacity. In this report, current position of company
is closely analyzed, powerful tools and techniques are adapted to recognize and pullout
the real threats, opportunities and competing forces for RCCL. Business process,
operating issues, supplier, customers, income and profits even many thing have been
objectively examined. E-commerce and technology is also brought into account for
sustainable growth and marketing. The fundamental aspect highlighted is the core
competition in the complex market.
On the basis of analysis tools used in report, we have suggested competitive strategy with
combination of horizontal integration and continuous innovation to virtually attract every
segment in different location on different brands, although, suggested for particular
segment. All strategies are the result of environmental scanning of given organization,
and use of strategic management techniques like SWOT, TWOS, and Porter (1985)
generic strategies. On the basis of these tools strategy is generated and evaluated
accordingly. Balance score card is used to measure the worth of proposed strategy.
Apparently, this is worthy strategy in the direction to achieve the strategic position and
competitive edge. However RCCL needs multidimensional measures to check the
performance of applied options through out the course of operation. Apart from the
expected benefits of suggested strategy, the formulated strategy would also bring the
benefits of more market development and market penetration.
REFERENCES
Afuah A, Tucci C (2001), Internet Business Models and Strategies, Text and Cases
International Ed. McGrawhill
Chaffey D (2004), E-business and E-commerce Management 2nd Ed, Prentice Hall
Cruise Lines International Association (2006), The 2006 Overview, [internet], Available
from: <http://www.cruising.org/press/overview%202006/2006OV.pdf> [Accessed on
01-05-07]
Florida-Caribbean Cruise Association (2007), Cruise Industry Overview – 2007,
[Internet], Available from: < Website: www.f-cca.com/overview2007>
Dale C, Robinson N (1999), Bermuda Tourism and the Visiting Cruise Sector, Strategies
for Sustain Growth. Journal of Vocation Marketing, Vol. 5, No. 4
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Johnson, Scholes (1999), Exploring Corporate Strategy, Chapter 6 Strategic Choice, 5th
Ed. Prentice Hall
Hassan S , Craft S, Kortam W (2003), Understanding the New Bases for Global Market
Segmentation, Journal of Consumer Marketing, Vol. 20, No. 5
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vid=1&hid=106&sid=a96f08b8-ff3d-4879-b57d-e8181debf4f9%40sessionmgr108>
[Accessed on 28-04-07]
Lepak D, Smith K, Taylor M (2007), Value Creation and Value Capture: A Multilevel
Perspective, Academy of Management review, Vol. 32, No. 1
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Mintel International Group Limited (2004), Future Cruising in Europe
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APPENDIX A
INDUSTRY INTRODUCTION
According to Stevenson R (2004), US SEC 2006, Cruising is the one of the fastest
growing industry since its establishment in 1970. North American passengers have grown
to 10.08 million in 2006 from 0.5 million in 1970 with annual rate of 9 percent. A
considerable growth rate has noticed from 2002 to 2006. In 2000 North American market
was served by more than 112 vocation cruise ships with more or less 156,987 berths. This
capacity has grown to significant amount of 229,486 berths with 140 cruising ships in
2006. Numbers of cruise lines are operating in the global market, two major players of
North American Cruise market are Royal Caribbean Cruise Line (RCCL) and their
competitors Carnival Cruise. Both compete on the basis of quality of ships, service, price
and a variety of itineraries and destination.
TOWS
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APPENDIX B
FINANCIAL REPORT
Financial comparison based on reports of 2003 and 2006 are compared to check company
financial strength.
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The following table details the growth in the North American cruise market of both
passengers and estimated weighted-average berths over the past five years: