Cruise & RM - Carla Bento

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Cruise & RM - Carla Bento

  1. 1. RevenueManagementfor CruiseShipsCarla Bento, ESTH, IPG
  2. 2. Overview / Presentationoutline• Summary of Business Performance of CruiseVacation in Europe• Trends and profiles of the cruise ship market• Ship Classifications• Critical variables in cruise businessperformance• The Cruise Product• A financial breakdown• Revenue Management• 8 steps to get doneErasmus IP project, “Sustainability of Cruise Tourism”, 15-26 April 2013,Seia-Portugal
  3. 3. Summary of BusinessPerformance of CruiseVacation in Europe• Circa 1880 – An increase in the profitabilityof travel leads to the appearance of thefirst cruise enterprises• “Península and Oriental Steam Navigation• Company” (P&O) is believed by some authors tobe the first cruise company• 1920s• Activity with a particular emphasis on Germany• Intended primarily to senior touristsErasmus IP project, “Sustainability of Cruise Tourism”, 15-26 April 2013,Seia-Portugal
  4. 4. Summary of BusinessPerformance of CruiseVacation in Europe• 1950• The activity expands worldwide, mainly becausethe increase demand for sun and seadestinations, and also air travel growth.• It becomes accessible to people with commonincome.• ....Downloadsl-ftltoabanynsdw.jpg• ....Downloadsl-v6sv0769kf5l5r.jpg• http://www.youtube.com/watch?v=KxY5GoFrOxMErasmus IP project, “Sustainability of Cruise Tourism”, 15-26 April 2013,Seia-Portugal
  5. 5. Summary of BusinessPerformance of CruiseVacation in Europe• 1960s• Growth in demand intensifies during thisdecade.• Early 1970s• Cruise terminals are restricted to piers in portsthat traditionally received the transatlantic liners.• From the end of the 1970s• A change occurs in the way the product ispictured• The industry is no longer regarded as a luxuryproductErasmus IP project, “Sustainability of Cruise Tourism”, 15-26 April 2013,Seia-Portugal
  6. 6. Summary of BusinessPerformance of CruiseVacation in Europe• The cruise industry owes THE LOVE BOAT TV series forthe dramatic popularity of cruising starting in the1970s.• P&O Lines, the former owner of Princess Cruises,emphasized in an early 1990s financial press releasethat the LOVE BOAT had probably generated overa billion dollars in revenues for the cruise lines.Erasmus IP project, “Sustainability of Cruise Tourism”, 15-26 April 2013,Seia-Portugalhttp://www.youtube.com/watch?v=icAwcByaNtY
  7. 7. Summary of BusinessPerformance of CruiseVacation in Europe• 1990s• There is an increase in airline capacity• Also an increasing representativeness of nonNorth American passengers• Today• Increased market demand for cruises leading tosignificant growth of European ports• New range of destinations and new home portsin less saturated areas• The potential for business growth in Europeremains highErasmus IP project, “Sustainability of Cruise Tourism”, 15-26 April 2013,Seia-Portugal
  8. 8. Trends and profiles of thecruise ship market• The Cruise Experience• Many tourists who choose to cruise perceivecruising as safe, social, service-oriented, andcustomer friendly.• Cruise ships combine familiarity with theexcitement of travel.• Easiness is also perceived as an advantage:“we only pack twice during the whole vacation!”• Some travelers perceive cruising as expensive,claustrophobic, elitist, seasickness-inducing, andreserved for older people only.Erasmus IP project, “Sustainability of Cruise Tourism”, 15-26 April 2013,Seia-Portugal
  9. 9. Trends and profiles of thecruise ship market• The Cruise Experience• It is less expensive to take a cruise than flyingand staying in hotels with minimal quality (andstill have to pay for food and additionalshipping); Ward, 2010• A wide variety of shore excursions and activitiesare offered at each port of callErasmus IP project, “Sustainability of Cruise Tourism”, 15-26 April 2013,Seia-Portugal
  10. 10. Trends and profiles of thecruise ship market• The growth of Europe as a cruisedestination has been motivated by twoseparate but related factors• New European tourists attracted by Europeancruise companies based in Europe, as well asthe North American companies;• The increased demand for cruises in Europe byEuropean and North American passengers,encouraged by the decision of North Americancompanies to put more vessels operating inEurope• http://www.turisver.com/article.php?id=60708Erasmus IP project, “Sustainability of Cruise Tourism”, 15-26 April 2013,Seia-Portugal
  11. 11. Trends and profiles of thecruise ship market• In this context, the main Europeandestinations, both for European and NorthAmerican Cruise tourists are theMediterranean and the North of Europe• There is a number of cruise destinations:• Caribbean, Alaska, Northern Europe,Mediterranean, Middle East, South Africa, India,Mexican Rivieira, Panama Canal, SouthAmerica, Australia, New Zealand, Middle East,Bermuda, Bahamas, Hawaii, Greek Isles, Africa,Australia, South America, Asia, Polynesia,Panama Canal and AlaskaErasmus IP project, “Sustainability of Cruise Tourism”, 15-26 April 2013,Seia-Portugal
  12. 12. 2013 – ProjectionsErasmus IP project, “Sustainability of Cruise Tourism”, 15-26 April 2013,Seia-PortugalSource: Cruise Lines International Association
  13. 13. Trends and profiles of thecruise ship market• Duration• Usually lasting between 3 and 22 days, and,occasionally, there may be routes of 45 or 90days• There are also two-day trip cruises and othersthat take passengers around the world lastingup to 180 days• The most common duration of a cruise is usuallyseven daysErasmus IP project, “Sustainability of Cruise Tourism”, 15-26 April 2013,Seia-Portugal
  14. 14. Trends and profiles of thecruise ship market• Seasonality – examples• Cruises departing from the port of New York anddestined to Bermuda are between the monthsof April and October.• The crossings of the Panama Channel areorganized between September and April.• Alaska cruises are held between the months ofMay and September.• In the case of the Mediterranean, NorthernEurope and Greek islands cruises are carried outmostly between April and November.• Cruises bound for the East, Australia and NewZealand are held between October and AprilErasmus IP project, “Sustainability of Cruise Tourism”, 15-26 April 2013,Seia-Portugal
  15. 15. Trends and profiles of thecruise ship market• Loyalty• The cruise industry has a high number of repeatguests• From the moment a tourist is captivated by thiskind of holiday, he or she likes to try differentships and explore different destinations (Travel &Tourism Analyst, 2010).Erasmus IP project, “Sustainability of Cruise Tourism”, 15-26 April 2013,Seia-Portugalhttp://www.cruise-addicts.com/
  16. 16. Trends and profiles of thecruise ship market• Major Players / Cruise Operators• Cruise brands take great care when it comes totheir reputation because customers believe abrand name implies a certain standard of cruise.• Cruise operators or brands dominate themarket. They either lease or own cruise ships forwhich they create itineraries or products.Erasmus IP project, “Sustainability of Cruise Tourism”, 15-26 April 2013,Seia-PortugalMajor Cruise Line brands
  17. 17. Trends and profiles of thecruise ship marketMajor Players – The major companies in thefield include:• Carnival Cruise Lines• Celebrity Cruises• Costa Cruises• Cunard Line• Holland America Line• MSC Cruises• NCL (Norwegian Cruise Line)• AIDA Cruises• Classic International Cruises• Crystal Cruises• Disney Cruise Line• Hapag-Lloyd Cruises• P&O Cruises• Princess Cruises• Royal Caribbean Cruise Line• Star Cruises/NCL• Azamara Club Cruises• Pullmantur• Oceania Cruises• Regent Seven Seas Cruises• Saga Cruises• Swan Hellenic Cruises• Fred Olsen Cruise Line• IberocrucerosErasmus IP project, “Sustainability of Cruise Tourism”, 15-26 April 2013,Seia-Portugal
  18. 18. Trends and profiles of thecruise ship market• Major Players• Branding is essential to bring in new business• encouraging repeat customers• creating brand recognition• defining the company’s approach to operationsand marketing• most importantly, establishing customer loyaltyErasmus IP project, “Sustainability of Cruise Tourism”, 15-26 April 2013,Seia-Portugal
  19. 19. Ship Classifications• Luxury• Small liners with few passengers who enjoy five-star-level accommodations• Premium• Above-average service, food, and amenities• Resort/Contemporary• The modern “floating resorts,” complete withswimming pools, golf ranges, and climbing wallsErasmus IP project, “Sustainability of Cruise Tourism”, 15-26 April 2013,Seia-Portugal
  20. 20. Ship Classifications• Niche/Specialty• Rely on specialization to attract their clientele.Emphasizes one or more aspects of the cruisingexperience, such as cultural interaction, softadventure, or language enrichment.• Value/Traditional• Involves mid-sized, older cruise ships with fewerfacilities than the newest megaships.Erasmus IP project, “Sustainability of Cruise Tourism”, 15-26 April 2013,Seia-Portugal
  21. 21. Critical variables in cruisebusiness performance• Travel Agents• Travel agents who specialize in arranging cruisesoften form strong alliances with cruisecompanies, who frequently support “theiragents” through training, sales events, andcustomized marketing materials.• Alliances• Cruise operators may decide to form allianceswith other vacation service providers in order tocreate a more attractive package, or to createadditional reasons for customer loyalty.Erasmus IP project, “Sustainability of Cruise Tourism”, 15-26 April 2013,Seia-Portugal
  22. 22. Critical variables in cruisebusiness performance• The Distribution System• The cruise market can be divided three ways:focused on the product, on customer identity,and on satisfying a need.• Traditional travel agents are stagnating as achannel for cruise distribution. They made nosignificant gains in 2011 and lost out to onlineand direct channels.2012 U.S. Online Travel Overview, PhoCusWrightErasmus IP project, “Sustainability of Cruise Tourism”, 15-26 April 2013,Seia-Portugal
  23. 23. Critical variables in cruisebusiness performance• The Distribution System• Traditional agencies delivered 62% of cruisepassenger revenue in 2011, but that was downfrom 66% in 2010. Agents’ share of cruise saleswill decline further – to 57% – by 2014• Overall, online cruise sales grew by 32% to hit$1.9 billion, or 13% of all cruise sales in 2011.• Online cruise sales are expected to grow bydouble digits from now until 2014, when they willaccount for 18% of cruise revenuePhoCusWright.Erasmus IP project, “Sustainability of Cruise Tourism”, 15-26 April 2013,Seia-Portugal
  24. 24. Critical variables in cruisebusiness performance• The Distribution System – Cruise line sitesoutpace OTAs• Cruise line-branded websites are fast outpacingOTAs in share of cruise revenue.• The cruise lines’ own sites will expand their shareof online cruise revenue from 43% in 2010 to 59%in 2014.• OTAs and cruise line-branded websites had aneven 50-50 split in the share of cruise revenue in2011.PhoCusWright.Erasmus IP project, “Sustainability of Cruise Tourism”, 15-26 April 2013,Seia-Portugal
  25. 25. Critical variables in cruisebusiness performance• The Distribution System – Cruise line sitesoutpace OTAs• “That pattern will continue as more consumersgo straight to the cruise lines and as cruise linescontinue to ramp up their capacity to supportdirect sales, both by processing transactionsthrough their websites and by referring shoppersto 800-numbers to complete bookings”• As OTAs lose ground to supplier sites, “travelagents will struggle to compete with OTAs,supplier sites and cruise line call centers”PhoCusWright.Erasmus IP project, “Sustainability of Cruise Tourism”, 15-26 April 2013,Seia-Portugal
  26. 26. Critical variables in cruisebusiness performance• The Distribution System – Large lines moreaggressive online• The largest cruise brands are driving the trendtowards online/direct sales. Those leading the chargeinclude Carnival Cruise Lines, Royal CaribbeanInternational, Norwegian Cruise Line and PrincessCruise Lines• However, distribution channels vary widely amongthe cruise lines• Holland America line and Celebrity Cruises, rely moreon travel agents and have lower online penetration.• Others, including Crystal Cruises, Regent Seven SeasCruises and Silversea Cruises, rely overwhelmingly ontravel agents or do not accept online books at all.PhoCusWright.Erasmus IP project, “Sustainability of Cruise Tourism”, 15-26 April 2013,Seia-Portugal
  27. 27. Critical variables in cruisebusiness performance• Market Segments• Some segments of the cruiser marketinclude:• Restless Baby Boomers• Enthusiastic Baby Boomers• Born between 1946 and 1964.• The largest generational segment numberingnearly 78 million members.• Luxury Seekers• Consummate Shoppers• Explorers• Ship BuffsErasmus IP project, “Sustainability of Cruise Tourism”, 15-26 April 2013,Seia-Portugal
  28. 28. Critical variables in cruisebusiness performance• For Cruise Operators• Cruises have a variety of fixed costs, such asfuel, port administration, and customs.• To increase profits, the cruise operators seek toreduce these costs without adversely affectingquality.• Larger companies can negotiate for such itemsas fuel and consumables much more easily thansmaller companies. Through negotiations, costscan be effectively reduced, often by quite a bit.Erasmus IP project, “Sustainability of Cruise Tourism”, 15-26 April 2013,Seia-Portugal
  29. 29. The Cruise Product• The Cruise Product• Cruises have three different economicfeatures:• Inelasticity - a cruise product is “perishable”because it can’t be stored if not sold• Heterogeneity - the product consists of avariety of components that make the cruiseexperience different for each customer• Complementarity - the cruise is not onesingle experience but a host of elementsthat combine to form the cruise experienceErasmus IP project, “Sustainability of Cruise Tourism”, 15-26 April 2013,Seia-Portugal
  30. 30. The Cruise ProductRevenue centers• Dining –The Buffet• Main Restaurants• Other Options• Bars• Entertainment• Entertainment generally does not produceadditional revenue for the cruise, but small salescan be made indirectly.Erasmus IP project, “Sustainability of Cruise Tourism”, 15-26 April 2013,Seia-Portugal
  31. 31. The Cruise ProductRevenue centers• Shore Excursions• Shore excursions are sold to passengers bothbefore and during the cruise. Alone, theygenerate revenue, but the shore excursion’s truepurpose is to add value to the cruiseexperience.• Beauty and Therapy• Cruise brands may contract concessionaires toprovide the service or other brands may havetheir own staff.Erasmus IP project, “Sustainability of Cruise Tourism”, 15-26 April 2013,Seia-Portugal
  32. 32. The Cruise ProductRevenue centers• Shopping• Shops generally include fashion stores for bothsexes, a gift shop, a general store, and ajeweler.• Photography• The presence of the photographers ensures thatpassengers can purchase professionally takenpictures, some of which are available in specialpresentation packs.Erasmus IP project, “Sustainability of Cruise Tourism”, 15-26 April 2013,Seia-Portugal
  33. 33. The Cruise ProductRevenue centers• Casinos• Cashless ships are becoming more popularwithin the cruise industry, with special cards forpassengers to use that credit purchases to theiraccount.• Celebrations• Many brands have developed special, inclusivewedding packages.• Other celebrations can be catered to as part ofa package, such as honeymoons, birthdays,and anniversaries.• MICEErasmus IP project, “Sustainability of Cruise Tourism”, 15-26 April 2013,Seia-Portugal
  34. 34. The Cruise ProductRevenue centers• Role of Tipping• Cruise lines have different methods for tipping:several choose to enact a “no-tipping” policy;others provide a helpful brochure whichsuggests tipping in a very standard and orderlysystem, while some automatically levy a dailyservice charge.Erasmus IP project, “Sustainability of Cruise Tourism”, 15-26 April 2013,Seia-Portugal
  35. 35. The Cruise ProductManaging the Operations• Managing the Operation• One key to successful management isunderstanding the attitudes and behaviors ofthe crew - knowing the employees.Erasmus IP project, “Sustainability of Cruise Tourism”, 15-26 April 2013,Seia-Portugal
  36. 36. The Cruise ProductManaging the Operations• Environment• Traditionally, the hospitality industry has notbeen terribly environmentally friendly• The industry as a whole uses immense volumesof energy, water, consumer goods, and rareluxury items while seemingly ignoring theenvironmental consequences of its consumer-driven product.• Cruises in particular must take care that they areoperating in a more ecologically friendlymanner, simply because they operate in theocean.Erasmus IP project, “Sustainability of Cruise Tourism”, 15-26 April 2013,Seia-Portugal
  37. 37. The Cruise ProductManaging the Operations• Health, Safety, and Security• Onboard diseases, such as the norovirus, tend togarner a lot of media attention, but they are inno way the only threats.• Security is also a significant concern, especiallybecause cruises have recently begun marketingthemselves as a very secure vacation option.Erasmus IP project, “Sustainability of Cruise Tourism”, 15-26 April 2013,Seia-Portugal
  38. 38. The Cruise ProductManaging the Operations• Safety• There are a few downsides to the increase insecurity: more bureaucracy, longer lines forpassengers and crew to wait in, less privacy,increased costs, and a higher level ofcomplexity when planning.• Interestingly, security equipments are not aseffective at preventing security issues as iscreating a “security philosophy and mindset”among the staff, crew, and officers.Erasmus IP project, “Sustainability of Cruise Tourism”, 15-26 April 2013,Seia-Portugal
  39. 39. The Cruise ProductManaging the Hotel Department• Managing Service – Five elements must beconsistently maintained in order to provide the bestcustomer experience:• Officers, managers, crew, and staff must all besufficiently trained• Employees should be instinctively customer-oriented in their thinking• Crew at every level should be empowered tosolve customers’ problems• Employees should be aware of companystandards• Employees should be capable of exceedingassumed standardsErasmus IP project, “Sustainability of Cruise Tourism”, 15-26 April 2013,Seia-Portugal
  40. 40. The Cruise ProductManaging the Hotel Department• Accommodation• Because capacity may exceed 100% due tostrategic booking, accommodationmanagement must be extremely efficient,thorough, and above all, flexibleErasmus IP project, “Sustainability of Cruise Tourism”, 15-26 April 2013,Seia-Portugal
  41. 41. The Cruise ProductManaging the Hotel Department• Cruise Ship Rate Options and Strategies• Depend largely on itineraries and configurationof specific ship• Generally, rates based on number ofdays/nights: “5 days/4 nights”• Rates usually inclusive: includes 3 meals per day• Rates vary based on ship’s cabin/room layout:• Generally, higher-level cabins/rooms withoutside views cost the most• Lower-deck, inside cabins cost leastErasmus IP project, “Sustainability of Cruise Tourism”, 15-26 April 2013,Seia-Portugal
  42. 42. The Cruise ProductManaging Food and Beverage• Supplies and Services• Planning food and beverage supplies for anentire cruise ship relies on analyzing priorconsumption patterns, planning menus fordifferent types of passengers, forecastingneeded quantities, and identifying expectedchanges to routine.• Germans: more Pork is needed• Americans: more Beef and ChickenErasmus IP project, “Sustainability of Cruise Tourism”, 15-26 April 2013,Seia-Portugal
  43. 43. How much does a ship cost?Here are a few exemplesShips by Line Year built Ship Weight CapacityCost to Build(millions USD)Cost perBerth (USD)Azamara Quest 2000 30,280 710 $150 $196,000Grand Mistral 1999 48,200 1,248 $245 $153,000.Celebrity Eclipse 2010 122,000 2,850 $640 $203,000Costa Allegra 1992 28,400 784 $175 $175,000Disney Dream 2011 128,000 2,500 $900 $225,000MSC Precioza 2013 139,400 3,502 $550 $126,000Norwegian Epic 2010 155,900 4,228 $1,2 billion $230,000Voyager of theSeas1999 137,300 3,114 $500 $130,000.Erasmus IP project, “Sustainability of Cruise Tourism”, 15-26 April 2013,Seia-Portugal
  44. 44. Voyager of the Seas – a fewnumbers• Capacity – passengers 3114 / crew 1181• Ratio: 0,37• Length – 310 meters – Width 42 meters• Food preparation:• 22 000 daily meals• 63 000 Deserts per week• 49 000 Appetizers per week• 14 000 Steaks per weekErasmus IP project, “Sustainability of Cruise Tourism”, 15-26 April 2013,Seia-Portugal
  45. 45. Voyager of the Seas – a fewnumbers• Weekly consumption (05 December 2007)• Beef 8 636 kg• Pork 34 010 kg• Lobster 1 591 kg• Fresh eggs 75 000 units• Fresh fruit 20 455 kg• Fresh vegetables 29 091 kg• Yogurt 4 200 units• Milk 4 542 litres• Assorted frozen items 38 636 kg• Sea food 5000 kg• Coffee 682 kgErasmus IP project, “Sustainability of Cruise Tourism”, 15-26 April 2013,Seia-Portugal
  46. 46. Financial Breakdown ofTypical CruiserErasmus IP project, “Sustainability of Cruise Tourism”, 15-26 April 2013,Seia-Portugal• Break down of the estimated 2013 averagecruise revenue and expense per passengerfor all cruise lines world wide.• The average revenue per passenger perday is projected to be $200.85,• with $152.39 ticket price• and $48.47 on board spending• average cruise duration 8.5 days, medianduration 7.0 days.
  47. 47. An example: Revenue ExpensesTicket (8,5 days average duration) $1,311Onboard Spending $417-Casino & Bar $222-Shore excursions (cruise lineportion)$81-Spa $40-All other onboard spending $61Total spending $1,728Other operating costs $251 14.5%Agent commission $225 13.0%Ship fuel costs $221 12.8%Corporate Operating Costs $200 11.6%Payroll $190 11.0%Depreciation/Amortization $166 9.6%Victualing (food) $104 6.0%Onboard and other $76 4.4%Other and transportation $57 3.3%Interest Expense $54 3.1%Total Expenses $1,543Profit before taxes $185 10.7%ErasmusIPproject,“SustainabilityofCruiseTourism”,15-26April2013,Seia-Portugal
  48. 48. The Cruise ProductManaging the Operations• Managing Facilities• One of the main challenges involved inoperating a cruise ship includes dealing with thelack of space.• All of this leads to the need of…Erasmus IP project, “Sustainability of Cruise Tourism”, 15-26 April 2013,Seia-Portugal
  49. 49. RevenuemanagementErasmus IP project, “Sustainability of Cruise Tourism”, 15-26 April 2013,Seia-Portugal
  50. 50. Revenue management• Revenue Management is the applicationof disciplined tactics that predict customerbehavior at micro-market level andoptimize product availability and price tomaximize revenue growth. Cross (1997)Erasmus IP project, “Sustainability of Cruise Tourism”, 15-26 April 2013,Seia-Portugal
  51. 51. Revenue managementThe Yield Management core concept is toprovide• The right service• At the right time• For the right price• To the right customer• … through the right distribution channel.Adapted from Kimes (1989). The Basics of YieldManagementErasmus IP project, “Sustainability of Cruise Tourism”, 15-26 April 2013,Seia-Portugal
  52. 52. Revenue management• Revenue management• It can be defined as offering the propertype of inventory (cabins/staterooms) atthe correct price to maximize revenue.• Revenue Management is the act ofskillfully, carefully, and tactfully managing,controlling, and directing capacity andsources of income, given the constraints ofsupply and demand.Erasmus IP project, “Sustainability of Cruise Tourism”, 15-26 April 2013,Seia-Portugal
  53. 53. Revenue management• Revenue Management (cont.)• The perishability of the product (a cruise cabinunsold on a particular cruise can never beresold) drives the revenue management policy.• The multiplier effect suggests that revenue canbe made after the booking is already made,and therefore the revenue management systemneeds to concern itself with attracting salesonce onboard.Erasmus IP project, “Sustainability of Cruise Tourism”, 15-26 April 2013,Seia-Portugal
  54. 54. Revenue management –application• Relatively fixed capacity / ConstrainedSupply• Fluctuating demand• Ability to segment markets• Perishable inventory• Product sold in advance• Structure of marginal costs:• Low variable (sales) costs• High fixed (production) costsErasmus IP project, “Sustainability of Cruise Tourism”, 15-26 April 2013,Seia-Portugal
  55. 55. Revenue management –application• Revenue optimization strategies can beapplied to any service industry in whichservice capacity or inventory is limited orconstrained and thus must be managedand allocated among interested buyers.Erasmus IP project, “Sustainability of Cruise Tourism”, 15-26 April 2013,Seia-Portugal
  56. 56. Service Industries ApplyingRevenue OptimizationStrategiesErasmus IP project, “Sustainability of Cruise Tourism”, 15-26 April 2013,Seia-PortugalBarsBed andbreakfastsCampgroundsCar rentals CasinosCateringservicesComedy clubs Concert hallsConventioncenters
  57. 57. Service Industries ApplyingRevenue OptimizationStrategiesErasmus IP project, “Sustainability of Cruise Tourism”, 15-26 April 2013,Seia-PortugalCruise ships Dining clubs Golf coursesHealth clubs HotelsJanitorialservicesLive concerts/performancesMotels Night clubs
  58. 58. Service Industries ApplyingRevenue OptimizationStrategiesErasmus IP project, “Sustainability of Cruise Tourism”, 15-26 April 2013,Seia-PortugalPersonal/fitnesstrainingRace tracksRecreationalequipmentrentalsResorts RestaurantsSki resorts/liftsSpasSportingeventsSwimmingclubs/ pools
  59. 59. Service Industries ApplyingRevenue OptimizationStrategiesErasmus IP project, “Sustainability of Cruise Tourism”, 15-26 April 2013,Seia-PortugalTanningservicesTheaters/cinemasThemeparksTimeshares(lodging)UniformservicesprovidersWater parks
  60. 60. Revenue management –developing a strategy• Customer knowledge is the firstfundamental element in the developmentof a revenue management strategy• Who are my customers?• Who are my potential costumers?• How much do they earn?• How much money are they willing to pay for myservice/product?• What do they like to do when they are onboard?• How can I exceed their expectations?• Where do they buy or produts?Erasmus IP project, “Sustainability of Cruise Tourism”, 15-26 April 2013,Seia-Portugal
  61. 61. Revenue management –developing a strategy• Customer knowledge (2)• Know your consumers and their preferences• Prosumer = Professional + consumer• Be aware of e-commerce• Invest on a CRM programme• Customize your products and packages• Know how much each customer is worth for you• Work on the Price/Value relationship• Improve your products’ perceived value• Invest on Marketing researchErasmus IP project, “Sustainability of Cruise Tourism”, 15-26 April 2013,Seia-Portugal
  62. 62. Revenue management –developing a strategy• Marketing segmentation and selection isthe second fundamental element• Define your leading market• New and growing segments include adventuretravelers and sub segments based on lifestylepreferences• Know where they buy your products –distribution channels by segment• Analyse emerging trends and niche markets• Total customer worth(Primary Revenue + Ancillary Revenue – AcquisitionCost) x Propensity YErasmus IP project, “Sustainability of Cruise Tourism”, 15-26 April 2013,Seia-Portugal
  63. 63. Revenue management –developing a strategy• Internal assessment is the third fundamentalelement• Develop a deep SWOT analysis• Work on the results, i.e. look at the strengths tosee how they can help you minimize or reducethreats• A competitor is a rival with whom one competes• A business may have several competitors locally,nationally, or even globally – know them• Positioning• The physical and mental perceptual placementof a product or service in a customer’s mind –How is your product seen buy your customers andpotential costumers?Erasmus IP project, “Sustainability of Cruise Tourism”, 15-26 April 2013,Seia-Portugal
  64. 64. Revenue management –developing a strategy• Competitive analysis is the fourthfundamental element• Competitive intelligence• conduct primary research and analysesecondary research to understand thecharacteristics of the competition• Once an organization completes its own SWOT,it should then try to develop an individual SWOTanalysis for its top 3 to 5 competitors• Market share• percentage share of an overall market capturedby an individual organizationErasmus IP project, “Sustainability of Cruise Tourism”, 15-26 April 2013,Seia-Portugal
  65. 65. Revenue management –developing a strategy• Demand forecasting is the fifthfundamental element• When do the customers book?Erasmus IP project, “Sustainability of Cruise Tourism”, 15-26 April 2013,Seia-Portugal
  66. 66. Revenue management –developing a strategy• Demand forecasting (2)• Understand the laws of supply and demand• The law of demand states that the quantity of a good orservice demanded by buyers tends to increase as theprice of that good or service decreases, and tends todecrease as the price increases, all things being equal.This represents an inverse relationship between priceand quantity demanded• Understand price elasticity• The extent to which quantities supplied or demandedchange when there is a price change• How does this affect the organisation?Erasmus IP project, “Sustainability of Cruise Tourism”, 15-26 April 2013,Seia-Portugal
  67. 67. Revenue management –developing a strategy• How to forecast demand?• Know your demand generators and drainers• Analyse past book behaviour• By segment and distribution channel• Ask the following questions:• 1. How did last year’s forecast compare to actualproduction?• 2. How did the demand look this time last year?• 3. How many sales were made on this date last year?• Additional historical reports may include:• 1. Denials and regrets• 2. Lost business reports• 3. Cancellations• 4. No-showsErasmus IP project, “Sustainability of Cruise Tourism”, 15-26 April 2013,Seia-Portugal
  68. 68. Revenue management –developing a strategy• Channel analysis and selection is the sixthfundamental element• Analyse• Channel productivity• Costs• It is important to understand that not allchannels will produce in the same manner overeach date in the course of a year.• Determine which channels will optimizerevenues for each specific date of the year andthen assign the appropriate levels of inventoryto each channel on each date.Erasmus IP project, “Sustainability of Cruise Tourism”, 15-26 April 2013,Seia-Portugal
  69. 69. Revenue management –developing a strategy• Dynamic-value based pricing is the seventhfundamental element• Many variables go into establishing the price fora product or service.• First, the position of a product or service in its lifecycle will have a significant impact upondetermining its price.• Second, customer loyalty and brand equity playtremendous roles in establishing price. Third,competitors’ prices have an impact on thesetting of price.• Demand plays a key role in establishing price –note that discounting is not always the bestoption• Prices communicateErasmus IP project, “Sustainability of Cruise Tourism”, 15-26 April 2013,Seia-Portugal
  70. 70. Revenue management –developing a strategy• Dynamic-value based pricing (2)• Concept of price/value is essential• How do the cruisers value the experience?• How do customers perceive and react to price?• Develop a customer-centric approach topricing• pricing strategies centered upon the perceptionsand buying behaviors of customers rather thanfocused solely upon the attributes of its productsand services• The price should be as dynamic as the demand• The main objective is always to maximizerevenue• Best Rate Guarantee on your direct channelsErasmus IP project, “Sustainability of Cruise Tourism”, 15-26 April 2013,Seia-Portugal
  71. 71. Revenue management –developing a strategy• Dynamic-value based pricing (3)• Consider customer loyalty and repeat business.• Frequent customer programs are popular in allsides of the hospitality industry. Pricing is a keyfactor in attracting membership• Consider the value of a brand in establishingprice. Brand equity is the value generated by abrand• Note that the Internet has made pricetransparency a feature of all products andservices offered online• Price parity is defined as the practice ofmaintaining consistent prices across all channelsof distributionErasmus IP project, “Sustainability of Cruise Tourism”, 15-26 April 2013,Seia-Portugal
  72. 72. Revenue management –developing a strategy• Dynamic-value based pricing (4)• Pricing strategies must be determined for eachcustomer/channel combination as well in a customer-centric approach• Rate Fences: Managing Differential Pricing• Tangible• Inventory type• Position, view• Amenities• Intangible• Time of usage• Booking lead time• Restrictions• Special (negotiated) ratesErasmus IP project, “Sustainability of Cruise Tourism”, 15-26 April 2013,Seia-Portugal
  73. 73. Revenue management –developing a strategy• Channel and inventory management is theeighth and final fundamental element inthe development of our revenuemanagement strategy• Manage the inventory to maximize profit – usingforecasting data• Use overbooking if necessary• Control sales throughout all channels• Close dates when necessary• Leave the best and most profitable channelsopenErasmus IP project, “Sustainability of Cruise Tourism”, 15-26 April 2013,Seia-Portugal
  74. 74. Revenue management –developing a strategy• The strategic management process may be brokendown into four primary activities, which we will referto as the IDEA:• I = Identification of goals and objectives• D = Development of strategies and tactics• E = Execution of selected strategies and tactics• A = Analysis, evaluation, and adjustment of strategiesand tactics• The process is circular, meaning that one theprocess is complete, it simply begins once again.Erasmus IP project, “Sustainability of Cruise Tourism”, 15-26 April 2013,Seia-Portugal
  75. 75. Revenue management –developing a strategy• And the selected strategies must beSMART:• S = Specific• M = Measurable• A = Achievable• R = Realistic• T = Trackable• Re-evaluate whenever necessaryErasmus IP project, “Sustainability of Cruise Tourism”, 15-26 April 2013,Seia-Portugal
  76. 76. Cruise line trends survey• Global destinations• Exploring the unknown• Big brand entertainment• Specialty dining• Romance reigns• Importance of outdoor spaces• The more the merrier (groups)Erasmus IP project, “Sustainability of Cruise Tourism”, 15-26 April 2013,Seia-Portugal
  77. 77. Cruise line trends survey• Rapid innovation across all areas of theguest experience• River Cruising fastest growing segment• Lingering longer – establish relationships• Families and generations• Leveraging technology wherever possible• The role of the Travel agents as “Traveladvisors”Erasmus IP project, “Sustainability of Cruise Tourism”, 15-26 April 2013,Seia-Portugal
  78. 78. Cruise line trends survey• 68% believe bookings will be comparableor better than 2012• Booking window is getting shorter• Customers are and remain, brand loyal• Home port, price and onboard facilities arethe top 3 decision making factors• Ethnic groups, weddings andhoneymooners represent the top 3 growthpotential target groupsErasmus IP project, “Sustainability of Cruise Tourism”, 15-26 April 2013,Seia-Portugal
  79. 79. Conclusions• Know your product and services• Know your guests and potential guests• Engage on meaningful relationships with them• Develop a plan• Analyse and adjust when necessary• Innovate• Be aware of the trends• Keep on going  !Erasmus IP project, “Sustainability of Cruise Tourism”, 15-26 April 2013,Seia-Portugal
  80. 80. The End!• Questions?Erasmus IP project, “Sustainability of Cruise Tourism”, 15-26 April 2013,Seia-Portugal
  81. 81. Thank You!• c.bento@ipg.ptErasmus IP project, “Sustainability of Cruise Tourism”, 15-26 April 2013,Seia-Portugal

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