Monday, February 23, 2009

Luxury Cruise Product and Pricing - Close In vs. One Year and Longer...Homogeny Is No Longer Present

There has been much discussion on the internet, newspapers and magazines about the prices of cruises.  There are so many factors that affect pricing that, dependent on how you look at them different strategies can been seen as the "right" one or the "best guess" as to how to proceed; keeping in mind that these are truly "uncharted waters".

I am starting the discussion of this issue from the luxury consumer side (and there is a general difference, as there always has been, from the mass market consumer side).  Luxury consumers are...and should be...selfish.  Essentially it is, "I am not worth near what I was six months ago and my income is down as well, so there better be really good prices for any line to keep my loyalty or attract my business." Some people in the market add the caveat, "If the price is not low enough I just can no longer afford to enjoy the luxury product."

This approach clearly has its upsides (like putting serious downward pressure on prices), but it also has its downsides (such as focusing too much on price).What do I mean by focusing too much on price?  I have seen, in some, a phenomenon recently that, while understandable, has sort of perverted the cruise experience from one of entitlement and enjoyment to one of hostility (overtly blaming the cruise lines for the situation) and irrational "business" acumen.  If Line X does not give  my cruise at $A, then I am not cruising with them, I am going to give my business to Line Y" even though there is no association between $A and the cost of providing the cruise experience desired and, dare I say based on the vitriol, needed.

The fact is that a cruise ship cannot, and will not, operate at a continuing loss just to be in operation.  We have all seen cruise lines go out of business because of this.  Post 9/11 was a very difficult time and, as an example, Renaissance Cruise Line folded.  Don't think lessons were not learned from that recent history.  Silversea has an extreme situation:  It is mothballing the Prince Albert II for a few months (end of February 2009 through mid-May 2009) because of a serious lack of demand.  (While this may not only be an economic thing, it is a telling example of a cruise line weighing the economics rather than possibly overvaluing the negative perception.)  In other words, no matter how loudly the luxury cruise passenger shouts, there is only so much the cruise line can do about it before the ships stop sailing.

Before moving on, I do want to mention that it is not the cruise lines' faults that the passengers are in the the financial situation they are in.  Blaming the cruise lines for not being sensitive to their plight might sound like a feasible argument, but it really makes no sense at all.  Of course the cruise lines are aware of, and sensitive to, your financial and emotional situation.  And just as there are infinite opinions, there are infinite ways the passengers believe their predicament should be handled by the cruise lines.

Regent Seven Seas has decided it would address the situation by increases prices and packing that higher price with what it perceives as more value.  Regent has decided to include tours (a subject I, not so fondly, previously wrote about Regent Announces Plan For Big Changes) and push their free air (which I think we all know is not really free...on any cruise line).  The more inclusive product is somewhat inconsistently applied in 2009 (based upon demand), but is omnipresent in 2010.  Regent is also making an effort to actually provide the product it promises with improved service, higher quality cuisine, better dining venues, etc.  This is a process which is underway, but remains - at least for now - inconsistent.  Also on Regent's plans is enticing travel agents to shift their clients because of  slightly increasing their commissions; a point I find most disappointing.  (Regent Gives Commissions on NCFs). 

Seabourn is taking the approach of significantly discounting its prices on cruises inside 6-8 months, but insisting the product is consistent - with no reductions in service or product.  (Seabourn had eliminated most of the once-per-cruise complimentary Seabourn Experience due to a reduction in guest participation resulting in many cruise passengers paying for someone else's experience.  This is nonetheless seen as a singular reduction by some.)  While some have protested that Seabourn's pricing in 2010 is too high, I believe same is based upon the mistaken theory that there must a direct relationship between what someone believes they will have as disposable income in 2010 and what Seabourn must price its cruises at.  Seabourn is not a discount cruise line and if those who protest cannot understand that just as Tiffany, Louis Vuitton, etc. do not normally market discounts, Seabourn must be willing to forego some sales in 2009 for 2010-2011 sailings at near or below-cost pricing or it will cheapen its product forever...causing greater damage.

Silversea has taken a mixed approach.  It has tired inflated commissions and significant discounts.  It has also tried high onboard credits to be used to pay for tours, etc.  (Obviously it is a more luxury approach to tours, as true luxury guests tend to prefer private excursions and an onboard credit allows them to use their funds for that purpose, while Regent's does not.  Seabourn has not gone with onboard credits or tours, but has expanded its private tour operation significantly.)  Silversea has - in contrast - also taken to some serious cost cutting measures.  While Seabourn still had complimentary caviar, Silversea eliminated that some time ago.  And while Seabourn and Regent have complimentary alternative dining venues, Silversea is now charging for same.  (So some of that new onboard credit is being eaten away by that which used to be included.)  I am a bit uncomfortable with the variety and changing of approach with Silversea.  To me it seems all a bit unfocused and desperate.  (I am not saying it is, and I have no basis to know same to be true other than ships generally sailing less than half full, it just seems like that to me.)

So what does this all mean?  It means that the luxury cruise customer needs to really look at the alternatives, rather than say "Cruise line X is not getting my business because of Y."  Why?  Because there is a new world out there and homogeny is not part of it.  As shown above, Seabourn, Regent and Silversea have all taken markedly different approaches to pricing and marketing.

If you are looking at a cruise in the next 6-8 months, you really need to look at the specific cruise because what you get may be significantly different from one cruise to another, no less from one cruise line to another.  If you are looking at a cruise which may be about a year away or longer, I would suggest you book now and if the product changes you can reassess your decision...but you have your desired cruise and suite.

But, and I mean "but", I would suggest that consistency of product is going to be far more important to the luxury cruiser than the next gimmick in pricing.  Most luxury clients want to know first and foremost what it is they are buying and then determine if the price affords them the value they require.  Put another way, "If it sounds to good to be true, it probably is."  So with the homogeny of product no longer there...and no indication that it is going to be returning soon...