The Norwegian Cruise Lines: Company Analysis

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Executive Summary

The Norwegian Cruise Lines is one of the major players in the market. The company offers a wide range of services for the customers of all categories. It primarily focuses on differentiation, refining their cruise plans, and entertainment offered onboard to create the best customer experience. The revenue figures published by the company show their approach to be highly effective.

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The paper aims to propose possible options for further improvement of the company strategy in the directions of market penetration and development. Better coverage can be achieved by expanding the range of services offered during a cruise while China offers a lucrative new market. Based on the options discussed, a proposition for a business strategy is created.

The plan is a double market entry strategy for China and Japan. It includes the discussion of necessary preparation based on the cultural differences and possible risks identified during the assessment. The unique advantages a cruise ship company has when penetrating new markets are also taken into consideration.

Introduction

The level of competition in any given market is gradually increasing over time due to the factors such as globalization and economic growth. The markets grow increasingly more saturated, creating a tough challenge for ventures to enter and survive in the marketplace. Business organizations are faced with continuous challenges for maintaining their competitiveness in their sector of operation (Li & Dimitratos, 2014). This has led to innovations and advancements in business and marketing strategy development that will propel them ahead of the competition – in securing a profitable market share. Globalization is one of the primary factors that contributed to the rise of business rivalry and the need for well-structured and comprehensive global strategies. The companies have to innovate and adapt in order to remain in the lead (Ahlstrom & Bruton, 2010). The cruise industry is no different. The major players in the market have adapted greatly in the last two decades, and the competitive landscape has also transformed as a result.

This paper will evaluate the approach used by the Norwegian Cruise Lines and propose the guidelines for the future development. After the analysis, one option will be selected as preferable, and the implementation strategy will be described.

Business Level Generic Strategy

The NCL business strategy primarily focuses on diversification. This approach consists in offering the unique services which will make the customers chose the company over its competition (Porter, 1980). Since the cruise industry customers primarily value novelty and quality, this strategy can be more effective than cost leadership (Chua et al., 2015). The NCL aims to increase their market presence by offering a diverse set of services for all of the possible clients. That is exemplified by the “freestyle cruising” approach used by the company since 2000. It has abandoned the conventional approach in order to provide the guests with a more relaxed and diverse experience. It includes no fixed dining times or formal wear requirements, as well as providing the customers with the maximum variety of services and entertainment options (NCL, 2008).

The company prioritizes refining its existing approach instead of developing new strategies. To achieve this goal, the NCL utilizes the combined experience of its employees to implement organic changes to their workflow and marketing approach. That allows the firm to offer the most refined cruise experience possible which is an important factor of diversification in the market focused on luxury and comfort. The firm is seeking to diversify their destinations and services offered aboard the ships to ensure the continuing demand for their services. The newbuilds house ever more luxurious apartments for the upscale guests and improved commodities for everyone aboard. Using smart management and monitoring of destinations allows the NCL to avoid creating excessive supply and create excitement and scarcity. The overall strategy has been proven to be effective with the company seeing consistent growth in net yield over the last two quarters of 2015 after the recent changes to the operation plan was introduced (NCL, 2015).

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The approach used by the NCL is reasonable and based on the performance demonstrated by the company in recent years. The company seeks to reinforce their advantage by offering a higher service level compared to the competitors. Since the financial reports show the steady growth of the net yield, focusing on refining the existing approach seems reasonable and safe. With these things in mind, the strategy plan employed by the NCL seems sound with clear priorities based on the market assessment. However, any business plan can be improved. The next section will focus on possible vectors of the strategic development.

Directions of Strategic Development

Currently, the NCL pursues the goal of increasing their market penetration. This strategy, originally described by Ansoff in 1957, consists in reinforcing the existing market presence of the company by expanding the customer base and making improvements to the product ensuring the continuing customer satisfaction (Ansoff, 1957). The NCL works to refine their service to increase positive feedback and customer retention. With the existing markets already saturated, the company is also looking to expand into new territories. Their primary aims include creating a market presence in China and South-Eastern Asia and expanding their Australian branch with new ships and sales offices.

Market penetration is the safest of the four directions proposed by Ansoff since it involves utilizing the existing resources without investing into untested solutions (Schroder, 2015). In the industry where external shocks present a huge threat even to the well-established companies, it is reasonable to minimize the risks as long as it does not mean losing significant profits (Evans, 2015). The NCL estimates the markets of Canada and California to be under-penetrated, so there is still room for expansion. This makes increasing the market penetration efforts the most attractive venue for further expansion. That can be achieved by various means.

Fist option is the increased marketing push. The company has recently improved its media presence by purchasing prime-time TV ads and placing their banners on various websites. However, the campaign seems to be a singular move rather than a part of a comprehensive campaign. The ads also seem to focus largely on the value propositions instead of the excellence of service (Sampson, 2016). With the company development goals emphasizing the refinement and diversification of services, focusing on the unique advantages of the vacation aboard the Norwegian ships seems like a more logical choice. Creating a more stable and consistent media presence should also be a priority. Huge and expensive marketing pushes can be effective in the short term. In fact, the company has employed them efficiently supporting the change in the service paradigm and the launch of a new ship. However, ensuring the long-term success requires a more sustainable campaign. Utilizing the mix of the targeted Web ads with social media campaigns and limited TV presence can yield positive results. The first two options offer great cost efficiency (Evans, 2008) while limited prime-time TV ads can support promotion deals and the innovations in need of attention.

The second route towards higher market penetration is the implementation of innovative services. The current development course of the company is highly traditionalist with the emphasis on perfecting the existing aspects of service. However, the diversification strategy used by the NCL requires the company to stand out. Currently, the firm retains its customers by offering the higher quality service. However, implementing new imaginative aspects into the cruises can help the NCL reach new audiences and reinforce the existing interest in their services (Vivek, Beatty & Morgan, 2012). For example, the high-tech entertainment facilities, like virtual reality arcades or water jetpack renting services can attract younger and more adventurous audiences. With average entry level wage of 51,422$, the young programmers are possible customers (PayScale, 2016). They can be interested more reliably if the entertainment offered by the NCL is more innovative and futuristic.

The NCL also looks to expand into foreign markets. This direction is called Market Development and aims to bring the services of the NCL to new demographics (Ansoff, 1957). The company currently is in the planning phase. This approach is inherently risky since new markets offer unexpected challenges for any business trying to penetrate them. While it can be risky, the firm needs to expand its customer base to maintain the competitive advantage. The revenue generated by the current operations likely creates enough of a cushion to make the expansion safer.

For the company the size of NCL handling the expansion on their own is not an issue. With the rapidly growing middle class, China presents a perfect opportunity for expansion (Marandici, 2014). However, the Chinese culture is drastically different to the American and European traditions. It will require a different approach both in terms of marketing and business relations. The ratings published by the Hofstede Centre reveal some key differences that need to be taken into consideration. Low individualism means that the Chinese are less interested in personal matters, and low indulgence means that they tend to limit their leisure time and strictly control their spending (The Hofstede Centre, 2014). While more people in the country have disposable income, marketing to the society which is not used to luxury and excess will be a challenge for any cruise company. Developing a cohesive marketing campaign is going to present a problem. Another issue is the complicated legal landscape combined with unusual business practices. The Chinese businessmen value the personal relationship more than anything else, and the deals in the market are often going to be informal (Huber, 2015). This will require careful preparation of the regional managers who should be ready to deal with the unpredictable nature of the Chinese market.

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Aside from the careful preparation for the start of the operations in China, the NCL should also consider the Japanese market. This strategy will have several benefits. Firstly, the Japanese culture is similar to the Chinese in many regards. The Hofstede Centre research indicates relatively low individualism and indulgence metrics. The Japanese business is also based on interpersonal relationships. That means that managers operating in China will be prepared to deal with the Japanese businessman. Moreover, since the country has somewhat higher indulgence and individualism rating than China, the population is more likely to get interested in the NCL services. The wages in Japan average at about 300,000 yen/month which is approximately 36,000$ per year (Trading Economics, 2016). The FCCA estimates the average annual family income of the cruise ship customers at 108,000$ (FCCA, 2015). That means that a considerable number of people can afford a cruise vacation making the market lucrative for the NCL.

Preferable Approach and Its Implementation

The revenue figures published by the NCL demonstrate that the current strategy implemented by the company allows for effective coverage of the existing markets. While certain improvements are possible, it is preferable to focus on the market development. That approach is more likely to yield a significant increase in the company revenue.

The proposed strategy focuses on the Chinese and Japanese markets. Since both countries are culturally similar, the preparation process can effectively cover both of them. Firstly, the NCL needs to complete a comprehensive market analysis of both markets. While China and Japan are similar in some ways, their internal markets differ significantly, as can be easily deduced by comparing the per capita GDP of both states: 7,590$ and 36,194$ respectively (The World Bank, 2015). Conducting a full-scale research project will allow the company to identify possible target demographics and potential marketing strategies. The second step is to prepare the managers for the unfamiliar working conditions. Den Leventhal, a strategist with over 30 years of experience with the Chinese market, names personnel preparation as the top priority when entering the country (Huber, 2015). The cultural similarities mean that the same is true for Japan. The executives should be made aware of the business traditions, as well as the legal peculiarities of both countries. After the preparation stage is complete, the company will require significant investment to penetrate the markets efficiently.

The primary aims should be starting a full-scale marketing campaign based on the analysis and collecting feedback to improve it. It is important to consider the influence of the unique cultural context on the tourist motivation. Confucian ideals play a considerable role in both Chinese and Japanese culture and should be considered when designing the marketing campaigns and market-specific services (Fu, Cai & Lehto, 2016). If this step is effective, the further development of the new company branches should present little challenge. One of the unique advantages of the simultaneous market entry is the ability to initially utilize the same ships to cover both countries. With proper planning, it will be possible to route the cruises in such a way that passengers from both countries will be able to get aboard. During the initial entry that can allow for increased efficiency since filling the ship in one country may proof problematic. If the project proves unsuccessful and the NCL needs to withdraw from the markets, the loss of the resources will be minimal. The company will be able to repurpose the ships servicing China and Japan to work the other routes. That means that the firm risks only the operational expenses and any assets it acquires on land. It can be concluded that the risks involved are outweighed by the advantages of the proposed development strategy.

Conclusion

The NCL’s business plan is an example of a solid and conservative business strategy. The company weighs the option carefully and tends to be very cautious in decision-making, preferring slow evolution to revolutionary innovation or chasing the latest industry trends. While this approach has proven extremely profitable for the company, the further development will require the NCL to innovate and adapt much more frequently as the company has covered most of the current markets and is forced to look for the new one to continue growing.

References

Ahlstrom, D, & Bruton, GD 2010, International management: Strategy and culture in the emerging world, South-Western Cengage Learning, NSW, Australia.

Ansoff, I 1957, ‘Strategies for Diversification’, Harvard Business Review, vol. 35, no. 5, pp. 113-124.

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Chua, B, Lee, S, Goh, B & Han, H 2015, ‘Impacts of cruise service quality and price on vacationers’ cruise experience: Moderating role of price sensitivity’, International Journal of Hospitality Management, vol. 44, pp.131-145.

Evans, DS 2008, The Economics of the Online Advertising Industry, Web.

Evans, N 2015, Strategic Management for Tourism, Hospitality and Events, Routledge, New York, NY.

FCCA 2015, Cruise Industry Overview – 2015, Web.

Fu, X, Cai, L & Lehto, X. (2016, ‘Framing Chinese Tourist Motivations through the Lens of Confucianism’. Journal of Travel & Tourism Marketing, pp.1-22.

Huber, E 2015, ‘How One China Strategist Leapt His Own Great Wall’. China Business Review, Web.

Li, N & Dimitratos, P 2014, ‘How do business-level strategies affect multiple market servicing modes in the foreign country?’, International Marketing Review, vol. 31, no. 5, pp. 526-546.

Marandici, I 2014, ‘A Middle Class Without Democracy. Economic Growth and the Prospects for Democratization in China’. Europe-Asia Studies, vol. 66, no. 7, pp.1198-1199.

NCL 2008, Norwegian Cruise Lines’ Freestyle Cruising, Web.

NCL 2015, Annual Report, Web.

PayScale 2016, Entry-Level Computer Programmer Salary (United States), Web.

Porter, M 1980, Competitive strategy, Free Press, New York, NY.

Sampson, H 2016, ‘Norwegian Cruise Line’s New Marketing Tells Guests to ‘Feel Free,’ Spend More’, Skift, Web.

Schroder, H 2015, Integrated sales and marketing management: Successful integration of marketing and sales after mergers & acquisitions, Anchor Academic Publishing, Hamburg, Germany.

The Hofstede Centre 2014, What about China? Web.

The World Bank 2015, GDP per capita (current US$), Web.

Trading Economics 2016, Japan Average Monthly Wages, Web.

Vivek, S, Beatty, S & Morgan, R 2012, ‘Customer Engagement: Exploring Customer Relationships Beyond Purchase’, The Journal of Marketing Theory and Practice, vol. 20, no. 2, pp.122-146.

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