BUSINESS INTELLIGENCE & GROWTH STRATEGY

Scenario Planning for the 2035 Cruise Industry

A BLUE OCEAN STRATEGY TO CREATE NEW MARKET SPACE

Although the cruise industry has experienced high growth in recent years, consumer segmentation and industry concentration suggest that the long tail of the market may be underserved. Cruise lines can respond by driving business model innovation via Blue Ocean Strategy to identify white space market opportunities and create value innovation. The long-term strategic cycle of the cruise industry can be accommodated by envisioning contrasting future scenarios in which present-day business decisions will be executed. This work generates actionable options that cruise lines may adopt to maintain steady growth through 2035 via scenario planning and option planning. The business model of a mass market cruise line is first mapped in a causality tree and a value cycle to visualize key performance indicators across financial, customer, internal and learning objectives. Qualitative market research is subsequently conducted through interviews with industry experts and consumers to define consumer personas, identify impactful macro-trends and evaluate customer satisfaction. Next, morphological vectors of macro-trends are arranged to construct plausible and consistent future scenarios with narratives, implications and warning signals. Finally, a set of portfolio options is created using the Four Actions Framework and Strategy Canvas to explore business model innovation via customer impact, value proposition impact and cost impact.

Repository Contents

• Project Features
• Research Method
• The Cruise Industry
• Scenario Planning
• Option Planning
• Conclusions
• Contribute

Project Features

CRUISE INDUSTRY | BUSINESS MODELING | MARKET RESEARCH | SCENARIO PLANNING | OPTION PLANNING

This report is organized to present:

• An introduction to the focus of the research
• An outline of the applied research method
• An analysis of the cruise industry
• Development of a scenario planning framework
• Generation of strategic industry options
• Conclusions and recommendations

1. Impact Horizon
   A strategic cycle of 15 years is assumed to be an appropriate impact horizon for this study, aligned with the operating lives of newbuild ships and vessels repurposed mid-cycle.

2. Key Focal Issue
   The key focal issue of this research study is articulated in the following query:

   • How can the cruise industry maintain steady growth through 2035 by developing opportunities in new market space?

3. Research Objectives
   The primary objectives of this research are to develop:

   • Four scenarios representing contrasting 15-year futures of the cruise industry
   • Three strategic options that can be adopted by individual cruise lines to create new market space for the industry

Research Method

QUALITATIVE RESEARCH | ENVIRONMENTAL SCANNING | CROSS-CODED DEPTH INTERVIEWS | CONSUMER SURVEYS

An overview of the research conducted for this study consists of:

• A review of the literature and state of the art of scenario planning and pertinent organizational strategy
• An outline of the theoretical framework applied to analyze the future of the cruise industry
• A description of the primary market research undertaken as part of this study to contribute to the industry body of knowledge

1. Literature Review
   A brief summary of the major themes surrounding scenario planning is arranged according to:

   • The relationship between scenario planning and prospective strategy
   • The historical development of scenario planning
   • Scenario development methods
   • Scenario validation and assessment
   • Option planning via Blue Ocean Strategy

2. Applied Framework
   This research of the cruise industry applies:

   • Scenario planning to envision alternative futures that are relevant to a key focal issue
   • Option planning to offer firms with business model innovations

3. Market Research
   Primary and secondary market research was conducted to develop specific scenario and option planning components, including:

   • Environmental scanning to discover a range of driving forces surrounding the cruise industry
   • Depth interviews with industry experts and consumers to identify relevant and impactful driving forces
   • A consumer survey to isolate the two most critical uncertainties

The Cruise Industry

BUSINESS MODELING | VALUE CHAINS | VIRTUOUS VALUE CYCLES | BUSINESS MODEL CANVAS | STRATEGY MAPS

A description of the cruise industry is presented with three layered perspectives, namely:

• The benefits of the industry value chain
• The industry structure that shapes intensity of competition
• The contextual and transactional driving forces that may influence the nature of the industry over time

1. Industry Value Chain
   The value chain of the cruise industry is discussed in terms of:

   • The value created by key activities through vertical relationships
   • The market power held and the value captured by cruise lines

     

2. Industry Structure
   The key dimensions of the Five C’s Analysis and the Four P’s Marketing Mix that characterize the cruise industry are:

   • Market attractiveness
   • Competitive dynamics
   • Product characteristics

3. Driving Forces of Change
   The driving forces that are relevant to the focal issue are identified by analyzing:

   • The key factors that impact cruise line business

     

   • The macro-trends that may influence those factors

     

     

Scenario Planning

MACRO-TRENDS | IMPACT AND UNCERTAINTY MATRIX | SCENARIO FRAMEWORK | MORPHOLOGICAL ANALYSIS

Future scenarios for the cruise industry were designed through:

• Identification of critical uncertainties
• Construction of a logical scenario framework
• Development of individual scenario stories

1. Critical Uncertainties
   

   • The consideration set of 40 mega-trends was organized into an Impact and Uncertainty Matrix.

     

   • The level of impact and degree of uncertainty of each trend was ranked by relevance according to interviews with five experts and 11 consumers, respectively.

     

   • The decision set ultimately isolates Itinerary Affordability and Destination Utilization as the two critical uncertainties, based on the position, direction, speed and uncertainty of each critical scenario driver.

     

2. Scenario Framework
   

   • The two critical uncertainties for the cruise industry, based on primary market research, are Itinerary Affordability and Destination Utilization.
   • Memorable song titles from the hit Broadway musical, Rent, are used to name the scenarios, which are:
     • “Out Tonight”
     • “What You Own”
     • “Rent”
     • “On the Street”

       

3. Scenario Stories
   Each scenario story is composed of:

   • A narrative that describes the state of the most active contextual and transactional trends
   • Implications to the current business model of mass market cruise lines
   • Early warning signals, which can be monitored to alert its onset

     • Out Tonight
       Consumers desire fun and exciting activities that they cannot experience in their homes or daily routines.

       

     • What You Own
       Consumers are experienced and savvy globetrotters who are sophisticated and generationally-responsible.

       

     • Rent
       Large portions of the population work remotely in micro-hubs of nearby mega-cities, who are attracted to virtual and augmented reality technology in digital tourism.

       

     • On the Street
       Through financial shock events and growing inequality, consumers are concentrated in mega-cities with little disposable income.

       

Option Planning

BLUE OCEAN STRATEGY | VALUE INNOVATION | FOUR ACTIONS FRAMEWORK | STRATEGY CANVAS

Strategic options for the cruise industry were formulated by:

• Developing strategic direction to target white space market opportunities with Blue Ocean Strategy via value innovation
• Creating an option set by reshaping the business model of mass market cruise lines with the Four Actions Framework
• Evaluating options against each other by comparing their properties using the Strategy Canvas

1. Strategic Direction
   Scenario planning can be applied to strategic thinking by adopting either:

   • An internal perspective, reviewing the ability of an organization to survive with existing capabilities in future environments
   • An external perspective, reviewing opportunities to develop the business portfolio of an organization in emergent future territories

   Blue Ocean Strategy seeks to create and capture uncontested market space, referred to as blue oceans, through value innovation, which is achieved by simultaneously:

   • Differentiating value proposition for buyers
   • Improving cost structure

2. Option Set
   Business model innovation can be driven from three perspectives, namely:

   • Exploration by customer impact:

     • Hub and Spoke Eco-Tourism
       This cruise industry response offers multi-day stopover itineraries from major ports of call to the growing number of nearby ecotourism port destinations.

       

   • Exploration by value proposition impact:

     • Community Mega-Events
       This cruise industry response targets large-scale convention events, focusing on the collective belonging to community, rather than the individual pursuit of leisure.

       

   • Exploration by cost impact:

     • Maritime Digital Nomads
       This cruise industry response leases long-term residences and collaborative office spaces to remote workers, known as digital nomads.

       

3. Option Evaluation
   Considering scarcity of resources, each option is evaluated against:

   • The entire option set, plotting the value curves of offerings across the range of competitive industry factors in the Strategy Canvas

     

   • The scenario framework, wind-tunneling performance across equally plausible scenarios

     

Conclusions

The critical elements of this strategic framework are presented in:

• Key research findings
• Strategic industry recommendations
• Research limitations and opportunities for future work

1. Key Findings
   Business Modeling

   • The current business model of mass market cruise lines is governed by three virtuous cycles, which are:
     • The growth cycle, connecting new ships, high passenger volume and high ship utilization
     • The subsidy cycle, driving low fares, high onboard sales and high ticket subsidies
     • The investment cycle, interlinking low fares, high onboard sales and high net income

   Market Research

   

   • The impactful factors of the cruise industry are:

     • Excess passenger demand and undersupply of cruise ships
     • Access to low-cost international labor markets
     • Scarcity of experienced cruise designers and shipbuilders
     • High waterfront utilization and operational bottlenecks

   • The financial goals of cruise lines are:

     • Optimization of operational cost structures to increase revenue yield
     • Reduction of variable costs via investments in long-term revenue-generating fixed cost assets
     • Reliance on local communities to redevelop dilapidated waterfront infrastructure

   • The consumer value proposition of cruise lines offers all-inclusive experiences, however, there are opportunities to:

     • Specialize in curated travel
     • Connect with nature through small boats

   • The internal processes of cruise lines rely on:

     • High-quality human capital, including service, maritime and design staff
     • Attention to marine logistics, guided by a crew safety culture

   • Learning and growth of cruise lines can be facilitated through:

     • Fragmentation of consumer demand
     • Technological innovation driven by high-speed boat designs
     • Personalization of passenger experiences with the local knowledge of professional maritime crews

   • Consumer personas go on cruises:

     • With a spouse or partner (24%), friends or acquaintances (18%) or parents or grandparents (14%)

       

     • When they seek to relax in a comfortable environment (24%), discover or try something new (21%) or celebrate with a large group (17%)

       

   • Consumer satisfaction and cruise adoption is:

     • Driven by attraction to unique itineraries (19%), immersive experiences (18%) and social events (18%)

       

     • Inhibited by resistance to limited experiences (14%), boredom and idleness (14%) and undesirable destinations (14%)

       

   • Value innovation across the cruise industry can be achieved by:

     

     • Eliminating a feeling of idleness, monotony or repetitiveness (42%) as well as artificial atmospheres or inauthentic excursions (30%)

       

     • Reducing overall ticket prices for all-inclusive itineraries (46%) and overcrowding on ships or at port destinations (27%)

       

     • Raising the availability of diverse global itineraries (43%) and opportunities for immersive cultural excursions (27%)

       

     • Creating small, personalized tours with local guides (40%) and itineraries featuring intimate cruise ships (28%)

       

2. Strategic Recommendations
   Scenario Planning

   • The existing business model of mass market cruise lines responds to the continued growth scenario in “Out Tonight,” which envisions affordable itineraries and crowded destinations. The existing business model offers novel experiences through:
     • A variety of mega-ships
     • All-inclusive entertainment
     • Affordable itineraries to international destinations

   Option Planning
   Three actionable options respond to the four future scenarios created from these uncertainties:

   • The option for “Hub-and-Spoke Ecotourism” responds to the steady state scenario in “What You Own,” which imagines affordable itineraries and spacious destinations. This option offers multi-day stopover itineraries from major ports of call to the growing number of nearby ecotourism port destinations, focusing on:
     • Sustainability
     • Intimate ships
     • Personalization
   • The option for “Community Mega-Events” responds to the transformational scenario in “Rent,” in which the future is described by expensive itineraries and spacious destinations. This option focuses on:
     • The collective belonging to community
     • Immersive cultural experiences
     • Large-scale convention events
   • The option for “Maritime Digital Nomads” responds to the total collapse scenario in “On the Street,” which results in expensive itineraries and crowded destinations. This option offers long-term residential leases and collaborative office spaces to remote workers, known as digital nomads, delivering:
     • Affordability
     • Workspaces
     • Reliability

3. Limitations and Future Work
   The completeness of this research is limited due to its academic nature with a sole researcher:

   • Scenario planning is most effective with multiple team members contributing diverse knowledge
   • Research partnerships with industry experts improve business modeling and assumed implications
   • A sole researcher is constrained by bounded rationality, myopic perception and personal bias

   Opportunities for this research to be enriched include scenario development and option validation:

   • Developmental scenarios can be investigated for duopolistic markets with concentrated power
   • Contextual and transactional trends could be quantitatively analyzed with probabilistic methods
   • Strategic options can be validated via stakeholder testing, market research and prototyping

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• MIT License