Reduced/Changes in onboard credits

[RLM77]

The executive summary of this long post is: “To understand corporate decisions, it helps to think like corporate executives.” If you wish to stop reading here, feel free, as you already have the gist.:)

 

Reductions of perks such as OBC’s will obviously make some of Celebrity’s customers unhappy. There is ample supporting evidence in nearly every previous post in this thread.

 

However, the starting point in deciphering why RCL would make such a move lies in the understanding that businesses exist for one purpose, and one purpose only – to continually increase their net profits, thereby enriching their owners and executives. [One can certainly argue that many corporate executives over-enrich themselves at the expense of their shareholders, but that’s a topic for some other board.] In well run corporations, all other objectives are aligned with and subordinate to the profit motive.

 

By starting with this understanding, the rest falls into place. For cruise lines, items such as customer service, food quality, safety, cleanliness, perks such as OBC’s, even the cruise ships themselves are all means to an end, not ends in and of themselves.

 

In that context, all businesses need to continually evaluate their promotional tools (such as OBC’s) to determine whether or not they bring in more revenue than they cost. It appears that RCL recently performed such an analysis and determined that, when all is said and done, the increased onboard revenue that’s generated due to the reduced OBC’s will more than compensate for the onboard bookings that they will lose as a result of changing the program. Perhaps they believe that the lost bookings can easily be replaced at similar prices through other channels.

 

One can apply the same line of reasoning to other perks such as Captain’s Club benefits. If the company determines that one of the benefits subtracts from profit rather than adds to it then that perk will be modified or eliminated. (I don’t think that there are any of these left, though.) One can also apply this thought process to RCL’s expenses. Therefore, one may conclude that management expects booking demand to increase (and thus, prices to rise) as a result of the additional costs they are incurring by upgrading the bedding and improving the onboard entertainment. If they weren’t expecting the improvements to add to profits, they wouldn’t be happening.

 

With every operational decision, management walks this tightrope. As an example, Celebrity keeps the public areas of its ships very clean; those who have cruised both Carnival (the cruise line, not the entire company) and Celebrity have generally reported that the public areas on Carnival’s ships are not as clean. Although this may be a staffing or training issue, that seems unlikely since it doesn’t apply to other Carnival divisions such as HAL and Princess. More likely, Carnival’s management believes that they can spend less on cleaning the public areas without negatively impacting their bookings/revenues. Carnival’s management thus places a lower value on cleanliness as a driver of profits than Celebrity’s. Who is correct? Impossible to say. Perhaps both management teams are correct given the differences in the target demographics of the two lines. But it’s a decision that both lines had to explicitly make, for better or worse.

 

The wild card here is that management can’t know precisely the point at which reducing perks or expenses begins to cost more than it saves. Surveys and other data regarding past, present, and potential future customers do take much of the guesswork out, but in the end it’s still an informed estimate. If too many customers defect because a perk has been reduced or eliminated then management’s decision was flawed. Those of us outside the company will probably never know whether reducing the OBC’s turns out to be a success or a failure.

Rich

[greeneg]

Unfortunately for us, Gail, our net experience with HAL was so bad that I have refused to give them a second chance. The cruise wasn't so terrible, but we did have an issue with their customer service ( no caps on purpose) that was handled so poorly that it completely negated any positive aspects of the cruise itself and drove me right out of the door. Permanently. Hell will freeze-over before I cruise with them again.....

 

This emphasizes my point about how important it is to retain your customers and how hard it can be to undo bad experiences once they have had a chance to fester. We have spent a lot of money cruising since then and none of it with HAL.

 

If we bolt, it will probably be to Oceana.

[ISABELLA]

I think that one of the reasons they doing it, is PAX use OBC to pay tips, which is direct reflect on their bottom line, but everything is so overpriced that they are not loosing money. Take a look at the cost of drinks. In the past 10 years drink cost is more that doubled, spa treatments - up about 25-30% maybe even more. Prices on tours are up. All cruise lines adding some small charged everywhere. But, I still think these changes will change our loyality toward X. If they don't appreciate our loyalty, we will cruise with somebody else.

[hawt1]

Our recent experience may be an anomaly but, we have six cabins booked on Galaxy for next year. These are all trasnfers from RCCL booked on board bookings that were made. 4 of these bookings were done in January of this year and the other two were done in mid-March.

 

In all cases, I have confirmed through Celebrity that we have the $200 OBC (11 nighter) that was advertised on the sheet that they were using on RCCL.

 

I wonder if this policy was not being applied while on RCCL and the fact that their sheets still showed Celebrity on them meant that we got the $200 when we should not have.

 

Perhaps this was a "temporary" ooops.

 

 

I have to say that while the loss of this will be sad for us, I do see where it may not cost them much revenue. Some of us who complain will still book wiht Celebrity because we really like them and we "know" what we will be getting. Others will try some other line and be back. But the majority of cruisers are first timers or do nto even know about the onboard booking credit. They get caught up in the excitement and go to book another cruise and will think that any credit is a great bonus. They are counting on complacency and also on other lines to follow suit. RCCL has typically been the first mover on these issues (alcohol and other beverages not permitted, etc).

 

Hawt1

[greeneg]

I wonder though, how many people actually do book on board and how much money is envolved. I know that the Future Cruise Specialist on board our recent Mercury trip was occupied most of the time that she had available, and that both we and the couple that we were travelling with booked cruises for next winter. That was $1800 in deposits for the two cruises. Since Celebrity gets the use of the money for a year, that should total up to some sort of significant sum system wide. Surely, the loss of those funds would be expected to have some sort impact if people would cease to book on board.

 

I think that the on board credit has several very valid benefits for Celebrity: first, they are able to generate bookings far in advance at what amounts to retail prices. Secondly, they do have the use of the deposit funds usually for a relatively long period of time ( in our case for a year) with the interest being deferred. Finally, if you are already booked, you probably are less likely to be interested in one of the competitor's options since you have already established your vacation.

 

I still argue that keeping your current clients "on-board" is the least costly business that you can generate.

[cruisintwinsmom]

The wild card here is that management can’t know precisely the point at which reducing perks or expenses begins to cost more than it saves. Surveys and other data regarding past, present, and potential future customers do take much of the guesswork out, but in the end it’s still an informed estimate. If too many customers defect because a perk has been reduced or eliminated then management’s decision was flawed. Those of us outside the company will probably never know whether reducing the OBC’s turns out to be a success or a failure.

 

Rich

 

 

Thank you for the primer in business 101. (That sounds sarcastic--not meant to be). The little things keep us coming back to X, but if they keep dropping the little things --OBC, CC perks, shareholder credit, food quality--then I will be willing to try a different product. Having only done onboard bookings for our last cruises, they have had $1800 deposits for the past 3 years (3 separate transactions). Plus I booked cabins for my parents (another $900). I guess they don't make enough on the interest of that money to make up the difference in the OBC.

[spearmint]

Hi, everyone. I have been away for the last six weeks, and do not have a portable computer. Am I correct in what I have quickly read in the last five pages of this thread:

 

We booked onboard last fall for a 14-night Hawaiian Cruise on Summit next November. We deposited $900 US. Do I now understand that we will get our onboard credit of $200 if we take this cruise, but will not get it if we keep the same booking number and change to an 11-night Caribbean? And we could end up losing our deposit if we do that? This is what I think I read these last 5 pages. Thanks for some help. Bill

[tuggers]

My information is that if you booked under the old system (OBC based on length of cruise) nothing will change for that cruise. You can use it as you always have.

If you booked under the new system (OBC based on $ spent) you get all kinds of bean-counter do's & don't's.

In other words, the new deal sucks!

[Andy]

My information is that if you booked under the old system (OBC based on length of cruise) nothing will change for that cruise. You can use it as you always have.

If you booked under the new system (OBC based on $ spent) you get all kinds of bean-counter do's & don't's.

In other words, the new deal sucks!

 

Hi Gail !

 

Just to clarify... you are correct with everything you said, but from what I understand.... after 3/1/07, you cannot book new sailings the "old system" way. The only option is the "new system", which most of us agree, is pretty much worthless.

 

If anyone out there feels the "old system" of booking new Cruises still exists, please let us know.

[tuggers]

You are right as usual, Andy!:)

I was answering spearmints question about a cruise already booked and didn't think how it would read if taken by itself.

Unfortunately, the 'old' way is gone. The 'new', and they would tell us, improved, version is all there is.

[whm]

It seems to me that the OBC system is an incentive to sell cruise space. While it's a nice feature for us (the customer), I can't believe that any cruise line needs an incentive to book cruises. The cruise business is at an all time high and for all of you who say that you will shift your business to another line there are a great number of folks who will be very happy to have your bed. Why should any business management have to pay customers to shop at their place of business when there are customers lined up at the door? I totally agree with a previous poster who stated that the OBC should not be a reason to book a cruise. Come on people - remember what customer cheapness did to the airline industry?

[hawt1]

I may be wrong but I think that RCCL is trying to make a better distinction between their Royal Caribbean and Celebrity lines and you will see the RC product be dummied down (already started) and targetted at the mass market while the Celebrity product will stay as their higher quality brand.

 

I think we can all probably place the current cruiselines into one of these two categories (in our own minds at least) and once they are firmly in one fo these categories and we have a specific preference for which category we want to be in when we sail, then the choices will be narrowed down. You will likely see relatively little discounting in the high end category and lots of little perks in the mass market one.

 

I expect the Celebrity prices to head up and the RCCL ones to remain flat at where they are to also help distinguish between the two. Elasticity of demand will determine how far they can hike the one or hold the other in line.

[greeneg]

WHM, I agree that the Onboard Credit shouldn't be the reason to book a cruise; however, it can very well be the reason to book a cruise NOW, while you are enjoying your current cruise.

 

To my thinking, there are several reasons why it is to Celebrity's benefit to have people book one cruise while they are currently on one of the ships. First of all, hopefully the passengers are enjoying themselves; this should put them in a better frame of mind to want to renew/continue the experience in the future. Secondly, many people, while in that positve frame of mind, may not be as reluctant to spend a little for next year. In that same vein, many people also don't worry about what they may spend "next" time, but just cross that bridge when they come to it. Next, having people book directly with Celebrity while on board, reduces both Celebrity's overhead ( no commission or incenitives to outside parties), and their inventory ( makes it that much less likely that they will have to discount a cabin to sell it in the future: the old "Bird in the Hand" analogy.) Finally, having people go home already booked on their next cruise not only reduces the likelihood that they will be seduced by a competitor, but it also creates the possibility that some of their friends may join them on the trip, ( That's that priceless word of mouth advertising that money can't buy), hence more sales may be created with little marketing or effort needed on the cruiseline's part. We had one of our friend's join us on our last cruise on the [i}Mercury[/i]; that's an additional sale for Celebrity that might not have happened had we not booked the cruise in January, 2006 while on board the Constellation.

 

My point is that there are distinct benefits to Celebrity which may well be lost if onboard booking is discouraged which I think will be the result of this policy change. So yes, Booking on Board is a way to sell cabins. As for not needing incentives sell those cabins, well things may well look "rosy" right now, but there is a lot of capacity underconstruction right now and when that comes on line, the competition may well be pretty fierce. My agrument would be that Celebrity should really try to retain and strengthen their Base and not to make changes which reduce the incentives for their custormers to remain their customers. Still depends on your management focus, I think, albeit, next 5 years, next year, next month, next week, tomorrow, or this afternoon...

[whm]

Well put. Another line of thinking.

[Andy]

Hi Ed !

 

As usual, some excellent thinking. Well said !

[Guienevere_Arianette]

Greetings all; I found this thread interesting but I couldn't put it into context b/c I don't know what the procedure was before.

 

From what I understand, Celebrity would previously give early cruise deposits OBC, as incentive for booking early? Was this an automatic, guaranteed OBC?

 

I have only cruised one other cruise line, and while they sometimes offer specials with OBC for booking, there is no precedent set for giving OBC as incentive for booking early; OBC is only earned if the price of the sailing goes down and the pax catches this price decrease and calls in, asking for either a refund of the difference or OBC.

 

So, from my understanding, old way was to book a cabin (let's say a $500 deposit), and with that early booking you were guaranteed OBC and the deposit was refundable. Now, you can book early for only $100, but you can't get the money refunded if you canx? Hmmm....

[Guienevere_Arianette]

I'll bet this is spot on. Book a specific cruise and the OBC is similar to today's levels; book a phantom and the benefit is still available, though at a slightly reduced level. Phantoms make it more difficult for X to figure out the "real" bookings for any given cruise, which makes it more difficult for them to figure out when to cut (or raise) prices. An open booking option for future cruises allows pax to benefit from an OBC, albeit a bit smaller than normal, and X to benefit from a more accurate view of bookings for future itineraries. If Charles is right, this sounds like a win-win.

 

what is "booking a phantom" versus "booking a specific cruise"?

[Guienevere_Arianette]

Look forward to your report on the Coast Hotel and The Reef. We have talked about staying at the Coast our next cruise out of LA. I checked out The Reef's web site. Looks interesting. We did not eat on the QM so can't help you there.

 

OK. Back on topic. Please report back on your experience trying to book a future cruise while on board Summit. Nothing like a little field research to help resolve and issue.

 

Later

 

from another Amarilloan; I've never seen another anyone else from Amarillo on these boards, so what a nice surprise! Blue skies and happy cruising to you...maybe someday we'll meet on the high seas, or at the local Roasters :)

 

Sorry to hijack thread...please carry on.

[c-legs]

Come on people - remember what customer cheapness did to the airline industry?

 

:eek: So true......!!!!!

Thanks for that side of the dialogue. Worth remembering....

Cheers

[ArtM]

We're on the upcoming Constellation Transatlantic and were seriously considering an on-board booking with a soft goal of going to South America on Celebrity.

 

With the ramifications and uncertainties of the new OBC policy, I will "vote with my feet" most likely and hold off on booking. That is especially true since we enjoyed our December cruise on HAL, and I now know that we have an acceptable alternative to Celebrity. (Love that bread pudding at noon :) )

 

For those who have commented from the perspective of the effect on business, I can point to at least 7 bookings of us and our friends that came about because of the old OBC procedure. Future bookings of that sort are now in danger.

 

Just thinking of the "opportunity cost" of a $500 deposit on-board. At 5% interest (current internet savings account rate), I will earn $25 in one year. That is half the $50 incentive on a lower cost so there is even less risk in waiting for a good deal when one is not particularly committed to going on a specific cruise.

 

Art

[EmJakeBubbie]

WOW what a topic! I'm happy with our $400 shipboard credit for booking a specific tour on a specific sailing. Essentially, what some of you have alluded to that waiting for a last minute deal to present itself is better than doing an OBC booking.

OBC has been an incentive to "book the next cruise"; however, always a PIA to plunk down huge deposit for future cruise you can't be certain will be do-able (whilst u r at sea w/o day planner). It always made me feel rushed to do the OBC booking - lots of negatives to even make the appointment.

I'll forget the OBC bkg and will focus on finding pricing "deals".

That being said, when will the next shoe drop on AllShips for the "you can't bring non-alcholic beverages on board anymore" ?????

I'm glad we did what we did when we did it, but travel is not the fun it used to be. Prices on airfare are double what they were not so many yrs ago (thanks to petrol prices throughout the world); TSA - I have nothing good to say, so I'll say nothing.

[shoreless]

Still depends on your management focus, I think, albeit, next 5 years, next year, next month, next week, tomorrow, or this afternoon...

 

I think one problem with a lot of businesses (not just cruiselines) today is that there isn't much long range thinking. Maybe it's due to executives wanting their bonuses, etc. right now, or pressure from anylysts with their constant upgrading/downgrading of companies (all of this instantly available online), or shareholders who are more likely nowadays to want stock prices to go up immediately or else they'll sell their shares.

[darrencantwait]

Greetings all; I found this thread interesting but I couldn't put it into context b/c I don't know what the procedure was before.

 

From what I understand, Celebrity would previously give early cruise deposits OBC, as incentive for booking early? Was this an automatic, guaranteed OBC?

 

I have only cruised one other cruise line, and while they sometimes offer specials with OBC for booking, there is no precedent set for giving OBC as incentive for booking early; OBC is only earned if the price of the sailing goes down and the pax catches this price decrease and calls in, asking for either a refund of the difference or OBC.

 

So, from my understanding, old way was to book a cabin (let's say a $500 deposit), and with that early booking you were guaranteed OBC and the deposit was refundable. Now, you can book early for only $100, but you can't get the money refunded if you canx? Hmmm....

 

I'll try to give you the straight answer (though could be confused myself). Celebrity (X) used to give you an On Board Credit (OBC) if you booked a future cruise while on the ship during your current sailing. It wasn't just early booking...you had to do it on the ship. The amount was based on the length of your cruise (7 night cruise = $100OBC per cabin). If you later changed your mind, you could transfer the booking number to a different cruise, and the OBC would transfer along with the OBC. Some of us would use this to book "phantom cruises." For example, I booked a 2008 Caribbean cruise while on Century in January. I booked it because I wanted to go to Alaska in 2008, but those itineraries were not open yet. Once they open, I'll transfer the booking number (and hopefully the OBC, since the booking number originated before March 2007) to an Alaska cruise.

 

Under the new system, the initial deposit amount is much less (I think they said $100). The OBC is based on the price of your cruise, not the length. They are substantially less for those who book insides. I believe the deposit is now non-refundable.

 

I think that you can transfer the booking to a different cruise, but lose your OBC if you do (is that true everybody?).

[darrencantwait]

If the cruise costs (less commissions) $0 to $2000, only $50 per stateroom will be credited... upto $3500: $100. Only by spending $5,500 to $6999 will the credit amount to $200 and amounts over $7,000 will benefit by getting $300.

 

Does anybody know if the price ranges above ($0-$2000) above are per person, or totals for stateroom? I know the credit is per stateroom.

 

Thanks.

[Eliger]

Does anybody know if the price ranges above ($0-$2000) above are per person, or totals for stateroom? I know the credit is per stateroom.

 

Thanks.

It is total per stateroom...

 

Gerry