Threat of New Entrants: Low
The threat of new entrants in the leisure cruise industry is low. In fact, new companies forming in this industry is a rare occasion due of the extensive barriers to entry. An entry barrier is “an obstruction that makes it difficult for a company to enter an industry” (Wheelen,105). The high capital requirements is one of the most prominent factors contributing to the high barriers of entry. The cost of building a ship is estimated around 1 billion dollars. As far as operation decisions, big ships cost around $200,000 per passenger, and luxury ships can amount up to $700,000 per passenger (Medium).
As overall, building a ship in which was innovative and of high quality, in order to breach the market will incur a significant cost. Given that you enter the market despite the high capital investment, this was only half the battle. There are numerous factors to remain competent and other barriers to entry such as brand equity and economies of scale. Therefore, established brands in this industry have much power and significance to the perceived value of the consumer. A brands image and awareness of a well-known, established, reliable, safe and consistent cruise line will bridge the gap quickly for less known start-ups. In addition, the later described as economies of scale, protect companies who operate many ships as administrative and fuel costs decrease. The smaller firms will find it difficult to compete from an operation standup, incurring higher costs on average. Lastly, entree to distribution channels for smaller firms is less accessible as established firms have developed long-term relationships and valued higher as demand is likely greater.
Rivalry among existing firms: High
There are a few major players in the cruise industry in which dominate the market share. Carnival and Royal Caribbean are the leading cruise lines, controlling up to 75% of the market (Study Moose – Porters Forces). Therefore, the strategies pursued by one firm is closely observed and countered. These firms are known to be willing to match or beat prices, for there is low differentiation between these top cruise ships and the overall experience. For example, the probability of having more fun on a cruise to the Bahamas with Carnival Cruise than Royal Caribbean is low, and most likely similar in experience.
The growth rate in the cruise industry has been steadily inclining over the past years. The demand for traveling, particularly to unique locations, is growing as local ports are also increasing. In order to gain a competitive advantage or remain competent, cruise lines must keep up to date with any change in demand. Consumers are seeking unique traveling destinations, and innovation. Therefore, growth strategies in the industry are constantly focused on differentiation, raising the bar for rivalry among existing firms.
Threat of Substitute Products or Services: Medium
The demand for traveling is increasing as digital media has increased. The substitute products, such as resorts or airplanes, satisfy similar needs of the traveler. A large group of consumers are eager to reach the destination rather than the experience gained during transportation. Many consumers prefer to fly rather than sail across the sea or sleep in a dazzling hotel room, in contrast to a cabin. Although the growth rate of the industry is steady, many avid travelers have never been on a cruise ship. The threat of substitutes would therefore be prevalent as far as preference for varying consumer segments.
However, the value cruise lines offer is perceived to be worth the price in comparison to a stagnant plane ride; where the entertainment is limited by movies and subpar meals. A cruise consists of fancy restaurants, casinos, and tanning by the pool. Therefore, the distinction between the journey is evident and appealing for other consumers.
The Bargaining Power of Buyers: Medium
There is an inelastic demand for cruise lines as consumers are generally of higher class and less sensitive to price. The price of a cruise vacation is comparably low to the income of the majority of buyers (Study Moose – Porters Forces).
Secondly, the travel agencies have established relationships with cruise lines and serve as a popular avenue to book vacations. Therefore, alternative suppliers are plentiful because their service is similar to another agency (Wheelen,107).
The third factor is the peak seasons in the industry where demand rises during a certain time of the year. Companies offer discounts as the demand decreases, but have more control of the price during peak seasons. Depending on demand in season, will dictate the power of buyers. In conclusion, the medium level of power is fairly stated as a split between a volatile market.
The Bargaining Power of Suppliers: Medium
The suppliers of intricate parts for ships, or fuel, maintain a high level of bargaining power. The buyers have less room to negotiate with suppliers such as ship builders because of their limited capacity (Study Moose – Porters Forces). Switching costs are high because the option of changing your mind between builders or a designed project, will enable a significant loss and possibly hurt your repetition as a purchasing employee.
On the contrary, other departments in the industry deal with lower powered suppliers such as the food vendors. There are many different catering companies and substitute products within these industries. There is a split between the power of suppliers depending on the product or service at hand.
Relative Power of Other Stakeholders: High
Carnival Cruise and PLC will be battling tax laws. The cruise industry as a whole has been a target for specific tax laws, as many were and turned down or in the process of law. As discussed above, the rapid growth of the industry has caused significant praise to the social responsible and sustainability actions implemented for firms to preserve the environment. In result, companies are developing strategies to improve sustainable practices and build awareness for social responsibility.
In conclusion, governments are responsible for enacting polices that protect natural resources, by the incentives they offer to social responsible management and operational practices between businesses (Study Moose – Porters Forces). The relationships between the companies and government is essential to protecting the environment.
Peterson, J. (2015, September 14). Barriers to entry in the cruise industry and how they might be overcome. Retrieved from https://medium.com/@jesspeterson/barriers-to-entry-in-the-cruise-industry-and-how-they-might-be-overcome-c8ec3ab848b
Porters Forces Cruise Industry. (2016, June 10). Retrieved from https://studymoose.com/porters-forces-cruise-industry-essayWheelen, Thomas L. and David J. Hunger. Strategic management and business policy: achieving sustainability-12thed. Upper Saddle River: Prentice Hall, 2010.