LOYALTY STARTED AT SEA CRUISE LINE OFFERS LESSONS IN LOYALTY DESIGN FOR THE AGES

Loyalty programs first started with S&H green stamps in the 1950’s and, later, airline programs in the 70’s. But perhaps the purest expression of commercial loyalty was to a company called Royal Viking Line, a cruise line that operated worldwide itineraries during the 70’s and 80’s.

For a period of time, the brand was almost perfectly aligned with its customers’ needs, and loyalty was automatic. This was remarkable for a discretionary service product with the most complex delivery formula imaginable. It achieved the successful alchemy of product design, service standards and service delivery.

This is a story of how loyalty was achieved, stalled and then reactivated as a changing market environment forced Royal Viking to adjust in order to survive. The company was well ahead of its time in establishing a framework for loyalty design through increased customer engagement and high-impact execution – a solid lesson for anyone seeking to build a loyal brand following today.

BY JOHN B. RICHARDS

PERHAPS THE PUREST EXPRESSION OF COMMERCIAL LOYALTY WAS TO A COMPANY CALLED ROYAL VIKING LINE, A CRUISE LINE THAT OPERATED WORLDWIDE ITINERARIES DURING THE 1970’S AND 80’S.

ROYAL VIKING AT A GLANCE • Three ships: the Royal Viking Star, Sea and Sky, rated top ships in the industry in 1982

• Worldwide itineraries: China, Australia, Alaska, Mediterranean, Northern Europe, Around South America and Around the World

• Average cruise length: 21 days

• Famous passengers: Elizabeth Taylor, Cary Grant, Baron von Krupp, Omar Sharif

• Norwegian Flag Carrier and ownership

• Longest cruise: The World Cruise, 100+ days

• Most expensive cabin: Penthouse suite, World cruise, $120,000 per person

• Fastest-selling cruise: Halley’s Comet Cruise with Dr. Carl Sagan (of Cosmos), 7 minutes

• Top cruiser: Rosemary Roberts, 90+ cruises

I joined the company in 1982, just before the “perfect storm” hit, as a marketing executive with Procter and Gamble and McKinsey experience. When I got to RVL and saw how effortlessly it deployed its prodigious assets, I realized how little I actually knew. Our job was not to remake the company but to reactivate what made it great and bring new tools to bear on its plight. I have been able to apply much of what I learned here to the growth of Four Seasons Hotels and Starbucks and, later, the makeover of Elizabeth Arden Red Door. Royal Viking was a gem from which I learned life-long lessons.

Charting a Strong Course

Royal Viking sailed onto the scene in the early 70’s and quickly established itself as the leading cruise line in the industry. Largely the brainchild of Warren Titus, who was considered by many the

father of modern cruising, the product reflected his point of view about how to fashion, deliver and communicate an understated luxury service brand. Because Titus was a personal friend of brand design and corporate identity pioneer Walter Landor, the company also reflected Landor’s influence

and was consistent from end to end in what Titus called “the total design concept.” Everything looked and felt like it belonged. The company’s main luxury competitors of the era were the ret-rofitted Sajafjord and the Vistafjord (which served principally the European market) and First Class on the QE2. They were all nice, but none achieved the combination of ambience, intimacy and unusual itineraries offered by Royal Viking.

The middle market was anchored by Princess Cruises (the Love Boat) and Holland America, while Carnival Cruises (which would eventually become a colossus in the industry) had one ship in the Caribbean trade. So for its target market, a predominantly wealthy, retired, WWII-era passenger (Blue Blood Estates in Claritas parlance), Royal Viking Line was the place to be.

Smooth Sailing For its unique combination of itineraries, service, ambience and positioning, the company was rewarded handsomely. Waiting lists of almost two years existed for many sailings. Average rates were in the range of $700 per person per day; and price increases were gobbled up like hors d’oeuvres on the midnight buffet.1 In fact, the company was doing so well that it decided to lengthen the ships from 550 to 725 passengers to capture incremental demand!

In recognition for this extraordinary loyalty? A dedicated cocktail party for its Skald Club members, fancy gifts from Gump’s, occasional Skald Club cruises with special entertainment and, every so often, a letter from the Chairman, Mr. Titus.2 This perfect alignment of brand delivery and customer needs resulted in intense customer loyalty that was serviced by low key communication and the pretense of recognition. There was no “loyalty program,” as we know it today. It happened naturally in a world with little competition and a buoyant market environment.

This success is a reminder that, fundamentally, the brand and its execution drives loyalty – not the program. But the program can activate and effectively channel that loyalty, as Royal Viking ultimately discovered.

The Clouds Begin to Gather

Despite the company’s apparent success, there was growing unease. The cruises were long (21 days) and expensive on average. Royal Viking was catering to a very narrow market with the time and money to afford such an extravagance. What would happen as the larger ships came on line with 25% more capacity to fill? Would this older market that was demographically “dying out” in the 70’s and 80’s be there in larger numbers? Would the decidedly low-key shipboard product and shore programs be sufficient for a bigger and broader market to fill the larger ships?

After all, it was a perfect fit and product design for its current target market – why change?

The Perfect Storm

In short order, the cruise industry was struck by the onset of the early 80’s recession, high interest rates and a highly publicized act of terrorism (with images of a wheelchair-bound man named

1 1981 prices2 Skald (a Norwegian word for story teller) was the name given to the company’s past passenger club. The goal was for these passengers to recommend Royal Viking to their friends – and they did. Word of mouth, the most powerful recommendation a service can earn, reigned supreme at Royal Viking.

WAITING LISTS OF ALMOST TWO YEARS EXISTED FOR MANY SAILINGS; AVERAGE RATES WERE IN THE RANGE OF $700 PER PERSON PER DAY; ANDPRICE INCREASES WERE GOBBLED UP LIKE HORS D’OEUVRES ON THE MIDNIGHT BUFFET.

Leon Klinghoffer being pushed off the back of a cruise ship called the Achille Lauro). The combination of events rocked the confidence of Royal Viking’s traveling public just as the expanded ships came on line, impacting its seemingly vice-like grip on its market.

Load factors declined, and losses skyrocketed. The perfect product had met the perfect storm. With 18% interest rates and an unstable travel environment, who needed to part with their money to take a cruise? After years of good times, the weaknesses in the company’s marketing and strategic foresight had been exposed, affecting RVL’s ability to work its way out of a life-threatening jam.

Reactivating Loyalty to Control and Drive Revenue – the ‘Grandfather’ of Modern Loyalty Programs

In many respects, the Royal Viking product was a gold mine for what would be considered modern loyalty principles today. But it took a calamity to activate and channel its many assets into short-term benefits and a long-term program. A turnaround was in order. 3

By realigning key elements of the brand presentation and marketing, the company re-engaged with its critical loyal consumer base (which became the bedrock of the company’s recovery) while also broadening its overall market.4 The principles that rebuilt its foundation in the early 80’s were a harbinger of modern loyalty programs today.

By utilizing customer data (big data, 80’s style), executing proprietary offers, employing more frequent engagement with real news and increased recognition, the program went from low-key to high-touch. This approach combined both impact and engagement so critical to loyalty today while generating impressive numbers – for any decade.

3 Warren Titus became Chairman of Royal Viking Line and was succeeded by Tor Hagen, who engineered the turnaround of the company. Both men went on to later fame in the industry: Titus was the creator of Seabourn Cruise Line, Hagen, the driving force behind Viking River Cruises and now Viking Ocean Cruises … So, Royal Viking may live again as Viking – stay tuned. 4 The short-term makeover of the company was prodigious, and while formalizing and activating its loyalty program was critical, it doesn’t begin to do justice to the full makeover the company underwent. This was a marketing story, a turnaround story and eventually one touched by acquisition and takeover intrigue.

FOUNDATION ASSET/OPPORTUNITY TURNAROUND & LOYALTY STRATEGY

Available time

Disposable income

Unutilized passenger information

Low frequency, untargeted com-munications

Complex and varied product options and news potential

Unexploited marketing partners

Retired market with time to travel

Unlocked spending potential

Wealth of data for targeting and design

Multiple opportunities to engage and inform

Endless new variations by cruise length, destination, onboard and ashore

Airlines, travel agents eager to partner with a quality product

• Shorten cruise length – broaden the market

• Target proprietary offers to activate spending

• Develop passenger database facilitating targeted offers and design• Increase communication frequency e.g., dedicated Skald quarterly magazine

• Implement aggressive direct marketing instead of newspapers

• Upgrade and theme onboard enter- tainment and enrichment, e.g., Jazz with Dave Brubeck and Halley’s Comet with Carl Sagan • Unique shore-side programs e.g., Golf with Gary Player

• Top award in United Mileage Plus program • Increased travel agent sales efforts, e.g., Sea Eagle Club

BUILDING A LOYALTY STRATEGY

LOW

MEDIUM

HIGH

IMPACT• LIST/DATA• OFFERS

H

LENGAGEMENT

• BRAND STRENGTH/INTEREST• FREQUENCY/TOUCHES/NEWS

RELATIONSHIP BUILDING

H

LOYALTY MATRIX

RVL moved from a low impact, low engagement brand to one of high impact, high engagement driving significant results

John B. Richards is the former

Executive Vice President of Four

Seasons Hotels, the President

of North American Operations

for Starbucks Coffee Company

and the CEO of Elizabeth Arden

Red Door and Dean and Deluca

during the formative growth

years of these companies. He

is currently an Advisory Partner

and Principal at the New England

Consulting Group. He designed

his first Loyalty Program in 1982.

This is the first of a three part

series on Loyalty foundations,

structure and measurement.

The results spoke for themselves. A new data-driven loyalty program that engaged and activated past passengers, as well as a re-energized product (ship and shore) formed the core of the recovery. The numbers were spectacular, with response rates well above industry norms, allowing the company to regain its footing and live to sail another day.5

LOYALTY DESIGN PRINCIPLES FOR THE AGES – IMPACT AND ENGAGEMENT

HIGH PAST PASSENGER CONVERSION RATES FUELED A STRONG RECOVERY IN LOAD FACTORS

ROYAL VIKING LINE

YEAR ON YEAR LOAD FACTORS

(1982-1985)

DATABASE CONVERSION

RATES(1983-1984)

RVLINDUSTRYNORM

64%

Perhaps loyalty didn’t get its start on a cruise, but it was certainly one of the most fertile early testing grounds. The rise, fall and rise again of good companies is not new, but rarely do we see the lessons from such an experience still ring true after 35 years of marketing innovation and technology.

I took my first cruise when I was 32, and I plan to take my next before I am 70. Be loyal, take a cruise – you might learn something!

IMPACT

ENGAGEMENT

85%

1984-851982-83

• Leveraging passenger data - Compiling and utilizing rich passport data for targeted direct marketing and offers.

TODAY: Access to sophisticated customer data is the primary, essential foundation for loyalty programs. • Proprietary offers - The company’s first Dream Offer ($500 off) provided past passengers with

the “best first” deal, a hallmark of good loyalty management that drove significant bookings. TODAY: Combining value and recognition activates purchase behavior.

• Increasing engagement and news - Increased communication through the Skald magazine and direct marketing mailings offered something new to discover and gave past passengers first crack at new programs with often scarce capacity.

TODAY: The customer must continually be engaged with news that builds the relationship and makes them feel special. • Providing recognition – Shipboard recognition continued on a more formalized basis,

supplemented with periodic shore-side events. TODAY: The ability to directly recognize your top supporters cements the relationship. • Partnerships that matter - As the top award on United Mileage Plus program in 1982, a

broader group of potential passengers became aware of RVL’s expanded offerings. TODAY: Partners can provide additional value in ways you can’t (or shouldn’t) while helping you broaden your market.

5 After the successful turnaround, however, Royal Viking Line was acquired in a takeover battle. Unfortunately, it fell into the hands of Norwegian Cruise Line, a mass-market player which proceeded to emasculate the company and shatter its position in the market. This in itself might be a case history on how to mismanage an acquisition. RVL, the gem of the industry, fell into the hands of a butcher. Its remaining body parts are now distributed around the industry under other names.