LOYALTY STARTED AT SEA

CRUISE LINE OFFERS LESSONS IN LOYALTY DESIGN FOR THE AGES

BY JOHN B. RICHARDS 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 , a cruise line that operated worldwide itineraries during the 70’s and 80’s. ROYAL VIKING AT A GLANCE For a period of time, the brand • Three ships: the Royal Viking Star, Sea and Sky, rated was almost perfectly aligned top ships in the industry in 1982 with its customers’ needs, and • Worldwide itineraries: China, Australia, Alaska, loyalty was automatic. This was Mediterranean, Northern Europe, Around South remarkable for a discretionary America and Around the World service product with the most • Average cruise length: 21 days complex delivery formula • Famous passengers: Elizabeth Taylor, Cary Grant, imaginable. It achieved the Baron von Krupp, Omar Sharif successful alchemy of product • Norwegian Flag Carrier and ownership design, service standards and • Longest cruise: The World Cruise, 100+ days service delivery. • Most expensive cabin: Penthouse suite, World cruise, $120,000 per person This is a story of how loyalty was achieved, stalled and • Fastest-selling cruise: Halley’s Comet Cruise with Dr. Carl PERHAPS THE PUREST EXPRESSION Sagan (of Cosmos), 7 minutes OF COMMERCIAL LOYALTY WAS TO then reactivated as a changing A COMPANY CALLED ROYAL VIKING market environment forced • Top cruiser: Rosemary Roberts, 90+ cruises LINE, A CRUISE LINE THAT OPERATED Royal Viking to adjust in order WORLDWIDE ITINERARIES DURING to survive. The company was THE 1970’S AND 80’S. 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. I joined the company in 1982, just before the “perfect storm” Smooth Sailing hit, as a marketing executive with Procter and Gamble and McKinsey experience. When I got to RVL and saw how For its unique combination of itineraries, service, ambience and effortlessly it deployed its prodigious assets, I realized how little positioning, the company was rewarded handsomely. Waiting lists I actually knew. Our job was not to remake the company but to of almost two years existed for many sailings. Average rates were reactivate what made it great and bring new tools to bear on in the range of $700 per person per day; and price increases were its plight. I have been able to apply much of what I learned here gobbled up like hors d’oeuvres on the midnight buffet.1 In fact, the to the growth of Four Seasons Hotels and Starbucks and, later, company was doing so well that it decided to lengthen the ships the makeover of Elizabeth Arden Red Door. Royal Viking was a from 550 to 725 passengers to capture incremental demand! gem from which I learned life-long lessons. In recognition for this extraordinary loyalty? A dedicated cocktail Charting a Strong Course party for its Skald Club members, fancy gifts from Gump’s, occasional Skald Club cruises with special entertainment and, Royal Viking sailed onto the scene in the early 70’s and quickly every so often, a letter from the Chairman, Mr. Titus.2 established itself as the leading cruise line in the industry. Largely

the brainchild of Warren Titus, who was considered by many the This perfect alignment of brand delivery and customer needs father of modern resulted in intense customer loyalty that was serviced by low key cruising, the product communication and the pretense of recognition. There was no reflected his point “loyalty program,” as we know it today. It happened naturally in a WAITING LISTS OF ALMOST TWO YEARS of view about how world with little competition and a buoyant market environment. EXISTED FOR MANY SAILINGS; AVERAGE to fashion, deliver RATES WERE IN THE RANGE OF $700 and communicate PER PERSON PER DAY; AND This success is a reminder that, fundamentally, the brand and an understated PRICE INCREASES WERE its execution drives loyalty – not the program. But the program luxury service brand. GOBBLED UP LIKE can activate and effectively channel that loyalty, as Royal Viking Because Titus was HORS D’OEUVRES ultimately discovered. ON THE MIDNIGHT a personal friend of BUFFET. brand design and corporate identity The Clouds Begin to Gather pioneer Walter Landor, the company Despite the company’s apparent success, there was growing unease. also reflected The cruises were long (21 days) and expensive on average. Royal Landor’s influence Viking was catering to a very narrow market with the time and and was consistent from end to end in what Titus called “the total money to afford such an extravagance. What would happen as the design concept.” Everything looked and felt like it belonged. larger ships came on line with 25% more capacity to fill? Would this older market that was demographically “dying out” in the 70’s The company’s main luxury competitors of the era were the ret- and 80’s be there in larger numbers? Would the decidedly low-key rofitted Sajafjord and the Vistafjord (which served principally the shipboard product and shore programs be sufficient for a bigger European market) and First Class on the QE2. They were all nice, and broader market to fill the larger ships? but none achieved the combination of ambience, intimacy and unusual itineraries offered by Royal Viking. After all, it was a perfect fit and product design for its current target market – why change? The middle market was anchored by (the Love Boat) and Holland America, while Carnival Cruises (which would The Perfect Storm eventually become a colossus in the industry) had one ship in the Caribbean trade. So for its target market, a predominantly wealthy, In short order, the cruise industry was struck by the onset of the retired, WWII-era passenger (Blue Blood Estates in Claritas early 80’s recession, high interest rates and a highly publicized act parlance), Royal Viking Line was the place to be. of terrorism (with images of a wheelchair-bound man named

1 1981 prices 2 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. Leon Klinghoffer being pushed off the back of a cruise ship called the Achille Lauro). The combination of events rocked the confidence RVL moved from a low impact, low engagement brand to one of high impact, high engagement driving significant results of Royal Viking’s traveling public just as the expanded ships came on line, impacting its seemingly vice-like grip on its market. LOYALTY MATRIX LOW H Load factors declined, and losses skyrocketed. The perfect product IMPACT had met the perfect storm. With 18% interest rates and an • LIST/DATA unstable travel environment, who needed to part with their money MEDIUM • OFFERS to take a cruise? After years of good times, the weaknesses in the company’s marketing and strategic foresight had been exposed, HIGH 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 L H In many respects, the Royal Viking product was a gold mine for ENGAGEMENT • BRAND STRENGTH/INTEREST what would be considered modern loyalty principles today. But it • FREQUENCY/TOUCHES/NEWS took a calamity to activate and channel its many assets into short- RELATIONSHIP BUILDING term benefits and a long-term program. A turnaround was in order.3

By realigning key elements of the brand presentation and By utilizing customer data (big data, 80’s style), executing marketing, the company re-engaged with its critical loyal proprietary offers, employing more frequent engagement with consumer base (which became the bedrock of the company’s real news and increased recognition, the program went from recovery) while also broadening its overall market.4 The low-key to high-touch. This approach combined both impact principles that rebuilt its foundation in the early 80’s were a and engagement so critical to loyalty today while generating harbinger of modern loyalty programs today. impressive numbers – for any decade.

BUILDING A LOYALTY STRATEGY

FOUNDATION ASSET/OPPORTUNITY TURNAROUND & LOYALTY STRATEGY

Available time Retired market with time to • Shorten cruise length – broaden the travel market Disposable Unlocked spending potential • Target proprietary offers to activate income spending Unutilized Wealth of data for targeting and • Develop passenger database facilitating passenger design targeted offers and design information • Increase communication frequency e.g., dedicated Skald quarterly magazine Low frequency, Multiple opportunities to engage • Implement aggressive direct marketing untargeted com- and inform instead of newspapers munications Complex and Endless new variations by cruise • Upgrade and theme onboard enter- varied product length, destination, onboard tainment and enrichment, e.g., Jazz with options and and ashore Dave Brubeck and Halley’s Comet with news potential Carl Sagan • Unique shore-side programs e.g., Golf with Gary Player Unexploited Airlines, travel agents eager to • Top award in United Mileage Plus program marketing partner with a quality product • Increased travel agent sales efforts, partners e.g., Sea Eagle Club

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

85%

DATABASE ROYAL CONVERSION VIKING LINE RATES YEAR ON YEAR (1983-1984) 64% LOAD FACTORS (1982-1985)

INDUSTRY RVL 1982-83 1984-85 NORM

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

IMPACT

• 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 John B. Richards is the former the “best first” deal, a hallmark of good loyalty management that drove significant bookings. Executive Vice President of Four TODAY: Combining value and recognition activates purchase behavior. Seasons Hotels, the President ENGAGEMENT of North American Operations • Increasing engagement and news - Increased communication through the Skald magazine for Starbucks Coffee Company and direct marketing mailings offered something new to discover and gave past and the CEO of Elizabeth Arden passengers first crack at new programs with often scarce capacity. Red Door and Dean and Deluca TODAY: The customer must continually be engaged with news that builds the relationship and makes them feel special. during the formative growth • Providing recognition – Shipboard recognition continued on a more formalized basis, years of these companies. He supplemented with periodic shore-side events. TODAY: The ability to directly recognize your top supporters cements the relationship. is currently an Advisory Partner and Principal at the New England • 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. Consulting Group. He designed TODAY: Partners can provide additional value in ways you can’t (or shouldn’t) while his first Loyalty Program in 1982. helping you broaden your market. This is the first of a three part series on Loyalty foundations, 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, structure and measurement. 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!

5 After the successful turnaround, however, Royal Viking Line was acquired in a takeover battle. Unfortunately, it fell into the hands of , 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.