MBA2404 Business Breakdowns: Virgin Voyages - Re-inventing Cruising

0:09Heyo! Welcome to the$100 MBA show, giving you the skills you need to build a business you want. with our practical business lessons. I'm your host, your coach, your teacher, Omar Zinhome, and welcome to Business Breakdowns, a new segment of the podcast where we break down successful, innovative businesses doing amazing things in their market. Every so often on the podcast, we're gonna publish a new business breakdown where we're gonna show you exactly how these companies have become successful and how you can do the same in your business. It's like a documentary, had a baby with an online course.

0:43Today's business breakdown is Virgin Voyages and how they reinvented cruising. By the end of the episode, you're going to learn five compelling strategies that Virgin Voyages used to become a game changer in their highly competitive market. Founded in 2015, Virgin Voyages entered the insanely competitive and well-established market of cruise lines. It's a joint venture between Virgin Group and Bain Capital. Having his own cruise line has been a dream of Richard Branson, the founder of Virgin, for years. It took five years of hard work crafting the Virgin Voyages experience and building their first ship, Scarlet Lady.

1:23This is a ship that cost over$800 million to build, so you could say the stakes were high. But with gusto and optimism, they launched and entered the cruise market at the worst possible time. 2020, in the middle of a pandemic that had the whole world firmly on dry land. How did they get through it? How did they compete with cruising giants like Carnival and Norwegian and Royal Caribbean? And how did they essentially reinvent cruising and grab hold of a totally untapped market? Let's find out. Let's get down to business. The global cruise market size is valued at$7.67 billion. dollars. But it didn't happen overnight.

2:07Back in 1844, P &O Cruises began operating and was the first leisure cruise line. In 1900, the Hamburg America Line made the first purpose-built pleasure ship. This means they built the ship to make it a vacation rather than a means of transport. It was a very exclusive offering, the ship entirely made up of mostly first-class cabins. Now, the 1950s are often referred as the golden age of cruising. Cruising became this high social event filled with games and drinking and dancing and even celebrities. Now, in the last 20 years, cruising has been dominated by three big companies. Carnival Corporation, which also owns Princess and P &O.

2:50Royal Caribbean Group, which also owns Celebrity and Silver Seas. and Norwegian Cruise Line Holdings, which also owns Oceania and Regent Cruises. These three companies dominate the cruising market and make over 70 % of all cruising revenue. So what on earth is Richard Branson thinking entering this highly competitive, well-established market? Well, in an interview, Richard Branson mentions a statistic that he came across that got him thinking. He said 95 % of the population hasn't been on cruises. And what I love and what the team at Virgin loves to do is to try to challenge ourselves to create something that caters to people who don't like what currently exists.

3:33So Richard Branson, instead of saying cruising is already dominated by others, he thought, who isn't cruising and why? What would they like on a cruise that others are not willing to do? And Virgin Voyages was born. Today's episode is more than about the story of Virgin Voyages. It's about why differentiating, niching down, and saying no to a large customer base can make more sense than competing head-on with the big leaders in your market. When working on this episode, I was reminded of two books and what I learned from those books. The first book is Blue Ocean Strategy by W. Chan Kim. Blue Ocean, no pun intended.

4:12The book explains why having a business in a blue ocean, an ocean that's big and empty and doesn't have a lot of competition, makes it so much easier to succeed. Rather than a red ocean that's crowded, overly competitive, filled with everybody in the market. Richard Branson and the Verger brand has always played in blue oceans. And now they're literally playing in a blue ocean. Alright, no more ocean jokes. The second book is Zero to One by Peter Thiel. Early on in the book, Peter states that competition is for losers. He says in the book, if you want to create and capture lasting value, look to build a monopoly, a business that has no competitors.

4:54Think YouTube, Disney, and Heinz Ketchup. So how do Richard Branson and Virgin Voyages do it? Well, like Richard said, he asked the right questions. Who isn't cruising and why? What would they like to see on a cruise? What would they like to experience on a cruise that others are not willing to do? Now, you can just replace the word cruising with whatever you do in your business. If you're on a cleaning service business for homes, who isn't using a cleaning service and why? So let's just be honest for a second. What comes to mind when you think about cruising? For me, it's open buffets, crowded decks with kids running around, cheesy, tacky entertainment and shows, people lazing about playing bingo, upsells everywhere, extra charges here, extra charges there, Surprises on your bill.

5:38Over-the-top ship layouts with atlantic features like ziplines and water slides and flow riders. These like huge eyesores in the middle of the ship. And tons of noise, right? Announcements every five minutes. In my opinion, this is why 95 % of people don't go on cruises. So what did Virgin Voyages do? They did the opposite of what every other cruise line was doing. Virgin Voyages has no buffets. Just quality, trendy dining. There's no kids. Yep, no kids allowed on the entire cruise line. They have edgy and original shows and entertainment. The daytime events are all around exercise and activities like yoga and boxing and spin classes.

6:17They have very few upsells. They include tips, essential non-alcoholic drinks. All the dining is included. No, you know, specialty dining. They even include Wi-Fi and no announcements and no cheesiness. Now, these might all sound like great ideas, but Virgin is actually saying no, we're not for you to a whole lot of cruisers, people that actually love cruising. They are also taking a risk by offering higher priced cruises and including so much. Most other cruise lines make as much, if not more than the cruise fare in the extras they charge on board. Virgin is playing the long game. They have a long road ahead of them to convince non-cruisers that cruising might be for them.

7:01At least the Virgin way. And in fact, just recently, they just raised$550 million to double down on their efforts and build a fourth ship. So, has this all paid off? Did they get through that crazy bumpy start launching during the pandemic? Or was Virgin just dreaming and they just crashed and burned? Every year, the most popular cruising authority, Cruise Critic, dishes out awards for the best cruise lines. This is like the Oscars of cruises. In the large ship category, Virgin Voyages dominated and swept every category, taking home every award from best overall cruise to best dining to best service and best value for money.

7:43This is unheard of in the cruising industry. A brand new player comes and dominates the market. And they did it all not by competing with other cruisers in the market, but by being something entirely different. Serving an underserved market of non-cruisers. Wow. So that's great for Virgin Voyages and all, but what does this mean for you and your business? How can you do the same and achieve similar success? Here are some strategies I extracted that you can implement today in your business. Strategy number one, stop trying to one up your competition. By being different, you automatically become better to a segment of your market.

8:26Virgin Voyages is a better cruise line for some simply just because they're an adult's only cruise line. For those who want a holiday without kids, this makes them a no brainer choice compared to the competition. What can you offer that's different but serves a particular audience of people who are currently underserved or are not served at all. Maybe you're a digital marketing agency and you serve business owners who hate social media. They get new customers without spending a second on social. Strategy number two, don't be afraid to change your pricing model. Like I mentioned, most cruise lines make just as much, if not more, from passengers once they're on board as their cruise line fare itself, right?

9:06So they're banking on the fact that they're going to be able to upsell them and charge them extras. Now Virgin does the opposite with all inclusive fares, including gratuities, Wi-Fi, non-alcoholic drinks, premium dining, a whole bunch of other stuff. Now Virgin actually makes as much, if not more than the other cruises because customers don't feel like they're being nickel and dimed and they're willing to pay for extras like cocktails and excursions because they feel like they're getting value. How can you change the way you offer your product, your pricing? Maybe you can create tiers or bundles and disrupt your market because you're doing things differently.

9:40You're offering your product differently. Strategy number three, create an anti-avatar. Be clear about who you are not for. Virgin Voyages makes this very clear. If you travel with kids, want open buffets instead of fine dining, or you're easily offended by adult-themed humor, Virgin Voyages is not for you. Being a bit polarizing gets you attention and gets those who are on your side to really love you. Nothing is worse than being ignored. And you get ignored when you try to please everybody. So what is your anti-avatar? Who are you not for? Strategy number four, turn complaints into cash. Virgin Voyages heard all the complaints about cruising and saw them as opportunities, as challenges to solve in exchange for cash.

10:28When entrepreneurs see problems in business, they see a chance to deliver a solution for profit. Problems that people voice are problems they will likely happily pay for to be solved. What are customers in your market complaining about? What would that mean for your business if you were the one that solved them? What is the simplest way of solving them? For example, over 100 years ago, the Otis Elevator Company was getting complaints about their elevators. They were fine and all, but people were saying they were too slow in taller buildings with many floors. At the time, speeding up the elevator would be a safety risk.

11:03So they came up with a much simpler way to solve the problem. They installed full-length mirrors in the elevators. Yep, they found out that when they installed a mirror in the elevator, people didn't notice how long the elevator ride was because they were preoccupied looking at themselves in the mirror. So the ride didn't feel so long. So what are some simple solutions you can offer to problems your customers or potential customers are complaining about? And finally, strategy number five. niche. Stop trying to take on the whole market. Virgin Voyages would have no chance if they tried to take on Carnival and Royal Caribbean or Norwegian.

11:41They knew this going in, so they became what I call a for company, as in F-O-R, as in cruising for those who hate the idea of stereotypical cruises. What kind of for company can you become? Marketing services for those who hate social media, a cat cafe for those who are also OCD, a dog training company for dogs that live in apartments. Virgin Voyages are just getting started and their success story will continue. The question is, will yours? Will you apply what you learned from their success and from today's business breakdown? If you made it this far, I'm sure you will. That wraps up today's first business breakdown episode.

12:25I hope you enjoyed it. If you did, let us know in a rating and review, whether it's on Spotify or on Apple Podcasts. Here on the podcast, we like to try new things to make sure we're providing value. We're making sure that we're giving you every different way to become a better entrepreneur so you can grow that business of your dreams. So let us know what you think of business breakdowns. And while you're at it, make sure you hit that follow or subscribe button so you get our next episode automatically. That wraps up today's episode. Thank you so much for listening. But before I go, I want to leave you with this.

12:57Great entrepreneurs are always paying attention. Their radar is always on. They're going to a restaurant. They're looking around. How are they doing this? This is interesting. I like the way they do that. They can improve this. They're getting ideas everywhere, right? Everywhere they go, no matter what they do, they're thinking about how they can take those ideas and implement them in their own business. Can they implement them? Would it work? One of the most important skills that any entrepreneur can have is to pay attention. Thanks so much for listening, and I'll check you in Wednesday's episode.

13:27I'll see you then. Take care.

13:50Thank you.