🚢 How Norwegian Cruise Line Failed in China
When localization backfired
To win China's cruising market, Norwegian Cruise Line built Joy, a luxurious cruise ship customized for Chinese travelers. It featured almost every Chinese element to please its Chinese customers: Chinese artworks, tea-houses, Karaoke rooms, Mahjong sets, Chinese cuisine, and Chinese-speaking crew members.
In 2017, it was a big headline when Joy started its first cruise from Shanghai. But, just a year after, the company announced that Joy would cease its operation in China.
How come did a service specifically made for China end up losing in China?
Poor Product Market Fit
NCL's Joy captured the wrong customers. It wanted to attract China's new riches, those who would jet around the world and spend lavishly in bars, casinos, and luxury fashion stores. But those high-value, adventurous customers perceived cruising more as a western-style experience and thought Joy was too Chinese. As its targeted customers opted for cruise lines with more western features, Joy found itself serving mostly middle-aged, senior passengers who were prudent with their funds. Many of those passengers had a low willingness to spend. As a result, Joy's sales from other high-margin services and amenities struggled.
Poor Brand Strategy
As onboard revenues suffered, Joy sought to compensate by trying to increasing its overall ticket sales. But, it was difficult for Joy to raise its price and volume.
A relatively new market entrant, Joy was not perceived as a premium brand in China. Unlike its competitor Royal Caribbean who had already established a luxury brand image in China, Joy did not have a clear branding strategy and lost its brand focus when serving the wrong customers. It was not a budget cruise, but definitely not a high-end cruise either. Without enough public brand recognition, Joy could not justify selling at a high price.
Poor Sales
Joy could not sell at a greater volume either. The unique approach to ticket distribution in China limited their results. In the West, most tourists book tickets directly with cruise companies. In contrast, cruise lines in China sell over 85% of their rooms through travel agencies as full-ship or half-ship charters. Travel agencies often sell multiple competing cruise lines. Joy's China-specific design, which was intended to be its differentiators, did little help with the overall ticket sales. In fact, it may have even backfired. According to travel agents handling Joy's ticket sales, Joy's excessive localization deterred not just new riches but also middle class travelers as well.
In April 2019, after 19 months in China, Joy left for its new destination, Alaska. NCL's CEO announced that Alaska was a better opportunity, citing the company's stellar performance in the region. Before launching in Alaska, Joy went through an overhaul. All the Chinese elements were removed and replaced with spa and bars. The redo was so thorough that it was hard to imagine that Joy had a Chinese past.
What can one learn from NCL’s failure?
When taking a business global, it is important to decide not only what to localize, but also what not to localize. After all, localization is the icing. The real essence stays in the cake.