Conroy the Contrarian

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Conroy the Contrarian

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Conroy the Contrarian
By Arnie Weissmann
May 9, 2011

Sometimes, I'm baffled by the behavior of the American consumer. Through the years, marketing campaigns that I thought would have great appeal apparently didn't get much traction, and ones I thought would flop seemed to have legs.

I rejoiced in 2002 when American Airlines removed three rows of seats and gave everyone more legroom. In fact, I did more than rejoice; I shifted more business to them.

Apparently, I was in the minority. The needle didn't move enough for AA, and they reinstalled those three rows.

Given that, I believed that United's Economy Plus program, which asks consumers to pay extra to sit in coach rows that have a few extra inches, was going to be a bust. But apparently the program has brought in enough revenue that the recently merged Continental and United will be reconfiguring more aircraft with Economy Plus seating.

Confoundingly, the public appears to shrug at inclusive benefits but is willing to pay "extra" for those exact same perks. It made me wonder if luxury cruise line Regent Seven Seas' strategy of adding more "inclusive" benefits would help fill its ships.

For Regent, most drinks and shore excursions, and now a predeparture night in an upscale hotel, are included in its price. These benefits run contrary not only to the rush to ancillary fees but also to the common wisdom that the wealthy are more willing than others to pay for unbundled services. Four- and five-star hotels can get away with charging for WiFi, but economy and mid-range hotels are likely to offer it for free.

I saw Regent President Mark Conroy recently and asked how his inclusive strategy was going. His response was detailed, but to start at the end: It's working quite well.

He said the shift toward more-inclusive came out of discussions with Frank Del Rio, chairman of Regent's parent company, Prestige Cruise Holdings, after the recession began.

"All the lines were desperate to get people to book again," Conroy said. "We didn't want to simply drop rate; it takes years to come back, and besides, it doesn't really work. For the most part, you get the same people you would have gotten anyway, except they're paying less. Others will be on a once-in-a-lifetime cruise, taking advantage of discounts; they're not repeat customers."

Conroy said his team had toyed with the idea of selling shore excursions in a package before the recession, and "Frank suggested, why not give it away for free?"

Regent tested the idea, and those cruises that included the shore excursions sold out in 60 days. The concept was then launched for the rest of the fleet for the balance of the year.

"That first year, we ended up eating some expense," Conroy told me. "There were initial costs tied to the logistics of setting it all in motion, but now that we have experience, we've been able to raise our prices and totally offset the costs. We're back to 2008 rates, which was our best year."

And instead of running occupancy in the mid-80s, they're closer to 90%, he said. "That last 15% to 20% is where the profit is."

Plus, Regent has found some unexpected benefits in bundling shore excursions. Prior to making them inclusive, about 15% to 20% of guests booked excursions. Now it's about 95%, and Conroy sees a connection between higher excursion participation and lower cancelation rates.

"Typically, about 25% will cancel before the deposit," he said. "But if you can get them engaged through shore excursion selection, it helps them visualize their trip, and there's less chance they'll cancel."

Conroy also believes Regent's inclusive approach supports his long-term growth strategy: to encourage agents to lure travelers from premium-level ships to luxury. "Looking at price alone, we'll be twice as much as premium," he said. "But if agents talk about the value of everything that's included, well, yes, we'll still be more expensive, but not twice as much. And because we don't have noncommissionable fees, and agents get commission on the included shore excursions, the agents get paid more."

Conroy delights in taking a contrarian position that seems a more elegant and logical solution to filling ships than complex pricing schemes and commission carve-outs. But he was also clear about his choices if agents had not embraced the concept.

"I'm thrilled it's successful," he said. "But I did tell agents: If this doesn't work, we'll go in the opposite direction."
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