Yacht industry’s economic features

The Case of Non-Stop Yacht S.I.

Task 1: Using the details in the case study, construct a view of the mega-yacht industry’s economic features, using the structure of Table 3.1 p.49 (Thompson et al. 2005).

            The yacht industry is a big industry with approximately 5, 000 mega-yacht and 5, 000 super –yacht in 2003.  Each mega-yacht ranges from an average cost of $10 million to $50 million and higher.  The economic activity in this industry was estimated at $1,035 million worldwide, wherein $383 of this is accounted for new builds.  The maintenance, refit and repair business sector have the remaining share of $652 million.  Consultants estimated that the demand in the worldwide market would continue to increase by 6 % per year.

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            The economic activity in the mega-yacht industry was estimated at $ 1,035 million worldwide, wherein new builds have a share of $ 383 million and the maintenance (including refit and repair business sector) have a share of $652 million. It is also expected that anytime there is a possibility that 1,600 mega-yachts will be docked for service.  Consultants have  in estimated September 2002 that the demand in the worldwide market will continue to increase by 6 percent per year and even more in the near term outlook.  Forty five percent of all the super yachts and mega-yachts are purchased by the Americans.  Analyst indicated that Germany had a 26 percent share of the market followed by United Kingdom and Netherlands each with 18 percent share, the United States with 14 percent, France with 6 percent and Finland with 3 percent.

            Companies serving the mega-yacht industry are competing for the needs of the yachts.  Yachts are transient sea craft that sailed frequently from port to port and most of the time, supplies and equipment were often needed on the last minute basis.  There is a great range of products required to maintain and  use mega-yacht that is why suppliers were located all over the world.  Major suppliers of mega-yacht were located in eight countries namely: United States, United Kingdom, Japan Australia, Holland, France and Scandinavia.  The market is maturing continuously that more standardization and consolidation of suppliers were expected to take place.

            Key competitors of include major traditional procurement agents, yacht builders and parts-related websites.  There are also small private companies and freelance agents acts as purchasing agents for mega-yacht industry The three major procurement agents: (1) National Marine, Florida, United States; (2) Alex Spares, United Kingdom; (3) Versillias Supplies, Viareregio Italy. These three traditional procurement agents worked on their respective regions or areas.  National Marine concentrates its market on the United States, Alex Spares is catering to the European market and the Versailles Supplies are mainly dealing with the suppliers and  mega-yacht owners in Mediterranean.

            Ship Builders Palmer Johnson Inc. and Lurssen are considered emerging competitors of the business because of their plan to extend their business in the service department. They are known worldwide because of their long history and good reputation in the mega-yacht industry.

            Consolidations in this industry was also starting to take place as a transitional player began moving into lucrative US market to other parts of the world.  One example of this is the Rodriguez Group, a French yachting service company that purchased Bob Saxon Association Inc., , a yacht management and charter company that is based in Fort Lauderdale

            The yacht crews are always looking for parts and supplies that fit their shipping needs.  However, they encounter problems because of there are thousands of manufacturing company worldwide.  Since mega-yachts are transient sea craft, yacht crews are looking for parts that is available in the local manufacturer or local distributors where their mega-yachts are docking.  They are also concerned with the right measurements, specifications, shipping details and arrangement of payments.  The money involved in purchasing these parts and supplies is not a small amount of money that is why the owners and crews of mega-yachts wanted to be sure that they pick the right parts that they need.   Ofcourse, there is a big risk when making transaction via phone and fax and complicated problems may arise in these transactions because they are not sure that they are ordering the right specifications of parts that they need for their boat because there is no standard part in for each and every mega-yacht.

            A mega-yacht needs  machine engines, propulsion units, generators, air conditioning units, refrigeration, water maker, shore power conversion units, sewage system, stabilization system, bow thrusters, fuel purifications, oil purifications, fresh water system, hot water system, communication system, navigation electronics, compressed air system, entertainment system, fire fighting equipment, safety equipment, hydraulics, sail and rigging, kitchen  equipment, cranes, tenders, jet skis, diving equipment alarm system, helicopters, charts and other sea crafts.

            Each equipment have several manufacturers competing on that product line.  Combining them all, there are thousands of manufacturing companies worldwide.  The boat parts alone can be divided into three categories.  They are the spare parts, consumables and stocks and upgrades and refits.  Spare parts are items that urgently needed by the mega-yachts these are vital parts that might be broken unexpectedly and needed to be replaced immediately to ensure the good condition of the yacht.  Consumable and stocks spares are less urgent needs but are necessary to have in stock in case of breakdown or replacements.  Upgrades and refits includes items that enhance and protect the yachts.  These includes entertainment and communication system.

            The industry is flooded with so many manufacturers, producing the same product type.  It is now up to the owners and yacht crews to choose wisely in buying the product for their yachts.  After all, the money involved in yacht building, purchasing and maintenance is not a small amount of money that is why customers should be intelligent buyers.

            The advent of computer and internet changes all the way transaction are made. Traditional procurement or purchasing agencies (can be a company or an individual) can now be replaced by a more efficient procurement method using the internet. There is now online procurement agents that serves the customers more efficiently.  The advancement in computer technology and communication plays an important role in this industry.  It maybe viewed as an evolutionary technology that offers an alternate, often efficient method for achieving the companies goals.  More and more organizations realized the full potential of electronic environment in cost cutting and re-shaping the very dynamic space and time.  Through this advancement, there is a huge advantage to company’s e-commerce website. Increase in revenue is not the only reason online business is good for the mega-yacht industry.  Information about the latest gadget and parts needed by mega yacht can reach owners, captains and crews faster.  They just have to check the website to check on what’s the latest in the mega-yacht industry and in just one click their can place an order and they just have to sit and wait for their orders.

The product differentiation is becoming stiffer causing heightened price competition.  Some of the suppliers make the service more personalized to attract customers.  Meaning they concentrate more on how they serve and present the product to the customers in order to attract them to buy to them.

Since Non-stop Yacht is a an e-commerce business concentrate more on promoting and selling products thru the internet.  Instant access to current product information can eliminate many problems associated with parts procurement encountered by the captains, crews and owners of mega-yachts. The way NSY promote and sell their product is their competitive advantage.

Thou it is a risky business approach because there is a big chance that NSY can just be a source of information for captains, crew and owners and they don’t gain any sales in return because these people buy product from local distributors located in ports or yacht docks. The marketing strategy of NSY can help the company boost its sales and succeed in the yacht industry.

Economies of scale have driven much of business history over the past years.  Large companies have provided a tremendous range of goods and services to consumers at reasonable prices.  But the concentration of power and profits among the largest players in an industry can be quite significant (Gorman 2003 p. 129). Capital intensiveness, volume buying, administrative efficiencies, distribution, market power are factors that affect the increase in the economies of scale.

 Every industry has a set of best practices that are more or less known to established firms. New dot coms will be at a disadvantage unless they can redefine the industry's best practices and leap frog existing firms.

TASK 2

a)      Explain what is meant by a ‘generic competitive strategy’ and describe the characteristics and differences between the five types of generic strategy identified by Michael Porter.

Generic Competitive Strategy

            There are three generic competitive strategies according to Michael Porter.  They are differentiation, cost leadership and focus (Clarke 2001 p.1992).  Along with these three generic competitive strategies, Porter defined them along with two dimensions namely: strategic scope and strategic strength.  . Strategic scope is a demand-side dimension and strategic strength is a supply-side dimension.

The five types of generic strategy identified by Michael Porter are  the following:

1.      Low Cost Provider

2.      Broad Differentiation

3.      Best Cost Provider

4.      Focused Low Provider

5.      Focused Differentiation

The Low Cost Provider

                  The low cost provider strategy targets broad section of the market by producing products with low frills (acceptable quality and limited selection).  Its emphasis is on searching ways to continuously reduced cost of the product without sacrificing acceptable quality and essential features. Trying to make virtue out of product features that lead to low cost.  Economical prices, good value and striving to manage cost down year after year in every areas of the business is the to sustaining strategies.

Broad Differentiation

                  Like the low cost provider the strategic market of this strategy are the broad cross section of the market.  The competitive advantage of this strategy is the ability to offer buyer something different from competitors.  There is a wide selection of product and product lines with emphasis on differentiating features.  The emphasis of the product is built on whatever differentiating features that the customers are willing to buy or pay for.  Emphasizing the products’ superiority is very important.  The marketing emphasis is on advertising the differentiating features.  They key in sustaining this kind of strategy is stressing constant innovation to stay ahead of imitative competitors and concentrate on the few keys of differentiating features.

Best Cost Provider

            This targets those value conscious buyers.  The basic competitive advantage of this strategy is its ability to give customers more value for their money.  Company that uses this strategy offers product with attractive attributes and with assorted upscale features.  Its product emphasis is on building an upscale feature and appealing attribute to their products with lower cost than rivals.  They advertise delivery  of the best value.  They compete with their competitors by offering customers best value through low pricing or better features.  The key to sustain this kind of strategy is the unique expertise in simultaneous managing cost down while incorporating upscale features and attributes.

 Focused Low Cost Provider

                  The strategic target for this strategy is narrow market niche where buyers needs and preference are distinctively different.  The cost is low and the features and attributes of the products are tailored to the taste requirements of the niche members.  The company that uses this kind of strategy always strive hard to continuously search to reduce cost while incorporating features and attributes matched to the niche members preferences. It is also important to communicate the attractive features of the budget-priced product offering.  The key to sustain this kind of strategy is to stay committed to serve the niche at lowest overall cost.

Focused Differentiation

      This type of strategy works on targeting narrow market  niche where buyers needs and preferences are distinctively different.  It offers attributes that appeal specifically to the niche member and more often they can be custom made.  Marketing of the product under this kind of strategy is by communicating how product offering does the best hob of meeting niche buyers expectations.  The key to sustain this kind of strategy is by staying committed serving the niche better that the competitors

b)      Non Stop Yachts is pursuing which type of generic strategy? What is attractive about the strategy and what are the risks for Non Stop Yachts?

Among the above-mentioned generic competitive strategies, NSY is using broad differentiation strategy through sell supplies and parts for mega-yacht.  The company offers a wide selection of products under different brand names. It is a one-stop shop through the Internet.  They just give the information and specification of every product so that the customers have a wide range of options to choose from.  With NonStopYacht.com, the company became a web based purchasing agent and can be accessed by customers in any part of the world through the use of Internet offering parts and supplies needed by the mega-yachts.  This unique appealing attribute allows the company to increase unit sales.   The competitive advantage of the company is their ability to serve their customers wherever they are because of the wide range of network of suppliers, the flexibility of the cost structure and the transparency of the billing.

      Although this type of strategy of NSY was risky because not all that visit the site are sure customers. There is a great chance that they will just be used as a source of information for customers.  There is also a possibility that those traditional purchasing agents will open their own e-commerce site.  So apart from the   regular customers that they have they can widen their market through the use of e-commerce.

Task 3: Evaluate Non Stop Yacht’s value chain to determine whether there is potential for low-cost leadership, competitively valuable differentiating attributes, or a best-cost provider advantage in relation to competition.

The NSY Value Chain

                        Value chains consist of the steps in adding value towards the final production of marketable goods and services.  It maps the range map activities and business function required to bring a product or service to the market, from conception and design to the extraction of raw materials and then all the steps involved in developing the product or services into its final purchase form.  The value chain runs from conception to consumption and incorporates all the aspects of production, distribution and exchange. According to (Porter 1980) it can be illustrated using the figure below

Firm Infrastructure

Human Resource Management

Technology Development

Procurement

            Inbound logistics, operations, outbound logistics, marketing and sales and services are the primary activities in the company. Firm infrastructure, human resource management, technology development and procurement are the secondary activities.

            A new face for value chain can describe the activities inside the Non Stop Yacht e-commerce business.  For a business like this that is dependent on the online community, the value chain can be described in the following manner:

Awareness in business like this means generating traffic, driving visitors to visit and look at your site.  Non Stop Yacht make efforts to make the public know that this site exists by securing high placement among the more popular search engines for key word search.  However, this does not work well for the company because the growth in sales was small.  Being a strict Internet based business does not work for NSY.  So to make the customers know that their company exist they transfer to a public accessible area and put some computers that can be used by yacht crew. Non Sop Yacht new business model, from Purely Inter Based business to Hybrid “ brick and mortar” enterprise, make the company more accessible to the yacht crew.  Especially when they put a new office in Palma Spain and advertise the company’s site in three major publications that were frequently read and referenced by captains and crews: Professional Yachtsman’s Association News, The Yacht Report and Showboats.  Attendance of Non Stop Team in major boat shows in Europe and United States helped the company.

            Interest. When captains and crews learned the existence of an online purchasing agent named Non Stop Yacht.  They become interested in learning what are the new offerings of this company that make it different from the existing purchasing agencies.  Non Stop Yacht provided a compelling value proposition to the crew of super yacht and mega-yacht , which includes:

An up-to-date  catalogue on CD
Automatic accounting for the captain or yacht management company
Password protected  expenditure level for captains and engineers
Automatic receipt copies
Link into maintenance scheduling software if used on the yacht
Easy re-ordering of parts or group of parts
Intelligent add-on sales with instant access to available options
Product picture and parts diagram
NO time zone issues
This hassle free online purchasing offered by Non Stop create desire to the yacht owners,

captains and crew to place an order for their yacht  parts and supply requirements. Once the order is placed, NSY has to verify the authenticity of the order before delivering it to the customer.

            In this kind of value chain and set-up, the first applicable strategy to be used is  broad differentiation strategy because of their broad market and large product line. In order to be a successful firm the following things should be emphasize and strengthen by the company:

a.       They must access to scientific researches and latest updates that concerns the Mega-yacht industry.

b.      They should also give emphasis on strengthening their skilled and creative development team.

c.       A strong sales team will be a great edge for them that has an ability to communicate and persuade people and companies to buy the company’s products.

d.      Strengthening the company’s reputation through quality service.

e.       Organized distribution channels- NSY should have a good standing relationship with all local suppliers that can possibly helped them served their clients

f.       They should also give incentives to those companies or buyers that buy in bulk to them or became their constant customers

g.      Stress continuous improvement and innovation in presenting the products that they offer

If the company can properly implement the strategy they can build a competitive advantage,

promote customer’s loyalty and knock the socks of rivals, ethically and honorably. Although the company should be careful in implementing this strategy because like any other strategies it has also weaknesses which the company should study very well on how will they be able to turn these  weaknesses to strength. The company should be sensitive enough to play their card well.  They should bear in mind that this is a fast –paced industry with so many changes going on and that there are possibilities that companies will merge or collaborate in order to have broader markets. The competitive strategies that the company should used must be flexible and the company must be open in changing their strategies so that they will have continuous competitive advantage over their competitors.

Task 4: In the case study there are three growth options facing Non Stop Yachts in 2003. Discuss and compare the pros and cons of each option and make a recommendation of which option to choose for the future.

Analysis on the Three Growth Options for Non Stop Yacht S.I.

            There are three options facing Non Stop Yacht in 2003, they are : (1) Signing an agreement with Palmer Johnson or National Marine; (2) Growth through repair and refit yards and dealing direct to Yachts; (3) Organic growth through opening multiple locations

            The first growth option is signing an agreement with either Palmer Johnson or National Marine will make Non Stop Yacht their European arm this will give the NSY an immediate increase in their sales by $3 million with potential growth of 50 percent  in second year, 30 percent in third year and 10 percent growth per subsequent year.  But this option will make Non Stop Yacht a third party and they will have to stop dealing direct with crew members, captains or owners of mega yachts.

            The second growth option is the growth through repair and refit yards and dealing direct to yachts.  This will give the Non Stop Yacht a sale of more than two million in three years with growth rate of 15 percent for each subsequent year.  But when NSY choose this option they will have to give up dealing directly with yacht crews and owners to avoid conflict of interest.  There is also a possibility that they lose their company identity in the eyes of the end user if they depend on the repair and refit yards.

            The third growth option is the organic growth through opening multiple locations.  With this option the company will have a good exposure and would generate more walk in traffics for the company.  More small offices of Non-Stop Yacht in each port where sales happen will possibly generate more sales for them.  This will also make yacht crews familiar with the company.  However, this option has smaller sales but it will make the foundation and credibility of the company firmer.

            The first option is a very tempting growth option because it will give a large increase in sales.  It is a good opportunity for growth in Non-Stop Yacht because it will generate them large sales.  They can grab this opportunity to make their company stronger and popular not only in the European market but also to the US market.  With the large market that Palmer Johnson or National Marine have, they can established a good reputation that they can use in the future when their agreement with Palmer Johnson or National Marine expires.  There is a possibility that  they will lose their own identity as a company.  Yes it is good thing at first because of the big sales that they can get by merging with this company, but there might come a time, when these two company get familiarize with the European market, might terminate their alliance with Non Stop Yacht leaving the company “a company with no identity”.  If this happened, NSY must go back to square one where they have to establish a name for their company in the mega-yacht industry.

            Just like option number one, the second option can give a big amount of income to the company but there is a great possibility that the company will lose their identity.  Therefore it is also not a good choice.

            The best choice for Non Stop Yacht is the third option, because even if the company will have a slow growth.  The company is slowly but surely establishing loyalty among customers and their so much room for changes and growth.  Incorporating “click” with “brick” meaning aside from having an online company it is best for the company to have sales offices where customers can drop by, pass and inquire, talk to real people.  After all, personal touch in the business is still very important and can play a big role in the company’s success.

Task 5: Through online and offline research, provide and update on the current business models of:

·         Non Stop Yachts, Barcelona

The current business model use by Non Stop Yacht in Barcelona is using a business model called “bricks ; click” because they integrate both online and physical presence.  With the presence of their website (http://www.nonstopyacht.com) where you can see all the products they offer for the mega-yachts, at the same time they have an office located in Barcelona and Palma.

They allow the customers to order supplies and parts online and place that order to the nearest local distributor on the customers’ area to deliver the order.  If no local suppliers are available they arrange for the delivery of the product to the customers.

·         Palmer Johnson Inc., Wisconsin

Palmer and Johnson, who is working on a focused differentiation strategy by custom designing the yacht of choice of customers, came to bankruptcy in 2003.  Now it is trying to revive it legacy and name and creating a new business model yachts.  The 120 Series was a launching pad for Palmer Johnson's giving greater detail with construction, with an emphasis on safety, showing they can be built to a high standard.  They are a using  the loyalty business model wherein they put all their company  resources to increase once again the loyalty of the customers and other stakeholders in the expectations will met or surpassed by giving high quality product that will satisfy the customers taste.

·         Lurssen, Bremen

It is a manufacturer business model with narrow differentiation strategy.  It uses the Internet to promote its mega-yacht.  This mega-yachts can customized according to taste of the owners or customers.  They have their office in Bremen.  They concentrate in one product alone and that is ship building.  Lurssen have used  the power of the web to allow a manufacturer to reach buyers directly and thereby compress the distribution channel. The manufacturer model can be based on efficiency, improved customer service, and a better understanding of customer preferences.

·         National Marine, Florida

It uses a collective business model because has more than 1,400 companies that produced every conceivable product used by recreational boaters.  National Marine is dedicated in creating, promoting and protecting an environment where members can achieve financial success through excellence in manufacturing, in selling, and in servicing their customers. (National Marine Manufacturing Association, 2002).  Trade associations are non-profit organizations in which the individual members are companies or individuals engaged in a common business pursuit. Competitors join together to create a platform format in which they deal with common problems of their industry. Any applicant meeting the standards of the association must be accepted as a member. Anti-trust law prohibits a member trade association from denying an otherwise qualified applicant's membership based upon a geographical proximity to an existing member. Trade associations commonly offer their members educational programs, the opportunity to come together at meetings to discuss common problems, and marketing materials designed to be imprinted by each member with its relevant information. Trade associations also offer elective group purchasing plans. The trade association bears no credit risk in these transactions but instead, provides chosen vendors with access to a large body of member customers. Because the trade association does not pledge its credit, the vendor must rely upon the credit worthiness of each purchaser.

To sustain its operations, a trade association generally receives an initiation fee and/or a yearly membership fee (collectively "dues") from its members, and it may collect rebates or imposes relatively low membership dues on its members. However, because initiation commissions from the purchasing plan suppliers.

The trade organization fees and annual membership fees are nominal, the trade organization lacks the ability to engage in offering its members national marketing capability, access to expensive technologies and cost-effective purchasing programs for major purchases due to a lack of capital. Furthermore, being non-profit, trade associations do not have the management mentality necessary to sustain major projects such as national sales and marketing.

While offering potentially valuable services to businesses, few trade associations offer much direct help in the major business areas of purchasing, production or marketing.

List of References

Clarke, Steve 2001,  Information System Strategic Management: An Integrated Approach, Routledge,  New York

Hunt, Margaret  2005, Strategic Management,  Select Knowledge Limited,  United Kingdom:

Rentmeester, Kurt. 2006  Door Country Magazine Online.  Winsconsin, viewed on October 7, 2006, http://www.doorcountymagazine.com/us.html

Lurssen  n.d.,  Yachts   viewed on October 5, 2006, http://www.lurssen.com/flash.html

National Marine Manufacturing Association 2002,  About NMMA. Viewed on October 5, 2006, http://www.nmma.org/corporate/about/

Non Stop Yacht Supply  2002, About Non Stop Yacht, viewed on October 5, 2006. http://www.nonstopyacht.com/static/browse/session/UserTemplate/99.htm

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