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CARNIVAL CORPORATION-2007
STRATEGIC MANAGEMENT CASE STUDY PRESENTATION
Group Members
Hammad Haider
Ibthal Ahmed
Muhammad Naeem
Sohaib Ahmed
Lahore School of Economics
Presented to
Saba Rana
CARNIVAL CORPORATION-2007
INTRODUCTION AND INTERNAL ASSESSMENT
Carnival corportaion is a British-American owned cruise line, based in the Doral suburb of
Miami, Florida in the United States. Originally an independent company founded in 1972 by Ted
Arison, the company is now one of eleven cruise ship brands owned and operated by Carnival
Corporation & plc. The company has the largest fleet in the group, with twenty three vessels
currently in operation. Executive control of the company is provided by the North American
division of Carnival Corporation, headquartered in Doral, Florida
Carnival was a pioneer in the concept of shorter, less expensive cruises. Its ships are known for
their Las Vegas-style decor and entertainment. The line calls its ships The Fun Ships, and there
are a wide range of activities offered on board. Its trademark is the funnel, which is red, white
and blue and shaped like a whale's tail. The mascot for Carnival is "Fun Ship Freddy", a
character in the shape of Carnival's distinctive funnel.
In 1996 the Carnival Destiny of 101,000 gross tons became the largest passenger ship in the
world at the time. In 2004, Carnival Corporation ordered for a development program for
Carnival's new ships, which was called the Pinnacle Project, which calls for a 200,000-GT
prototype, which would have been the world's largest cruise ship. As of 2009, the latest and
largest ship in the Carnival fleet is the Carnival Dream, a new 128,000 gross ton ship. The
Carnival Dream entered service on 21 September 2009. After several voyages in the
Mediterranean she is set to offer weekly Caribbean cruises from Port Canaveral from 5
December 2009. A sister ship, the Carnival Magic, debuted on May 1, 2011. On December 1,
2009 it was announced that Carnival placed an order for a third Dream-class vessel. It will enter
service in June 2012 and will be homeported in Miami.On May 10, 2010, Carnival selected a
name for their new Dream-class vessel in 2012; the Carnival Breeze.
Mission Statement:
”Our mission is to deliver exceptional vacation experiences through the world’s best known
cruise brands that cater to a variety of different lifestyles and budgets, all at and outstanding
value unrivaled on land and or at sea”
CARNIVAL CORPORATION-2007
Strengths:
Large ship fleet
Highest market share
Financially strong, high profits
High customer satisfaction
Weaknesses:
Majority of the revenue comes from US customers, subject to uncertainty
Over dependence on travel agents
Lack of market development towards Asia
Inability to dispose of gray and black water properly
IFE Matrix:
Strengths Weights Rating Score
Large ship fleet 0.15 3 0.45
Highest market share 0.2 4 0.8
Financially strong, high profits 0.15 3 0.45
High customer satisfaction 0.2 4 0.8
Weaknesses
Majority of revenues coming only from US 0.1 2 0.2
Overdependence on travel agents 0.05 2 0.1
Lack of market development towards Asia 0.1 1 0.1
Inability of dispose of gray and black water 0.05 2 0.1
1.00 3.00
CARNIVAL CORPORATION-2007
EXTERNAL ASSESSMENT
Industrial organization view:
1. Economies of Scale: Carnival Corporation benefits from this as they have the largest
fleet in cruise industry hence they offer their customers cheap rates as economies of
scale lowers the average cost per unit through increased production since fixed costs
are shared over an increased number of goods.
2. Entry Barriers: the industry has a relatively a high entry barrier but has a low
penetration level. This is because the cruise industry is at an early stage of development.
Only 17% of the US population has ever taken a cruise.
3. Product Differentiation: Carnival attracts the major chunk by providing them with
service much better than any of its competitor. Cruise industry invests heavily in
innovating new ideas that attract customers. Offers them an experience that none other
can provide them. To do so they make sure all the facilities are provided to them on
board so feel like home. Ex: Spa, Gym, Cinema, Play Grounds etc
4. Level Of Competition: The volume of the cruise ship market is relatively small, with
important barriers both to entry and exit associated with the extremely high cost of
purchasing or selling a single cruise ship, and the high investment needed to maintain
and manage a cruise line, which has a decisive influence on diverse aspects and
strategies related to organizational and management issues.
Economic Forces:
Economic factors play an important role in tourism. This market is very sensitive to changes in
global economy and consumer’s discretionary income. In 2000 the cruise industry suffers
greatly as the result of weak economic conditions. Since 2004 the cruise industry experienced
an increase in both net revenue and capacity due to consumers having more money to spend.
In the same way, the bargaining power and capability to take advantage of economies of scale
present in the cruise industry are also affected by the size of the market in two different and
contradictory ways: a) the presence of a few shipbuilders and technology developers in the
industry forces the cruise companies to accept the prices and costs offered to them; b) the
large number of suppliers of equipment, fuel and food products allows them to bargain for the
best prices.
CARNIVAL CORPORATION-2007
Such a reduced number of companies allow them to watch closely for potential commercial
threats in a constant competition for a clientele influenced by general economic conditions and
with other vacation alternatives, such sightseeing vacations, land-based resort hotels, thematic
parks, etc. A situation that has given place to diverse strategies and plans to identify and
specialize in the specific areas within this business framework, resulting in a division of the
cruise industry into well-differentiated sectors or market niches – luxury, premium and
contemporary – that offer diversified and targeted cruise products and services to satisfy both
mass consumer markets, interested in budget packages, and a distinctive clientele seeking the
exclusive environment onboard small ultra-luxury ships.
Marketing, innovation and brand image are therefore vital elements in such a competitive
commercial environment, and key factors to succeed in a sector in a constant effort to find new
sources of income and new strategies to maximize economic performance and profit.
Porter’s Five Forces Model:
1. Threats of entry: the easiest way to enter the cruise industry appears to be through
mergers, acquisitions and take over. Carnival recently purchased Princess Cruise Lines in
a merger deal for 5.67 billion. There are essentially three cruise market segments:
contemporary, premium and luxury. Along with these types of cruise comes varying
level of services and expertise. The high cost of training and maintaining exceptional
employees for their shops, casinos, entertainment, hotel staff, world class chefs and of
course the maritime staff requires a parent company with vast financial resources.
Therefore the threat is low.
2. Threat of substitution: the cruise industry holds a unique position in that the threat of a
substitution by another vacation activity by the current consumer market seems highly
unlikely. Family cruisers are also growing in popularity. In fact, a cruise vacation is
generally cheaper than a traditional vacation package. Many lines offer package airfare
and cruise rates to their customers. An increasing number of lines are expanding their
ports of call and destination to please the demand of today’s diverse cruise market.
Travel agents say demand for Alaskan cruises is high as post spat 11. 10% more
passengers than last year mean more choices for travelers.
3. Power of Suppliers: A rise in fuel prices has been quite costly for the cruise industry who
are not only directly affected by fuel cost for running their own ships but must raise
ticket prices to cover the increase cost of flying due to high fuel prices and a hike in
airfares. Quality, dependable suppliers are viral in order to ensure repeat cruisers. If
food was good on the first cruise, consumers expect it to be up to par each time they
CARNIVAL CORPORATION-2007
cruise. This goes for advertising too. Carnival was the first cruise line to use television
ads to promote itself. Travel services also pay an important role in promoting and
fulfilling cruise reservations. Many publications also get the word out to first time cruise
vacationers who are curious about what is available
4. Bargaining power of Customers: today cruise vacationers have many different line to
choose from, each offering a slightly different spin on cruising. Most cruise lines target
middle class vacationers with the grand ocean liner experience not found in decades.
Many first time cruisers are lured in by moderately priced air and cruise package rates.
Often one can buy a cruise vacation anywhere from 125-250 dollars per person. Most
hotel stays in major cities are more expensive not including transportation as well as
food. Along with low priced package rates, consumers area also demanding a unique
vacation experience. Now as in the case study cruisers appeal to a younger, hipper
audience and its easy to see why. Modern cruise ships are floating cities with everything
within. Gym, cinema, ice skating, wall climbing etc.
Opportunities:
Market development to Asia where large potential customer base is present
New ships joining the present fleet will provide greater passenger capacity
Implement the forward integration in a better manner in order make it convenient for
the customers
Attract the young generation more towards the cruise industry as they are in large
number and can prove to be highly profitable
Threats:
Royal Caribbean poses a huge threat to the market leadership of Carnival Corporation
Environmental issues
Economic fluctuations
Natural disasters
CARNIVAL CORPORATION-2007
EFE MATRIX
Opportunities Weight Rating Score
Market development to Asia 0.2 2 0.4
New ships coming in to increase capacity 0.1 4 0.4
Forward integration to increase customer
satisfaction
0.1 3 0.3
Attract youth 0.2 3 0.6
Threats
Royal Caribbean 0.2 3 0.6
Environmental issues 0.05 3 0.15
Economic fluctuations 0.1 2 0.2
Natural disasters 0.05 2 0.1
1.00 2.75
Conclusion:
Carnival Corporations’ EFE score is just above average that show that they are making use of
their opportunities well and curbing threats as well but still there is a need for improvement.
COMPETITORS PROFILE MATRIX
Carnival Corporation Royal Caribbean
Critical Success Factors Weight Rating Score Rating Score
Break Even Cost 0.1 3 0.3 2 0.2
Market Share 0.1 3 0.3 2 0.2
Customer Loyalty 0.2 4 0.8 3 0.6
Size of fleet 0.2 4 0.8 3 0.6
Age of fleet 0.05 3 0.15 3 0.15
Coverage Area 0.05 2 0.1 3 0.15
CARNIVAL CORPORATION-2007
Reputation 0.1 3 0.3 3 0.3
Advertising 0.05 3 0.15 2 0.1
Market development 0.1 2 0.2 4 0.4
Online booking and purchasing 0.05 2 0.1 3 0.15
3.2 2.95
Break even cost:
It takes 60% of the total revenue to cover costs for CC while for RC it is 68%.
Market Share:
CC has 47% market share while RC has 31%.
Customer Loyalty:
Market share is a clear reflection of customer loyalty and satisfaction.
Size of fleet:
CC has the biggest fleet size of 81 while RC has 42.
Age of fleet:
CC has the latest fleet with 20 ships inducted recently that is better as compared to RC.
Coverage Area:
CC covers mostly North America and Australia while RC covers North America, Australia and
also Asia.
Reputation:
Both have great reputation in the cruise industry.
Advertising:
CC pays more emphasis on advertisements; it uses various mediums such as radio, newspapers,
TV and internet. On the other hand RC also advertises but not this extensively.
CARNIVAL CORPORATION-2007
Market development:
RC has expanded its market to Asia while CC has not. Asia represents a huge potential customer
base.
Online booking and purchasing:
RC has a better system when it comes to online booking and purchasing although CC is not
lacking far behind.
STRATEGY FORMULATION
Following strategies are implemented at Carnival Corporation:
Forward Integration:
Carnival Corporation has exercised forward integration by having greater control over the
booking and selling of tickets as compared to the past. They have set up a highly interactive
website that enables the customers to book tickets online instead of going to the travel agents.
Moreover, they have also coordinated with Galileo, SABRE and Amadeus that helps in easy
booking and purchasing of tickets.
Horizontal Integration:
Horizontal Integration is defined as the taking over of the competitors or having a control over
them. Carnival Corporation acquired companies who were serving various market segments of
the cruise industry and thus made its own position stronger than before. Those companies that
were acquired have been mentioned below:
Holland America Line
Windstar Cruises
Alaskan/Canadian tour operator
Seabourn Cruise Line
CARNIVAL CORPORATION-2007
Costa Cruises
Cunard Line
P&O Princess Cruises
In this way Carnival Corporation decreased the overall competition in the industry and started
various segments of the market that it did not target before. Such segments included people
not so high income levels. Providing them with cruise facility was a big factor in making Carnival
Corporation a success.
Market Penetration:
Seeking greater market share for present services and products with increased marketing
efforts is called market penetration. Carnival Corporation penetrated the market in the
following ways:
Investing heavily in customer service by making it convenient for the customers to book
their tickets through websites, telephone, wholesalers, and travel agents.
They also advertised themselves using various mediums such radio, television,
magazines and newspapers. In this way more and more customers were attracted by
Carnival Corporation.
Discounted offers were also given to the customers.
All these efforts allowed Carnival Corporation to increase its customer base, as a result their
market share also increased and soon they became market leader in the cruise industry.
Market development:
Initially the Carnival Corporation provided cruise facilities to its customers travelling to
Caribbean only from USA. But as they progressed and blossomed they started their started
cruise facilities for Europe that included countries like, Greece, Turkey. Moreover, they also
spread to Northern Europe and towards the Australian Continent.
They also have a chance to serve the huge potential market of Asia. In doing so, they can
expand a lot and become stronger than ever before.
CARNIVAL CORPORATION-2007
PORTER’S GENERIC STRATEGIES
Out of the five generic strategies that have been presented by Michael Porter, two are applied
on Carnival Corporation. Those two are
Cost Leadership- Low Cost
Cost Leadership- Best Value
Low Cost:
One of the main objectives of Carnival Corporation is to provide cruise services to travelers
regardless of their budgets or income. In order to fulfill this objective they have set up their
sub-brands such as Holland America, Windstar and Seabourn that provide low cost cruise to its
travellers.
Normally the cruise is regarded as very expensive and that only the elite can afford it but
Carnival Corporation has made it feasible for the travellers with no so high incomes. In this way
they have low cost leadership over their competitors.
Best Value:
While sub-brands like Holland America provide low cost trips, other sub-brands like Carnival
Cruise lines and Costa Crociere provide luxurious cruise facilities to the elite class of people who
can afford expensive trips. But Carnival Corporation makes sure that the facilities being
provided to the highly paying customers is of the top most quality in the entire industry.
Facilities like on-ship golf courses, skating rinks, beauty salons, spa facilities etc are provided to
the on-board customers. They serve their customers better than their competitors even though
the ticket prices might be similar.
MEANS FOR ACHIEVING STRATEGIES
CARNIVAL CORPORATION-2007
Every organization applies various means to achieve the strategies set by it. Two means that the
Carnival Corporation has applied are mentioned below:
Joint Venture/Partnering:
In order to achieve the strategies of market penetration and forward integration mentioned
above, Carnival Corporation has created a partnership with the leading airline computer
reservation system. Those systems include:
SABRE
Galileo
Amadeus
Worldspan
All these systems enable the customers of Carnival Corporation to book and purchase their
tickets either on telephone or through the internet. This excludes the role of travel agent which
is lengthy and also expensive.
Acquisition:
When a larger organization purchases a smaller firm we say that an acquisition has taken place.
Carnival Corporation has implemented the strategy of horizontal integration so that it can
exercise greater control over its competitors. In order to achieve this strategy CC has used the
process of acquisition and with time has acquired competing firms that were smaller in size.
Holland America Line
Windstar Cruises
Alaskan/Canadian tour operator
Seabourn Cruise Line
Costa Cruises
Cunard Line
P&O Princess Cruises
CARNIVAL CORPORATION-2007
SWOT MATRIX
Strength-Opportunity (SO) Strategy:
One of the strengths of Carnival Corporation is that they have a large fleet size and have
ordered further ship that will be added in their fleet very soon.
As we have mentioned that there exists a huge opportunity in form of large potential customer
base in Asia. Carnival Corporation can utilize their large fleet size in catering the potential
customers of Asia and as a result expand their customer base.
Weakness-Opportunity (WO) Strategy:
Over dependence on travel agents for booking and purchasing of tickets often leads to
inconvenience for the customers as the entire procedure is lengthy and sometime expensive as
well. This has been one of Carnival Corporations’ weaknesses.
They have an opportunity to increase customer satisfaction by implementing forward
integration i.e. exercising greater control over distribution of tickets. In this way they can
minimize the role of travel agents and allow the customers to book and purchase tickets
through sources like telephone and the internet.
Strength-Threat (ST) Strategy:
The strength that the Carnival Corporation has in the form of large fleet size can be used to
curb the threat posed by its biggest competitor which is Royal Caribbean. Royal Caribbean has
expanded to places like Asia and is threatening to overtake Carnival. If Carnival uses its large
fleet size in the proper manner and spreads to Asia and other untapped regions, they can
maintain their supremacy in the cruise industry.
Weakness-Threat (WT) Strategy:
The inability of Carnival Corporation to deal with the wastes produced by its ships is posing a
huge threat to them as the world moves towards more environmental friendly laws and
regulations.
CARNIVAL CORPORATION-2007
Carnival should set up proper recycling units in their ships in order to recycle the gray water and
make it feasible for use again and also decrease the toxicity of black water so that it is safely
disposed of in the ocean.
QSPM FOR CARNIVAL CORPORATION
STRATEGIC ALTERNATIVES
KEY FACTORS Weight AS TAS AS TAS
Stre*ngths
Large ship fleet 0.15 4 0.6
Highest market share 0.2 3 0.6
Financially strong, high profits 0.15 3 0.45 3 0.45
High customer satisfaction 0.2 4 0.8
Weaknesses
Majority of revenues coming only from US 0.1 3 0.3
Overdependence on travel agents 0.05 4 0.2
Lack of market development towards Asia 0.1 4 0.4
Inability of dispose of gray and black water 0.05
1.00
Opportunities
Market development to Asia 0.2 4 0.8
New ships coming in to increase capacity 0.1 3 0.3
Forward integration to increase customer
satisfaction
0.1 4 0.4
Attract youth 0.2
Market
Development to
Asia using the
fleet Size
Forward Int to
add to
customer
satisfaction