Corporate Level Strategy

• Differentiation Strategy
• Market position - Leader and innovator in the industry
• Segmentation of cruise market
– Contemporary
– Premium
– Luxury
• Joint ventures – airplanes and hotels
• Maintain long-term profitability by operating at full capacity
• Build on “fun ship” theme
• Expanding ports and shipbuilding

Internal Strengths and Weaknesses

Operations/Manufacturing:
Strengths:
• Operate at over 100% capacity
• Expanding fleet
• Offer entertainment
• Hold many passengers at one time
• Many varieties of boats to choose from
• World’s largest multiple night cruise company
• Make the ship into the vacation not just the port of destination
• Own 6 different cruise lines
• Luggage is delivered by the cruise ship staff to the passenger’s
cabin
• Two engines: one for propulsion and one for power generation
Operations/Manufacturing:
Weaknesses:
• Operational costs need to remain profitable, otherwise
quality of service to customers will be compromised
• Depreciation, fuel, insurance, port charges, and crew costs
cannot be reduced because they are fixed costs
• Boats tend to be slow
• Limited ports due to size of boats
Human Resource Management/Management/Organization
Strengths:
• Diverse workforce
• Employs help from 51 nations
• Good retention rate – employees stay for 8 years on average
• Have overseers to monitor ships for environmental pollution
and human rights violations
• Enthusiastic crew
• Camp Carnival
• Vacation Guarantee
• Vacation Protection Plan
• Many Awards earned
Human Resource Management/Management/Organization
Weaknesses:
• Lawsuit in 1996 claimed that a woman had been sexually
assaulted on one of Carnival’s ships
• More than 100 of these claims were reported before
1995
• Employees cannot speak English
• Carnival has been sited many times by the American
Maritime Union for exploiting employees
Financial Accounting:
Strengths:
• Consumers must pay in full, 60 days in advance
• Exempt from federal income tax at corporate level because
of Controlled Foreign Corporation (CFC) status
• Very cost-conscious to achieve various economies of scale
• No cash is used on the boats, only in the gaming area (card
is used)
• Financing plans available
• Offer Carnival MasterCard – Allows cruisers to earn a seven
day cruise with reward program
Financial Accounting:
Weaknesses:
• Spend a lot of money on ships, regardless of demand
• Outstanding long-term debt of $1.55 billion
 • 33% of operating expenses cannot be reduced because of
fixed costs
Marketing/Sales:
Strengths:
• High priority on marketing in an attempt to promote cruises
as an alternative to land base destinations
• Leader in the industry
• First cruise line to break away from print media and use
television
• Lead all cruise lines in advertising and marketing
expenditures
• Customers can book their own vacation packages several ways
• Customer focus
• Convenience
• All inclusive packages
• Brand recognition
• First in market
• Smoke free ships
• 14% of corporate revenue generated from shipboard activities
Marketing/Sales:
Weaknesses:
• Carnival must pay travel agents commissions for bookings
• 90% of American adults have never been on a cruise
• Being in a concentrated area with a lot of people (terrorist threat)
Innovation and Technology
Strengths:
• Variety of cruise ships to choose from
• Offer dance clubs, casinos, live music, pools, and movie theaters
• Management can build on the theme of the ships
• Expansion in innovation with building new ships is always growing
Innovation and Technology
Weaknesses:
• Timely boat construction
• Takes time to update technology on the boats
Environmental Scan
Economic
Opportunities:
• Decreasing fuel prices
• Offer all inclusive packages
Threats:
• Rising cost of shipbuilding
• Fuel prices high
• Increased airline costs effect industry as a whole
Social
Opportunities:
• Increase in two income families – therefore having a disposable
income
• 90% of American adults have never cruised
• Family cruisers – are able to purchase packages to allow for family
vacations
• More socially accepted entertainment amenities
• Growing elderly population
• Consumers will feel safe and confident to have the opportunity to
take out insurance
• Increase in people taking cruises because more people will be
able to afford packages through financing
Social
Threats:
• Being confined to a certain space can cause sickness to spread quickly
• Cannot satisfy every customer as far as entertainment needs
• Increasing competition
• Prices depend on season
• Consumers are more aware of what sexual harassment means and can file
a lawsuit
Government/Political
Opportunity:
• Profitability increased due to exemption of federal income tax
Threats:
 • Increased supervision by government, due to sexual harassment
cases filed against Carnival employees
• Security of passengers
• Dumping laws have become strictly implemented due to past
violations
• Regulations with U.S. Coast Guard for compliance with the
Convention of Safety of Life at Sea (SOLAS), U.S Public Health
Service for sanitary standards.
• American Maritime Union citing Carnival for employee schedules
• Political factors - war
Technological
Opportunities:
• Online reservations
• Expanding cruise lines
• Building the largest cruise boat in the world – 2006
• Track advertising and web presence
Threats:
• Other cruise companies meeting customers on the internet with
better prices
• Extensive time needed for updating technology on boats
• Mechanical failure on trips

Natural
Opportunities:
• Winter getaways
• Caribbean climate
Threats:
• Weather (Hurricanes, Tsunamis, etc.)
• Ice glaciers
• Running aground
• Shark attacks on excursions
• Pirates
Bermuda Triangle

Threats to Entry:
 • Increasing growth rate of cruise market
• International waters are shared
Only 7% of North Americans have

Barriers to Entry
• Expense of cruise ship
• Must operate at high capacity
• Regulation on Maritime cruises
• Cost of fuel
• High advertising costs
• Consolidated market
• Consumers use other forms of travel
• Carnival is the world’s leader in the industry
Bargaining Power of Suppliers
• Food and beverage suppliers do not have very much power
• Fuel is a consolidated industry – can dictate the cost of fuel
• Ports that are available have very little power
Bargaining Power of Buyers
• Option of other cruise lines
• Comparison shopping on the Internet
• Travel agents play an important role in customer choices and purchases
• Word of mouth from past customers
Substitutes
• Air travel
• Beach vacations
• Theme parks
• Automotive travel
• Bus travel
• Train travel
• Camping
• Land vacations (beach, landmarks, attractions, etc)

Problem Statement
• Cruises only represent two percent of the overall vacation market
 – The cruise business is still not considered a vacation alternative
– Problems of limited growth and lack of first time cruise customers
have plagued Carnival
– Cruises considered a “high status” vacation
– Carnival must become proficient at competing in the vacation
market against typical vacation destinations like the beach or
theme parks

• Competition from other cruise lines

– First in the cruise market but quickly imitated

– Must compete by having lower prices than rival cruise companies

– Must provide customers with a cruise experience that surpasses

their competition

• Experienced a two-percent drop in growth rate per year

– Cruise market was new when Carnival entered

– People were wary of cruises as a vacation medium when introduced

– Carnival was forced to increase advertising

Strategies

• Cost Competitiveness

– Carnival must continue to maintain competitive pricing in the cruise

industry

– Purchase used ships rather than build ships

– Purchase fuel while prices are low

– Practice Total Quality Management

Strategy 1. Practice TQM, closely monitor fuel prices, and reduce

shipbuilding to decrease costs, because the customer count is not
increased by building new ships.

• Differentiation Strategy through innovation, and new service offerings

– Full-size shopping mall onboard a ship

– Wireless computer network allowing internet access and

communication anywhere on board
 – Radio or television station on board

– Providing cruises to new locations

Strategy 2. Add new product or service offerings and provide easier

access to information for both customers and crew to maintain
Carnival’s status as the leader and innovator in the cruise industry.

• Differentiation by Innovation in Safety

– Faster luggage checking

– Increased onboard security

– Advanced surveillance

– Electronic ID cards for passengers

Strategy 3. Become the innovator in passenger safety and maintain

sufficient safety standards for customers.

• Core Competencies: differentiate by stressing the cleanliness of the

facilities and quality of service.

– Clean facilities

– Friendly service

Strategy 4. Carnival should differentiate its service to customers by

stressing the quality of the service and the facilities.

• Focus Strategy: currently Carnival focuses on all customer groups

– Broaden the demographic appeal

– Carnival can appeal to different cultures and age groups specifically

Strategy 5. Continue to appeal to all customers by providing an array

of choices through Carnival’s different cruise line divisions.

• Horizontal Merger

– Examine the market for land-based vacations

– Land tours on busses, trains, airplanes

– Examine the hotel/motel business more in detail to determine

whether to enter the market

Strategy 6. Examine new vacation markets, including land-based

vacations, and the hotel/motel business.

• Internet: Carnival should use the internet to advertise

 – Continue use of the website for vacation booking

– Add a discussion forum for customers on the website

– Use pop-up advertisements

– Use e-mail to keep customers informed and up-to-date

Strategy 7. Continue to maintain services provided on the website and

use e-mail strategies to keep customers informed of special offers,
sales, and updates.

• Strategic Alliances

– Carnival can form strategic alliances with governments in areas

where the ports are too small for Carnival’s ships and expand the
ports

– Provide new cruise locations and increase marketing

Strategy 8. Pursue strategic alliances with governments of countries

that do not have the port capacity to hold Carnival ships.

• International

– Carnival can penetrate new international markets

– Taylor each ship to meet the desires of different markets (For

example, China)

Strategy 9. Appeal to international markets by achieving different

themes and providing cultural activities.

Implementations

• Cost Competitiveness

– Building ships is expensive, Carnival should purchase ships instead

of building them

– Carnival can maintain cost competitiveness by practicing TQM to

improve smaller aspects of the cruise.

– Carnival can purchase fuel and store it (if storage costs are low)
when fuel costs are low

• Differentiation and Innovation

– Carnival can differentiate its service by new product offerings like a

full-size shopping mall on one of the boats
 – Existing technology is available to allow wireless internet and
network access to a laptop computer anywhere on the ship

– Existing technology is also available to create a radio or television

station on board

• Differentiate through innovation in passenger safety

– Carnival can invest in new luggage screening technology

– Carnival can increase onboard surveillance such as plain-dressed

security guards, cameras, etc.

– Electronic ID cards can be supplied to each passenger for passenger

tracking

• Strategic Alliances

– Some ports are too small for Carnival ships

– Carnival can form strategic alliances with governments in the areas

and try to expand the ports

– Expanding ports would create new cruise opportunities and increase

the marketing possibilities for Carnival