This case is being viewed from the perspective of Mickey Arison, Chairman and CEO, who is reviewing the current situation and planning strategically for the future. Objective: The objective of this case analysis is to identify strategic recommendations, which Carnival can employ to achieve its vision and mission. Problem How can Carnival continue to grow by increasing market share and increase profit margins while maintain their brand image. Current Situation A. Current Performance Return on Investment (ROI) ROI has been on steady decline over last five years, down from 8.
82% in 2005 to 5. 80% in 2009 Market Share Carnival holds approximately 50% of the worldwide cruising market As of 2009, Carnival held 55% of the North American market Profitability Posted net income of $1. 79 billion in 2009, a decrease of roughly 30% from 2008 B. Strategic Posture (implied) 1. Mission 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 an outstanding value unrivalled on the land or sea. 2. Objectives Corporate level ? Overseas expansion into Europe, Australia, and Asia (i.
e. increase global market share) ? Continue average annual capacity growth in North America and Europe at 3% and 9% respectively through 2012 ? Position the company in a way to take advantage of industry changes by focusing on differentiation ? Maintain corporate reputation and brand image ? Satisfy shareholders with favorable stock prices Business level ? Brand managers to increase capacity of their respective operating companies ? Careful management of selling, general, and administrative expenses to partially offset cost of goods sold ? Increase revenues and profits for each respective brand ?
Book value: The book value of ordinary share is the net worth of a corporation less the par value of preference shares outstanding divided by the number of ordinary shares outstanding. Suppose the net worth of a company contains the following information viz; Preference shares (Rs. 100 per share): 1000000. 00 Ordinary share (Rs. 5 per share): 1500000. 00 Share premium: 1000000. 00 Retained ...
Effective and efficient use of human resources Functional Level ? Provide unparalleled customer service (i. e. personal greetings, luggage assistance, etc. ) ? Reduce room turnover time, while maintaining quality ? Maintain clean, safe, and functional facilities ? Enhance entire vacation experience by alleviating passenger stress of travel planning ? Minimize risk exposure to lawsuits 3. Strategies Corporate level ? Growth via horizontal integration (i. e. acquisitions to build diverse fleet to penetrate all three operational sectors of the cruise market) ?
Purchased fuel and port facilities to be able to hedge the price of fuel oil (i. e. backward vertical integration) ? Cost containment efforts (i. e. purchase volume discounts and reduced fuel consumption) ? Adoption of environmental management systems to reduce carbon footprint and uphold corporate responsibility ? Promptly addressing legal issues that could potential tarnish brand image ? “Stock Swap” program ? Carnival’s dual listing under two companies afforded opportunity to repurchase stock and sell the one currently selling at a premium to purchase the underperforming stock.
? Increase online and social media advertising to keep in contact with changing customer base Business Level ? Gather, retain, and analyze customer information to personalize customer’s cruise experience and remain focused on target market ? Develop new ways to differentiate product from competition ? Employ seasonal personnel in order to meet demand during peak times and reduce costs off season ? Ensure integrity of crew to minimize risk of crew? related lawsuits ? Closely manage selling and G&A expenses to control costs ? Increase capacity to boost profits
? Thorough inspections to ensure ship is compliant with international, national, state, and local regulations Functional Level ? Ensure each passenger is treated equally and with respect ? Thoroughly inspect and clean each room ? Addressing customer complaints in timely manner ? Improved security measures to ensure passenger safety ? Provide travel planning options for passengers (i. e. flights to and from embarkation port, cab service, etc. ) ? Offer array of entertainment, activities and onshore excursions to differentiate products/services from competition 4. Policies 1. 2. 3. 4.
Excellence in customer service is the objective of all organisations wishing to be successful. However, there is often a gap between customer expectations and management perceptions of customer expectations. Organisations often fail to get close to their customers and correctly read their expectations. Customers expect certain things when they walk into a business, and those with the highest level ...
Emphasis on product differentiation Maintain entrepreneurial spirits Each brand accountable for individual performance Take advantage of growth opportunities both internally and externally, nationally and overseas 5. Focus on enhancing cruising experience 5. International Operations a) Mission, objectives, strategies, and polices reflect Carnival’s international operations in that each are aligned to support their initiatives of growth and continuing to “cater to a variety of different lifestyles and budgets” b) Remaining consistent with the internal and external environments provides Car
nival with the necessary flexibility to be able to take advantage of industry changes 6. CORPORATE GOVERNANCE Board of Directors 1. 14 board members – all males. 2. 6 internal board members. 3. All directors and executives own 29. 8% of the stock. 4. Each director must own 5,000 shares of stock. 5. Annual retainer of $40,000. Top Management 1. 2. 3. 4. Each of the 14 brands have excellent management teams. Acquire new company and retain management. Strategic management an important component of each brand. Excellent management team. Current Business Strategy
Corporate strategy at present is one of growth through horizontal integration (Holland America acquisition of Princess Lines and Seaborne joint venture), internal development, the pursuit of shipbuilding, and the utilization of aggressive advertising/marketing campaigns. Business Strategy: Carnival Corporation uses a broad differentiation strategy in their business operations. The strategy is being accomplished by featuring the short, fun, and affordable cruise vacations available to the masses (Carnival), service and scenery for experienced cruisers (Holland America), and ultra?
luxury cruises for the upscale vacationer (Seaborne).
They have a cruise line for every price point (contemporary, premium, and luxury), short? and long? term vacations, various leisure preferences, and they service 7 continents. They have recently moved away from being a cost? leader to focusing more on differentiating themselves with a superior product. Key Success Factors 1. 2. 3. 4. 5. Load Factors – occupancy vs capacity Cruise Passenger Satisfaction Rates Cruise Pricing and Payment Terms Onboard and Other Revenues Sales Relationship and Marketing Activities
Crossing the Chasm was created as a guide for marketing high tech products to a mainstream market. It is very insightful into the intricacies of the high tech market, and I believe the author possesses a very thorough knowledge of the business. Though the book is aimed toward the entrepreneur wishing to overhaul his or her marketing strategy and filled with assumptions of prior business knowledge, ...
PEST Analysis Political? legal Forces ? Maritime Regulations (O/T) ? Environmental Regulations (T) ? Safety Regulations (O/T) ? Consumer Regulations (T) ? ? ? ? Maritime Unions accusations of exploiting foreign crews. (O/T) Tax Regulations (T) Income Tax Conventions (O/T) Ships regulated by various international, national, state, and local laws and regulations (O/T) ? SOLAS (Safety of Life at Sea) ? U. S. Cost Guard and U. S. Public Health regulations ? Maritime Transportation Security Act and Maritime Commission ? International Ship and Port Facility Security Code ? U. S. Oil Pollution Act of 1990
? Other local laws including hiring of foreign workers ? Lawsuits (T) Economic Forces ? Global industry growth of 5? 8% due to increasing number of international passengers (O) ? European market’s growth potential is consistent with booming North American market 12 years ago(O) ? Economic slumps leading to higher fuel prices, less disposable income, etc. (T) ? Applicants exceeding demand for cruise positions (O) ? Weakening of U. S. dollar (O/T) ? Stagnant U. S. market (O/T) ? World economic downturn High dollar versus Euro and Yen. (O/T) ? Low interest rates. (O) ? Slow down in U. S. and World Economy. (T)
? Impact of 9/11/01 on consumer spending. ? Overcapacity in the cruse and land based vacation industry. (T) ? Delays in ship construction and problem at shipyards (T) ? Lack of attractive port destinations (O/T) ? Intense competition (T) Socio Cultural Forces ? Wide appeal of cruises to a broad demographic (O) ? Relatively low penetration rates. (O) ? Seasonality (O/T) ? Two? income families have more disposable income to apply toward vacations. (O) ? The aging of America means more potential customers for the Holland America Line, which serves an older, more established clientele. (O/T) ? Only 20% of U. S.
, 10% of UK, and 5% of European population have ever taken a cruise (O) ? The green movement (T) ? Terrorist fears (T) ? Fear of diseases (i. e. flu virus) (O/T) ? Trend towards online vacation planning versus travel agents (O/T) ? Vacationers still tend to choose fixed destinations (i. e. Las Vegas) over cruise (T) Technological Forces ? Advances in technology (O) ? Online vacation planning ? Computer controlled stabilization systems ? Cruise ships are more sophisticated in their operations increasing economy. ? New hulls ? Environmental management systems ? Rise in demand for customizable products/services (i. e. rewards programs) ?
... 26% market share of the cruise line industry. It's gross profit margin increased by 4.69% from the previous year. Carnival is using ... . At this time cruises are only 7% of the North American vacation market.4.Carnival strives to provide the highest quality service to all ... to have the lowest break-even point in the industry. As a result of this, the company shows a higher profit margin when ...
Trend towards social networking as a means of directly connecting with potential customers ? Technology can be replicated by competition (T) Porter’s Five Forces Threat of New Entrants – Low ? High capital requirements to enter industry. ? Hundreds of sailors and crew trained for sea duty: employees need to have specific knowledge and skill sets, which necessitates training, creating substantial additional costs. ? Brand recognition and brand loyalty. ? High sustainability costs related to maintenance and maintaining social responsibility (i. e. costs of being environmentally friendly).
? Significant global laws and regulations. ? Industry heavily dominated by only a few key players (i. e. 4 top competitors account for over 70% of global market).
Rivalry among Existing Firms – Intense ? Significant barriers to entry and exit within the cruise line industry, which has resulted in a high concentration ratio. ? High exit barriers. It is difficult for a cruise liner to sell their assets and exit the industry. ? Consolidated market – few large players – effectively an oligopoly market. ? Relatively high competitor diversity and a moderate level of product differentiation.
? Maturing market creates fight for market share. ? Economies of scale. ? Bankruptcies, failures, etc. ? Overcapacity. ? Larger and bigger ships creating more capacity. Threat of Substitute Products or Services – High ? High threat of substitute products specifically when consumers are able to vary their purchasing methods. Travelling by air land has traditionally been less expensive than cruises. ? Low switching costs. ? Value conscious customers. ? Alternatives include, land based vacations, resorts, theme parks etc. Bargaining Power of Buyers – Low
? Low bargaining power of the buyers; however, competition for customer loyalty is high ? Buyer concentration is low. ? Individual buyers unable to negotiate pricing, mass market focus ? Customers do not have the ability or resources to create the cruise experience by themselves – it is, by nature, a highly packaged deal ? Overcapacity allows customers choice. ? May grow in the future due to the combination of increased berth capacity and decreased demand. ? Fixed sailing dates, traveling to ports, pre? determined destinations makes it more difficult for those customers who do not have flexible vacation schedules ?
Industry Analysis o Five Forces Model. o Potential entrants have significant barriers including a requirement of large capital, access to routes and terminals and cost of meeting regulations. o Low threat of substitutes for business customers from technologies such as video conferencing or networking. o High threat of substitutes for recreational and discretionary customers including alternative ...
Many other vacationing options ? The combination of these factors would lead cruise operators to offer deep discounts, and customers would have more affordable options in choosing the cruise they want. Bargaining Power of Suppliers – Low/Moderate ? The threat of integration by suppliers is very low. ? Shipbuilders – moderate force: shipbuilding is a very money? and time? intensive process – no real power if shipbuilder is late. Switching costs are very high for cruise lines. ? If a shipbuilder can’t deliver on a contract, Carnival can’t easily obtain a replacement ship.
? Port Authorities – moderate, more demand than supply for attractive ports. ? Other suppliers – Low – Carnival has purchasing power due to size. ? Food/beverages and hotel/restaurant supplies – low ? These items are available from a number of different sources at competitive prices ? Allows carnival to easily obtain volume discounts Relative Power of Other Stakeholders – Moderate ? Labor Unions (i. e. American Maritime Union) – High ? International, national, state, and local port authorities – High ? Ships must comply with various laws, regulations and treaties in jurisdictions in which they operate
? Special interest groups (i. e. Environmentalists) – High ? Failure to comply with environmental laws can lead to lawsuits and tarnished corporate reputation Industry Attractiveness The cruise industry is UNATTRACTIVE if you’re not in it already due to: ? Fierce competition with large rivals owned by multinational corporations with enormous investments that cannot be easily liquidated. ? High cost of establishing a brand reputation (huge advertising costs) ? Large number of substitutes readily available and priced competitively. ? High exit barriers ? Substantial amounts of capital that are specific to one use.
The cruise industry is ATTRACTIVE if you’re already established due to: ? Growing industry ? Low threat of potential new entrants due to entry barriers. ? Large economies of scale and scope that can significantly lower costs ? Lucrative profits for well? established major cruise companies Industry Segmentation The industry consolidated and dominated by a few large players, Carnival has 50 % of the market. Indicators such as mergers, alliances, and acquisition show that this industry is mature and consolidated. Segments in the market are: Carnival Corporation has major market segments: Premium ? Holland American
McDonald's, What Does It Mean to You? McDonald's Corporation has held a prominent position in the fast-food market for much of its existence. A person would be hard pressed to find consumers who would not readily recognize the famous golden arches, as the company has expanded its market globally. However, as global consumer tastes shift to a more heath-conscious public which cares less about " ...
? Cunard Costa Cruises Luxury ? Seabourn ? Cunard Ocean Village Contemporary ? Carnival ? Princess ? P&O Cruises ? AIDA Specialty ? Westours ? WindSail ? Gray Lines of Alaska & Seattle IFAS Rating Weighted Score Comments .15 5 0. 75 Projected worldwide increase in cruise travel; additional ports of call .10 5 0. 50 Appeal to additional entertaining preferences / lifestyles / budgets .07 3 0. 21 Utilize social media to have two? way conversations to better understand customers .05 2 0. 10 Significant reduction in seasickness and increased potential of on? board activities .05 2 0. 10 Full recycling capabilities
Key External Factor Weight OPPORTUNITIES Global Expansion Entry into New Market Segments Enhanced Customer Relationships & Service Enhanced On? Board Stabilization Systems Increased Environmental? Awareness THREATS Competitive Substitutes .15 4 0. 60 Highly Competitive Cruise Industry .10 4 0. 40 Economic Recession .15 5 0. 75 Terrorism Threats & Global Conflict . 08 2 0. 16 Limited Domestic Market Growth .05 3 0. 15 Public Lawsuits .05 3 0. 15 Total Weighted Score 1. 0 3. 87 Land? based hotels & resorts, and theme? parks Changes in lifestyle can impact brand preference Impact on percent of travel,
vacation / ticket prices & on? board spending Government regulations, Travel restrictions Flat growth in US Market create limited opportunities Publicity of lawsuits create negative brand image SWOT Strengths ? Dominant Market Share (S) ? Carnival is the world’s largest cruise? ship operator. (S) ? 48. 9 percent market share in the global cruise industry. (S) ? Twice as large as its biggest competitor and competes in nearly every market and segment worldwide. ? 16 new ships cost $7. 5 billion (S) ? $7. 5 billion new ship program by 2005. (S/W) ? Carnival’s cruise product is well?
defined and positioned to serve three major markets: contemporary, premium, and luxury. ? Operational Excellence & Experience ? below? industry? averageostsndbove? average revenue historically. ? Carnival relies on R&D on the part of their shipbuilders to produce faster, more fuel efficient, technologically advanced ships. (S) ? Carnival also uses services R&D to implement and improve shipboard entertainment and activities to serve the disparate needs of the three market segments they serve. (S) ? Net margin 2005 20. 36%, 2006 19. 25%, 2007 18. 48%, 2008 15. 91% and 2009 13.
60% (S) ? Strong financial position (S/W) ? Carnival (a CFC for tax purposes) is exempt from most taxes in the United States. ? Company repurchased 8. 0 million shares for $380 million. (S) ? Board authorized repurchase of up to $1. 0 billion. (S) Weaknesses ? Uncoordinated Business Operations ? Each cruise line largely manages its own customers, marketing, distribution, sales, ports, and logistics. ? Poor Safety Record ? viral outbreaks and persons lost at sea. ? Sexual assaults, medical negligence. ? $18 billion fine for pollution. ? Poor employee relations ? Pay, working conditions, lawsuits by crew members.
? The National Maritime Union has accused Carnival of exploiting their crew. ? Cruises are labour? intensive, requiring extensive screening and hiring of employees. (S/W) ? Carnival Corporation’s cruises are subject to general threats in the environment such as political conflicts and natural disasters in areas where they cruise. Repeat passengers place pressures on personnel to develop new itineraries. ? Opportunities ? Strongly Favorable Demographics ? The under? 65’s are considered “theyoungset. ” As populations across Europe and North America age, Carnival’s target market isgrowing larger. ? Two?
income families have more disposable income to apply toward vacations. (O) ? Increased emphasis on family vacations and a growing “family” cruise segment. (O) ? Only 12? 15 percent of the potential cruise market has been on a cruise. ? Exploding Asian Market (O) ? Brand loyalty and loyalty to cruising is extremely high and should result in a large number of repeat customers. ? Low dollar versus Euro. (O/T) ? Low interest rates. (O/T) ? Slow down in U. S. and World Economy. (O/T) ? The cruising season may be extended by using more ports? of? call in the lower Caribbean and South America.
? With a historical high dollar versus Euro, Carnival could see less foreign travelers. Threats ? Geopolitical Instability ? The terrorist events of 2001. ? World economy slow down. ? There is growing concern in some ports? of? call that cruise line ? registered ships are not permitted to transport people between ports in the United States. ? Foreign Transportation Safety Board, the Center for Disease Control, and other laws enacted by the U. S. government. ? Fines for pollution ($18 million).
(T) ? The potential over capacity of the cruise ship industry. Cruise ships are being added to the fleet faster than demand is growing.
? Fixed Costs are a significant part of the expense of operating a cruise line. Changes in airfare, fuel, labor, and/or shipbuilding costs could impact cruise operators with little advance notice. ? Fierce competition in the cruise industry due to industry consolidation. FINANCIAL ANALYSIS 1. Revenues decreased from $14. 646 billion to $13. 157 billion (W) 2. Operating expenses decreased as percentage of revenues (S) 3. Operating margins and Net Income as a percentage of revenue decreasing from 2007 to 2009 (W) 4. COGS as percentage of Revenues increasing over last five years (W) 5. Interest expense is increasing.
(W) 6. Return on Investment is decreasing. (W) 7. Debt to Equity and Debt to Asset ration is fairly low. (S) 8. Liquidity issues increasing. (T) Key Ratios Current Ratio 2009 0. 31 2008 0. 29 2007 N/A 2006 N/A 2005 N/A Net Profit Margin 13. 60% 15. 91% 18. 48% 19. 25% 20. 36% ROI 5. 80% 7. 69% 8. 18% 8. 43% 8. 82% COGS 61. 59% 61. 72% 58. 53% 57. 36% 56. 07% Explanation Current Ratio = CA/CL Low current ratio shows that the company does not have many liquid assets that can be used to repay current liabilities if required. This is most likely due to the majority of the company’s assets being non?
liquid such as the cruise ships. (W) NPM = NI/Revenue Decrease in NI due to decreased revenues but fixed cost expenses staying pretty constant from 2008. ROI = NP after taxes/Total Assets Decreasing ROI due to assets being mostly large capital assets (cruise ships) that are constant and decreasing revenues in 2009. and 12. 08% 10. 94% 12. 12% 12. 22% 11. 99% Debt to Asset 40. 18% ratio 42. 82% N/A N/A N/A Dividend Payout 0. 00% ratio 54. 05% N/A N/A N/A Debt to Asset = TL/TA Indicates that the company’s assets are financed more through equity than debt. Dividend Payout = DPS/EPS
Indicates the percentage of profit that is paid out as dividends. In 2009 the company did not declare a dividend and increased its retained earnings. Selling Admin Carnival is currently in a very strong economic position as indicated by its balance sheet. The company has very little debt and a relatively high proportion of equity. However the company’s current ratio is low indicating it could face a liquidity issue. Also, a review of the income statement shows that passenger tickets are increasing steadily and general and administrative costs a being kept flat.
However, gross margins are decreasing at an alarming rate from 20. 36% to 13. 60% from 2005 – 2009. Operating costs are increasing faster than revenues and decreased profitability seems to have become a trend. Consequently, ROI has decreases year over year in each of the years under review. Unaddressed the company will face a liquidity problem, debt servicing costs will increase and the share price will decrease. While currently in a very strong financial position Carnival has serious financial issues that it must address. IFAS Internal Factors STRENGTHS Weight Rating Weighted Score
Brand Name .15 5 .75 .15 4 .60 Workforce .10 4 .40 Marketing mix .13 4 .52 Stock Swap program .02 5 .10 Mickey Arison .05 5 .25 WEAKNESSES Negative media .15 2 .30 Information Systems .10 1 .10 Ability to control supply .10 2 .20 Cash on hand .03 2 .06 Union membership violations .02 3 .06 Total Weighted Score 1. 00 Ability to specialize multiple brands with 3. 34 Comments Excellent brand name evident from 55% North American market share Targeting specific market segments helps Carnival meet customer needs Unionization and relatively high wages keep employees happy so they will treat customers well
Successfully promoted as a quality, affordable alternative to other vacations Allows for management to balance stock rates Long, successful history with the company Isolated incidents of injuries, illness, mistreatment No mention of CRM or other information system that could provide insight about customers Slow, expensive process to expand fleet Trend of increasing long term loans and decreasing cash Isolated violations haven’t had a significant impact on HRM SFAS Key Strategic Factor Weight Rating Opportunity for Global Expansion Threat of Competitive Substitutes Weighted Score .15 4 .15 Duration
Comments Short Medium Long .80 X X 3 .60 X X X .10 4 .40 X .075 4 .30 X X X Domestic market is largely saturated, limiting Carnival’s growth potential in US Strength of Brand Name .15 5 1. 0 X X X Carnival has a strong brand name, providing a competitive advantage over competitors Strength of Ability to Diversify with Multiple Brands .125 5 .75 X X X Carnival’s diverse brand offerings are an asset in that it can market to wide demographic Threat of Recession Threat of Domestic Growth Economic Limited Market Weakness of Information Systems Threat of Highly Competitive Cruise Industry Opportunity for Entry into New Market Segments
Weakness in Inability to Quickly Adapt to Dramatic Increases in Demand Total Weighted Score .05 2 .15 X .15 4 .60 X X X .025 4 .10 X X .025 4 .10 X X X 1. 0 4. 025 Criteria for Evaluation 1. 2. 3. 4. 5. Increase or maintain passenger load factor. Increase liquidity. Control of costs to improve profitability increase market share Maintain brand image. Alternatives 1. 2. 3. 4. 5. Status Quo low cost Strategy Differentiation Strategy International Expansion Growth European and Asian markets largely untapped Carnival must compete with land? based resorts as well as other destinations Company must be prepared to address
threats associated with economic recession – impacting consumer spending The company does not indicate that it has an information system that connects across brands; lost opportunity for marketing and tracking customer behavior Carnival must differentiate itself from other brands to maintain/capture greater share of market Opportunities to explore market segments not yet served, as well as new offerings with current brand While Carnival cannot quickly build new ships in response to demand (5 year advance order for new ships), it can relocate ships geographically based on demand
Evaluation of Alternatives is presented for illustrative purposes. 1. Continue Current Strategy Pros: a. Successful b. No incremental costs c. No restructuring Cons: a. Declining profitability b. Liquidity issues c. Company will stagnate Effect on Criteria Increase or maintain passenger load factor – no effect. Increase liquidity – liquidity would continue to decline leading to a liquidity crunch. Control of costs to improve profitability – no effect. Increase market share – market share would increase as a function of growth. Maintain brand image – this strategy appears to be consistent with the Carnival brand image and mission statement.
2. Cost Leadership – adopt a cost leadership strategy and employ efficiency tools to cut costs and provide lowest cost cruises. Pros: a. Make vacation more affordable b. Would increase profit c. Would increase market shares Cons: a. Can change company’s brand image b. Can decrease quality of provided services c. Can lead to focus from differentiation to focus on average customer Effect on Criteria Increase or maintain passenger load factor – decreasing the cost may increase the load factors by making vacations more affordable. However, it may lead to fewer higher spending vacation packages being sold.
In the end the effect may be neutral or negative. Increase liquidity – implementing a low cost strategy would improve liquidity provided the cost reductions do not significantly reduce revenues. Control of costs to improve profitability – this strategy is consistent with these criteria. Cost control could increase profitability so long as the cost cuts are not perceived by customer to affect quality and service on the cruise. Increase market share – making vacation more affordable should increase the total market share. The issue is whether it increases market share in Carnivals ta
rget market. Maintain brand image – this strategy appears to be inconsistent with the Carnival brand image and mission statement. 3. Differentiation Strategy – employed Pros: a. Attract new customers, who are looking for unique vacation experience b. Can charge higher prices c. Provide better service than most competitors d. Differentiate company among the competitors, raise barriers to entry Cons: a. Price increase might lead to losing some customers to the competitors b. Will increase cost. c. More difficult to maintain distinctiveness if easily copied by competitors Effect on Criteria
Increase or maintain passenger load factor – this strategy should have some effects on load facts but not significant. The cost of developing the differentiation features and the increased prices may offset new customers with lost customers at the lower end of the market. Increase liquidity – this strategy may increase liquidity if the price increases are greater than the costs associated with the differentiation that needs to occur. Higher prices should yield higher margins and so reduce the liquidity issue; unless debt servicing costs increase.
Control of costs to improve profitability – this strategy would have little effect on cost control. Increase market share – this may result in new passengers in higher priced brackets. The net effect would be to increase market share in some target markets and decrease market share in lower priced markets. Maintain brand image – this strategy appears to be consistent with the Carnival brand image and mission statement. 4. Growth – International Expansion – Primarily Asia and secondarily Europe Pros: a. Can compete better in cruising/entertaining industry. b. Increase profitability. c.
Attract more customers with different service preferences. d. Gain market share from competitors. Cons: a. Cost of business goes up significantly. b. If company becomes too big, control may be more difficult. c. Increases debt to acquire new ships. d. Ignores the home market USA/Canada. Increase or maintain passenger load factor – initially load factors would increase. To service the market additional ships would be required and load factors should remain constant. Increase liquidity – There would be no effect on liquidity, unless operating margins improve and debt servicing costs stay the same.
Alternatively, if Carnival can capitalize on the resulting opportunities for synergy liquidity could be positively impacted (see cost controls).
Control of costs to improve profitability – international expansion provides Carnival with an opportunity to address its uncoordinated business operations which ma y allow it to significantly reduce costs. Currently each cruise line manages its own customer, marketing, distribution, sales, ports and logistics. This has worked well for carnival as internal