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// EXECUTIVE SUMMARY Over  the  past  two  years  Carnival  Cruise  Lines  has  captured  transactional  data  about  its  customers  but  to  date  has  not  taken  advantage  of  it  to  create  value.  Conversion  of  these  data  into  usable  information  is  not  without  cost,  but  there  is  a  potential  to  add  significant  value  to  the  cruising  experience  for  Carnival  customers  which  in  turn  would  add  to  Carnival  profits  through  additional  purchases.    In  order  to  understand  its  possible  impact,  the  team  evaluated  several  possible  pathways  (including  maintaining  the  status  quo)  for  utilization  of  these  data.    

Based  on  our  research,  we  propose  the  use  of  a  hybrid  Customer  Relationship  Management  (CRM)  system  which  allows  for  implementation  of  both  a  reward  and  personalization  strategy.  We  recognize  proper  communication,  selection  of  the  right  software  and  hardware  system  (including  a  customer  data  warehouse),  planning  and  training  activities  are  essential  for  the  success  of  this  type  of  endeavor.  By  doing  so,  we  hope  Carnival  will  reap  the  rewards  of  this  process  while  avoiding  the  pitfalls  of  companies  who  have  failed  attempting  a  similar  strategy.      

We  consider  the  data  collected  to  date  as  sunk  costs  and  would  utilize  current  Carnival  staff  for  the  program.    Additional  data  collection  is  obtainable  through  current  transaction  systems  and  is  not  expected  to  require  additional  funding.  It  is  assumed  costs  would  mainly  come  from  establishing  a  data  warehouse  and  the  evaluation,  selection,  installation,  and  maintenance  of  the  customized  data  processing  system  required  for  the  operation.  

// BACKGROUND Even  with  multiple  factors  working  against  the  company  economically  (e.g.  high  fuel  prices),  Carnival  is  performing  strongly  in  an  expanding  industry  (Piccoli,  2012).  Carnival  continues  to  add  to  its  fleet  and  perform  well  financially  including  buying  back  stock  and  increasing  its  dividend  (Piccoli,  2012).  Consolidation  and  failures  of  other  cruise  lines  have  made  it  a  leader  with  only  two  other  major  competitors,  Royal  Caribbean  and  Star.  To  Carnival’s  benefit,  there  is  still  a  tremendous  untapped  market  of  people  who  have  never  cruised  (Piccoli,  2012)  which  is  the  main  customer  base  that  Carnival  seeks.  However,  repeat  customers  are  largely  not  pursued  which  is  why  implementation  of  a  CRM  system  to  study  transactional  data  of  previous  customers  may  not  only  add  value  to  the  customer  experience,  but  also  may  create  a  competitive  advantage  for  Carnival.    

// DEFINITION OF PROBLEM Even  though  things  are  looking  positive  for  Carnival  Cruise  Lines  at  the  present  time,  there  is  untapped  potential  in  the  collection  of  two  years  of  customer  data.  Carnival  needs  to  determine  whether  to  pursue  conversion  of  these  data  into  information  that  is  usable  to  create  value  for  their  customers  and  whether  creating  a  CRM  system  is  the  right  pathway  for  future  value  generation  and  higher  profitability.  

// CRITERIA

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For   this   evaluation,   several   options   related   to   Customer   Relationship   Management   systems   were  reviewed  and  the  selection  based  on  the  following  criteria:        

1) Cost  –  Potential  costs  to  Carnival  by  implementing  a  CRM  system  2) Higher  Value  for  the  Customer  –  Does  the  Customer  get  more  (perceived  or  otherwise)  of  what  

they  want  for  the  price  paid?    3) Customer  Impact  –  Does  the  CRM  activity  create  a  potential  negative  or  positive  impact  on  the  

customer   experience/value?     What   are   the   potential   consequences   of   predictability   versus  freedom  of  choice?    Is  it  great  customer  service  or  “Big  Brother”?    

4) Differentiation/Competitive  Advantage   –  Does   the   CRM  program   separate   Carnival   from   their  competition?    

// ALTERNATIVES Alternative 1: Not implementing a CRM.

Careful  consideration  must  be  given  to  the  option  of  delaying  or  even  not  implementing  a  CRM  at  all.    One  factor  is  the  current  high  failure  rate  of  implementation.  The  Gartner  Group  reported  a  failure  rate  of  50%  in  2001  and  predicts  similar  rates  through  2006.  Other  estimates  of  failure  by  the  Butler  Group  and  Greenberg  are  as  high  70%  (Krigsman,  2009).  

Costs  of  CRM  implementation  are  also  high  and  the  cost  of  ownership  needs  consideration  in  any  decision  to  move  forward  with  a  CRM  system  (Bucholtz,  2011).  Technology  costs,  people  costs,  and  process  costs  are  highly  dependent  on  the  company  and  system  of  choice.  This  includes  the  cost  of  acquisition  as  well  as  the  costs  of  ongoing  management  and  future  development  of  the  system.  An  accurate  ROI  is  difficult  to  calculate,  but  is  an  important  consideration  in  making  any  decision  to  deploy  a  CRM  (Gartner,  2004).  

Although  Carnival  has  a  significant  amount  of  customer  data,  there  are  costs  associated  with  the  organization,  analysis  and  application  of  these  data.  Consideration  should  be  given  to  whether  meaningful  and  actionable  information  is  extractable  from  these  data.  If  improved  customer  service,  value  and  further  development  and  differentiation  of  the  Carnival  brand  are  not  achievable,  there  may  be  little  value  in  pursuing  any  CRM.  

A  final  and  perhaps  deciding  factor  to  consider  is  the  level  of  corporate  sponsorship  and  managerial  commitment  that  Carnival  can  devote  to  any  decision  to  implement  a  CRM.  This  includes  careful  strategic  planning  and  anticipation  of  any  first,  second,  and  third  order  changes  required.  Clear  goals  should  be  communicated  throughout  the  company,  including  internal  and  external  management  and  end  users  of  the  system  (Kros  and  Molis,  2004).  If  such  a  commitment  cannot  be  generated,  implementation  of  a  CRM  should  be  avoided  or  delayed.    

Alternative 2: Implement CRM System with a Rewards Strategy

In  order  to  be  effective,  a  CRM  system  must  support  value  creation  for  the  firm  and  ultimately  the  customer.    More  importantly,  this  newly  created,  customer-­‐focused  value  must  be  properly  

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communicated  and  propositioned  to  the  customer.  If  effective,  this  should  increase  the  customer’s  willingness  to  pay  (Piccoli,  2012).    Put  another  way,  effective  CRM  systems  must  enhance  the  firm’s  value  proposition.    Towards  that  end,  firms  can  consider  multiple  strategies  to  coordinate  a  CRM  and  its  associated  customer  data  into  their  value  chain.  

When  considering  appropriate  strategies  to  utilize  in  correlation  with  a  CRM,  firms  should  study  two  general  characteristics.    The  first  of  these  characteristics  is  the  theoretical  repurchase  frequency.    This  attribute  represents  the  regularity  with  which  the  average  customer  conducts  purchases  within  a  given  industry  (Piccoli,  2012).    The  theoretical  repurchase  rate  of  the  cruise  industry  is  classified  as  medium  to  high;  within  the  cruise  industry,  approximately  one  in  three  customers  is  a  first-­‐time  customer,  and  hence,  over  60%  are  repeat  customers.    However,  only  roughly  one-­‐third  of  Carnival’s  customers  are  repeaters,  and  thus  an  opportunity  exists  for  Carnival  to  increase  its  repeat  customer  business.    The  second  characteristic  is  discussed  in  the  subsequent  alternative.  

Given  the  opportunity,  and  Carnival’s  desire  to  increase  customer  loyalty  and  repeat  business,  a  CRM-­‐related  rewards  strategy  may  prove  effective.    Using  a  rewards  strategy,  Carnival  can  utilize  its  customer  data  to  evaluate  customers  and  consequently  use  the  information  to  reward  behavior  in  efforts  to  increase  customer  loyalty  (Piccoli,  2012).      Carnival  can  streamline  the  existing  loyalty  and  Cruise  Point  programs  based  upon  the  results  of  the  CRM-­‐enabled  customer  data  analysis.    Additionally,  the  firm  could  potentially  segment  its  loyalty  program,  to  a  degree,  into  first-­‐time  repeaters  and  multiple  repeaters.      

There  are  some  potential  downside  effects  of  a  CRM-­‐enabled  rewards  strategy.    Cost  is  a  consideration,  as  some  capital  expenditures  will  likely  be  required  to  optimize  the  IT  infrastructure  for  the  CRM  implementation,  as  well  as  training  and  learning  curve  costs.    Also  of  concern  is  the  relative  homogeneity  of  the  rewards  strategy;  in  order  to  be  effective,  it  requires  some  form  of  a  “one  size  fits  all”  approach.    There  is  reduced  ability  to  personalize  the  strategy  and  associated  operations.

Alternative 3: Implement CRM System with a Personalization Strategy

To  build  on  the  previously  discussed  alternative,  Carnival  can  consider  a  somewhat  different  strategy  relative  to  its  utilization  of  a  CRM  system.    As  aforementioned,  there  are  two  characteristics  to  consider  when  evaluating  how  to  use  customer  data  to  a  business’s  advantage.    One  is  theoretical  repurchase  frequency  (as  discussed  above);  the  other  is  the  degree  of  customizability.    The  degree  of  customizability  represents  the  extent  to  which  a  firm  can  alter  and  tailor  its  product  to  meet  the  needs  of  various  customers  (Piccoli,  2012).    Within  the  cruise  industry,  as  well  as  within  Carnival,  the  degree  of  customizability  is  medium  to  high.    Carnival  offers  multiple  cabin  types  and  numerous  destinations,  as  well  as  various  dining  and  entertainment  options  for  its  customers.    Shopping  and  service  levels  can  also  be  leveraged  towards  particular  customer  segments.    Given  the  growing  expectations  of  its  customers,  Carnival  leadership  has  stated  it  is  seeking  ways  to  better  direct  onboard  customer  spending.      

Given  such,  utilization  of  CRM-­‐enabled  personalization  strategy  may  yield  some  viable  returns.    By  collecting  and  analyzing  granular  individual-­‐level  data  (which  is  enabled  by  the  CRM  system),  the  firm  can  tailor  its  services  to  more  precisely  match  the  habit  and  needs  of  customers.    For  example,  from  its  

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CRM  analysis,  Carnival  may  learn  that  a  particular  customer  spent  a  good  deal  of  money  at  an  art  auction,  and  subsequently  Carnival  can  direct  art  and  art-­‐related  products  (such  as  protective  carriers,  etc.)  to  this  customer.  

The  potential  challenges  with  personalization  strategy  are  somewhat  akin  to  those  of  the  rewards  strategy.    Cost  is  a  similar  consideration,  with  similar  effects  (IT  and  training).    However,  whereas  a  rewards  strategy  is  somewhat  homogeneous,  a  personalization  strategy  is  quite  the  opposite.    Moreover,  in  order  to  truly  be  effective,  a  personalization  strategy  relies  to  a  degree  on  repeat  business.  

Alternative 4: Implement CRM System with a Hybrid (Reward / Personalization) Strategy

Given  the  opportunities,  and  needs  of  Carnival  to  both  increase  customer  loyalty  as  well  as  onboard  spending,  a  hybrid  strategy  of  rewards  and  personalization  that  is  synchronized  with  a  CRM  system  exists  as  an  interesting  alternative.    Utilizing  a  rewards  strategy  that  is  tied  to  its  customer  data  could  enable  Carnival  to  increase  its  repeat  customers,  and  execution  of  a  personalization  strategy  could  aid  Carnival  in  getting  these  repeat  customers  to  spend  more  (or,  in  the  perception  of  the  repeat  customers,  spend  more  precisely  on  items  of  value)  while  onboard.      

While  the  benefits  appear  to  be  amplified  in  relation  to  repeat  customers,  there  is  still  opportunity  to  gain  additional  profits  from  first-­‐time  customers.    Analysis  of  customer  data,  via  the  CRM  system,  is  accomplished  in  close  to  real-­‐time,  thereby  presenting  an  opportunity  for  Carnival  to  direct  applicable,  customized  products  and  services  towards  its  new  customers.    Its  existing  Sail  and  Sign  card  exists  as  a  sound  information  conduit;  Carnival  simply  needs  to  analyze  the  resulting  data  and  tailor  its  operations  accordingly.    Moreover,  Carnival  can  gain  additional  insight  into  the  various  segments  of  its  customer  base  and  consequently  execute  more  targeted  marketing  campaigns  through  multiple  distribution  channels  (to  include  its  travel  agent  network).  

// IDENTIFY BEST ALTERNATIVE Given  the  four  strategic  alternatives,  we  recommend  implementing  a  CRM  with  a  Hybrid  (Reward  /  Personalization)  Strategy.  A  Hybrid  strategy  will  allow  Carnival  to  realize  the  benefits  of  the  Reward  and  Personalization  Strategies.    Since  Carnival  operates  in  an  industry  with  a  medium  to  high  theoretical  repurchase  rate  yet  has  a  fairly  low  actual  repurchase  rate  compared  to  the  industry,  the  company  could  utilize  certain  benefits  from  a  CRM  with  a  Reward  Strategy  to  increase  repeat  purchasing  and  customer  retention.  Carnival  will  also  realize  the  benefits  of  a  Personalized  Strategy,  allowing  the  company  to  engage  customers  with  more  personalized  service  without  compromising  efficiency.    

With  the  laptop  and  mobile  computer  segment  growing  by  24%  in  2004  (Kessler,  2005)  and  recent  speculation  that  Google  (Elgin,  2005)  and  Apple  (Sloan,  2005)  will  be  entering  the  mobile  device  market,  we  can  see  a  substantial  trend  with  customers  becoming  increasingly  integrated  with  mobile  technology.  This  could  change  the  dynamics  of  how  we  connect  with  our  customers  allowing  us  new  ways  to  communicate  our  brand  message  to  potential  customers.  Implementing  a  CRM  with  a  Hybrid  Strategy  will  provide  the  groundwork  to  utilize  new  technologies  as  they  become  available  providing  Carnival  with  a  competitive  edge  over  the  competition.    

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// IMPLEMENTATION Carnival  currently  utilizes  a  combination  of  proprietary  and  off-­‐the-­‐shelf  Information  Systems  to  facilitate  its  daily  activities.  Information  Systems  (IS)  at  Carnival  are  divided  into  two  primary  categories.  Shoreside  Computer  Systems  which  include  a  financial  system,  a  custom  mainframe  for  managing  reservations  and  website  functions  and  a  data  warehouse  for  forecasting  and  loading  pricing  and  booking  data.  The  Shipboard  Computer  System  includes  the  Shipboard  Property  Management  System  (SPMS),  a  custom  system  for  managing  customer  data,  a  custom  Point-­‐of-­‐Sale  (POS)  system  named  Fun  Ship  Sales  (FSS),  a  Casino  Financial  System  (CFS),  a  (casino)  player  tracking  system,  a  concession  system,  a  Consumer  Response  System  (CRS)  and  an  interactive  television  system  (Piccoli,  2012).    

For  Carnival  to  effectively  utilize  a  CRM,  they  will  need  to  gather  information  from  both  the  Shoreside  and  Shipboard  Computer  System.  The  purpose  for  the  CRM  system  is  to  gather  rich  customer  data  from  all  sources  and  utilize  it  throughout  the  marketing  and  sales  process  to  facilitate  return  customers  and  increase  repurchase  rate.  Carnival  will  also  need  that  rich  data  accessible  through  the  Shipboard  Computer  System  to  allow  the  crew  to  better  serve  the  customer  while  identifying  significant  areas  where  they  could  potentially  upsell  the  customer  with  additional  services.    

One  Use-­‐Case  example  would  be  to  provide  free  Wi-­‐Fi  Internet  access  to  guests  on  a  cruise  but  to  access  it,  they  would  have  to  login  through  a  portal  which  would  include  a  landing  page  with  personalized  offers  to  expeditions  or  features  that  the  guest  has  shown  interest  in.  Another  Use-­‐Case  example  would  be  personalized  email  marketing  spotlighting  features  that  a  customer  has  shown  interest  in  on  previous  cruises  to  generate  repurchasing.  If  Carnival  knows  a  previous  customer  is  more  price  conscience  through  data  collected  on  a  previous  trip,  then  Carnival  could  email  them  specific  offers  with  special  discount  rates  to  incentivize  them  to  cruise.  Once  they  are  on  the  cruise,  Carnival  can  up-­‐sell  them  by  offering  additional  services  or  features.    

Implementation  for  a  CRM  would  best  be  accomplished  by  a  custom  built  system  with  both  a  shoreside  system  and  a  shipboard  system  that  would  communicate  with  each  other  via  the  data  uplink  at  the  end  of  the  voyage.  Any  new  data  gathered  about  a  customer  on  a  voyage  would  then  be  synced  with  the  main  CRM  system  located  shoreside.  Due  to  capacity  constraints  on  the  ship,  only  customers  related  to  the  manifest  on  that  particular  voyage  would  remain  on  the  ships  storage.  Middleware  would  be  utilized  to  gather  data  from  the  various  systems  and  compile  it  for  use  in  the  CRM.    A  custom  built  system  would  allow  for  more  specialized  connectivity  with  current  systems,  avoidance  of  additional  costs  associated  with  unused  features  with  an  Out-­‐of-­‐Box  CRM  (only  pay  for  what  you  need)  and  it  can  be  more  tailored  to  the  stakeholders  utilizing  the  system.  This  allows  for  easier  change  management  and  increased  acceptance  levels  by  these  stakeholders.    

// APPENDIX Exhibit 1

 7

(Piccoli,  “Case  Study:  Carnival  Cruise  Lines”,  2012).  

 8

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