// EXECUTIVE SUMMARY // BACKGROUND // DEFINITION OF PROBLEM // CRITERIA

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2 2 // 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

3 3 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 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

4 4 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

5 5 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.

6 6 // 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 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 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 7 (Piccoli, Case Study: Carnival Cruise Lines, 2012).

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