Strategic management: Carnival
Carnival Corporation is a global cruise company that applies differentiation through acquisition, joint venture, organic growth, and implementation of international strategy. The company’s cruise brand is comprised of 11 brands that include Holland America Line, Princess Cruises and the Yachts of Seabourn in North America, Carnival Cruise Lines, P&O Cruises, Cunard Line and Ocean Village in the UK, Costa Cruises in Southern Europe, P&O Cruises in Australia, AIDA in Germany, and Iberocruceros in Spain. In addition to cruise services, Carnival Corporation also operates and owns Holland America Tours and Princess Tours. These two tour companies are the leading tour companies in Alaska and Yukon Canada. This essay will examine the ways in which choices about strategy are applied by Carnival Corporation to achieve competitive advantage.
According to Kim and Mauborgne (2005) strategy is a creative exercise that an organization can apply for market expansion. Based on the concept of Red Ocean Strategy, all the existing companies just have to fight for market share in the assumption that market shares are fixed. However, a blue ocean strategy applies a “reconstructionist” view where an organization should develop reconstruction of value in order to enter new market space and remain competitive. The “reconstructionist” approach is the one applied by Carnival to venture in the market and remain competitive by striving to have a leading market share in the cruise industry.
The strategy canvas concept utilized in relation to the Blue Ocean Strategy, focuses on looking at what is prescribed by customers and value creation through redesigning of organization’s systems. Porter views strategy as a choice where firms have to choose where and how to compete. In this case, strategy needs to be creative and analytical and should link to consumption by addressing consumer needs. In relation to this, one way that Carnival Corporation has created value for its products is by seeking to address the needs of various customers in the market. For instance, the company has premium cruises that put an emphasis on quality, style, comfort, destination itineraries, and its average prices are higher than contemporary cruises (Carnival Corporation, 2014). Some of the main competitors for the premium cruise segment include Star Cruises and NCL, which are controlled by Genting Hong Kong, Celebrity, RCI, and Azamara Club Cruise.
In the application of the Resource Based View (RBV), an organization is perceived to have a competitive advantage if it has a value creation strategy that is not being used by current or potential competitors (Barney 1991, p.105). Certainly, a firm requires having unique resources in order to sustain competitive advantage. Some of the resources referred in the RBV include all assets, information controlled by an organization, organizational processes, and organizational attributes. For the resources to sustain competitive advantage, they should be valuable, rare, non-substitutable, and non-imitable. In this regard, Carnival has various unique resources that enable it to maintain a competitive advantage. For instance, the company has a new class of dream ships that are unique in many features since they are designed to give maximum satisfaction to customers. Moreover, Carnival owns the largest Water Works aqua park at sea and an entertainment venue referred to as Ocean Plaza. The Queen Victoria, which is one of the newest ships in Cunard, has a three tier lobby that makes guests experience a lavish lifestyle. Through its AIDA brand, a first brewery on a cruise ship was also introduced and hence adding to the number of unique resources that makes Carnival enjoy a competitive advantage.
To maintain a sustainable competitive advantage, Carnival ensures value for its products. For example, the company operates more than 95 cruise ships with a passenger capacity of around 180,800 berths. In total, the company serves more than 7.5 million passengers annually (Carnival Corporation, 2014). Additionally, its different cruise brands serve people from different cultures and demographic groups where it fulfills their entertainment and holiday needs. As a fact, Carnival’s strong brand portfolio and large fleet is valuable to its customers.
From the RBV perspective, Carnival also has decentralized operating structure where each of its major brands has their own headquarters and an operating team. Indeed, this is quite rare in the cruise industry and has supported the company in serving its diversified customers. In relation to the observation made by Barney (1991), Carnival has resources and products that are too difficult to be imitated by competitors. For this to be realized, Carnival invests heavily in marketing and specifically in print and television media. Each of the cruise line is advertised on the basis of its value proposition. Other than advertising, Carnival also uses various promotion strategies to retain and attract new customers. Some of these, promotion strategies include giving commissions and discounts to customers. Vigorous marketing strategies make it costly for competitors to imitate.
Achieving strategic capability requires a company to have organizational competences that include resources such as technology, financial, human, and intellectual capital (Grant, 2005). In addition to this, values and appropriate company procedures should be practiced. For the achievement of its technological competency, Carnival Corporation utilizes software and other IT systems for inventory management of cabins and in enhancing efficiency of its shipboard operations (Segal, 2004). Moreover, high technology is also used to provide convenient services for customers served in the cruise industry.
Value chain can be used to represent activities that are performed by an organization to design, produce, market, distribute, and support its product. A company’s value chain and how it performs its activities is a reflection of its strategy and strategy implementation. Although companies in the same industry may be having similar activities, the value chains of competitors often differ (Porter 2004, p. 37). Based on Porter’s generic strategies, a company can gain a competitive advantage through cost leadership, differentiation, and focus (Kent, 2008). In most cases, cost is affected by competitors, market share, and innovation. For instance, Carnival Corporation ensures value chain is different from the competitors by adopting a broad differentiation as its overall strategy. Through this strategy, the company offers its customers with a variety of holiday vacations through its 11 cruise brands. These brands are designed to address the needs of different types of customers; from the youth to the senior guests. In order to attract people from different income levels, the company also offers a wide range of prices. Such differences among competitor value chains contribute in the creation of competitive advantage.
In competitive terms, value refers to the amount customers are willing to pay for the company’s products. Value is measured by the total revenue a company gets in a given period. The objective of a generic strategy is to create value for customers that exceed the cost of doing business. Therefore, value should be employed in analyzing the competitive position since most organizations raise their cost deliberately in order to command a premium price through differentiation. In an organization such as Carnival, value chain displays total value and consists of value activities and margin (Porter 2004, p. 38). Value activities are the distinct physical and technological; activities performed by an organization. As a result, a firm is able to create products that are beneficial to its customers. Conversely, margin represents the difference between the total value and the total incurred in performing value activities (Teece, Pisano, and Shuen, 1997). For easier understanding, value activities can be subdivided into primary activities and support activities. Primary activities are the activities carried out in the physical creation of a product and its sale while support activities may include factors such as marketing that are applied to aid the sale of a product.
To understand the competitive advantage of Carnival Corporation, it is vital to compare it to its two major competitors, Royal Caribbean Cruises Ltd and Genting Hong Kong. In terms of promotion, Carnival had spent $508 million in advertising costs while RCL and GHK spent $244 million and $5.5 million in 2009 respectively (Carnival Corporation, 2014). Furthermore, Carnival also leads in products range and pricing and hence making it a market leader in the cruise business. Subsequently, this helps the company to attract a diverse customer base.
In terms of profits, Carnival also records higher profit margin than its competitors. For instance, in 2009 Carnival had a net income of $1.8 billion while RCL reported a $162.3 million as net income in the same year (Evans, Stonehouse, and Campbell 2012, p. 69). With high profitability ratios, Carnival has managed to reduce its current and long-term debt. The overall financial performance of Carnival is stronger than for its competitors. This was also reflected in its average occupancy rate that was more than 100% between 2008 and 2009.
When it comes to reputation, Carnival is known as one of the largest cruise companies in the world that attracts more customers than in its competitors based on its 11 popular brands. Therefore, it has the highest ranking in the world while RCL is ranked as the second largest cruise company in the world. Carnival is also known apply differentiation strategy through innovation. In this regard, its ships have shopping malls, internet access, and radio and television stations (Carnival Corporation, 2014). As a differentiation strategy, Holland America as a premium cruise is advertised and promoted through a tagline of “a signature of excellence” to depict the unique services that it offers to customers. Moreover, the company launched the Your Choice Dining SM program to add flexibility and convenience to customers’ dining experience.
According to information found on the company’s website, the two distinctive competitive advantages for Carnival are its marketing and financial strength. The leading marketing position enjoyed by Carnival has enabled it to serve a wide range of customers. This is mainly because its cruise brands serve all major vacation destinations in the world. For this reason, both the company’s North America and European brands recorded a significant growth of 20% in 2010 (Evans, Stonehouse, and Campbell 2012, p. 107). Financially, the company has been reporting high profits returns than its competitors and hence making its operations more sustainable.
Strategic positioning for Carnival is also strong. This is achieved through a strong marketing mix and a large fleet of cruise ships that have ports located in numerous countries in the world. Its brilliant marketing strategy enables it to inform the target audience about its value proposition. In order to make its products unique, the company uses a “fun ship” theme that is widely promoted through advertising. According to this company, the ship is the destination while ports are perceived to be secondary. Therefore, the focus is in making customers to feel most comfortable in the ship and have a memorable experience that will make them come back again. Since the company considers marketing as a high priority, it has lowered the cost of its cruise. Marketing has made the company achieve a market share of 55% in North America and 53% in the rest of the world (Papathanassis 2009, p. 180). Indeed, this act as an evidence of how application of the Blue Ocean Strategy, in relation to marketing, has made Carnival a leading company in cruise ship industry.
To sum up, Carnival has implemented effective strategic management measures by analyzing the market and understanding its competitors. In essence, the company understands the need to implement positive change that leads to value creation for its products. This has led to the development of its customer base, to levels that its competitors find difficult to achieve. In the implementation of its differentiation strategy, Carnival provides unique products to its customers by offering them services that cannot be matched by its competition. In addition, its products are rare and difficult to imitate because it invests heavily in marketing. Any company willing to offer sustainable competition in the cruise industry needs to invest heavily in assets, marketing, and technological infrastructure. This makes Carnival have an upper hand because it gets high profits, some of which is put back in the company to support its strategies. For this reason, Carnival will remain a market leader in the cruise industry so long as it remains innovative in providing products of higher quality than its competitors.
Reference List
Barney, J. 1991, Firm’s resources and sustained competitive advantage, Journal of Management, 17 (1), pp. 99-120.
Carnival Corporation, 2014. Sustainability, Available at: http://phx.corporate-ir.net/phoenix.zhtml?c=140690&p=irol-index (last accessed June 12, 2014).
Evans, N., Stonehouse, G. and Campbell, D. 2012, Strategic Management for Travel and Tourism, Taylor & Francis, New York.
Grant, R. 2005, Analyzing Resources and Capabilities in Contemporary Strategy Analysis, Blackwells, Oxford.
Kent, N. 2008, Strategic Management: Generic Strategies & Choice, Field of Strategy and Operations Management, Bristol Business School.
Kim, W. and Mauborgne, R. 2005, Blue Ocean Strategy; From Theory to Practice, California Management Review, 47 (3), pp. 105-121.
Papathanassis, A. 2009, Cruise Sector Growth: Managing Emerging Markets, Human Resources, Processes, and Systems, Springer, London.
Porter, M. 2004, Competitive Advantage, Free Press, London. 36-50
Segal, S. 2004, The Strategy Reader, Blackwell, Oxford.
Teece, D., Pisano, G. and Shuen, A. (1997). Dynamic Capabilities and Strategic Management, Strategic Management Journal, 18 (7), pp. 509-533.
