Carnival Cruise Lines has collected two years of customer transaction data but has not utilized it. The document evaluates options for a customer relationship management (CRM) system to convert the data into useful customer information. It proposes a hybrid CRM system allowing reward and personalization strategies. Key criteria for evaluation are costs, customer value/impact, and competitive advantage. Alternatives like not implementing CRM are considered due to high failure rates and costs of CRM systems.

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
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

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
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.
7
(Piccoli,
“Case
Study:
Carnival
Cruise
Lines”,
2012).

8.
8
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