Carnival Cruise Lines
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© 2006 CORNELL UNIVERSITY DOI: 10.1177/0010880406291258 Volume 47, Issue 3 286-300 Carnival Cruise Lines Burnishing the Brand by ROBERT J. KWORTNIK JR. The case of Carnival Cruise Lines chronicles the com- n July 2005, the 2,974-passenger, 110,000-ton pany’s birth and development as it redefined the Carnival Liberty set sail after being christened by its leisure cruise industry. With a theme of “Fun Ships” I“godmother,” actress Mira Sorvino.2 Built for $500 and low pricing, Carnival appealed to a diverse mar- million, the ship was the twenty-first vessel sailing in ket. Under the pressure of increasing competition, Carnival Cruise Lines’ fleet, giving Carnival more pas- Carnival was challenged to refine its Fun Ships brand senger-carrying capacity than any other cruise line in the without damaging the considerable equity contained world. With 800-plus ocean-view or balcony staterooms, in that brand. In particular, as cruise lines became less differentiated in the customers’ view, Carnival twenty-two lounges and bars, four swimming pools, and sought to set itself apart with upgraded product fea- a spiral waterslide, Carnival Liberty was a far cry from tures, service, and other guest amenities, as well as the Mardi Gras, Carnival’s first ship, which was a con- a more sophisticated brand message. verted transatlantic liner bought in 1972 for $6.5 million. For its part, the Mardi Gras seemed to signal an inauspi- Keywords: branding; brand equity; marketing strategy; cious beginning for Carnival when the ship ran aground cruise industry; Carnival Cruise Lines at the tip of Miami Beach on its inaugural voyage—in full view of gawking vacationers. However, as Carnival We’re perfectly happy to be the Wal-Mart of the cruise lore had it, bartenders poured free drinks (including a industry. new rum cocktail that a creative bartender dubbed a —Terry Thornton, vice president of marketing planning, “Mardi Gras on the Rocks”), passengers had fun, and Carnival Cruise Lines1 the spirit of the “Fun Ships” brand was born.3 286 Cornell Hotel and Restaurant Administration Quarterly AUGUST 2006 BURNISHING THE BRAND CQ CASES The differences between the Mardi brand demands not only a deep under- Gras and the Carnival Liberty symbolized standing of customers’ needs and wants the metamorphosis of the Carnival brand. but also a clear vision about the brand’s Today’s Carnival was dramatically differ- core meaning and the alignment of myriad ent from the company that cruise industry cues (e.g., product features and marketing pioneer Ted Arison started with second- message) to support this meaning. To hand ships and savvy marketing. While begin the analysis of Carnival’s brand- North American passenger volume dou- management situation, I explore Carnival bled between 1994 and 2004, Carnival’s Cruise Lines’ position within the competi- volume tripled. More than three million tive structure of the cruise industry. I then guests sailed Carnival in 2004, the most describe Carnival’s marketing strategy and in the company’s history, and a figure rep- the evolution of the Carnival brand. resenting nearly one out of every three Finally, I evaluate Carnival’s brand initia- cruisers. For the fiscal year that included tives and discuss implications of manage- 2004, Carnival Corporation and PLC, the ment’s efforts to burnish the brand. parent company of Carnival Cruise Lines, reported record net income of $1.85 bil- The Cruise Industry and lion on revenues of $9.73 billion. Nine of Competitive Structure Carnival’s ships, almost half of the line’s The birth of the modern cruise industry available berths, had been launched since can be traced to the 1960s, in the wake of 2000.4 Through the years, Carnival had the first Boeing 707 flight from New York remained true to its “Fun Ships” brand lin- to Europe in 1958.6 With a rapidly shrink- eage and its goal of providing a good- ing transatlantic passenger base, oppor- quality, affordable vacation to mainstream tunistic shipping companies repositioned travelers. Nevertheless, company execu- their service from transportation to vaca- tives wondered whether it was time to set tion travel. Companies that did not “come a new course for Carnival and, if so, how about” to cruising soon foundered. At the best to burnish the brand without losing same time, lines that led the transition, its essence. such as Princess Cruises (1965), Norwegian This case study examines challenges Caribbean Line (1966; now Norwegian associated with brand management in the Cruise Line [NCL]), Royal Caribbean Cruise hospitality industry by focusing on the Line (1969; now Royal Caribbean Inter- leisure cruise sector and the brand that national [RCI]), and Carnival Cruise Lines dominates the seascape. Despite Carnival (1972), paced the industry. Still, the pas- Cruise Lines’ phenomenal growth and senger base was relatively small. In 1970, success, company executives have designed only 500,000 people took a cruise.7 A a makeover for the brand to enhance brand cruise was an expensive, formal, and rela- equity—the worth of the brand due to cus- tively lengthy vacation—seven to fourteen tomers’ brand knowledge and the effect of days on average—factors that contributed this knowledge on brand marketing and to the product’s snobby image and limited customers’ assessment of brand value.5 appeal. That began to change with the Modifying a successful brand, even if the 1977 launch of The Love Boat TV series, changes are evolutionary, not revolution- when cruising in all its romanticized glory ary, carries the risk of brand confusion, as was popularized to mainstream America. most any cue can communicate meaning Since then, the industry had grown tenfold about a brand. Nurturing an established to more than nine million passengers in AUGUST 2006 Cornell Hotel and Restaurant Administration Quarterly 287 CQ CASES BURNISHING THE BRAND Exhibit 1: North American Cruise Lines and Brand Positioning Double Market Ships Occupancy Market Share Positioning Carnival Corporation Carnival Cruise Lines 21 47,908 24.2% Contemporary Princess 13 28,820 14.5% Premium Holland America Line 12 16,978 8.6% Premium Costa Cruises (U.S. market) 2 4,224 2.1% Contemporary Cunard Line (U.S.) 2 4,411 2.2% Luxury Windstar Cruises 3 604 0.3% Destination Yachts of Seabourn 3 624 0.3% Luxury Total 56 103,569 52.2% Royal Caribbean International Royal Caribbean 19 44,108 22.3% Contemporary International Celebrity Cruises 9 16,118 8.1% Premium Total 28 60,226 30.4% Star Cruises Norwegian Cruise Line 9 16,734 8.4% Contemporary Orient Lines 1 826 0.4% Destination Total 10 17,560 8.9% Other CLIA-affiliated brands Crystal Cruises 3 2,960 1.5% Luxury Disney Cruise Line 2 3,508 1.8% Contemporary MSC Cruises 3 4,410 2.2% Contemporary Oceania Cruises 3 2,052 1.0% Premium Radisson Seven Seas 5 2,604 1.3% Luxury Cruises Silversea Cruises 4 1,356 0.7% Luxury Total 20 16,890 8.5% Grand Total 114 198,245 Source: Cruise Lines International Association (CLIA), 2005 Cruise Manual (New York: CLIA, 2005). Note: CLIA-member cruise lines comprise approximately 95% of the cruise capacity marketed from North America. 2004—an annual growth rate of 8.2 per- guests and featured exotic itineraries, cent, making it the fastest-growing form of gourmet dining, a relatively formal atmos- leisure travel.8 phere, and attentive personal service. Not The cruise industry was still young and surprisingly, this attracted a refined, afflu- evolving. Whereas luxury brands once ent clientele that was comfortable with held sway (at least in the public’s percep- paying $400 to $900 per person per day. tion), less than 5 percent of current cruise An even smaller segment of the industry capacity served this market (see Exhibit 1).9 was served by destination or specialty cruise With the exception of Cunard’s behemoth lines that sailed, for example, masted sail- Queen Mary 2, luxury lines tended to use ing vessels or replica paddle-wheeler ships smaller ships that carried only a few hundred for river cruises. Roughly one-third of the 288 Cornell Hotel and Restaurant Administration Quarterly AUGUST 2006 BURNISHING THE BRAND CQ CASES market, often veteran cruisers, sailed the upscale, 150-year-old British line was premium cruise lines. These companies scooped up by the American company offered high-quality service on relatively powered by the Fun Ships. Whereas the large ships that typically accommodated cruise market in the 1970s and 1980s was 2,000 or fewer guests paying $250 to $450 served by thirty brands, by 2005, only ten per person per day. Premium-level cruises brands owned by three corporations con- featured fine dining, a sophisticated atmos- trolled 90 percent of the market. Carnival phere (though less formal than most luxury Corp. emerged as the largest cruise com- cruises), spa facilities, abundant entertain- pany in the world, with at least one brand ment, and a wide mix of destinations. positioned in each of the four main seg- Cruising was dominated by brands that ments. Significantly, Carnival Corp.’s flag- served the “contemporary” segment, a ship brand had developed a formidable clever label used by cruise marketers to cost-leadership competitive strategy that describe the mass market. These cruise lines enabled Carnival to deliver a good-value featured ever-larger ships that accommo- vacation that attracted price-sensitive dated 2,000 to 3,400 guests who paid fares cruisers and still produced profit margins ranging from $150 to $300 per person per in excess of an astonishing 25 percent. day. Although not heavy on personalized Although Carnival’s executives dismissed service, these floating resorts offered an competitive threats from rival RCI, the abundance of good and varied food, plenty two companies had waged a marketing of activities to satisfy travelers’ diverse war for years.