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What ails Carnival?

May 28, 2013 by Dale Furtwengler — President, Furtwengler & Associates, P.C.

When we think of a carnival we think of fun and good times. Unfortunately that’s not the image that comes to mind for the cruise line's passengers. So what’s gone wrong? Why is Carnival experiencing so many problems?

When I heard news story after news story of Carnival’s problems I couldn’t help but think, “Their price is too low.” Hey, I’m a pricing guy what do you expect? But seriously, I thought, “They’re not charging enough to allow time for regular maintenance, that’s why they’re experiencing so many mechanical problems.”

Then I heard a commentator suggest that Carnival’s business model might be the source of their problems. The model was described as a "high turnover" business, meaning that Carnival was relying on getting a large number of passengers out and back quickly and repeating the process frequently to generate a profit.  

That business model requires two things:

• High volumes of passengers
• Limited down time.

How do you generate volume? Lower prices. What’s the simplest way to limit downtime? Forego maintenance. What’s the result? What Carnival is experiencing.

What’s the antidote? Charge higher prices so that Carnival can afford downtime for regular maintenance.

People who favor high volume, high turnover business models suggest that my approach leaves a lot of money on the table. My retort is, “How much revenue is Carnival going to lose because potential customers don’t want to risk the nightmarish experiences of recent passengers?”

If you’re relying on high volume, high turnover for your business, you’re opening the door to some very unpleasant customer experiences. Once lost, those customers will be very difficult to get back.

About Dale Furtwengler

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