Economies of SAIL... (scale)....

[falkcor]

As a preface, this started as an idle curiosity of mine. The removal of the past guest pins made me think about it, and I was curious, again just for my own edification, exactly what effect to the bottom line such a small change in services rendered (I estimate $0.50 for the sake of simplicity), can actually have.

This analysis is based entirely upon estimates, which although not exact, I feel are reasonable. They are entirely open to interpretation. I tried to note the methodology at each point. In fact, I invite you to interpret them.

The calculations below are based currently upon the change with the past guest pins. More objectively, upon the change of service of $0.50, granted the estimates of relevant other variables (all subject to interpretation, but generalized for this simple analysis).

However, apply the basic variables to anything else you want. I’m talking about a change of $0.50, for a cruise worth hundreds, thousands. Nevertheless, such a small change, can affect the ‘bottom line’ by 5M. Introduce a $5 change, $50M. Wow. It’s an example of economies of scale, and what effect a relatively small change, across the board for a relatively large company, can truly have.

Again, none of this is exact. I don’t know what any of the exact numbers are (cruises per ship overall, total days per cruise overall, I applied a 50% of max occupancy across the board, 50% of those past guests (not unique passengers), 50% of them buy a pin (one pin, not several), and all of that. Give your suggestions, but mind you, these are all simple generalized ratios. But I feel it to be a reasonable representation of the larger economies of SAIL… ahem, on CCL, and any other cruise line or mid-to-large sized company, economies of scale…

I'm going to start with a very basic analysis... and a couple clarifying points. I hope someone else finds this interesting... :cool:

[falkcor]

alright, here's a new twist on this theme... has anybody else tried to figure out how much fiscal effect this decision has for carnival's bottom line, and the potential revenue from instead putting them in the gift shop for sale?

 

i'm being serious. i remembered i did this the other night while waiting for friends to arrive, on a whim, and reviewed it tonight... i looked at it as an interesting case study of the affect of a relatively small change, to a relatively large corporation...

 

granted - it's based on certain estimates of mine re: prices, and an educated guess regarding total passengers... 0.50 production cost of pin, 5 day average cruise (with all lengths considered), 50% of total carnival PASSENGERS (4,641,778) are past guests (2,320,889 passengers - it's important to note that many past guests sail several times per year, so not 2.32M unique past guest (or 4.64M unique passengers)/yr), and they would sell the pins for $4 in the gift shop... shift these variables up/down (and i wasn't about to calculate the actual day average of all carnival's cruises lol) and it's still pretty staggering when you look at it this way.

 

Total revenue, including added revenue stream of $4,061,558.00 in sale of the pins, plus a mitigated expense of $1.160M in having previously given them away for free, is $5,222,022.50.

 

WOW. :cool:

[falkcor]

Quote:

Originally Posted by falkcor

Total revenue, including added revenue stream of $4,061,558.00 in sale of the pins, plus a mitigated expense of $1.160M in having previously given them away for free, is $5,222,022.50.

 

The mitigated expense is a given, but I doubt the added revenue would touch $4 million. The market for pins would be twice as big (all guests vs past guests), but as you pointed out, that's not 4 million unique guests, and not all guests would be willing to buy the pins. Still, your point is valid... The financial gain is significant.

 

Offset that financial gain with the goodwill lost by chiseling your most dedicated customers for a couple more bucks or furthering the "bargain bin" brand image. I don't know that the bean counters win this argument. Time will tell. I think this hybrid proposal gives a win to everyone... which, of course, means it could never possibly come to fruition.

__________________

Fat Boy

[falkcor]

Quote:

Originally Posted by Fat Boy

The mitigated expense is a given, but I doubt the added revenue would touch $4 million. The market for pins would be twice as big (all guests vs past guests), but as you pointed out, that's not 4 million unique guests, and not all guests would be willing to buy the pins. Still, your point is valid... The financial gain is significant.

 

Offset that financial gain with the goodwill lost by chiseling your most dedicated customers for a couple more bucks or furthering the "bargain bin" brand image. I don't know that the bean counters win this argument. Time will tell. I think this hybrid proposal gives a win to everyone... which, of course, means it could never possibly come to fruition.

 

thanks for your thoughtful response. and what i highlighted in red above - you hit the nail on the head. and in calculating the figures cited above, i didn't even take that into account. i did at first, but edited it out of the equation given the variable and unknown nature of first time guests that would purchase them.

 

some would say only 30% would, because most didn't even know they existed, and 70% wouldn't... others could argue that 70% would because that would be an important momento / souvenir of their first cruise, and 30% won't because they don't care or don't know... (and i would have bought one, as a cheap souvenir, even though i'm effectively pin-neutral in a lot of ways...) that's all too subjective.

 

i expected 50% of total passengers to be past guests, and 50% of those (buying one pin) to purchase, with a production cost of 0.50 (seeing a trend), which i thought was reasonable, as was $4 to be a likely charge - wouldn't deter much of anyone... less than 5.00. that doesn't account for those past guests that buy for other ships they were on, for friends as a pre-cruise gift, or that buy as souvenirs for friends at home. again, all way too subjective.

 

i did this in the 30 mins or so of time i had waiting for friends to arrive, as noted - and just approached it as simply as i could, to just figure out a reasonable calculation. like i said - adjust it up or down, it still is a good case study / hypothesis, which is all i propose it to be, of economies of scale...

 

which gave me the idea for the name of the thread i'll start with the actual calculations...

 

'economies of SAIL'...

 

gimme a few minutes and i'll post to a separate thread. 1, because it'd be a very long hijack, and 2, because of that - go ahead, move the numbers up down - that'd be great! and consider a larger monetary change - i'm assuming a $0.50 change of service that grants $5M over a fiscal year. imagine if they cut something worth say $5... a captains party per pax for an hour, a thermos from plat members, a whatever else that costs $5... that'd be $50M.

 

that's my major point - it's pretty staggering when you look at things in the larger perspective, as they do... and how such a small change can yield a major effect.

 

i just looked at it (again, on a whim, and on very rough estimates), like i would to a change in my business practices or specifications of product. i know, i'm a dork like that. but i'm pretty good at it. :cool:

 

i'll post a link here when i post the big calculations. again, challenging (with appropriate alternate scenarios based on the variables) will be interesting. :D

[falkcor]

Quote:

Originally Posted by Fat Boy

Offset that financial gain with the goodwill lost by chiseling your most dedicated customers for a couple more bucks or furthering the "bargain bin" brand image. I don't know that the bean counters win this argument. Time will tell. I think this hybrid proposal gives a win to everyone... which, of course, means it could never possibly come to fruition.

 

forgot about that last point... i don't think any past guest will NOT sail carnival because they don't get a pin (cost, 0.50 assumed)

 

especially when they save hundreds just for booking vs. the competition, for what many consider a superior product (for them)

[falkcor]

Quote:

Originally Posted by falkcor

forgot about that last point... i don't think any past guest will NOT sail carnival because they don't get a pin (cost, 0.50 assumed)

 

especially when they save hundreds just for booking vs. the competition, for what many consider a superior product (for them)

 

I agree. Having to buy the pins wouldn't put me off of Carnival. However, the cumulative effect of minuscule cuts will eventually have people trading "up", or at least "over". Where's that final straw? Pin? Pin and thermos? Pin, thermos, and fruit punch? Pins, thermos, fruit punch, and drinks at the past guest party?

 

It would be interesting to find out who books solely on price, who takes into account the extras, and where each person's threshold is.

 

__________________

Fat Boy

[falkcor]

Quote:

Originally Posted by Fat Boy

I agree. Having to buy the pins wouldn't put me off of Carnival. However, the cumulative effect of minuscule cuts will eventually have people trading "up", or at least "over". Where's that final straw? Pin? Pin and thermos? Pin, thermos, and fruit punch? Pins, thermos, fruit punch, and drinks at the past guest party?

 

It would be interesting to find out who books solely on price, who takes into account the extras, and where each person's threshold is.

 

again, good response. i can't wait to get the new thread up. lol. and i like your analysis. i can see eye to eye with it. however, if even pins, thermos, fruit punch, and drinks at the past guest party - 0.50 + 2.00 (being more realistic), 0.00 (you can drink other things), 5.00 = 7.50, how could anybody justify spending say, 30-50% more for a rccl, dcl... or other varying rates with the other lines (i'm really not up w/ all the comparisons, and even the 30-50 is an educated guess, that i've seen before).

 

again, take that 7.50 away, and if i booked for several hundred less - and especially if i could buy those things anyway (i don't care for a thermos, at all)... and i'm good.

[Slimpickins]

Time you got some sleep I think:D:p.

[falkcor]

ok - sorry if that was a little confusing. but that's the pre-emptive conversation, which i felt addressed a lot of valid points - which i took into consideration, as part of the whole, but not in the following.

as i noted at a few points - some things are so variable, that i didn't take them in to account. especially for the fact that some are unknown - i.e., how many people will buy the past guest pins? who knows.

again, all estimates - but here's where i came up with those big numbers re: mitigated expenses and total added revenue.

i'll re-iterate, i'm a dork about stuff like this - but it's what i do. it's just how i think, even in this very rough generalization. and again, i welcome anyone to re-interpret (reasonably, i'd hope)...

so, here's how i came up with that... :cool:

[falkcor]

CALCULATIONS OF TOTAL CARNIVAL PASSENGERS

HOLIDAY X 1

Full guest occupancy: 1848

Normal occupancy (based on 2 per cabin): 1452

Median occupancy: 1650

X 1 = 1650

FANTASY X 8

Full guest occupancy: 2634

Normal occupancy (based on 2 per cabin): 2052

Median occupancy: 2343

X 8 = 18744

DESTINY X 1

Full guest occupancy: 3400

Normal occupancy (based on 2 per cabin): 2642

Median occupancy: 3021

X 1 = 3021

TRIUMPH X 2

Full guest occupancy: 3470

Normal occupancy (based on 2 per cabin): 2758

Median occupancy: 3144

X 2 = 6288

CONQUEST X 5

Full guest occupancy: 3730

Normal occupancy (based on 2 per cabin): 2974

Median occupancy: 3352

X 5 = 16760

SPIRIT X 4

Full guest occupancy: 2680

Normal occupancy (based on 2 per cabin): 2124

Median occupancy: 2402

X 1 = 9608

SPLENDOR X 1

Full guest occupancy: 3744

Normal occupancy (based on 2 per cabin): 3006

Median occupancy: 3375

X 1 = 3375

DREAM X 1

Full guest occupancy: 4633

Normal occupancy (based on 2 per cabin): 3646

Median occupancy: 4140

X 1 = 4140

TOTAL PASSENGERS PER DAY: 63,586 PASSENGERS

For this following calculation, the average length of a cruise is estimated at 5 days – which is a rough proposal of the average cruise length, when accounting for the number of 3, 4, 5, 6, 7, 8 + day cruises. This number is an estimate, and open to interpretation.

TOTAL PASSENGERS PER YEAR: 63,586 X (365 / 5 AVG = 73 CRUISE AVG/YR) = 4,641,778

For the above gross total, number of passengers are not unique guests, but total passengers. Thereby, a total of 4.64M unique, individual people do not cruise, and does not account for repeat cruisers during the 1 year time period.

CALCULATION OF CARNIVAL REPEAT PASSENGERS, COST OF PAST GUEST PINS

REPEAT PASSENGERS PER YEAR: 4,641,778 X 50% = 2,320,889

For the above calculation, it is assumed 50% of total passengers for the year are repeat cruisers. This is an estimate, and a general approximation, given that many passengers may cruise several times a year. This figure has also been presented by external sources, including a recent episode of Samantha Brown on the travel channel. J

COST OF PAST GUEST PINS: 2,320,889 X 0.50 = $1,160,445.00

For the above calculation, cost of the pins is assumed to be 0.50 given a bulk production discount that would be considered for carnival. I’m giving them the benefit of the doubt, and a 50% reduction based on prices of about 1.00 for quantities in just the ‘thousands’, as referenced here:

http://www.branders.com/search/search_results_ref.jsp?kw=lapel%20pins&bmUID=1243141920627

WOW – that’s a lot, for pins. Granted, this is all based on assumptions and estimates, but it just goes to show how much a change worth $0.50 makes, when applied across the board / fleet.

CALCULATION OF NET EFFECT OF CHANGE, PINS @ $0.50

REVENUE GENERATED: 2,320,889 repeat cruisers x 50% that buy = 1,160,444.5 pins X ($4.00 RETAIL, - $0.50 COST = $3.50 profit) = $4,061,558.00

For the above calculation, it is assumed that 50% of passengers, who are also past guests (but not total past guests per year – total accumulated cruises by past guest per annum) buy pins, and this would be an over-estimate of total number of passengers, as some individuals would buy pins for other ships / other pins if made available. A cost of $4.00 retail, which seems reasonable, minus $0.50 cost is assumed. Additionally, labor costs, etc. associated with the sale are not considered, as those are fixed costs, given that the gift shop would be there and open anyway. And a rack / display case would be of negligible affect.

Total gross revenue, including added revenue stream of $4,061,558.00 in sale of the pins, plus a mitigated expense of $1.160M in having previously given them away for free, totals $5,222,022.50.

All of the estimates proposed are just that – estimates – let’s just make that clear. But however you adjust any of them, up or down, that really puts such a small thing into perspective nevertheless.

I still say... WOW... :cool:

What do you think?

[falkcor]

Time you got some sleep I think:D:p.

lol, good point. it's just 'over the horizon' :D

[m1jones22]

 

lol, good point. it's just 'over the horizon' :D

 

When you talk about economies of scale you have to take into account that they are buying (at a steeply discounted price) the same volume of pins that they are giving away. There is no way they are paying 50 cents each for those cheap little pins, and if they are, then shame on their procurement department. I would put at more like .5 - .10 cents each...

[artymis77]

Wow....:confused:

[klfrodo]

Wasn't it like 15 or 20 years ago that American Airlines saved $5M a year just by removing 1 black olive from the salad.

[penetangjudy]

Dh and I like the talk about these kinds of things to, although he is in that kind of business so he can talk circles around me :)

 

I also agree about the pin prices, they wouldn't be as much as .50 so the revenue would be even higher then ?

 

This is similar (although not cruise related) to when the chip people starting putting, or not putting, 10g less in each bag, savings overall must have been phenomenal.

[G'ma]

 

lol, good point. it's just 'over the horizon' :D

 

Being mathmatically challenged (and truly lost without a calculator), my head is going to explode.......:D

 

I sent this to my son (who has a mysterious genetic quirk where numbers are friendly)...and he instantly knew exactly what you were doing. He concurred with most but then went on to email me about how it could be figured differently......and.....off he went.

 

YIKES!

 

Think I'll go read Dr. Seuss for a while......:D

[jbroons]

Being mathmatically challenged (and truly lost without a calculator)' date=' my head is going to explode.......:D

 

I sent this to my son (who has a mysterious genetic quirk where numbers are friendly)...and he instantly knew exactly what you were doing. He concurred with most but then went on to email me about how it could be figured differently......and.....off he went.

 

YIKES!

 

Think I'll go read Dr. Seuss for a while......:D[/quote']

 

I will not pay for a pin...that's a sin.

I would like to receive free stuff...but ENOUGH!!

 

I will not ponder this this point as I choose.

I simply wish to plan my next cruise.

 

And, yes, John I am.

[mapsmith]

Having purchased Flag Pins for years. . . The average cost per pin purchased by the Thousand (although probably Carnival buys them by the Hundred Thousand) as a per pin charge is going to be realistically about $.12each.

 

To continue with the convoluted math presented above (thanks, I think) an average sailing will have about 600-1500 past guests. so you wind up with a cost of $72 for 600 passengers or $180 for 1500 passengers. Multiply by 52 (number of weeks per year and one week is an average cruise length) then you wind up with a low of $3744 and an upper of $9360.

 

Now multiply that by the total number of ships. We start to get some interesting numbers.

 

That is just the cost of the pins themselves. This does not include the little cards that the pins are attached to. Nor the labor or shipping charges or even the other overhead costs.

 

So the amount saved does start to become substantial.

 

Don't get me started on the Fruit Punch!

[falkcor]

When you talk about economies of scale you have to take into account that they are buying (at a steeply discounted price) the same volume of pins that they are giving away. There is no way they are paying 50 cents each for those cheap little pins, and if they are, then shame on their procurement department. I would put at more like .5 - .10 cents each...

 

i know - i don't have any idea how much those pins would cost. i just used $0.50 for a simple figure for a rudimentary calculation.

 

don't get hung up on the cost of the pins themselves. just think of it in terms of a change of product / services of $0.50, and the net effect across the board of that change - no matter what it may be. that's all i'm sayin' :cool:

[falkcor]

Being mathmatically challenged (and truly lost without a calculator)' date=' my head is going to explode.......:D

 

I sent this to my son (who has a mysterious genetic quirk where numbers are friendly)...and he instantly knew exactly what you were doing. He concurred with most but then went on to email me about how it could be figured differently......and.....off he went.[/quote']

 

lol - no doubt, it definitely could be figured differently, and more precisely... this was just an exercise of curiosity, and given as much, i just adopted the easiest way to arrive at a rough calculation.

[falkcor]

I will not pay for a pin...that's a sin.

I would like to receive free stuff...but ENOUGH!!

 

I will not ponder this this point as I choose.

I simply wish to plan my next cruise.

 

And, yes, John I am.

 

lmao - good one.

[gtouch]

Sorry you lost me at "edification". Now where's that book on what big words mean?

[pe4all]

Interesting numbers. But I would still give up the pin in order to keep cruise prices down. If I can afford to cruise, I can afford to buy a pin (wouldn't anyway - not into them) in the gift shop for $4.

[falkcor]

Sorry you lost me at "edification". Now where's that book on what big words mean?

 

lol:

 

: to instruct and improve especially in moral and religious knowledge : uplift ; also : enlighten, inform

 

http://www.merriam-webster.com/ :D