Q1. Summarize the market characteristics and trends.
In the photo film market the major suppliers were Kodak, Fuji, Agfa and 3M. Fuji and Kodak sold only branded product whereas Agfa and 3M sold their film as branded product as well as to other firms in private label. Total Market In 1993 the total market was around 670 million 24 – exposure rolls. Typically a consumer paid between $2.5 and $3.5 for a 24 exposure rolls. So in average they used to pay $3 for a 24 exposure roll. So Total Market = 670million * 3=2 billion Market Share The market within USA was monopoly as Kodak’s market share was about 70%. But worldwide, the market was competitive. Fuji was a strong competitor in worldwide sales (Fuji -$10 billion, Kodak – $20 billion). Appendix A depicts the unit market share of Kodak in U.S. Market Growth The market’s annual unit growth rate was averaged only 2%. So this is basically a fully developed mature market. We can categorize this market as Cash Cow according to the BCG growth share matrix. The annual growth of Kodak had been only 3%which is much lesser in compare to the rivals.
Appendix B depicts the annual growth rate of different companies. Consumer Information Consumer were less educated about the technical aspects of film and view it as a commodity often focusing on price alone to purchase. Appendix C depicts the graph showing the consumer buying pattern trend. Price Tier Based on the price tiers there were multiple category of brands (i.e. Superpremium, Premium Economy & Price) available in the market. Appendix D depicts the price tier ranges. Superpremium brands were not the major sellers . For Premium products of Kodak, the gross margin was approximately 70%.It seems that Kodak implemented market skimming price strategy to handle Premium products. Fuji’s gross margin was about 55% for the economy brands. The margin of Price product was lower.
This lower price brand was targeted towards the segment of customers where consumers were less educated about photography and focused on price alone to purchase. Appendix E depicts the different distribution channel of the overall photo film market. Q4. Considering introduction of Funtime and ignoring Royal Gold, calculate the market shares of Funtime and Gold Plus that would make Kodak indifferent to introduce Funtime or take no action. Evaluate how realistic it is to improve profits with introduction of Funtime taking into account the existing market segments and plausible competitive reaction.
Reasons for failure of Funtime
The first problem is that they plan not to advertise. This seems to be a mistake because funtime is a new product for the consumers. Consumers need to be educated that they have a new product offering and they need to know what the value proposition is. However, if there is no education of the product, which could lead to consumers to believe that Kodak is offering less quality for their existing products, rather than rolling out a new lower price alternative. In case of failure of the funtime, Kodak Gold and Royal Gold would be able to maintain the same share of the market currently because of brand Loyalty and separate segment of customers targeted. The extra expenses done (packaging, features, styling) to release this product would be a loss for Kodak. But in the near future as the price sensitive customer segment remained unserved by Kodak and growth in private label film activity will decrease the market share of Kodak.
Reasons for Success of Funtime and side effects on the market shares Making a move to enter the Economy Tier is a smart play for Kodak. The market appears to be heading toward price being the most important dimension for consumer. So the customer segment who tend to view film as a commodity and often buy on price alone (Price Sensitive Customer Segment) is the main target of funtime. A few of their ideas seem to make sense: For instance, it is probably a good idea they only offer limited speeds. This would probably be sufficient for consumers who are buying in this tier. Also, making them available in value packs seems like a good idea because they will be able to sell more units (rolls) of film this way. Positive Side effects and Market Share:
If launching funtime is successful then the market share of Kodak Gold would remain the same because of its loyalty and brand, Ektar market share will be converted to Royal gold share because of its special segment offering (special occasion) and finally funtime will be able to target the price sensitive segment .As a result the market share of Kodak should be restored back to 75% or more in the upcoming years. As shown in exhibit 2 there would be definite loss of revenue of Fuji and Others. Polaroid and Private market share will remain unaffected as they are out of scope market for Kodak. Negative Side effects and Market Share:Now there are few major drawbacks. As the offer is limited throughout the year consumers may just wait until that time of year to buy fun time film instead of buying their other Kodak products that are available year round. This can cannibalize Kodak’s Gold Plus market share in premium category.
Kodak Gold Plus was the flagship brand of Kodak and Kodak’s gross margins were believed to be about 70%.So if the market share of Kodak Gold Plus reduces it may lead to huge loss for Kodak as a whole. As shown in Exhibit 2 though the market share of funtime has increased and it has snatched 5% (Fuji + others) from competitors but it has also capability to cannibalize the market share of Gold Plus which can reduce 10% or more. Like Kodak Gold Plus if we keep the same assumption that the gross profit margin is 70%, retailer’s margin is 20% for funtime then we will be able to see (Exhibit 1) that the profit earned for Kodak Gold plus is $0.39 per unit. Exhibit 3 shows that the total revenue from market has been (1777 – 1692) =85 million dollars It can also be stated that as being limited throughout the year the market growth of fun time will be very less. Also lowering industry profitability by reducing average price of film would keep the customer expectation of lower prices in the future product release.