Kodak eastman case
Kodak eastman case
Kodak is the photo film market leader since 1994 but the company is loosing share, in the past five years in United States has decrease from 76% to 70%, the main reason is the growing share of brands with lower prices. In January of 1994 Kodak is analyzing if launching a lower price product is the best alternative to stop loosing share.
As said before Kodak is loosing market share and looks like if the company doesn’t do something the tendency is going to be the same for the next years: Kodak loosing and competitors gaining. Here are the main reasons of the situation:
The photo film market has reached a mature stage: there are many competitors in the segment and for a leader like Kodak is very hard to maintain the position, this can be evidenced in the fact that the growing rate for Kodak has been diminished.
Competitors are attacking with lower prices and are using private labels: Kodak gold plus is the best seller product and is priced at 3,49, Kodak extra is the premium product priced at 4,27, this prices aloud Kodak to have margins of 70%. Kodak can compete with private labels because of a consent decree that forbids the company to sell products in a private label basis.
According to and investigation on 1991 the consumer is seeing photo films as a commodity and were buying the lower price in the market.
Kodak hasn’t any innovation when it comes to technology; products from Kodak are very similar to the competitors.
By analyzing the above reasons it can be conclude that if Kodak doesn’t do something to change the situation the competitors are going to keep growing in bigger proportions than Kodak and sooner or later Kodak is going to stop growing and instead is going to decrease significantly in share and profits. Loosing 6 points of share, that have been gain by Fuji mean 78.566 millions (Exhibit 1) and this is going to get worse for sure, assuming that nothing change in the next 5 years and the tendency keeps the same Kodak would loose 6 points more and the cost could be 157.000 millions.
The consumer behavior supports this hypothesis, according to the investigation stated on the case 50% of consumers in the market don’t know anything about photography so they are or will be attracted by prices. 40% of Kodak consumers are samplers and sooner or later are going to find out that in terms of product is the same and they are going to buy on price and other 10% are already buying only on price.
Even when it looks like Kodak is full of trouble, the company is maintaining a strong position and has strengths:
Kodak is a leader company with tradition and history in USA. Meaning is positioned brand
50% of Kodak customers are loyal to the brand
Kodak margin is bigger than competitors
Kodak advertising is more effective. Kodak invest 714.286 dollars per point of share, Fuji invest 1.136.364.
OBJECTIVES FOR THE NEW STRATEGY
Thanks to the fact that Kodak is the strongest brand in the market it is on time for act and diminished the bad tendency. According to the diagnosis and to the general situation the objectives that most be set with new strategy in Kodak should be:
Maintain or win market share: in order to keep being a profitable company Kodak most stay as the market leader like it has been in the past years. This means keeping the level of sales at the same quantity or even higher in order to stop competitor’s growth.
Attack price sensitive segment: one of the main reasons why the competitors stolen market share is because they are offering lower prices and Kodak is focused in super premium and premium brand of films. Kodak should see a potential segment in customers who don’t know anything about photography and are price sensitive.
Look for differentiation: as said before, the market is on a maturity stage and the consumer is seeing the product as a commodity. Kodak should take advantage of its positioning in order to show a strong and attractive differentiation in order to be more competitive.
Focus in the samplers: 40% of Kodak customers are constantly changing brand, Kodak should research deeply into this customers in order to find out how to retain them.
Reinforce brand equity: if Kodak owns 70% of the market share is because its brand equity is strong, the situation shows that this is changing and is time for Kodak to reinforce brand equity in order to retain current customers and gain more.
With the strategy proposed in the case Kodak is after giving the correct products to the three segments of customers in the market:
Gold Plus: pretends to maintain as the star product for Kodak with 60% of the advertising budget. At the time it was the product for the average customer who didn’t know much about photography.
Royal Gold: was meant to replace Ektar the superpremium Kodak film product with 40% of the advertising budget and 9% lower price. The intention with this change is to attract a non-professional customer who is looking for more quality in special occasions for example a wedding.
Funtime: the product to be in the economy brand tier at a price 20% below Gold Plus. No advertising budget and the plan is to offer only twice a year at off peak film use time with limited quantities, speed of 100 and 200 and only offering in value packs (2 rolls and 4 rolls).
Contribution margins per product are calculated in exhibit 2.
In terms of consumer behavior proportion the Funtime proposal would change the share, currently Ektar has 10% and Gold plus 90% assuming that 50% of each segment is loyal, 40% is sampler and 10% is price sensitive the distribution with Funtime is going to be this: Royal Gold 9%, Gold Plus 81% and Funtime 10% without taking in count the possibility that some samplers who rely on Kodak start using Royal Gold.
Benefits of Funtime seasonal and non-advertising:
With Funtime Kodak can cover the three segments of the market with the correct prices.
Funtime gives the opportunity of being competitive in the most growing segment.
With the mix of low price and strong brand Kodak can attract the 10% costumers who only cares about price.
Kodak might get more sells in the super premium segment, turning the product as an option to average consumer for special occasion brings a new segment to the pricier category, meaning more revenues per purchase.
Funtime is a product that is going to maximize profitability. Kodak is planning to launch Funtime in limited quantities and in value packs, this will aloud Kodak to control the impact of Funtime over Gold Plus for the seasonal times and the value packs reduce the packaging costs. Both aspects will aloud Kodak to maximize the profit margin.
Contras of Funtime seasonal and non-advertising
Being a seasonal product is risky: a customer who tries the product and then don’t find it when need it he might go with competitors product because of the price-quality relation.
Risk of cannibalization over Gold Plus the star product of Kodak. This is a main risk for the 50% of the customers who are loyal to the brand, if they try Funtime the might stay there because it is the same brand and Kodak has to be aware that this for every customer who choose Funtime above Gold Plus the company is going to loose $0,49, assuming that only 9% of Gold Plus customers change to Funtime the looses for Kodak would be set on $29.736 million meaning only 4% less. If we assume that some of the sampler are going to jump to Funtime and Proportion would be 20% for Funtime and 70% for Gold Plus the loose would set on 8% See Exhibit 3.
In conclusion there is a risk is not very high compare whit what could happened if Kodak doesn’t do anything and also taking in count that the cannibalization numbers are base on a yearly structure but Funtime is only going to be available not more than 6 months. And also this risk has to be diminished by assuming that Kodak is no looking for changing the current proportion, Kodak is looking to fain more customers that are buying competitors products.
Cut Gold Plus prices: if Kodak doesn’t launch Funtime the company could attack the price sensitive segment setting the prices of Gold Plus lower in this way Kodak could stole market share from the competitors based on the price, but the reality is that this strategy will shrink the margins: a cut of 5% means $41.247 million less and a 20% cut means $64.602 million less. See exhibit 4.
Launch Funtime for the entire year: this aloud Kodak to attack the price sensitive segment for the entire year but the cannibalization risk would be higher and les controllable.
Launch Funtime for seasonal periods at a lower price than the other products of Kodak in order to attract more customers and diminished the growing of competitors especially from Fuji. Setting the price of Kodak Gold Plus is too risky for the company because is a strategy with no alternative than reduce margins and profits. Having both products in the market ensure higher margins and profits for Gold Plus and more market with Funtime. The seasonal offering should control the cannibalization risk but also a strong advertising campaign focused in Royal and Gold in order to maintain the positioning those products already has should help to decrease the risk.
Advertising on Funtime should be analyzed with more research it could help to attract the undecided customer who cares about prices. Offering the product the entire year should be think as a plan B in case the current strategy doesn’t work, in this case Kodak would compete completely in prices even knowing that benefits are lower but it’s better to keep market share than loosing all because of prices, but again this should be the last option.