Kodak Major Case Essay
Kodak Major Case
Kodak’s main problem was not foreseeing and adapting to market changes of price and competition. Kodak had dominated the photo film market for most of the 1900s until competitors like Fuji began taking market share from Kodak in 1984. Kodak ignored the new threats until the late 1990s, relying on their market dominance. Problem Analysis Kodak offered three product lines to target various market segments as a part of their Funtime strategy to regain market share. Prior to this strategy, Kodak offered only two product lines, Ektar, their superpremium line, and Royal Gold, their premium line.
They planned to introduce Funtime film, an economy brand film, which targeted the price sensitive consumer. The target market is the average film user who has little or no education about film, buys strictly on price, and is not influenced by advertising — the 50% of buyers that were not brand loyal (40% were film “samplers”; 10% purchased on price). Gold Plus is the premium brand film and is developed to target average consumers who are already Kodak-loyal or seeking quality photos over price.
The superpremium film, Royal Gold’s target market is professionals, serious amateurs and average consumers who pay the premium for professional grade pictures for “very special” occasions. (See Appendix A) In the 1990’s Kodak’s main competitors were Fuji of Japan, Agfa of Germany, 3M, Konica of Japan, and Polaroid as a late competitor. Kodak has many ways to differentiate themselves from all of these competitors. As an established photography and film brand, Kodak has dominated 70% of the market share in the U. S. ; where many of their competitors are new to the market.
Kodak has not offered a private or economy film line like many other competitors have. In the superpremium tier Fujicolor Reala was targeting advanced amateurs and professionals only while Kodak targeted a more broad segment with their competing Royal Gold line. In the Economy brand tier, Funtime was launched as an economy brand competing with Fujicolor Super G, Konica Super SR, and ScotchColor. Funtime was the only film in this brand tier to be offered only at off-peak film use times and only packaged in value packs. Kodak dominated the film market all through the 1900’s.
They never received any major competition until Fuji began to attack their market share in the 1980s, when they were announced as the official film sponsors of the 1984 Summer Olympics in Los Angeles, Kodak 3 California. Kodak believed their dominance and customer loyalty would continue to carry them as new competitors entered the market and as film prices were beginning to fall. They underestimated their competition and did not react soon enough. It seemed as if Kodak believed that people would not buy another film other than Kodak. By the late 1980s the film market began to see many competitors and Kodak’s market share began to fall.
While still the dominant competitor, their market share fell from 76% in 1989 to 70% in 1994, and similarly the average price of film began to fall. While Kodak’s film rolls were in the neighborhood of $3. 50 to $6 per roll, competitors began releasing film under private brands starting at $2. 19. Shortly after the economy film market began to form, Consumer Reports released a quality test of the top 6 films in the market. While Kodak positioned themselves as the superior quality film, Consumer Reports reported that, “We found most films to be no better or worse than their competitors of the same speed…
and will yield prints of comparable quality. Kodak’s standard, Gold Plus, even ranked below Fuji’s economy film. With film market evolving, Discount Merchandiser released a survey in 1991 stating that “more than 50% of the picture takers in the US claim to know nothing or little about photography, and as a results they tend to view film as a commodity, often buying on price alone. ” This led Kodak to a major repositioning of its film product line, introducing Funtime film, an economic film line, something Kodak would have never previously considered.
Kodak was desperate to recover some of the market share they had recently lost and implemented a new strategy to help recapture some of their market share. They introduced the Funtime Strategy. In this strategy, Kodak would offer 3 lines of film (superpremium, premium and economy). The economy line was new for Kodak since they specialized in high-end photography that was parallel with their high quality brand image. Funtime was to be offered at 20% less than Gold Plus (their premium brand) and offered in limited quantities only twice a year at off-peak film use times, 4 months out of the year.
Funtime was only sold in “valuepacks” of two or four rolls of the two most popular speeds, ISO 100 and 200. The major inconsistency with implementing this new strategy was the lack of advertising spent by Kodak; they offered no support and a lack of commitment to Funtime. Kodak was too concerned with maintaining its high profit margins that they were not willing to cannibalize their own market share before the competition did. Kodak 4 Whereas their focus was to regain some market share with their new Funtime line, they replaced their superpremium line with Royal Gold, broadening their “professional” target market.
They emphasized that Royal Gold could be for “very special” occasions not just professional photography. Kodak spent 40% of its total film-advertising budget on this line and the other 60% on its Gold Plus. The Funtime strategy was a last chance effort to regain market share and compete with private label brands. It seemed that the economy line was introduced too late to recover the shares that were lost. By only offering it twice a year Kodak seemed as if they were not fully committed to this line. The lack of advertising sent a deceitful message.
It appeared as if they were hiding the line as to not take away from their other “quality” lines. They wanted to keep their high quality image while competing in the low end of the market as well. This strategy does not solve their problem of competing with their competitors. The case did not mention any new ways that Kodak tried to differentiate themselves from their competitors or explain to their customers why they thought they were superior to them. Kodak offered 3 main lines of film but did not educate the customer on the difference between the lines.
They stated their superpremium, premium and economy lines but did not take time to educate the consumers of the difference between the three lines and how they differentiated from their competition. Since Consumer Reports released a study showing that most film rolls in that time performed similarly and printed pictures of comparable quality. Kodak did not take time to distinguish themselves from this new competition but simply relied on their trusted brand name they had built in the years prior. Before differentiating themselves from their competition they should have reacted immediately to new competition rather than ignore it.
Because Kodak was late to react, Fuji was able to easily differentiate themselves from Kodak. Kodak should have viewed Fuji’s sponsoring of the LA Summer Olympics as a threat. They should have immediately started discussion strategies on repositioning themselves to avoid the competition absorbing their market. Kodak was not prepared for the market changes that came. The week of January 25, 1994, Kodak’s stock lost 8% in value. Kodak was used to the large profit margins on film and could not rationalize cannibalizing their own profits by lowering costs due to their rigid management before the whole industry lowered prices.
The reality was that the film industry was slowly declining, people viewed photography as a commodity and they were just on the cusp of Kodak 5 the digital era. Kodak was reluctant to come to terms with this new reality. Their competition capitalized on the market changes and private film companies began offering lower cost film of comparable quality. Kodak did not look far enough into the future of the market and were slow to react to competition which is why they failed to remain ahead of their competition and minimize any losses. Alternative Solutions
Due to Kodak’s lost market share, lowered stock prices, and declining profit margins, it was evident that the company was headed in a downward spiral. Surviving within the industry, due to film being a commodity product, was not easy, and the company was in dire need to revive its own value. To solve its main problem, not foreseeing and adapting to market changes, we propose five alternative solutions: (1) delve into wholesale market share, (2) better educate customers regarding the products’ benefits and values, (3) spend more time on research and development, (4) halting production of the
Funtime product, and (5) both educating customers about the products’ benefits and values, and spending more time on research and development. Alternative Solution 1 Kodak could sell its film in value packs at wholesale stores, such as Costco or Sam’s Club, in order to regain the market share within the industry. In doing so, this would be a great way for Kodak to tap into market share that had not yet been touched. Film, at this point, had not been sold in larger wholesale packs, and was being sold primarily in smaller groupings, at general retail facilities.
Because of the recent upward trend with consumers buying in bulk, wholesale retailers were gaining more loyal customers on a daily basis. By selling within these types of stores, companies were more likely to succeed because this was a retail niche that was evolving, and would give particular brands and products more consumer recognition. Kodak could have taken advantage of the strong market and loyal customers that a wholesale retail company already has. By partnering with Costco, for example, Kodak could become its exclusive film partner.
With this type of partnership, Kodak might be able to capitalize on the exclusivity of Costco’s film sales. Also, seeing in recent years that Costco has become a very common place for consumers to have their rolls of film developed, and frequently sells film rolls in value packs, it seems to be a one-stop-shop for families who are constantly on-the-go. If Kodak 6 Kodak were to partner successfully with retailers like this, the company would be able to gain further market share and sales, because people would increase their recognition of this particular brand, and could become the go-to brand for most.
Wholesale retailers, like Costco, are extremely popular and well-trusted. By associating its image with these companies, Kodak would have a competitive advantage over others within the industry, and could be associated with Costco’s positive identity, thus giving itself a positively-positioned image relative to its competitors. The biggest disadvantage in implementing this solution, however, would be in securing a mutually-beneficial partnership with a wholesale retailer.
Most wholesalers would not necessarily be likely to commit to an exclusive partnership to one particular brand (in this case, Kodak), simply because they limit their own product availability, and therefore cut into their own sales. Retailers, like Costco and Sam’s Club, focus on having a wide variety of products from which consumers may choose. If wholesalers were to commit exclusively to Kodak, per se, then they could lose out on potential sales from consumers who desire the competing film product. There is not necessarily an inherent benefit for wholesalers with exclusivity. Alternative Solution 2
Apart from selling within wholesale retail locations, another way to regain lost market share is to better educate consumers regarding camera film. Film had become a commodity product to most consumers, and there was little customer loyalty to any particular camera film brand. Differentiation between the companies’ own products, as well as the competitors’ products, is an important aspect of any business. However, it seems that Kodak lacked a differentiation strategy and had not communicated to consumers how its products were positioned positively, relative to those of its competitors.
Consumers knew “little or nothing about photography,” according to the 1991 survey in Discount Merchandiser. Its lack of educational advertising left customers in the dark, as far as the difference between products available. Because many uneducated customers simply buy based off of price alone, Kodak needs to inform customers why they should pay the premium price, and what benefits come along with paying that premium. No other film companies were educating consumers about value and benefits, so Kodak had an opportunity to capitalize on the lack of knowledge thereof. By educating consumers, they
Kodak 7 would become familiar with their film needs, and the film’s benefits. Simultaneously, they would also acquaint consumers with the value of their product, when compared to others. As a result, Kodak would create more brand loyalty. Moreover, in the case study, we are told that Kodak offered three types of films: Gold Plus, Royal Gold, and Funtime. To the average consumer, Gold Plus and Royal Gold are far too similar in name, and give off the impression that they are of the same quality. Customers were becoming confused due to the similarity between these two names.
By educating the consumers about its products, consumers would begin to understand the value of Kodak’s film relative to competitors, and the inherent differences between its products. However, if this solution were implemented, the likelihood of making a large impact on its own market share would be minimal if implemented by itself. By itself, it would not help repair Kodak’s decline in sales, stock prices, and market share (because of its inability to adapt to market trends). Let aside, this would not address the problem of having been unadaptive, at its core.
Educating consumers would likely only work best when paired with another alternative solution. Alternative Solution 3 It was ten years before Kodak responded to the Fuji’s sponsorship of the Olympic Games. Clearly, Kodak should have had a rapid response to this threat. Due to their lack of capitalization and overconfident mindset, Kodak lost a vast amount of their market. Kodak should have recognized that technology would advance sooner rather than later. Instead of only focusing on repositioning their film, they should have also tried to advance the technology of their cameras.
The key to a successful business is focusing on the present product, while spending time on researching and developing the future product. Kodak executives should have asked themselves, “What can we do to get ahead in the market? ” Seeing that the main problem with Kodak was its inability to anticipate and adapt to future market trends and developments, it should spend more time, efforts, and money on proper product development. This late response resulted in a rapid loss of market share. Had Kodak responded to this with more immediacy, its market share would not have dropped so significantly.
To prevent market loss in the future, Kodak should invest more time and money on properly developing “cash cow” products. Prior to the development of Funtime, the products Kodak 8 within Kodak’s camera film portfolio were considered cash cows. Due to negative market rumors, the company intended on creating another cash cow, as to maintain its market share. However, had the company spent more time on researching the camera film industry, it might have noticed that developing another cash cow product was not intelligent.
Market research is extremely important in knowing what next steps a company should take, and how to create a strategic business plan. Rather than Kodak’s executives asking themselves “What can we do to sustain our market share? ” they should have asked themselves “What can we do to get ahead in the market? ” Kodak’s strategy was to boost its existing products as stars, and develop a new product (Funtime) as a cash cow. Accordingly, the star products (Gold Plus and Royal Gold) would be funded and, ultimately, further promoted.
In asking the wrong questions, Kodak forged its own demise: Funtime became a question mark product, liquidating revenues made by the existing cash cows. By spending more time on analyzing current trends and advancing technologies, Kodak could develop products that would help it recover lost market share and become a dominating force within the industry. The biggest disadvantage in implementing this, however, would be the risk of product failure. Kodak’s executives would need to make informed decisions regarding whether such developmental risks are worth product failure. Alternative Solution 4
As mentioned in the case study, Funtime film would be offered “only twice a year at offpeak film use times”. Kodak confused its customers in regards to the value of its product. In the eyes of the consumers, offering a different product only at certain times of the year, with a lower price, brought down the value associated with Kodak film. The case mentions that Kodak’s “stock had lost 8% in value on rumors of a price cut on film”. If rumors of a price cut brought down its stock prices, then adding a lower quality product, like Funtime, would also bring down company stock prices.
In analyzing Kodak’s products with a BCG Matrix (see Appendix B), Funtime could be viewed as a question mark, whereas each of its other products were cash cows. The market share for lower quality film was not growing and did not generate much cash. Often times, dog products should be divested. Kodak should have quickly determined whether the Funtime Film Kodak 9 would develop into a cash cow or dog. Because Kodak was only selling this product during the off seasons, Funtime could never become a cash cow.
While developing Funtime would have been a great solution given normal circumstances, developing a new lower quality product amidst negative market rumors was a risky move. Other companies, such as Fuji and Polaroid, had dog products, and were fighting to become cash cow products. To retain the market share it already has, and since the Funtime product is already developed, though, Kodak should phase out its production. This would turn the product into a dog, and over time, would be fully liquidated. Some foreseeable cons with this solution would be the costs incurred from holding inventory and phasing out a product.
This would further cut into company revenues, making it more difficult to return from a decline in stock price. Alternative Solution 5 We believe that a combination of Alternative Solutions 2 and 3 would be an effective solution for Kodak. Education will explain the products’ values and benefits, while simultaneously maintaining its exceptional brand image. By educating customers and anticipating future market trends, not only is Kodak able to retain its loyal customers, but positively position themselves in the minds of non-Kodak-loyal film consumers, as well.
This, however, only speaks to part of its main problem. Accordingly, this education needs to be aided by proper market analysis, so that Kodak is able to foresee market trends, and is able to react accordingly. The company must focus equally on both the present and the future. By using this two-pronged approach, between education and proper R&D, the company is able to educate consumers within the market for film, and additionally, determine how to stay ahead of the competition. Proposed Solution In direct reference to Kodak’s main problem (not foreseeing and adapting to
market changes), we highly suggest that Kodak choose Alternative Solution 5: spend more time educating customers and communicating the value of Kodak’s products, as well as investing more efforts in proper product development, aided by effective market analysis. By educating customers, Kodak is able to both lock-in the loyalty of current customers, sustain its competitive advantage, and find additional ways to attract more new customers. Moreover, investing its time Kodak 10 and money on proper product development and analysis will allow Kodak to grow within the developing market.
As a result, Kodak would be able to develop a star product, while maintaining several cash cows. Implementation Product In regards to the product life cycle, Kodak’s current product Gold Plus, exists in the maturity stage and their primary objective at this point is to defend and regain market share. To do this, Kodak needs to redevelop an existing line that will appeal to a broader audience of photographers. We are going to introduce Royal Gold to replace the current film, Ektar, in the high-end segment.
At the same time we are going to propose to keep our premium product, Gold Plus, where it’s currently at in the middle segment and over the course of a year, as we want to phase it into the low-end of the middle segment, and make the price competitive with economy brands. This is partly because most consumers do not buy as much from the middle segment. Therefore, we want to enter a more profitable market segment. By phasing Gold Plus into the lower end, we can compete in both the high and low-end market.
However, we cannot go about this by simply dropping the price of Gold Plus immediately. Mainly because doing so, in the eye on the customer, will cause confusion and potentially reduce brand equity. Instead, we will drop prices once or twice a month over the course of a year. This way, both products will be positioned better, in that we will be competitive in both areas. Royal Gold will be targeted to a broader customer base. It will be targeted to professionals and serious amateurs, as well as any photographer seeking film for “special” occasions, as referenced in the case study.
Royal Gold will produce a sharper image and overall a better quality photo, thus attracting customers who prefer to have options in what they do with their photos. Those wishing to potentially enlarge the photo will have a finished product that is so crisp they will have the peace of mind in knowing it will not jeopardize the integrity of the picture. Royal Gold will be available for purchase in a variety of forms. In order for Kodak to be profitable with this new product it will need to be sold in individual packages, as well as packs of three and/or six in order to give customers a variety in selection.
Kodak 11 Place Royal Gold and Gold Plus will be sold in places where other Kodak products are currently being sold. There are several retail outlets that carry Kodak products so purchasing the new line will not be difficult or hard to find. The distribution will be allocated in amounts that will maximize profitability and will be attractive to customers who are selective in where they buy film. Our main distribution for Royal Gold and Gold Plus will be to discount and department stores, about 34%; the eased decline in pricing will not be as noticeable in such a store.
Next will be to drug stores who typically do not offer as many discounts unless a customer is part of their rewards program, about 25% will be distributed to such. Camera shops will get about 15% of the distribution, as this will attract the customer base that Gold Plus targets, those photographers seeking a more professional picture. It is in the privately owned shops that single rolls of film will be purchased more frequently. The other 26% will be allocated to supermarkets and wholesale clubs. We predict profits will be maximized greatly coming from these establishments, especially in sales of the three/six value packs.
It would be wise of Kodak to track the profits where the film is distributed within the first few months after repricing Gold Plus, gauge consumer demand and produce and distribute enough film in order to satisfy the market. Price While trying to implement an economy brand, Kodak failed when releasing Funtime film. The consumer was not educated in the differentiation between the superpremium Royal Gold, premium Gold Plus, and economy Funtime. Although the market was searching for a product from Kodak that would be introduced in the economy brand, Funtime was unsuccessful.
By taking Funtime off the shelves, the economy portion of the Kodak market is unavailable. Gold Plus is Kodak’s current lowest brand of film, but still offers higher quality over competing economy brands. Due to the stages in the product life cycle, Gold Plus’ price will naturally decrease. Gold Plus has already experienced its peak times of sales during the introduction and growth stages. Now that Gold Plus has been on the market for a while, it is now in the maturity stage of its life cycle, as sales have begun to stabilize. In order for a product to still succeed in the Kodak 12
maturity stage, the product must stand out among competitors. Implementing a gradual price decrease will slowly lower Gold Plus into the economy level tier without adding an entire new Kodak line. Eventually, a 15% price cut would give Gold Plus a price of $2. 96, $. 05 more than the Fujicolor Super G and Konice Super SR economy brands. Still allowing Kodak to have a distinguished brand image over competitors in the economy brand, this would place Gold Plus as a premium brand competing with competitors of the economy level. Sending coupons to customers is another way to help Kodak gain back market share in the decreasing market.
Coupons create brand recognition and make customers feel like they, personally, are receiving a great deal. Because perception is reality, it is important for Kodak to position its brand as a product of high value. Instead of drastically slashing prices, Kodak’s gradual price decrease, along with coupons, will help gain back the market. Making coupons available to customers helps Kodak keep their value. On the other hand, Royal Gold is still in the growth stage due to the replacement of Kodak’s previous superpremium film, Ektar.
When Kodak implements Royal Gold into the market, replacing Ektar, Royal Gold’s price is 20% lower than the previously existing Ektar, at $4. 19. In the superpremium market, Fujicolor Reala is selling at $4. 69, a $. 42 increase over Kodak Ektar. By gradually decreasing the price of Royal Gold, overtime, it will eventually take the place of Gold Plus’ previous position. In 1993, the premium brand, Gold Plus sold at $3. 49, competing at the same price as Agfacolor XRG. “Gold Plus price was standard of the industry”. Gold Plus no longer has the power of setting the price due to the lack of market share and position in the product life cycle.
Instead of allowing Gold Plus to completely diminish from the market, diffusing it into the economy tier will still give Gold Plus a competitive edge. Promotion In order to regain market share, it is important for Kodak to advertise the benefits of Royal Gold and Gold Plus film. A simple picture can prove quality of film; alongside educating through commercials, Kodak will ensure the consumer knows exactly what to look for in film. Mailing out coupons is another great form of advertising. Promotion will help Kodak educate, along with create brand recognition. In turn, customers will purchase Kodak film and avoid post-purchase dissonance.
By launching an advertising campaign and Kodak 13 emphasizing the long-term quality of Kodak, as well as educating the customer on distinctions between each product, consumers will be attracted to the film best suited for their needs. Kodak can gain a larger market share by informing the customer what they are gaining from purchasing Kodak film before even entering the store. This campaign, done through commercials, emphasizes the benefits of buying each Kodak product. As Royal Gold is new to the market, more advertising must be focused to educate consumers about the product.
Devote 60% of the advertising budget to Royal Gold and 40% to Gold Plus, allowing Royal Gold more resources to takeoff as a new product. Pinpointing the idea that the average picture taker can take a picture like a professional, without being targeted to professionals. A commercial representing Royal Gold as well as Gold Plus is necessary to show the perk of each product. The innovation of Royal Gold coming from Ektar, which was originally targeted to professionals, adds confusion to the average photographer, assuming the consumer must be a professional to purchase the product.
By making it clear to the market that Royal Gold is targeted to the consumer wishing to capture the “special moments”, the average consumer will be more drawn to the product. Gold Plus advertisement will focus on the value of everyday quality film. Whenever you take a picture, Gold Plus is there for you, always dependable in any situation. In a Kodak commercial, Royal Gold is the film used to capture the special first moments of a baby being born. Gold Plus is the dependable film for irresistible times thereafter when the baby is constantly photographed.
As a result of consumers being uneducated in the film market, the general hesitation of purchasing film will come from being unaware of the benefits each film provides. Educating consumers, promoting benefits of Kodak and showing the attributes important in the Gold Plus as well as the Royal Gold film will lead consumers to the correct product. With the correct promotional strategy, the education will be suited for the target market, resulting in a satisfied consumer.