Kodak: Funtime Film
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I. Situation Analysis
Eastman Kodak Company, founded in 1889 by George Eastman, was the prime manufacturer and distributor of easy-use cameras and films. Films being their main product of grandeur; Kodak stood out above all competitors by all means. By the first hundreds of years, Kodak had the highest market share in the film industry, both globally and in the United States. Things were about to change in the industry and the other competitors would take advantage of Kodak’s bad decision making. On 1994, Kodak stock had dropped by 8% in value of a rumors price cut on film. (HBS) Kodak still having an extreme advantage over its competitors with a market share in the United States of 76%; it had dropped to 70% over the past years. This is where Kodak started facing some financial problems. The 6% drop occurred due to Kodak’s competitors: Fuji Photo Film Co. and Konica Corp Group which had films with a lower cost than Kodak did and which consumers were more eligible to buy at a lower price.
When this happened Kodak decided to introduce a new brand 20% below the price of their premium and leading brand Gold Plus, which was sold at $3.49, which could compete with Fuji Film and Konica’s price level, $2.91, the brand was called Funtime. Having Kodak make this decision only means one thing, market expansion. Now, this decision may cause some backfire on Kodak when introducing to new market as Fuji Film a Konica are leaders, Kodak may be desperate to regain market share in the United States film industry. Kodak still being the leader by 70% on the market share, Fuji 11%, Polaroid with their instant cameras 4%, a private label through which 3M sold to, 10% and other companies 5%. Fuji made a strong move to enter Kodak’s territory by being the official film of the 1984 Summer Olympics held in Los Angeles. Fuji’s US gross sales increased by 15% as Kodak’s only increased a diminishing 3%. An industry expert said, “Fuji’s gains can be largely attributed to the marketer’s ability to keep the line on price, an area where Kodak has suffered.” (HBS) Now, Kodak has to face a lot of decisions. Kodak had several advantages and disadvantages:
* 70% control of market share in U.S.
* Top brand in premium film, Gold Plus
* Stock dropped 8%
* Weak marketing department
* Kodak cannot sell film on private label basis
* Market expansion
* Extensive advertising
* Maintain brand loyalty
* Consumers are more price driven
* Fuji gained 15% in sales
* Other competitors are gaining more market share
II. Defining the Problem
Kodak’s main problem was that the product they focused more on, Gold Plus, was targeted to the “professional” photographer and to the “advanced” amateur. Besides that, the pricing for the Gold Plus was high at a $3.49 price, while Fuji and Konica made theirs at a lower cost at a $2.91. In the Wolfman Report it estimates that 20% of households bought less than 5 rolls per year, 22% bought between 5 and 9 rolls, 28% bought to 10 and 15 rolls, and 13% bought more than 25 rolls. There is a clear distinction to what Kodak’s market is and that is to the professional photographers that were only the 13% of the market and they bought more than 25 Gold Plus rolls. Yet, Kodak was left with the rest of the 87% to which they had to be concerned with. This is what made Kodak’s product more expensive than the rest of the films. With a price driven consumer, Kodak still focuses on the Gold Plus by spending heavily on the advertising by $50 million in 1993, four times of what Fuji’s U.S advertising is. Kodak now needed to look for a way to target the economical market, but Kodak’s ability to market was weak. III. Causes
One of the causes for market share loss is that other competitors were beginning to focus on providing film for private labels to retailers, competing heavily in the price tier. Scotchcolor in particular was beginning to provide film for other private labels. The growth, as mentioned above, in private labels was 10% from the previous year.
This trend should be very troubling to Kodak, because there could be numerous retail, grocery and drugstore outlets that could also jump into the market at any time because all they have to do is find a film manufacturer, in this case it could be 3M, to provide them with private label film. Due that Kodak was prohibited from providing film for private labels. This has troubled them in their growth. Another cause for Kodak’s fall in their market share is that they failed to market the correct audience with their advertising. Kodak advertises heavily only on their Gold Plus brand by having a $50 million expense and 60% of the company’s advertising. The rest of the 40% in advertising went to Royal Gold, the brand that replaced Ektar. Royal Gold was being advertised to photographers to use in “special occasions” and sold to trade over a 9% premium over Gold Plus. Meanwhile the Funtime brand, gave a presence in the economy brand tier on a 20% below Gold Plus. This is where they backlashed on advertising that quality goes over price by all means. IV. Alternative Solutions
Kodak’s main alternative as it is said in the case, was to launch Funtime on the economy brand price tier to compete along Fuji and Konica’s price level value at $2.91 and it would have been offered by a limited quantity and on two off-season peaks. Kodak’s brand image would be hurt by giving the impression that they are desperate to gain more market share in that tier. Consumers view Kodak as a big brand name which is based in quality over price. Funtime would give the impression that there is quality on a low price film roll.
1. Heavy Advertising Campaign:
a. Funtime, Kodak’s low price tier competitor against Fuji and Konica needs to have an extremely big advertising campaign showing that Kodak is back in the competition with a low price quality film. i. Pricing:
Pricing being the most important factor in this case, Funtime should be to offer it at 25% – 30% lower than Gold Plus. Like Royal Gold, this price point would clearly help to differentiate this product from Gold Plus. These prices, would act more as a penetration on the market pricing strategy that would allow Kodak to compete with the products in the Price Tier. ii. Product:
Funtime roll would be the low end of the brand on film rolls. Offered on the ISO 100-200 category amongst the rest of competitors. iii. Distribution:
Given the fact that Kodak cannot sell to private labels, Funtime has to be placed all over the place. Drugstores, convenience stores, supermarkets, wholesalers and on Joe’s grocery stores. iv. Promotion:
Funtime will be advertised and promoted in a way that consumers view the image of Funtime and Kodak as a low price quality film roll. Different advertising can be made to identify the diference Funtime has between the rest of the competitor’s films. 2. Gold Plus
b. Gold Plus being the top brand leader of Kodak’s films and at a price of $3.49, the highest on the market. One alternative would be to lower Gold Plus price for it to be not that above the premium price tier and still be affordable for consumers. v. Pricing:
By being the leading film roll on the market with a 70% gross margin in sales, Kodak can take a risk of lowering Gold Plus price to a 12% for consumers to be more aware that they can buy the best quality and a reasonable price. vi. Product:
Gold Plus would be more reasonable to buy in the premium tier level, making it not only the leading brand of the film roll products, but the one with better quality too. vii. Distribution:
Gold Plus should be sold more in department stores rather than camera shops and in drug stores. This would give 56% more distribution to Gold Plus. viii. Promotion:
Advertising would be key in this alternative. Invest in advertising by making the best leading film roll quality and price wise. This would attract more consumers to buy the film roll.
The consumers became price driven rather what Kodak always wanted which is brand loyalty. By having all of the focus on the premium brand, Gold Plus, the best in its tier and the most selling film roll. By lowering the price 15% Gold Plus will be able to engage more consumers than it did. Gold Plus would be almost at the bottom of the premium price tier to be the brand that you can buy at a better price than before and even better quality than Fuji and Konica’s economy brands Super G and Super SR. With a new price of $2.96, Gold Plus can compete almost directly with the economy price tier film rolls. For this reason alternative #2 is best. By the time Kodak introduces Funtime there will be a blast in the economy price tier and Gold Plus would be in that battle too, now Kodak has a lot in advantage to gain more market share. VI. THE ACTION PLAN
At First, Gold Plus’ price will be reduced a 15% to what it was before, dropping up to the lower end of the premium tier at $2.96. This would increase sales by more than 70% and it will continue to be the best quality film roll at the best price for it. Massive on a 40% advertising campaign to consumers that now you can get Gold Plus for a better price and the best quality in the industry.
Introduce Funtime film roll to the economy price tier and establish at a 20% under Gold Plus so that it would compete directly with Fuji’s and Konica’s economy tier brands. Offer Funtime every day in the year not only two off-seasons. Mass produce Funtime film rolls and package it in value packs of four. Massive advertising to Funtime product to 60% of Kodak’s advertising support. Let consumers know that Funtime is for the photographers that don’t really care about quality, that they only want to have fun taking pictures and leave Gold Plus to the professionals.
Sokolow, Andrej. “Kodak: The Long Downfall of an Industry Pioneer – HispanicBusiness.com.” #1 News Resource for Hispanic and Latino Entrepreneurs, Professionals and Small Business Owners-Hispanicbusiness.com. 19 Jan 2012. Web. 11 Dec 2012. <http://www.hispanicbusiness.com/2012/1/19/kodak_the_long_downfall_of_an.htm>.
Cohan, Peter. “How Success Killed Eastman Kodak – Forbes.” Information for the World’s Business Leaders – Forbes.com. Forbes, 1 Oct 2011. Web. 11 Dec 2012. <http://www.forbes.com/sites/petercohan/2011/10/01/how-success-killed-eastman-kodak/>.
Dolan, Robert J. Harvard Business School HBS: Eastman Kodak Company: Funtime Film, May 8, 1995. Print