Kodak Funtime Film harvard

Kodak Funtime Film harvard - Transcript

Harvard Business School

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Rev May 8 1995

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On January 25 1994 George Fisher Kodak s recently appointed chief executive officer met with analysts and investors to set out Kodak s new strategy for film products During the past week between January 17 and January 24 Kodak stock had lost 8 in value on rumors of a price cut on film

While Kodak continued its overwhelming domination of the photo film market its market share in the United States had eased from about 76 to 70 over the past five years as competitors like Fuji Photo Film Co and Konica Corp wooed consumers with lower priced versions 1 Previously Kodak had attempted to blunt share gaining attempts by such rivals and private label products by introducing a superpremium brand Ektar Now Kodak proposed to introduce a brand at Fuji and Konica s price level 20 below the price of Kodak s flagship Gold Plus brand The new brand Funtime was to be available only in limited quantities during two off peak selling seasons While some viewed the move favorably others were more skeptical One analyst termed the strategy seemingly a long step down the slippery slope that ends in private label trial

The U S Photo Film Market

In 1993 approximately 16 billion color exposures were made the equivalent of 670 million 24 exposure rolls Typically a consumer paid between 2 50 and 3 50 for a 24 exposure roll Over the past five years the market s annual unit growth rate averaged only 2 Major suppliers were Kodak Fuji of Japan Agfa of Germany and 3M Kodak and Fuji sold only branded products Because of a 1921 consent decree still in force Kodak could not sell film on a private label basis Both Agfa and 3M sold their film to consumers as branded product and to other firms for sale under a private label Polaroid entered the market in 1989 with its branded product which it sourced from 3M Film was intensively distributed through discount and department stores 32 of sales drug stores 24 camera shops 14 supermarkets and convenience stores 13 wholesale clubs 9 and mail order 2 Analysts estimates of unit market shares by manufacturer are shown in Table A

1Wendy Bounds Kodak Develops Economy Brand Film That Is Focused on Low Priced Rivals Wall Street

Journal January 26 1994 p A3

Professor Robert J Dolan prepared this case as the basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation

Copyright 1994 by the President and Fellows of Harvard College To order copies or request permission to reproduce materials call 1 800 545 7685 write Harvard Business School Publishing Boston MA 02163 or go to http www hbsp harvard edu No part of this publication may be reproduced stored in a retrieval system used in a spreadsheet or transmitted in any form or by any means electronic mechanical photocopying recording or otherwise without the permission of Harvard Business School

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Table A

Approximate Unit Market Shares in 1993 U S Market
70 11 4 10 5

Kodak Fuji Polaroid Private label Other

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Fuji and Kodak were locked in a global battle for dominance of the worldwide photographic market Both sold cameras and other imaging products as well as film Fuji s worldwide sales of 10 billion made it half Kodak s size Fuji started its serious incursion into Kodak territory in 1984 when it captured consumers attention particularly in the United States by becoming the official film of the 1984 Summer Olympics in Los Angeles

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Category Pricing

Both Fuji s and Polaroid s U S dollar sales grew at over 15 in the past year compared with Kodak s 3 growth rate An industry expert opined Fuji s gains can be largely attributed to the marketer s ability to keep the line on price an area where Kodak has suffered 2 Private labels as a group grew about 10

Kodak s Gold Plus brand was the standard of the industry Exhibit 1 shows the average retail prices for a single 24 exposure roll of ISO 100 film ISO refers to the speed or light sensitivity of the film Amateurs typically use 100 200 or 400 with 100 being the most popular Higher ISO films performed in lower light conditions but were more expensive As shown in Exhibit 1 there were four price tiers in the market Kodak Gold Plus the largest selling brand by far set the Premium Brand price at 3 49 Kodak s gross margins were believed to be about 70 Both Kodak and Fuji offered superpremium brands targeted very narrowly at advanced amateurs and professionals These products were distributed mainly through camera shops and were not major sellers Fuji s key brand Fujicolor Super G anchored the Economy Brand tier at 17 below the Premium tier Fuji s gross margin was believed to be about 55 Konica and 3M s ScotchColor brand were other competitors in this tier Finally film procured from either Agfa or 3M and sold under another name made up the Price Brand tier Representative products are shown in Exhibit 1 While most of the film in this group was branded with the name of the retail outlet selling it e g Kmart a major mass merchant and Walgreen s a major drug chain Polaroid the dominant firm in instant cameras and film marketed conventional film it sourced from 3M in this tier On average these Price Brands were priced about 30 less than Kodak Gold Plus Dealer percentage margins were typically higher for private label products 3

2Ricardo Davis Fuji Makes Gains in 35MM Film Sales Using Price Strategy Advertising Age October 18 1993 3Casewriter Note For purposes of calculations in the case analysis a good approximation is that dealer margins

on Kodak film averaged 20 other suppliers film yielded a 25 dealer margin

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Consumer Behavior
Film usage rates varied widely across households with a mean of 15 rolls per year The Wolfman Report4 estimated that 20 of households bought less than 5 rolls per year 22 bought between 5 and 9 rolls 28 bought 10 to 15 rolls 16 bought 16 to 25 rolls and 13 bought more than 25 rolls Often these rolls were purchased in multipacs containing 2 3 rolls of film Kodak advertised heavily e g spending approximately 50 million on camera and film supply advertising in the United States in 1993 This was about 4 times Fuji s U S advertising spending Kodak advertising was typified by presentation developed for use on the 1994 Olympic Winter Games television broadcast Contrasting against the Olympic competition from Norway broadcast around the world the ad portrayed a young boy in his own competition in his backyard falling into a snowbank to make a snow angel The voice over noted Some of the best events happen in your own backyard why trust them to less than Kodak film

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Actual quality differences among films were unclear Both Kodak and Fuji tried to position themselves as providing superior quality film through their advanced technology However Consumer Reports5 conducted a test of films and reported We found most films to be no better or worse than their competitors of the same speed The top six ISO 100 films scored so similarly that we think all will yield prints of comparable quality In order of overall quality score score out of 100 in parenthesis these top six films were

ScotchColor was also sold as private label from Kmart Kroeger Target and York among others as shown in Exhibit 1 Fuji Superpremium brand Reala had a score of 90 and Agfacolor XRG scored 88 Consumer Reports regarded score differences of less than 5 points as not significant According to a 1991 survey cited in Discount Merchandiser more than half of the picture takers in the United States claim to know little or nothing about photography 6 As a result the article claimed Consumers tend to view film as a commodity often buying on price alone The article also quoted Jim Van Senus Kodak s manager of general merchandise marketing The importance of brand name in consumer decision making is still strong On the other hand there is a growing body of price sensitive consumers there We are seeing growth in private label film activity Kodak research had shown that 50 of buyers were Kodak loyal 40 were samplers relying heavily on Kodak and 10 shopped on price 7

The Funtime Strategy

For 1994 Kodak planned a major repositioning of its film product line A new emulsion technology would increase exposure latitude Three films would be offered

41992 93 Wolfman Report on the Photographic and Imaging Industry in the United States p 31 5Consumer Reports November 1993 p 712

6R Lee Sullivan Photogoods on the Upgrade Discount Merchandiser September 1991 pp 64 ff 7G Khermouch Kodak Reorganizes Its Film Line Adweek January 31 1994 p 14

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Polaroid High Definition Fujicolor Super G Kodak Gold Plus Konica Super SR Kodak Ektar ScotchColor

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Gold Plus to remain the flagship brand at a price unchanged from 1993 levels Gold Plus would receive 60 of the dollar advertising support Royal Gold to replace Ektar in the Superpremium segment Whereas Ektar had been targeted to professionals and serious amateurs Royal Gold would be targeted to a broader audience for very special occasions Offering richer color saturation and sharper pictures it would be positioned as especially appropriate for those occasions when the consumer may wish to make enlargements Royal Gold would be heavily supported by advertising 40 of the total film budget and by promotion and would be priced lower than Ektar was selling to the trade at a 9 premium over Gold Plus Cooperative advertising allowances were to be offered to the trade to provide the incentive to maintain Royal Gold retail prices at 20 above Gold Plus thereby offering superior trade margins Funtime to give Kodak a presence in the Economy Brand Tier at a price 20 below Gold Plus on a per roll basis

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Key aspects of the Funtime marketing plan No advertising support Offer only twice a year at off peak film use times viz for 2 3 months beginning in April and again for 2 3 months beginning in September Available in limited quantities Offer in only the two most popular speeds ISO 100 and 200 In contrast Royal Gold would be eventually offered in five speeds Available to all classes of trade Packaged only in value packs specifically in two forms 2 rolls of 24 exposures 4 roll package 3 rolls of 24 exposures 1 roll of 36 exposures

Alexander Wasilov vice president and general manager of Kodak Consumer Imaging in the U S and Canada explained the strategy This repositioning is intelligent risk taking that will drive both our market share and earnings it will allow us to be more selective in targeting certain customer segments We now have Royal Gold film for those very special memories the birth of a baby the graduation We continue to offer Gold film for capturing those unexpected moments the baby smiling the father and son playing catch in the backyard And now we will offer a special promotion twice a year featuring a modified version of Gold film at a slightly lower price than our other films 8

Commenting on the strategy Konica s director of marketing said There will be an opportunity for us at Konica It seems like a desperate move to regain market share Not a way to make the industry more profitable 9

8Wendy Bounds Kodak Develops Economy Brand Film That Is Focused on Low Priced Rivals Wall Street

Journal January 26 1994 p A3

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Exhibit 1

Price Tiers in Film Market Defined by Average Retail Price Paid

Superpremium Brands

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Source Note a

Fujicolor Reala Kodak Ektar



4 69 4 27

134 122

Premium Brands Kodak Gold Plus Agfacolor XRG 3 49 3 49 100 100

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Economy Brands ScotchColor Price Brandsa S Kroeger A Walgreen s S York A Clark Color S Kmart Focal S Target

Fujicolor Super G Konica Super SR



2 91 2 91 2 69

83 83 77

S Polaroid High Definition

National Survey reported in Consumer Reports November 1993 pp 711 715 Numbers in are indices indicating price relative to Kodak Gold Plus

S designates the film was procured from 3M and was equivalent to ScotchColor

A designates the film was procured from Bayer s Agfa and was equivalent to AgfaColor XRG

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2 49 2 49 2 49 2 40 2 35 2 29 2 19

71 71 71 69 67 66 63

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