Eastman Kodak Company Case Study

Eastman Kodak Company: Funtime Film 1. Diagnose the reasons for Kodak’s market share loss and make your assessment of the likely development of the market if Kodak maintained the status quo. Kodak has been losing market share for the past five years to the point it has gone from 76% to 70%. The underlying causes that have generated such losses and have ultimately led consumers to favor competing brands with larger growth are: I. Consumers are tending to view film as a commodity, often buying on price alone.

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II. Quality differences among films are unclear. Superpremium, Premium, Economy and Price brands showed no real quality difference amongst each other between consumers. As a matter of fact, they perceived a Price Brand as the better quality film. III. Kodak does not compete in the lower tier segments: Economy and Price Brands, and has no real offer towards consumers. The combination of these three factors has led Kodak to lose ground versus their immediate competitors and consequently a decrease in market share.

If Kodak maintained the status quo, a comparative sales analysis from 1992 to 1994 demonstrates that Kodak would continue to lose market share while its growth rate would also decline. In 1988, market share and unit sales of Kodak were as follows, 1988| Kodak| Market Share| 76%| Sales Unit| 461. 1981284| If the other players in the market maintain their growth rate in 1994, Kodak’s market share would drop to 69. 2% and growth rate would drop to 0. 86%. 1993| Kodak| Fuji| Polaroid| Private Label| Others| Market| Growth Rate| 3%| 15%| 15%| 10%| -37. 6%| 2%| Market Share| 70%| 11%| 4%| 10%| 5%| 100%| Sales Unit| 469| 73. 7| 26. 8| 67| 33. 5| 670| | | | | | | | Sales Unit(1992)| 455. 3| 64. 1| 23. 3| 60. 9| 53. 2| 656. 9| Market Share| 69. 32%| 9. 76%| 3. 55%| 9. 27%| 8. 10%| 100. 00%| | | | | | | | Sales Unit(1994)| 473. 0| 84. 8| 30. 8| 73. 7| 21. 1| 683. 4| Market Share| 69. 22%| 12. 40%| 4. 51%| 10. 78%| 3. 09%| 100. 00%| Growth Rate| 0. 86%| 15%| 15%| 10%| -37. 06%| 2%| A further analysis of year 1997 shows that Kodak’s market share would further decline to 61% with a negative growth rate.

Sales Unit(1997)| 446. 1| 128. 9| 46. 9| 98. 1| 5. 3| 725. 2| Market Share| 61. 51%| 17. 77%| 6. 46%| 13. 53%| 0. 72%| 100. 00%| Growth Rate| -4. 88%| 15%| 15%| 10%| -37. 06%| 2%| 2. Could you specify what Kodak’s objectives should be at this point? Should they pursue market share, profitability, brand equity, …? Firstly Kodak should aim to maintain current level of market share and start to regain its dominance in the market. At the same time, as global film market was only growing at 2% per year, there is little potential to gain new customers.

Therefore, it is important to increase current level of film consumption per household in order to achieve larger sales and profit. As 42% of household buy fewer than 9 rolls per year only, improvement in sales is possible if Kodak could influence purchasing behavior in this segment of customers. Kodak should also target to improve trade margin to at least match competitor’s level. 3. What is your evaluation of the general concept of Funtime proposal and its implementation details given consumer behavior?

In order to assess Funtime’s general concept, we need to address Funtime’s Portfolio Strategic Role, marketing plan and Contribution Margin. Portfolio Strategic Role: Funtime is being launched as a response to a growing body of price-sensitive consumers in a market Kodak has not been actively involved. It is an intelligent strategic move in order for Kodak to defend itself from a growing lower tier segment and avoid further category commoditization eroding brand value and profitability.

Kodak has already built a strong Brand awareness, and many consumers are already loyal to Kodak, thus a line extension into the lower tier segment under the widely known Kodak brand should prove an intelligent move. However, Kodak will position itself with a new and unknown brand, without leveraging on the Kodak credentials and in the upper Economy price range, therefore still not targeting the bulk of competing value brands. Marketing Plan: We consider a mistake for Funtime not to leverage on the Kodak name, wasting an opportunity to gain inmediate consumer awareness and brand recognition.

Furthermore, Funtime will not benefit from any advertising support and will not even be available throughout the year, as it will be launched twice a year in off-peak film use times. On the other hand, there will be no attempt to correct trade margins with Funtime, making it even harder for retailers to promote it. With no prior history as a brand, no advertising resources to build brand equity, scarce supply and therefore availability, and trade disincentives to sell the product, we believe Funtime has little probability to succeed. Contribution Margin: Funtime will be launched at 20% below Gold Plus.

As you can see from the table below, respecting Kodak’s 20% Trade Margin policy, Funtime will contribute with $1. 4 per roll making it a profitable line extension. The following table shows the contribution margin of the main products of Kodak, including Funtime, | Royal Gold| Gold Plus| Funtime| Retail Price| 4. 19| 3. 49| 2. 79| Dealer’s Margin (20%)| 0. 84| 0. 7| 0. 56| Wholesaler’s Price| 3. 04| 2. 79| 2. 23| Cost (30%)| 1. 26| 1. 06| 0. 84| Unit Margin| 1. 79| 1. 75| 1. 4| 4. Would you consider other action plan options –such as a price cut on the flagship Gold Plus brand?

In order to assess Price cuts in our flagship Gold Plus brand we need to understand what our change in contribution would be for the different price cuts, what would or sales volume had to be in order to maintain a 70% market share As you see below, e have constructed scenarios for 5% price cuts up to a 20% price cut, leveling Gold Plus with Funtime. As you see our contribution margin drastically goes down however, still making a considerable amount (43% of margin vs retail price). Price Cut| 0%| 5%| 10%| 15%| 20%| Retail Price| 3. 49| 3. 32| 3. 14| 2. 97| 2. 79| Wholesalers Price (80% of retail price)| 2. 9| 2. 65| 2. 51| 2. 37| 2. 23| Cost (30% of retail price)| 1. 05| 1. 05| 1. 05| 1. 05| 1. 05| Contribution Margin| 1. 75| 1. 61| 1. 47| 1. 33| 1. 19| % vs. Present| 100%| 92%| 84%| 76%| 68%| We have assumed a 90-10 split of Kodak’s sales in favor of Gold Plus considering only 14% of sales are in camera shops, and Ektar is mainly sold through this channel, however sharing shelve space with Gold Plus. With this in mind, Gold Plus sales should amount to US$431M in 1994 to maintain its current market position. | 1993| 1994| Total Market| 670,000,000 | 683,400,000 | Kodak (70%)| 469,000,000 | 478,380,000 |

Ektar (10%)| 46,900,000 | 47,838,000 | Gold Plus (90%)| 422,100,000 | 430,542,000 | As you can see from the table below, in order to maintain our current Contribution Margin, we would be required to increase our market share towards to values of around 98% towards a 20% price cut, which would be out of the question. | 0%| 5%| 10%| 15%| 20%| Target Contribution Margin| 736,564,500| 736,564,000| 736,564,500| 736,564,500| 736,564,500| Expected Sales| 422,100,000| 457,493,168| 501,064,286| 553,807,895| 618,961,765| Incremental Sales| -| 35,393,168| 78,964,286| 131,707,895| 196,861,765| Kodak’s Market Share| 67. 4%| 74. %| 80. 8%| 88. 5%| 98. 0%| As you can see from the analysis, while a price cut might increase volume, the expected volume to maintain our current revenues implicates market share growth of 7% onwards. With Kodak’s current marketing plan, this cannot be accomplished. A number of simultaneous actions are required: * Trade Margin correction * While launching Funtime might seem like a right strategic move, a deeper thought into the marketing plan is required to address the issues outlined in the previous question. * Consumer education is required to differentiate Gold Plus and Ektar/Royal Gold from the commoditized brands.

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