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Eastman Kodak Company: Funtime Film

Case Study, BEP 430 Marketing

20030059 Dong-ock Kim1, 20030071 Min-geuk Kim2, 20040054 Keehyung Kim3, 20040535 Yohan Jo4, 20076006 Huang Qiuling5, 20076035 Dorjsuren Bayarmaa6 Marketing Team A1 2 3 4 5 6

erst_licht99@hotmail.com1, kmg0702@hanmail.net2, keehyoung@gmail.com3, zukjimote@gmail.com4, sharlin_huangqiuling@hotmail.com5, gordok_88@yahoo.com6

Professor: Wonjoon Kim Date submitted: April 10, 2007

TO: George Fisher, chief executive officer, Eastman Kodak Company FROM: Dong-ock Kim, Min-geuk Kim, Keehyung Kim, Yohan Jo, Huang Qiuling, Dorjsuren Bayarmaa RE: Eastman Kodak Company: Funtime Film DATE: April 10, 2007

First of all, weve analyzed about Kodaks circumstances and problems. Next, we will recommend a strategy for Kodak. From surveys, people started to think films as commodities, but buyers often select films depend on price only. Even though pretty high percent of films are sold by private label, Kodak cant sell film on a private label basis because of 1921 consent decree still in force.

According to SWOT analysis [Exhibit 1], BCG matrix [Exhibit 2] and Porters 5 forces [Exhibit 3], we tried to understand the circumstances of Kodak. From these analyses, weve found that Kodak is in trouble now because of shrinking of market share and low sales growth rate. Therefore, we thought that Kodak should use the strength of their overwhelming market share and high gross margin compared to other companies to break through this hardship.

After that, we analyzed the reason of decreasing market share. First of all, 'Price' is relatively higher than other products and their quality is not very outstanding.
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By the evaluation of the consumers, even Kodak Ektar has lower quality than Kodak Gold Plus. Furthermore, though Polaroid High Definition is price brands ($2.49, which 0.71 of Kodak Gold Plus, it means very cheap), consumers evaluated it has the best quality. Appearance of many competitors can be another reason of shrinking market share. Polaroid and Fuji started incursion into Kodak's territory.

Then, lets think about the situation of doing nothing. Market share of Kodak will diminish continuously like it has been. Through the calculation [Appendix 1], we can conclude that there is a risk of decreasing profit of Kodak. It means that Kodak has to make some strategies.

According to the case, film markets annual unit growth rate is only about 2%. It means that you cant expect exponential growth of new-comer consumers anymore, so you have to make potential consumers to buy Kodaks product. Potential consumers here not only include present consumers who buy competitors product but also future consumers such as children. Therefore, Kodaks first objective is to make at least 76% of new-comer consumers and 20% of competitors consumers buy Kodaks product in a year. In addition, Kodak can get more profit if Kodaks customers buy

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more and more films. Moreover, the second objective is increase average households film usage rate from 15 rolls per year to 20 rolls per year in two years time.

The strategy of Funtime is pretty interesting. Funtime has a lower price compared with other products of Kodak and sells only in off-peak time. It might be a good idea to sell it in a low price because it attracts more customers. Although I agree that your company has history, high technique, and knack, the products of your company are expensive in spite of having no special merit. According to the data of testing many films, the prices of your products are unreasonable, because the other good quality films of other companies are sold in lower prices. If you provide a good product in a lower price, then it can be a good chance for you to gain many customers.

But I found some problems in your situation. Your main customers are consisted of loyal customers and samplers who rely heavily on Kodak. Equally, they are stable customers and they will not change their films to other companies' easily, so Funtime may have no advantage to hold your existing customers. Consequently, you need to expect new customers come from other companies to Kodak. Lets briefly assume that your company sells only Gold Plus now. Because Funtime has a lower price

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than Gold Plus, if Gold Plus users change their films to Funtime, you need new customers. In fact, the number of new customers has to be about 0.25 times of the number of the 'movers' to compensate for loss. If 10% of Gold Plus users change their films to Funtime, 2.5% of the number of Gold Plus users has to be filled with new customers from other companies. Furthermore, in turn, it requires 1.8% of market share increase. As you know, Fuji's market share is 11% and Polaroid's 4%. Do you think you can change the mind of one-tenth of the customers of Fuji and Polaroid? Critically, you don't advertise. I think it's too hard for you to get these amounts of new customers from other companies. [Appendix 2]

Kodak Company can pursue other action plans. Firstly, you can reduce the advertising cost. Secondly, you can sell films to other countries like China, India, UK, etc. Thirdly, you can develop new film for children who are potential customers. Fourthly, you can give premium customers more special services.

I recommend you to do the premium strategy. This strategy is based on Bowling Alley strategy1 and targeting specific classes. This strategy is targeting on

Moore said that its the most important thing for company to target on a specific class of customers to enter a new market. The success of that class causes a chain reaction to another
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quantity of buying consumers who purchase over 16 rolls per year, and it is about 30% of the entire customers. The implementation of this strategy is so simple. If consumers purchase over 25 rolls of film at once, Kodak give them a coupon that they can print 5 rolls of film for free at the next time visit. At least 13% of each household can print 5 rolls of film for free, so Kodak should bear the expenses. It means that Kodaks variable cost increases and net profit decreases. In the short run Kodak ma y lose some profit; however, in the long run, Im sure that it could reinforce the qua ntity of consumers who want to purchase Kodaks products. In addition, only Kodak has capabilities to do this strategy, because Kodak is exclusive company in film market which has the highest profit (gross) margin. If this strategy makes a great success, Kodaks competitors may reduce the price. They has lower profit margin even now, so it means a shortcut to get bankrupt for them. You can find other real cases using this strategy2.

success of other classes. This effect is called Bowling Alley Strategy because it looks like a bowling pin that is hit by the bowl at first. The first pin makes other pins fall down. - Moore, Geoffrey (1991), Crossing the Chasm, Harpper Business. 2 (2005), , 15 2, pp. 227-244.
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Exhibit 1. SWOT analysis Favorable Internal Strength - High brand name value - High market share - High gross margin Weakness - High price compared to quality - Human resource (manager) - Low growth rate compared to others Unfavorable

External

Opportunities - Kodak maniacs - Growing photography industry1

Threats - Low growth on entire film market - Many competitors - Regulation to selling - Appearance of digital camera

Growing photography industry can make people buy more films if many people buy cameras easily. (R.Lee Sullivan, photogoods on the upgrade)

Exhibit 2. BCG matrix Market share of Kodak and Fuji is 70%, 11% respectively.

Exhibit 3. Porters 5 forces

Threat of New Entrants It's a little bit high. Film needs not so difficult technology. Under this situation, company like Polaroid can enter.

Factors/Suppliers (Bargaining power ) It's relatively high. Because films become commodity to the consumers.

The Industry (Rivalry Existing Firms) There are several companies that are selling films which has almost same function. And, their qualities are similar. In other words, there are some rivals.

Buyers (Bargaining Power) It's relatively high. As we said, there is no switching cost.

Threat of Substitutes It's very high. From the survey of quality, consumers think that quality of films are almost same. It means that consumers can change at any time. Furthermore, there is no switching cost.

Appendix 1. Calculation for doing nothing Kodaks market share is shrinking 1.2% per year and the trend of market growth rate is 2%. Kodaks market share is 70% now. Lets assume that X films have been consumed this year. Then, 1.02X films will be sold next year. Kodak sold 0.7X this year and will sell 0.70176X next year. (Because 1.02 x 0.688 = 0.70176) It means, Kodak can sell a little bit more films next year. But, if their market share decreases over 1.4% per year, they would sell less than this year.

Appendix 2. Funtime evaluation Gold Plus Gross margin: 70% Retailer margin: 20% Retail selling price: $3.49 Profit = Gross margin * Selling price = Gross margin * (Retail selling price (Retail selling price * Retailer margin)) = 0.7 * (3.49 (3.49 * 0.2)) = 1.9544 ($) Funtime Gross margin: 70% (We assume that the gross margins of Funtime and Gold Plus are same) Retailer margin: 20% (We also assume that the retailer margins of Funtime and Gold Plus are same) Retail selling price: $2.79 Profit = Gross margin * Selling price = Gross margin * ( Retail selling price ( Retail selling price * Retailer margin ) ) = 0.7 * (2.79 (2.79 * 0.2)) = 1.5624 ($) Gold Plus Profit / Funtime Profit = 1.9544 / 1.5624 = 1.2508 If 10% of Gold Plus users change their films to Funtime, then 2.508% of the number of Kodak customers has to be filled with new customers. This number of new customers occupy 2.508% * (70% / 100%) = 1.7556% of the whole market share. Moreover, the market share of Fuji and Polaroid is totally 15%. Therefore, if Kodak want to compensate their loss, 1.7556% / 15% = 0.11704 = 11.704% of Fuji and Polaroids customers have to change their films to Funtime. Here we just consider these two companies, because these are the largest companies except Kodak with respect to their market shares. In addition, we can guess that the customers of the other companies are quite price-sensitive, because the products that they purchase have lower prices than the products of Kodak, Fuji and Polaroid, and the price of Funtime can not attract those people easily. In the Funtime marketing plan, there is no advertising support. Therefore, Kodak has difficulty in attracting these amounts of new customers.