Eastman Kodak Company: Funtime Film - SPARCS

Eastman Kodak Company: Funtime Film
Case Study, BEP 430 Marketing
20030059 Dong-ock Kim 1 , 20030071 Min-geuk Kim 2 , 20040054 Keehyung Kim 3 ,
20040535 Yohan Jo 4 , 20076006 Huang Qiuling 5 , 20076035 Dorjsuren Bayarmaa 6
1 2 3 4 5 6
Marketing Team A
erst_licht99@hotmail.com 1 , kmg0702@hanmail.net 2 , keehyoung@gmail.com 3 ,
zukjimote@gmail.com 4 , sharlin_huangqiuling@hotmail.com 5 , gordok_88@yahoo.com 6
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, we’ve analyzed about Kodak’s 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 can’t 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 Porter’s
5 forces [Exhibit 3], we tried to understand the circumstances of Kodak. From these
analyses, we’ve 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, let’s 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 market’s annual unit growth rate is only about 2%.
It means that you can’t expect exponential growth of new-comer consumers anymore,
so you have to make potential consumers to buy Kodak’s product. Potential consumers
here not only include present consumers who buy competitors’ product but also future
consumers such as children. Therefore, Kodak’s first objective is to make at least 76%
of new-comer consumers and 20% of competitors’ consumers buy Kodak’s
product in a year. In addition, Kodak can get more profit if Kodak’s 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. Let’s 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 strategy 1 and targeting specific classes. This strategy is targeting on
1 Moore said that it’s 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 Kodak’s variable cost increases and net profit decreases. In the short run Kodak ma
y lose some profit; however, in the long run, I’m sure that it could reinforce the qua
ntity of consumers who want to purchase Kodak’s 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, Kodak’s 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 strategy 2 .
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
박철 (2005), “도서무료배송을 통한 인터파크의 인터넷 도서시장 선점사례”, 마케팅
과학연구 제15집 제2호, pp. 227-244.
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Exhibit 1. SWOT analysis
Internal Strength
Favorable Unfavorable
- High brand name value
- High market share
- High gross margin
External Opportunities
- Kodak maniacs
- Growing photography industry 1
Weakness
- High price compared to quality
- Human resource (manager)
- Low growth rate compared to others
Threats
- Low growth on entire film market
- Many competitors
- Regulation to selling
- Appearance of digital camera
1 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. Porter’s 5 forces
Factors/Suppliers
(Bargaining power )
It's relatively high.
Because films
become commodity
to the consumers.
Threat of New Entrants
It's a little bit high. Film needs not
so difficult technology. Under this
situation, company like Polaroid
can enter.
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.
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.
Buyers
(Bargaining Power)
It's relatively high.
As we said, there is
no switching cost.

Appendix 1. Calculation for doing nothing
Kodak’s market share is shrinking 1.2% per year and the trend of market growth rate is
2%. Kodak’s market share is 70% now. Let’s 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 Polaroid’s
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.