Team Commander was tasked with providing a case analysis on Case 8, Kodak: Taking Pictures-Further. In doing so, Team Commander has provided a summary of the important case facts, current history and trends, strategic position, strategic plan, implementation plan, and the anticipated outcome.
In the fall of 1998 Kodak entered the digital camera market. Their goal was “to change the clarity, usability, and life of Kodak moments- to make them bigger, better, and more enduring.” Kodak set out to achieve this goal by supplying the digital camera market with its Digital Photograph Kit. The kit provided the home user with everything they need to take and share digital pictures. The kit included a Kodak DC20 Digital Camera, easy-to-use software packages, and paper for making quality prints. Also, as part of the processing the consumer received a CD, called Photo CD, which contained pictures that could be loaded onto a computer. Kodak hoped its package would be simple and attractive to consumers.
However, sales were disappointing. Kodak found consumers reluctant to move away from their familiar and functional traditional cameras. In addition, this form of picture taking required the user to be wired (connected to a computer). Kodak had not anticipated the magnitude of these problems.
In an effort to bridge the gap between traditional and digital cameras. Kodak teamed with Intel. The result was “digitization,” the ability to convert traditional film to digital format through the standard photographic processing method. By checking Picture CD on the envelope containing the regular roll of film to be developed, consumers can receive their prints and a CD containing digital images. The CD also contains all the software necessary for viewing and altering the images. The processing cost is $8.95 to $10.95.
In order to fine-tune the CD marketing program, Kodak and Intel conducted hundreds of one-on-one interviews with individual consumers and conducted test markets in Salt Lake City and Indianapolis. As a result of this effort, Kodak and Intel developed advertising and promotional campaigns for Picture CD. Kodak’s advertisements showed the benefits of digital imaging and emphasized that people did not have to change their picture-taking habits. While, Intel followed with advertisements that primarily focused on computer users and Pentium II processors. Kodak intended to use collaborative advertising to communicate the simplicity of digital imaging that resulted from using Kodak Picture CD and to establish a strong connection between the product and high performance PC’s.
In moving to digitization, Kodak has extended well beyond its initial core competencies in cameras and film. Few consumers connected the Kodak brand with computers and computer technology. Thus, Kodak linked up with computer hardware and software firms, such as Intel, Microsoft, Adobe Systems, and Hewlett-Packard. This creates a whole new product category in the consumer’s mind, and combining the Kodak brand with those of its computer technology partners lends digital credibility and forges a quality image.
Managing its brand name is important to Kodak. However, its chief competitor, Fuji, is making this difficult. In the mid-1990’s, Fuji began aggressively pursuing the U.S. market, primarily through price-cutting. Fuji’s price war cut into Kodak’s margins at the same time that Kodak was investing heavily in digital imaging and digitization. The result was a lot of red ink for Kodak.
Kodak responded by cutting more than 7,600 jobs. This boosted the 1998 second quarter operating profit margin from 14.3 percent to 18.5 percent, which far exceeded Wall Street’s expectations. That is the good news. The bad news is that the red ink kept flowing in the digital imaging division. In this division alone Kodak suffered a 5 percent sales decline in the quarter and a $64 million loss, following a $400 million loss in 1997. To withstand the continuing onslaught by Fuji, Kodak intends to cut another 12,300 jobs and reduce cost by another $1 Billion.
Kodak understands that cost reductions will carry the firm only so far. However, Kodak stays committed to growing its digital imaging business and feels increased revenues will be the result of this commitment. To make it there, Kodak will have to sell consumers on digital imaging and digitization.
In emphasizing digital, Kodak has been criticized for not paying enough attention to such basic problems in its core camera and film businesses. This is illustrated by Kodak’s slow response to Fuji’s pricing pressure in 1997. Here, Kodak allowed a 30 percent price differential to occur between them and Fuji. As a result, Kodak had to lower prices, eliminate less-profitable product items, and make price promotion offers. However, it now appears that Kodak has realized that it cannot lose sight of Fuji. Therefore, Kodak is planning to initiate a new aggressive marketing program in the United States.
Kodak now understands to make its digital imaging program succeed, they must attract the millions of households using traditional photography. In doing so, they must move into the next frontier of photography and refocus on their meaning and mission.
CURRENT HISTORY AND TRENDS
Provide here is an overview Kodak’s Mission Statement, Vision, Values, and Pertinent Financial information.
? Kodak’s Mission Statement, Vision, and Values
Build a world-class, results-oriented culture…by providing customers and consumers with solutions to capture, store, process, output and communicate images to people and machines anywhere, anytime… bringing differentiated, cost-effective solutions… to the marketplace quickly and with flawless quality through a diverse team of energetic employees with the world-class talent and skills necessary to sustain Kodak as the World Leader in Imaging.
Our heritage has been and our future is to be
the World Leader in Imaging.
Respect for the Dignity of the Individual
Continuous Improvement and Personal Renewal
Recognition and Celebration
? Kodak’s Financial Position
-Financial Strength Company Industry
Quick Ratio (MRQ) 0.50 0.62
Current Ratio (MRQ) 0.98 1.12
LT Debt to Equity (MRQ) 0.28 0.31
Total Debt to Equity (MRQ) 0.78 0.79
-Profitability Ratios (%) Company Industry
Gross Margin (TTM) 44.28 44.07
Gross Margin – 5 Yr. Avg. 45.75 45.55
Net Profit Margin (TTM) 10.05* 9.21
Net Profit Margin – 5 Yr. Avg. 6.96 6.21
Return On Investment (TTM) 16.29* 15.84
Return On Investment -5 Yr. Avg. 10.39 10.93
Inventory Turnover (TTM) 4.70 4.64
? Kodak’s Stock Trends
The above graft represents Kodak’s (EK) stock performance as compared to the S&P and DJ industry averages
As a result of reviewing and researching the Kodak case, Team Commander feels that Kodak’s current organizational structure, company mission, vision, values, and financial position are adequate and are not playing a significant role in the companies inability to grow its digital products. However, it does appear Kodak’s Marketing Department is failing in its attempt to market digital products. This is exampled by the following issues: 1) the slow sales growth in Kodak’s digital camera market; 2) continued revenue losses in the Digital Imaging Division; and 3) Kodak’s failure to maintain focus on its core products. Provided below are explanations as to why the issues were identified.
Issue #1- The slow sale growth in Kodak’s digital camera market
The slow growth in sales is a direct result of Kodak’s failure to effectively market the product. This is evident by Kodak’s failure to recognize a number of key problems. First, Kodak failed to recognize that consumers didn’t associated their products with computers. Second, Kodak failed to recognize that consumers may find digital picture taking expensive and require behavior that is not normally associated with traditional picture taking. Third, Kodak failed to recognize that most people were not ready to part with their traditional easy to use cameras. Fourth, Kodak failed to identify that its market was limited to mainly computer owners and computer literate people. Finally, Kodak effectively put the “wagon ahead of the horse” by not establishing its digitization market first. As previously mentioned, this is the ability to convert traditional film to digital format through the standard photographic processing method. Digitization provides consumers with a cheap, yet effective, transition into digital photography. However, Kodak missed this opportunity in their haste to get into the digital camera market.
Issue #2 – Continued revenue losses in the digital imaging division
Here, the issue is Kodak’s continuing revenue losses in its digital imaging division. Again, one of the chief culprits is Kodak’s failure to introduce digitization before digital cameras. As a result, Kodak has to grow two new products, digital cameras and digitization. This is a tremendous burden on Kodak’s financial resources. Additionally, Kodak did not effectively target or segment its market. Granted, Kodak and Intel did hundreds of one-on-one interviews and test marketing to develop and fine-tune advertisements. However, the advertisements were generic and appeared to focus on a limited audience.
Issue #3 – Kodak’s failure to maintain focus on its core products
As previously noted, Kodak has been criticized for not paying enough attention to such basic problems in its core camera and film businesses. This is supported by Kodak’s slow response to Fuji’s pricing pressure in 1997. As a result, Kodak had to lower prices, eliminate less-profitable product items, and make price promotion offers. Had Kodak monitored its core markets efficiently, its marketing response would have been proactive, not reactive. Thus allowing Kodak to plan and implement more effective marketing strategies.
In order to gain increased film market share in the United States, Fuji attacked Kodak’s core market in the most appropriate tactical fashion, by attacking on the price front. Fuji did not attempt to unseat the leader by offering substantially improved quality over Kodak. Rather, it simply offered a cheaper solution to a common need. Fuji appears to have timed the attack while Kodak’s resources were focused on expansion into new markets and product lines. So while Kodak “wasn’t looking” they simply moved in and began taking increased market share by creating a price differential of 30%. This creates a serious dilemma for Kodak. Core products are heavily depended upon to fund growth in new areas. Attacked during the infancy of new products should have been strategically expected by Kodak, still went unchecked until Kodak was forced to layoff 7600 workers and cut costs dramatically.
In order to respond effectively to this problem and still remain a viable company for the new millennium, Kodak must approach its growth more conservatively than it did in the mid-90s. While investment in new product lines is necessary for all companies to continue to operate in the future, over stretching resources may make the company weak in core technologies. Kodak should significantly reduce its focus in the digital camera segment of the digitization product line. Returning resources back to the core technologies in both the marketing and cost reduction areas will provide Kodak the opportunity to reestablish any losses in market share and provide necessary financial resources to pursue other growth areas but at a slower, more conservative pace.
Marketing strategy in the core technologies should begin focusing on recapturing the traditional film market while advertisement trailers should be designed to slowly introduce the consumer to the new emerging product lines. Repetitive trailers attached to familiar ad campaigns will assist the market in making alternative photographic/film decisions with the least amount of stress or fear associated with an unfamiliar product. By linking the familiar with the unfamiliar in the consumer’s mind, eventually the consumer will begin to view the newer product as simply another option in their fundamental film repertoire.
Kodak should significantly slowdown the development and promotion of its digital camera market for a minimum of one-year. The additional resources made available from this approach can be used to firm up its core product market and aid in the growing of its digitization market. However, once the core product market is reestablished to its desired level, the primary focus should then shift to the digitization market. Here, the primary focus should be to heavily introduced its Picture CD into the computer market and hopefully give Kodak that much-needed face-lift.
Even today, consumers still do not associate Kodak with the computer industry. This leaves Kodak asking, “How can we change this way of thinking.” Team Commander feels the answer lies within digitization, specifically Picture CD. Currently, you can purchase a Picture CD whenever you have film developed. However, we were surprised to find that many people didn’t know about Picture CD, let alone comprehend its intent. This is an area that Kodak must change if they hope to succeed in a fast growing digital industry.
Hopefully, this approach will allow Kodak to regain its foothold in the traditional film and camera market. Additionally, this will allow Kodak to remain competitive with its chief rival, Fuji, who is presently out-marketing and out pricing Kodak.
Provided below is what Team Commander hopes to be a winning marketing strategy that will help Kodak better sell their products and get back on track with increased sales revenues. The action plan provided is based on Alternative #2.
Kodak must redirect its attention and capital from the ailing digital camera market to its core products and digitization. To firm up its core market, Kodak must increase advertising. These should be primarily reminder advertisements. In addition, Kodak needs to increase sales promotions, to include samples, coupons, price packs, and point of purchase promotions. After the core market is back on track Kodak will then start shifting its attention to the digitization market.
Next, Kodak must work at getting Picture CD noticed. This is best accomplished by attracting first time Picture CD users with free samples. Also, Kodak needs to combine this effort with advertisements that are informational in nature. These advertisements should be geared towards building consumer awareness and confidence. It must also be noted, that Kodak must use customer information obtained from this effort for future target marketing.
The next step Kodak must take is combining its Picture CD technology with its in-store kiosks. Place Picture CD technology here and allow customers to burn there own CDs. Currently, customers with 35mm negatives can place their negatives in the kiosks and change pictures to their liking, while viewing the kiosk screen. This approach will allow the customer to take pictures home on a CD and place them on their home computers for future use.
Kodak must then get its software noticed. To accomplish this step, Kodak must gear its software to work with other camera, printer, and computer manufacturers. Retailers must then be convinced to offer this software with the sale of any of these products.
Finally, Kodak will return its focus to the digital camera market. Aided with data obtained from its Picture CD promotions, Kodak can effectively target their potential customers.
In addition to the six steps previously provided, Kodak must refocus on its company mission. This is especially true in marketing. Kodak’s current marketing mission appears to be too limited in scope and falls short of meeting company objectives. Thus, Kodak must discover new ways to sell and market their products.
SUMMARY AND ANTICPATED OUTCOME
While aggressively pursuing the digital camera market Kodak made a few costly mistakes. First, Kodak was overaggressive in its attempt at gaining the upper hand in the digital camera market. As a result, the product was poorly marketed and fell short of meeting anticipated goals. Leaving Kodak with no alternative but to develop and introduce a second product, Digitization. Second, Kodak allowed itself to lose focus on its core products, while trying to grow its digital market. As a result, Fuji blasted them in a price war, which ultimately resulted in a huge price differential. Each of these mistakes chipped away at Kodak’s bottom line. Alternative 2 was developed to correct these mistakes.
Alternative 2 will permit Kodak to temporarily put the digital camera market on hold and redirect focus and capital to the core products and development of digitization. The primary objective is to ensure Kodak has the financial ability to maintain its strong hold in the traditional camera and film markets. Ultimately, this is the key to providing the resources required for supporting the development and growth of its digital market.