Eastman Kodak Case
Eastman Kodak – Case Analysis Problem The problem in this case is concerned with Eastman Kodak losing its market share in film products to lower-priced economy brands. Over the last five years, in addition to being brand-aware, customers have also become price-conscious. This has resulted in the fast paced growth of lower priced segments in which Kodak has no presence. Kodak plans to address this issue by introducing a new brand, “Funtime” in the economy brand segment. Kodak also proposes to replace their Superpremium brand by launching “Royal Gold” which would target a broader audience.
Solution If I were responsible for solving the problem, in addition to Kodak’s repositioning strategy, I would do the following: * While the strategy to enter the ‘Economy Brand’ segment is strong, I would set the price of Funtime at $2. 91 * Match the dealer margins given by other suppliers for the new product Funtime * Allocate $5 million of advertising support to support Funtime As an alternate strategy, we could also offer Funtime on a year-round basis.
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However this approach has some drawbacks which make it less attractive than our primary strategy. Segmentation Analysis Target Market:
The US photo film market is 670 million rolls units and divided into four segments. As shown in Exhibit 1, the Superpremium segment with an average retail price of $4. 35 accounts for roughly 5% of the market. The Premium brand segment has an average retail price of $3. 49 and accounts for a 67. 67% market share. The fast growing Economy brand segment occupies about 13. 34% of the market with an average retail price of $2. 91. Finally the Price Brands segment occupies 14% of the market with an average price of $2. 40. Internal Analysis: Kodak’s flagship product, Gold Plus, enjoys approximately 66% of the market share ith revenues of $2. 9 per unit. The total profit from Gold Plus without advertising expenses amounts to $371. 4 million. Kodak has no major competitors in this segment and continues to lead with its existing brand image. Kodak’s Superpremium product Ektar has per unit revenue of $3. 42 resulting in total profits of about $30. 7 million. As shown in Exhibit 2, Kodak’s net income comes to about $356 million. Focus Segments: From the above analysis we can conclude that Kodak has a stronghold on the Premium Brands segment with Gold Plus. However, Kodak is non-existent in the Economy Brands segment.
The Economy Brands segment is currently growing at around three times the market growth rate and Kodak’s competitors are gaining market share through this segment. In a market that is becoming more price sensitive, Kodak’s attempts to gain market share through Ektar have not yielded results. Hence Kodak’s main focus segments should first be Economy Brands and Funtime and Royal Gold in the Economy and Superpremium brand segments respectively. Pricing & Dealer Margins As Funtime is a new entrant in the economy segment, we can use the going-rate pricing method and match the price of this product with that of the segment leader.
Even though the body of price-sensitive customers is increasing, the importance of brand name in the customer’s decision making is still strong, a fact reflected from the growth of the Economy segment versus the Price segment. The price of Funtime price should be set at $2. 91 – equal to the Economy segment leader (FuJicolor Super G). Such a pricing strategy will help to capture a significant proportion of the 40% “samplers” in the near term and increase the market share.
As Funtime will be available only in lean seasons, it requires strong distribution support. Kodak must ffer 25% dealer margin on Funtime to match other suppliers in the Economy segment. This will be consistent with the dealer margins of other suppliers and will provide an incentive for retailers to promote Funtime sales during off-seasons. The price of $2. 91 per film would allow Kodak to offer 25% dealer margin by keeping its margins reasonably intact. With the revised price of $2. 91 and dealer’s margin of 25% Kodak’s revenue is expected to be $3. 8 million.
Increasing dealer margins to 25% is not a possibility in the case of Kodak Gold Plus since this would lead to a yearly loss f $77 million considering Kodak Gold plus unit volume in 1993. Advertising Support As Kodak is introducing Funtime to target the fast-growing Economy brands market and since it will be available only in off-seasons and in limited quantity, it should be supported by advertising. Kodak Gold Plus being the flagship brand will receive 60% of the dollar advertisement support. As Royal Gold has a larger profit margin ($0. 96 per unit), it will receive 30% of the dollar advertisement support.