Eastman Kodak case analysis

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 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 Fun time has a lower price than Gold
Plus, if Gold Plus users change their films to Fun time, 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.
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 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 may lose
some profit; however, in the long run, I’m sure that it could reinforce
the quantity 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.
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 cannot 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.