Funtime Film

Eastman Kodak Company

: Funtime Film
Prepared by Group D Changhyun Lee, 20010398, agentofdrm@gmail.com Hana Kim, 20063139, hanawind@neuron.kaist.ac.kr Jaecheol Cho, 20060639, wowhacker@kaist.ac.kr Jongjin Kim, 20040137, kjjgwp@msn.com Li Xinxin, 20076011, star_lee85@hotmail.com Li Xe, 20076010, dorislee22@hotmail.com 10 April, 2007

2007 Spring | BEP430 Marketing | Prof. Kim Wonjoon | Group D

April 10, 2007

1. Issues
Eastman Kodak Company is loosing its relative market share. It had decreased from 76% to 70% in United States [Exhibit 1]. There are reasons which causing the market share loss: a. The photo film industry is in its maturity stage in terms of product life cycle. b. Increasing competitors in the film market, for example: Fuji, Konica, Agfa and 3M. c. Competitors provide lower price films compare with Kodak and also sell films on a private label basis. d. Consumers view film as a normal commodity, often buy on price alone. e. A growing number of price-sensitive consumers. f. Kodak has not yet developed more competitive technologies. g. Different film brands shows a general similarities in qualities. h. Kodaks dealer margin is relatively lower compare with its competitors.

2. Goals
a. Boost or remain market share Due to fierce competition, Kodak is gradually losing its market share in the film industry. It is important to remain a competitive advantage in order to gain more market share. Also the more market share Kodak has, the better trade power in its current marketplace. b. Boost or remain contribution margin Kodak needs a stable contribution margin because once contribution margin falls;

2007 Spring | BEP430 Marketing | Prof. Kim Wonjoon | Group D

April 10, 2007

it will be very difficult to reverse. Due to the fact that Kodak is holding a dominant and leading position in current film market, its even harder to increase market share as a result of strong competition, further more, most of the film quality is relatively similar.

c. Development for a broader customer range Kodak mainly serves superpremium and premium brands of films, however, the number of customers are limited, therefore, profit generated is also limited. There is a potential market demand for lower price films in the market. Most of the people using conventional camera are non-professionals, in other words, the economy segment has more growing potential which Kodak has previously ignored. d. Adapting and producing more advanced and innovative films and cameras Since photo film industry has reached its maturity, it is important to develop new products in order to remain growth instead of waiting to be exited from the market. It is vital to remain a competitive advantage by differentiate its product and services compare to its competitors.

3. Customer Segmentation
From various annual film usages rates, we can divide customers into 3 groups, light users, medium users and heavy users. [Exhibit 2] Also Kodak categorizes their customers into three groups by loyalty. [Exhibit 3] But tendency of treating films as a commodity and glowing body of price sensitive consumers makes it harder to apply this traditional customer segmentation to new film market, especially for Funtime

2007 Spring | BEP430 Marketing | Prof. Kim Wonjoon | Group D

April 10, 2007

strategy. So new segmentation will categorize customers as a very specific group, including everyday use and casual picture takings. [Exhibit 4]

4. Alternatives
4.1 Without Funtime, status-quo. If Kodak doesnt lift a finger to maintain or boosting market share, Kodaks unit market share will certainly be changed. We employed the following procedure.

a. Calculate number of number of exposure consumed from total number of exposures and market share of each company b. Calculate the growth rate between 1992 and 1993. c. Assume that the growth rates except for Kodaks remain the same for 1994 d. Calculate the market share in 1994 using the information drawn above. Finally, Kodaks market share will be decreased into 69.2%. [Exhibit 5] 4.2 Without Funtime, having price cut on Gold Plus As an alternative choice, we can propose a 15% price cut on Gold Plus without the launch of Funtime. Discounted retail price is $2.97 and its a reasonable price that reflects Kodaks superior brand image over other brands, especially for Fujis, $2.91. [Exhibit 6] In this case, Kodaks contribution margin will be decreased to 76% and to maintain the market share, 478,380,000 products have to be sold out. [Exhibit 7]. Also Kodak have to maintain 88.7% of market share to maintain profit [Exhibit 8] and contribution

2007 Spring | BEP430 Marketing | Prof. Kim Wonjoon | Group D

April 10, 2007

margin will be decrease about 11%. [Exhibit 9] Synthetically, the price cut strategy is beneficial in the fact of that price premium which is not supported by quality difference is a shortsighted strategy and people will get it soon. Also, it will hold customers who are now trying other brands. The chance of product change of customers will offer general viewpoints and people will get a notion of that films are not differentiated. But it will give negative impacts on earnings by reducing customer margin. In other words,it will erode Kodaks brand equity by understanding that the brand isnt worth of premium it used to be. Also it needs sales increase and it will cause extreme price competition.

4.3 Without Funtime, increasing advertisements If Kodak increases advertisements rather than discounting, they can build their brand equity. Also they can try to trade up to higher ISOs and concern about new emulsion technology. However, Kodak is already spending goodish $50M and they are near universal brand awareness now. Further more, there were not significant newly changes existed. So eroding profits can be happened.

4.4 Funtime There are many options established from Funtime strategy. Before analysis it all, analysis about customer proportion must be ahead of. Let the total customer in market as 100 %, which is increased from 1993 by 2%. We already assume that proportion of Ektar in camera store is about 70%. So, Kodaks 10% of sales volume is consist of Ektar and other are filled up by Gold Plus. Both Ektar and Gold

2007 Spring | BEP430 Marketing | Prof. Kim Wonjoon | Group D

April 10, 2007

Plus customers are divided by three different groups, 50% of loyal customers, 40% of samplers and 10% of price sensitive people. Nevertheless, 10% of price sensitive person who had made a habit of buying Ektar will not consider about appearance of Funtime. They will maintain purchasing of high-quality films. But 40% samplers of Gold Plus will change their products depends on cost of AD. It means, from 40% of customers of Gold Plus, 40% of them will try to buy Royal Gold and remainders will keep purchasing Gold Plus. And from 10% of price sensitive customers of Gold Plus will try to buy Funtime. [Exhibit 10] From the analysis above, the existing options on Funtime strategies as following: a. No advertisement on Funtime and everyday Funtime selling Contribution Margin(CM) of each products in Kodak can be calculated [Exhibit 11]. Royal Gold will make the best CM in three of them, Funtime will be lower than the others. If they sold out Funtime everyday not seasonal, market share will be little increased but CM will be decreased into 98.5%. [Exhibit 12] This result was obvious that lower CM of product would generate lower total CM for Kodak. b. No advertisement on Funtime and seasonal Funtime selling By original way of Funtime strategy, when only 5 months were limited to Funtime, in other periods, customers will return to Gold Plus or Ektar. In this case, market share will be increased into 71.6% and CM of Kodak will be increased into 111.8%. [Exhibit 13] Comparing both everyday selling and seasonal selling, seasonal selling is in superior, we can consider about increasing AD on Funtime, too. c. Having advertisement on Funtime and seasonal Funtime selling We assumed that increased cost of advertisement will gather more people in proportion to ratio. We already know that Fuji has spent quarter of $50M for

2007 Spring | BEP430 Marketing | Prof. Kim Wonjoon | Group D

April 10, 2007

advertising that targeted Economy brand. So to competing with Fujis economy brands, Kodak have to spend $12.5M for Funtime advertisement. In this case, target sales and CM will be highly increased by increasing number of customers. Market share will be increased into 88% and CM will be increased into 122.8%.[Exhibit 14]

5. Recommendation
There would be two objects in the result. The first one is driving the competitions out of the market with a proactive pricing strategy and second one is minimizing the effect of price reduction on the bottom line. Comparing 4 different strategies, Funtime strategy with advertising would be the best solution to be recommended. Maintaining the retail price of Gold Plus, Launching the Funtime brand seasonally limited with more advertising will maximize Kodaks contribution margin. [Exhibit 15]

Appendix
[Exhibits 01] Change of Kodaks market share from 1989 to 1994

Funtime Film

[Exhibits 02] Customer behavior on film market User Category Light Users Medium Users Heavy Users Customer Behavior Less than 5 rolls (20%) 5~9 rolls (22%) 10~15 rolls (28%) 16~25 rolls (16%) More than 25 rolls (13%)

[Exhibits 03] Kodaks Customer behavior Customer Behavior Kodak-loyal Samplers Shop on price Percentage 50% 40% 10%

[Exhibits 03] Kodaks Customer behavior Customer Behavior Criterion Price Level Professional: Ektar Non-professional: Gold Plus Percentage Usage Context Very Special Everyday Use Casual Picture Taking

Segmentation

2007 Spring | BEP430 Marketing | Prof. Kim WonJoon | Team D

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Funtime Film [Exhibits 05] Market Situation Analysis (unit: 1 Ro = 1 Roll = 24 exposures)
Brand Number of Ro (1992) 455,339,805 Share (1992) 69.3% Growth (1992~) 3% Number of Ro (1993) 469,000,000 Share (1993) 70% Growth (1993~) 0.8% Number of Ro (1994) 473,039,011 Share (1994) 69.2%

Kodak

Fuji

64,086,957

9.8%

15%

73,700,000

11%

15%

84,755,000

12.4%

Polaroid

23,304,348

3.5%

15%

26,800,000

4%

15%

30,820,000

4.5%

Private

60,909,091

9.3%

10%

67,000,000

10%

10%

73,700,000

10.8%

Others

53,222,544

8.1%

-37%

33,500,000

5%

-37%

21,085,989

3.1%

Total

656,862,745

100%

2%

670,000,000

100%

2%

683,400,000

100%

[Exhibits 06] Change in Contribution Margin by price of Gold Plus (unit: $) Price Cut Retail Price Wholesalers Price (80% of retail price) Cost (30% of retail price) Contribution Margin % vs. Present 0% 3.49 2.79 1.05 1.75 100% 5% 3.32 2.65 1.05 1.61 92% 10% 3.14 2.51 1.05 1.47 84% 15% 2.97 2.37 1.05 1.33 76% 20% 2.79 2.23 1.05 1.19 68%

[Exhibits 07] maintain 70% market share, number of selling product it has to be 1993 Total Market Kodak(70%) Ektar(10%) Gold Plus(90%) 670,000,000 469,000,000 46,900,000 422,100,000 1994 683,400,000 478,380,000 47,838,000 430,542,000

# Assumption 10% of Kodak selling product is Ektar and the others are Gold Plus. It is reasonable because 14% of films are sold at camera shop. But for that camera shop, Gold Plus also will be sold. It assumed that sold products about 70% in camera shop would be Ektar.

2007 Spring | BEP430 Marketing | Prof. Kim WonJoon | Team D

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Funtime Film [Exhibits 08] To maintain profit, prediction about Gold Sales and Kodak Market share (unit: rolls)
Price Cut Target Contribution Margin Expected Sales Incremental Sales Kodaks Market Share 0% 736,564,500 422,100,000 0 67.4% 5% 736,564,000 458,804,036 36,704,036 74.6% 10% 736,564,000 502,499,659 80,399,659 81.0% 15% 736,564,000 555,394,360 133,294,360 88.7% 20% 736,564,000 620,734,873 198,634,873 98.3%

# Target CM, 0% = 422100000 * 1.75 # Kodaks MS = 473,039,011 + Incremental sales / Total number of rolled consumed

[Exhibits 09] When Price elasticity is 1, Change in demand of Kodak Gold Plus (unit: rolls)
Price Cut Expected Sales Kodaks Market Share Kodaks Contribution Margin % vs. present 0% 422,100,000 67.4% 847,248,500 100% 5% 458,804,036 74.6% 822,205,307 97% 10% 502,499,659 81.0% 791,269,598 93% 15% 555,394,360 88.7% 754,441,373 89% 20% 620,734,873 98.3% 711,720,632 84%

# Kodak's MS = (Expected Sales of Gold Plus + Ektar Sales) / Total Market Size in 1993 # Kodak's CM = (Expected Sales of Gold Plus x Unit CM of Gold Plus) + (Ektar x Unit CM of Ektar)

[Exhibits 10] Changing proportion by starting Funtime Portion Ektar 10% Detail Kodak-loyal 5% Samplers 4% Price sensitive 1% Kodak-loyal 45% Samplers 36% Price sensitive 9% Royal Gold Glod Plus Funtime Portion 10 + 14.4 = 24.4% 45 + 21.6 = 66.6% 9%

Glod Plus

90%

<After Funtime Strategy>

<Before Funtime Strategy>

[Exhibits 11] Unit Contribution Margin of Funtime products (unit: $/rolls) Royal Gold Retail Price Dealers Margin Wholesalers Price Cost (30%) Unit CM 4.19 0.84 3.04 1.26 1.79 Gold Plus 3.49 0.70 2.79 1.05 1.75 Funtime 2.79 0.56 2.23 0.84 1.40

# Wholesale Price of Royal Gold = Wholesale Price of Gold Plus x Premium(1.09)

2007 Spring | BEP430 Marketing | Prof. Kim WonJoon | Team D

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Funtime Film [Exhibits 12] Everyday Funtime Strategy and No Advertisement on Funtime
Royal Gold Unit Contribution Margin($/roll) Advertisement ($) Break Even Point (rolls) Target Proportion Target Sales (roll) Contribution Margin ($) 1.79 20,000,000 11,192,693 24% 116,724,720 188,573,068 Glod Plus 1.75 30,000,000 17,191,977 67% 318,601,080 525,958,885 Funtime 1.40 0 0 9% 43,054,200 60,060,609 50,000,000 24,738,346 100% 478,380,000 774,592,561 Total Remark Market Share 71.4% CM vs. present 98.5%

# BEP = AD inverstment / Unit CM # Target Proportion of Royal Gold = 24% # Target Proportion of Gold Plus = 66.6% # Target Sales = BEP + (Kodak's Total Sales x Proportion) # Contribution Margin = (Target Sales x Unit CM) - AD investment

[Exhibits 13] Seasonal Funtime Strategey and No advertisement on Funtime

Royal Gold Unit Contribution Margin($/roll) Advertisement ($) Break Even Point (rolls) Target Proportion (funtime season) Target Proportion (off season) Target Sales (roll) Contribution Margin ($) 1.79 20,000,000 11,192,693 24% 24% 115,927,420 359,679,177 Glod Plus 1.75 30,000,000 17,191,977 67% 76% 345,629,550 494,971,344 Funtime 1.40 0 0 9% 0% 17,939,250 25,025,254 50,000,000 28,384,670 100% 100% 479,496,220 879,675,774 Total Remark Market Share 71.6% CM vs. present 111.8%

# New Customer of Funtime = (Market Size x 30% x 50% x 1/11) # Target Sales of Funtime = Everyday Funtime Quantity(56,036,346) x (5 / 12)

[Exhibits 14] Seasonal Funtime Strategy and More Advertisement on Funtime

Royal Gold Unit Contribution Margin($/roll) Advertisement ($) Break Even Point (rolls) Target Proportion (funtime season) Target Proportion (off season) Target Sales (roll) Contribution Margin ($) 1.79 20,000,000 11,192,693 24% 24% 142,590,727 234,792,518 Glod Plus 1.75 30,000,000 17,191,977 67% 76% 425,124,347 711,841,985 Funtime 1.40 11250000 8064516 9% 0% 22,065,278 19,531,062 61250000 28384670 100% 100% 589,780,351 966,165,564 Total Remark Market Share 88.0% CM vs. present 122.8%

[Exhibits 15] Contribution margin comparison of different strategy

Strategy Contribution Margin ($) Price cut of Gold Plus 754,441,373 Launch Funtime Everyday, No AD 774,592,561 Launch Funtime Seasonal, No AD 879,675,774 Launch Funtime Seasonal, AD 966,165,564

2007 Spring | BEP430 Marketing | Prof. Kim WonJoon | Team D

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