TUI University Stuart Schakett MKT301: Summer 2008 Module 5 Case Assignment Instructor: Dr.

Theresa Pavone Date: September 14, 2008

"Examine the factors which should have been taken into account by Kodak in developing its pricing strategy. In doing so consider whether the EVC pricing method would have helped and analyze the customers' lifetime cost of ownership."

Few companies were as firmly engrained into the American psyche than Kodak. Though they had long surrendered the high-end camera market to Cannon, Nikon, Minolta and the like, Kodak remained the dominant force in slide and print film. Nevertheless, the times had caught up to the ubiquitous yellow box. Film was out; digital was in. To survive, Kodak had to adapt to changing times. Rather than focusing on imaging, Kodak decided to focus printing. Not just an advertising slogan, this corporate makeover was the ultimate Kodak Moment. Launching and marketing a new product line, especially one designed to save the company, is not just a matter of developing the item for consumer consumption. Product, place and promotion each had, or will have, their turn in the spotlight. However, for now, pricing was the focus of Kodaks lens. Pricing Strategy Whether art or science, pricing strategy is more than throwing something out there and seeing what sticks. Instead, there are multiple factors that must be considered. Kodak had to estimate the demand curve to assess the desire for the new products and to understand how demand will fluctuate with variations in price. They needed to understand the environmental factors, in particular the competitive environment and the opportunity to develop a competitive advantage (NetMba, 2007). Additional factors in developing a pricing strategy include developing a marketing strategy. This should include the market analysis, segmentation, positioning and defining the distribution channels, and promotional activities. Next to be considered would be to determine the pricing objectives in regards to what the company deems to be appropriate profit goals. Finally, the above information would be used to delineate pricing parameters (NetMba, 2007).

Kodak assessed the market and decided on a strategy the polar opposite of what the market was accustomed to seeing. They eschewed the traditional printer-pricing model where the printer itself is sold at or near the breakeven point with the goal of reaping large profits from the sale of ink cartridges. Instead, Kodak is reversing the trend by earning more profit from the initial sale than through the sale of cartridges (Bulkeley, 2007). Customer Value By deciding on a pricing strategy that aims to drastically lower consumer post purchase costs and deliver a lower lifetime cost of ownership, Kodak is developing a competitive advantage over its competition (Ellis, 2007). They can obtain this advantage by supplying superior Economic Value to the Customer (EVC). Kodak is betting that buyers will relate the anticipated benefit of the lower cost of printing to the higher initial purchase price for their printer and compare it to the total cost of ownership for a competitors printer (Homa, ND). Cost of Ownership To fully understand the economic value the consumer will receive from their purchase, they must understand what the total cost of ownership will be. Here, Kodak clearly establishes the advantage that is key to their success. Kodak reports that a standard print will cost 10 cents to print (Bulkeley, 2007), while HP prints average 24 cents each (Staples.com). Using the M.S.R.P.s shown on each companys website and a comparison of two similar models, the Kodak 4530 and the HP C4480, the Kodak 4530 provides a much lower total cost of ownership. The Kodak 4530 has a suggested retail price of $149.99. Printing 1000 photos at 10 cents per photo would result in a printing cost of $100, for a cost of ownership of $249.99. The HP C4480 has a suggested retail price of $99.99. Again, printing 1000 photos, this time at a cost of 24 cents each results in a printing cost of $240, for a total cost of ownership of $339.99. While

the owner would pay a 50% premium for the purchase of the Kodak printer, the total cost of ownership would provides a savings of 73%. Conclusion With sales of their traditional slide and print film resting in peace in the graveyard of technology, Kodak needed to find a niche in order for the company to survive. If digital killed their film business, the Kodak aimed to recover by tapping into the market for printing digital photos. Rather than following the industry norm, Kodak made the printer and not the ink the focus of their pricing strategy. By offering better results with a lower cost of ownership, Kodak is striving to draw attention to their sustainable competitive advantage. Now the companys future is based not on capturing images, but in sharing them.

Works Cited Bulkeley, W. (2007, February 6). Kodak's Strategy For First Printer -- Cheaper Cartridges. Wall Street Journal (Eastern Edition), p. B.1. Retrieved September 10, 2008, from ABI/INFORM Global database. (Document ID: 1211170961). Ellis, B. (2007). Life Cycle Cost. Retrieved September 12, 2008 from http://jethroproject.com/Life% 20Cycle%20Cost1.pdf Homa, K. (ND). Market Based Pricing. Georgetown University. Retrieved September 12, 2008 from http://faculty.msb.edu/homak/HomaHelpSite/WebHelp/Pricing_Market_Based.htm NetMba. (2007). NetMba.com - Pricing Strategy. Retrieved September 12, 2008 from http://www.netmba.com/marketing/pricing/