KODAK CASE WRITE-UP The Problem ?Kodak, the industry leader in photographic film market had lost 6% market share to competitors in the last 5 years. ?The Photographic film market is growing at a meager rate of 2% Y/Y. Kodak was growing at 3% Y/Y whereas its competitors’ sales were growing at 15% Y/Y. ?The Company did not have a product to meet the needs of the ‘Economy and Price Brand’ segments of the market, which were growing at an average rate of 12% p. a. and contributed 25% to the market share i. e. 167. 5 million units (~ USD 429. 74 million)1. The Market Situation The photographic film market was segmented into the following four groups based on the retail price of the film roll (Refer Exhibit – 1): Super Premium Segment for the professionals and serious amateurs, Premium Segment for special occasions, Economy and Price Brands segments for the price sensitive customers. ?The total sales volume of photographic film roll industry was 670 Million rolls. The Kodak Strategy ?Kodak had a 70% market share and a very strong brand value in the Super Premium and Premium segments. Kodak decided to implement a three pronged approach, explained above. Analysis
The above strategy adopted by the Company would result in the following: FUNTIME ?Taking into account the favorable price position of ‘Funtime’ in the Economy category, the price sensitivity of the customers in the lower priced segments, the strong brand presence of Kodak and the fact that the product would be available only during off-peak periods, we estimate that ‘Funtime’ would: •Draw 1% of the market share from the Price Brand segment and 10% from the Economy brand segment. •Contribute an additional 8. 34 million units ($19. 60 million) to the total market share of Kodak (167. million units) •The above figure also takes into account the fact that Funtime is a new product with no advertising support and will face some resistance from the masses. This will result in net revenue impact of $23. 35 million. 1 •The plan to sell ‘Funtime’ only during the off-peak seasons seems to be targeted at reducing the cannibalization of Kodak’s other product offering, Kodak Gold Plus. We can estimate the cannibalization rate (BECR) at 80 %. ( Refer Exhibit – 2). •This means we have to sell 1. 25 units of Funtime to compensate the loss of each unit of Gold Plus.
Assuming that 10% (16 million) of people will switch from Gold Plus to Funtime, it will result in a possible loss of $2. 76 million. (Refer Exhibit – 3) ROYAL GOLD ?This rebranded product with its new marketing strategy of capturing the very special occasions in high quality would cannibalize the Gold Plus product line. ?We estimate that 10% of Gold Plus users will use Royal Gold on special occasions (40 Million) 2. The BECR (%) will be 107% which will result in an approximate gain of $1. 42 million. (Refer Exhibit -3). Loss of Revenue Due To Repositioning Of Ektar to Royal Gold Due to the price difference of $0. 07 between the price of Royal Gold and Ektar, the possible revenue loss will be $4. 9 million. (Refer Exhibit -4). The above strategy implemented by Kodak would increase sales revenues by $17. 11 Million and grow its market share by1. 24%. (Refer Exhibit – 5) Appendices Exhibit- 1 Market SegmentMarket Share (%)XHIActual number of units (Million) Main PlayersAverage Price per 24 exposure roll(USD)Approx Sales (USD million) Super Premium13%87. 1Fuji Reala and Kodak Ektar4. 48390. 208 Premium62%415. 4Kodak Gold Plus and Agfa XRG3. 491449. 746 Economy11%73. Fuji Color and Others2. 84209. 308 Price Brands14%93. 8Polaroid and Private Labels2. 35220. 43 Total100. 00%670 13. 162269. 692 Market Shares of Exposure Rolls in Units BrandVolume salesVolume Sales Kodak70%469 Fuji11%73. 7 Polaroid4%26. 8 Private Label10%67 Other5%33. 5 Total100%670 Exhibit -2 Exhibit – 3 ScenarioCannibalization RateUnits to sell to have same revenue Gold Plus -;Funtime0. 7020057311. 424489796 Gold Plus -;Royal Gold1. 0680515760. 936284373 Kodak Units sold469 ParameterValueAssumptions Kodak Market Size400Assuming 85% of the units sold are from Premium category Off peak sales split0. Assuming that off peak month sales are not more than 40% of entire year sales. Off peak sales units160Total Premium Units (in millions) % of P units that will migrate to E0. 1Kodak research mentions that 10% buyers are price sensitive, therefore assuming same % here Sales for Funtime during off-peak23 If Funtime sales were annual57 For, p-;SP sales, % units migration0. 1Since SP will be branded as film for special occasions, assuming that there are 10% or less special occasions or else they are not special Therefore, for p-;SP cannibalization38
Net Units loss due to p-;E cannibalization, if same no of P units are sold for SP6. 791836735 Decrease in unit price for p-;E1. 04 Lost revenue if additional units are not sold7. 063510204 Increase in unit price for p-;SP0. 71 Net Units gain due to p-;SP cannibalization, if same no of P units are sold for SP40 Additional revenue due to p-;SP cannibalization, if additional units are not sold1. 42 Net revenue gain/loss due to cannibalization (A)-5. 643510204 Per Unit Revenue loss due to decrease in SP film0. 07 Overall Units sold70. 35 Total Revenue loss (B)-4. 9245 (A) + (B)-10. 5680102 Exhibit – 4
Revenue Impact$ (In Millions) Possible revenue from Funtime sales23. 35 Cannibalization (Gold Plus -; Funtime) (2. 76) Cannibalization (Gold Plus -; Royal Gold)1. 42 Loss of revenue due to rebranding of Ektar(4. 9) Net Impact on Revenue17. 11 Assumption: – 85%-15% split between Gold Plus and Royal Gold of the total volume of Kodak’s sales. Exhibit – 5 Revenue and Market Share Impact by Reducing the Price ProductProposed PriceEstimated Market ShareRevenueCannibalization EffectAdditional revenue%increase in market share Funtimes2. 88. 3423. 352-6. 2217. 1321. 24% Funtimes2. 452561. 25-10. 5650. 693. 73%