Kodak INTRODUCTION Team Commander was tasked with providing a case analysis on Case 8, Kodak: Taking Pictures-Further. In doing so, Team Commander has provided a summary of the important case facts, current history and trends, strategic position, strategic plan, implementation plan, and the anticipated outcome. CASE SUMMARY In the fall of 1998 Kodak entered the digital camera market. Their goal was “to change the clarity, usability, and life of Kodak moments- to make them bigger, better, and more enduring.” Kodak set out to achieve this goal by supplying the digital camera market with its Digital Photograph Kit. The kit provided the home user with everything they need to take and share digital pictures. The kit included a Kodak DC20 Digital Camera, easy-to-use software packages, and paper for making quality prints.
Also, as part of the processing the consumer received a CD, called Photo CD, which contained pictures that could be loaded onto a computer. Kodak hoped its package would be simple and attractive to consumers. However, sales were disappointing. Kodak found consumers reluctant to move away from their familiar and functional traditional cameras. In addition, this form of picture taking required the user to be wired (connected to a computer).
Kodak had not anticipated the magnitude of these problems. In an effort to bridge the gap between traditional and digital cameras. Kodak teamed with Intel. The result was “digitization,” the ability to convert traditional film to digital format through the standard photographic processing method. By checking Picture CD on the envelope containing the regular roll of film to be developed, consumers can receive their prints and a CD containing digital images.
The CD also contains all the software necessary for viewing and altering the images. The processing cost is $8.95 to $10.95. In order to fine-tune the CD marketing program, Kodak and Intel conducted hundreds of one-on-one interviews with individual consumers and conducted test markets in Salt Lake City and Indianapolis. As a result of this effort, Kodak and Intel developed advertising and promotional campaigns for Picture CD. Kodak’s advertisements showed the benefits of digital imaging and emphasized that people did not have to change their picture-taking habits. While, Intel followed with advertisements that primarily focused on computer users and Pentium II processors.
Kodak intended to use collaborative advertising to communicate the simplicity of digital imaging that resulted from using Kodak Picture CD and to establish a strong connection between the product and high performance PC’s. In moving to digitization, Kodak has extended well beyond its initial core competencies in cameras and film. Few consumers connected the Kodak brand with computers and computer technology. Thus, Kodak linked up with computer hardware and software firms, such as Intel, Microsoft, Adobe Systems, and Hewlett-Packard. This creates a whole new product category in the consumer’s mind, and combining the Kodak brand with those of its computer technology partners lends digital credibility and forges a quality image.
Managing its brand name is important to Kodak. However, its chief competitor, Fuji, is making this difficult. In the mid-1990’s, Fuji began aggressively pursuing the U.S. market, primarily through price-cutting. Fuji’s price war cut into Kodak’s margins at the same time that Kodak was investing heavily in digital imaging and digitization.
The result was a lot of red ink for Kodak. Kodak responded by cutting more than 7,600 jobs. This boosted the 1998 second quarter operating profit margin from 14.3 percent to 18.5 percent, which far exceeded Wall Street’s expectations. That is the good news. The bad news is that the red ink kept flowing in the digital imaging division.
In this division alone Kodak suffered a 5 percent sales decline in the quarter and a $64 million loss, following a $400 million loss in 1997. To withstand the continuing onslaught by Fuji, Kodak intends to cut another 12,300 jobs and reduce cost by another $1 Billion. Kodak understands that cost reductions will carry the firm only so far. However, Kodak stays committed to growing its digital imaging business and feels increased revenues will be the result of this commitment. To make it there, Kodak will have to sell consumers on digital imaging and digitization. In emphasizing digital, Kodak has been criticized for not paying enough attention to such basic problems in its core camera and film businesses.
This is illustrated by Kodak’s slow response to Fuji’s pricing pressure in 1997. Here, Kodak allowed a 30 percent price differential to occur between them and Fuji. As a result, Kodak had to lower prices, eliminate less-profitable product items, and make price promotion offers. However, it now appears that Kodak has realized that it cannot lose sight of Fuji. Therefore, Kodak is planning to initiate a new aggressive marketing program in the United States. Kodak now understands to make its digital imaging program succeed, they must attract the millions of households using traditional photography.
In doing so, they must move into the next frontier of photography and refocus on their meaning and mission. CURRENT HISTORY AND TRENDS Provide here is an overview Kodak’s Mission Statement, Vision, Values, and Pertinent Financial information. ? Kodak’s Mission Statement, Vision, and Values Mission Statement Build a world-class, results-oriented culture..by providing customers and consumers with solutions to capture, store, process, output and communicate images to people and machines anywhere, anytime.. bringing differentiated, cost-effective solutions.. to the marketplace quickly and with flawless quality through a diverse team of energetic employees with the world-class talent and skills necessary to sustain Kodak as the World Leader in Imaging. Vision Our heritage has been and our future is to be the World Leader in Imaging. Values Respect for the Dignity of the Individual Integrity Trust Credibility Continuous Improvement and Personal Renewal Recognition and Celebration ? Kodak’s Financial Position -Financial Strength Company Industry Quick Ratio (MRQ) 0.50 0.62 Current Ratio (MRQ) 0.98 1.12 LT Debt to Equity (MRQ) 0.28 0.31 Total Debt to Equity (MRQ) 0.78 0.79 -Profitability Ratios (%) Company Industry Gross Margin (TTM) 44.28 44.07 Gross Margin – 5 Yr.
Avg. 45.75 45.55 Net Profit Margin (TTM) 10.05* 9.21 Net Profit Margin – 5 Yr. Avg. 6.96 6.21 Return On Investment (TTM) 16.29* 15.84 Return On Investment -5 Yr. Avg.
10.39 10.93 Inventory Turnover (TTM) 4.70 4.64 ? Kodak’s Stock Trends The above graft represents Kodak’s (EK) stock performance as compared to the S&P and DJ industry averages STRATEGIC POSITION As a result of reviewing and researching the Kodak case, Team Commander feels that Kodak’s current organizational structure, company mission, vision, values, and financial position are adequate and are not playing a significant role in the companies inability to grow its digital products. However, it does appear Kodak’s Marketing Department is failing in its attempt to market digital products. This is exampled by the following issues: 1) the slow sales growth in Kodak’s digital camera market; 2) continued revenue losses in the Digital Imaging Division; and 3) Kodak’s failure to maintain focus on its core products. Provided below are explanations as to why the issues were identified. Issue #1- The slow sale growth in Kodak’s digital camera market The slow growth in sales is a direct result of Kodak’s failure to effectively market the product. This is evident by Kodak’s failure to recognize a number of key problems. First, Kodak failed to recognize that consumers didn’t associated their products with computers.
Second, Kodak failed to recognize that consumers may find digital picture taking expensive and require behavior that is not normally associated with traditional picture taking. Third, Kodak failed to recognize that most people were not ready to part with their traditional easy to use cameras. Fourth, Kodak failed to identify that its market was limited to mainly computer owners and computer literate people. Finally, Kodak effectively put the “wagon ahead of the horse” by not establishing its digitization market first. As previously mentioned, this is the ability to convert traditional film to digital format through the standard photographic processing method. Digitization provides consumers with a cheap, yet effective, transition into digital pho …