INTRODUCTIONTeam 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 SUMMARYIn 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